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BEG.

101

BUSINESS
ENTREPRENEURSHIP I
M. Com. Part I
Semester I

YASHWANTRAO CHAVAN MAHARASHTRA OPEN UNIVERSITY


Dnyangangotri, Near Gangapur Dam, Nashik 422 222, Maharashtra
YASHWANTRAO CHAVAN MAHARASHTRA OPEN UNIVERSITY

Vice-Chancellor : Dr. M. M. Salunkhe


Director (I/C), School of Commerce & Management : Dr. Prakash Deshmukh

State Level Advisory Committee

Dr. Pandit Palande Dr. Suhas Mahajan Dr. V. V. Morajkar


Hon. Vice Chancellor Ex-Professor Ex-Professor
Dr. B. R. Ambedkar University Ness Wadia College of Commerce B.Y.K. College, Nashik
Muaaffarpur, Bihar Pune

Dr. Mahesh Kulkarni Dr. J. F. Patil Dr. Ashutosh Raravikar


Ex-Professor Economist Kolhapur Director, EDMU,
B.Y.K. College, Nashik Ministry of Finance
New Delhi

Dr. A. G. Gosavi Dr. Madhuri Sunil Deshpande Dr. Surendra Patole


Professor Professor Assistant Professor
Modern College, Shivaji Nagar, Pune Swami Ramanand Teerth Marathwada School of Commerce & Management
University, Nanded Y.C.M.O.U., Nashik

Dr. Parag Saraf Dr. S. V. Kuvalekar Dr. Latika Ajitkumar Ajbani


Chartered Accountant Sangamner Assistant Professor Assistant Professor
Dist. AhmedNagar National Institute of Bank Management School of Commerce & Management
Pune Y.C.M.O.U., Nashik
Author Instructional Technology Editing &
Programme Co-ordinator

Dr. Madhuri Sunil Deshpande Dr. Latika Ajitkumar Ajbani


Professor Assistant Professor
Swami Ramanand Teerth Marathwada School of Commerce & Management
University, Nanded Y.C.M.O.U., Nashik

Production

Shri Anand Yadav


Manager, Print Production Centre
Y.C.M. Open University, Nashik - 422 222.

(First edition developed under DEC development grant)


First Publication : Sept 2015
Typesetting : M/s. Master Graphics, Nanded.
Cover Print :
Printed by :
Publisher : Dr. Prakash Atkare, Registrar, Y.C.M.Open University, Nashik - 422 222.
CONTENTS
M. Com. Part I (Business Entrepreneurship - I)
Semester I

Contents Pages

Unit 1 : Introduction to Entrepreneurship 11 to 27

Unit 2 : Understanding Entrepreneurship 28 to 44

Unit 3: Introducing the Entrepreneur 45 to 62

Unit 4 : Entrepreneurial Career 63 to 79

Unit5 : Theories of Entrepreneurship 80 to 97

Unit 6 : Classification of Entrepreneurs 98 to 117

Unit 7: Entrepreneurial Environment 118 to 135

Unit 8 : Creativity and Innovation 136 to 153

Unit 9 : Creativity, Innovation and Entrepreneurship 154 to 171

Unit 10 : Motivation Theories 172 to 189

Unit 11: Entrepreneurial Motivation 190 to 205

Unit12 : Entrepreneurship Development 206 to 224

Programmes (EDPs)
INTRODUCTION

This self-instructional material is based on the syllabus for the subject Business
Entrepreneurship (M. Com. ).

This book deals with fundamentals of business entrepreneurship right from


the concept of entrepreneurship, theories of entrepreneurship development,
entrereneurial personality, entrepreneurrial environment, role of creativity and
innovation in entrepreneurship, entrepreneurial motivation etc.

Keeping in view the needs of student of distance education, it is attemped to


make this book simple, flexible, exciting and interesting to perform the functions
of a live teacher wth emphasis on explicit objectives and active learning.
Necessary examples and diagrams are used wherever required for explanation.

Comments, and suggestions for improvement are welcome.

Nashik -

Dr.Mrs. Madhuri Sunil Deshpande


BUSINESS ENTREPRENEURSHIP - I
M. Com. Part I

SYLLABUS NOTES

UNIT 1 : Introduction to Entrepreneurship


Entrepreneur, Entrepreneurship and Enterprise
Concept of an Entrepreneur
Significance of Entrepreneurship
Entrepreneurship Development
Some Models for Entrepreneurship Development
Entrepreneurship in Developing Countries

UNIT 2 : Understanding Entrepreneurship


Entrepreneurship: Concept and Growth
Dimensions of Entrepreneurship Development
Entrepreneurship and Management
Distinction between an Entrepreneur and a Manager

UNIT 3 :Introducing the Entrepreneur


The Entrepreneurial Personality
Entrepreneurial Mindset
Entrepreneurial Functions

UNIT 4 :Entrepreneurial Career


Charms of Being an Entrepreneur
A Journey Towards Entrepreneurship Career
Myths of Entrepreneurship
Problems Faced by Entrepreneurs
The Dark Side of Entrepreneurship

UNIT 5 :Theories of Entrepreneurship


Economic Theories of Entrepreneurship
Sociological Theories of Entrepreneurship
Cultural theories of Entrepreneurship
Psychological Theories of Entrepreneurship
Conceptual Models of Entrepreneurship Business
Entrepreneurship - I 5
BUSINESS ENTREPRENEURSHIP - I
M. Com. Part I

SYLLABUS NOTES

UNIT 6 : Classification of Entrepreneurs


Classification of Entrepreneurs
Danhofs Classification Based on Adaptability, Singhs Classification Based on Nature of Economy,
Guptas Classification From Development Angle, Arthur Coles Classification, Classification Based
on Motives, Classification by Behavioral Scientists, Classification by Ucbasaran, Alsos, Westhead
and Wright, Raj Shankars Classification, Classification Based on Expertise, Classification Based
on Motivation Levels, Classification Based on Type of Business, Joe Abrahams Classification,
Zimmerer and Scarboroughs Classification Based on Cultural Diversity, Schollhammers
claassification Based on Entrepreneurship Practice, Robert Hisrichs Classification of Start-up
Enterprises, Classifications Based on New Trends, Other Classifications

UNIT 7 : Entrepreneurial Environment

Entrepreneurial Environment
Factors affecting Entrepreneurial Growth
Barriers to Entrepreneurship

UNIT 8 : Creativity and Innovation

Creativity
Component Elements of Creativity, Attributes of Creative Individuals, Barriers to Creativity, The
Creative Process, Inculcating Creativity, Heuristics for Stimulating Creative Ideas/Insights,
Techniques of Developing Creative Thinking
Innovation
Principles of Innovation

UNIT 9 :Creativity, Innovation and Entrepreneurship

Peter Druckers Theory of Innovation and Entrepreneurship


Creativity, Innovation and Entrepreneurship
Creative Thinking
Generation of Business Ideas
Project Identification
Creative Enterprise
Enhancing Creativity

Business
Entrepreneurship - I 6
BUSINESS ENTREPRENEURSHIP - I
M. Com. Part I

SYLLABUS NOTES

UNIT 10 : Motivation Theories

Motivation
Motivation Theories
Abraham Maslows Need Hierarchy Theory, Douglas McGregors X & Y theory, Frederick
Herzbergs Motivation-Hygiene Theory, McClellands Achievement Motivation Theory, Clayton
Alderfers Existence, Relatedness and Growth Theory (ERG), Victor Vrooms Expectancy Theory,
Porter and Lawler Model of Motivation

UNIT 11 : Entrepreneurial Motivation

Entrepreneurial Motivating Factors


Achievement Motivation
Kakinada Experiment

UNIT 12 :Entrepreneurship Development Programmes (EDPs)

EDPs - Meaning and Objectives


Need for EDPs
Role of EDP
Phases of EDPs
EDP Curriculum
Evaluation of EDPs
Strategy for Ensuring Success of EDP

Business
Entrepreneurship - I 7
NOTES

Business
Entrepreneurship - I 8
NOTES

Business
Entrepreneurship - I 9
Introduction to
UNIT 1 : INTRODUCTION TO Entrepreneurship

ENTREPRENEURSHIP
NOTES

Structure

1.0 Introduction
1.1 Unit Objectives
1.2 Entrepreneur, Entrepreneurship and Enterprise
1.3 Concept of an Entrepreneur
1.4 Significance of Entrepreneurship
1.5 Entrepreneurship Development
1.5.1 Some Models for Entrepreneurship Development
1.6 Entrepreneurship in Developing Countries
1.7 Summary
1.8 Key Terms
1.9 Questions and Exercises
1.10 Further Reading

1.0 Introduction
In the words of Peter Drucker, The manager is dynamic, life giving
element in every business. Without his leadership, resources of production remain
resources and never become production. In the competitive economy above all,
the quality of performance of managers determines success of business; indeed
they determine its survival. All other factors of production will remain inactive in
its absence. There is a close relationship between entrepreneur and resource
utilization. Obviously, role of entrepreneurs in economic development is just
indispensable. Economic development is a matter of resource utilization. In absence
of effective utilization of these resources, they continue to remain unitized or
underutilized resulting in a lower level of economic development. The presence of
entrepreneur is a crucial factor for ensuring economic growth. Administrators,
economists, and planners have recognized the relationship between
entrepreneurship and economic development. Government is developing policies
conducive for development of entrepreneurship.
Being the first unit, as per your expectation, you will find the concept of
entrepreneur and its related introductory aspects in this unit.

1.1 Unit Objectives


After going through this unit, you will be able to
Business
Learn about the concept of entrepreneurship
Entrepreneurship - I 10
Introduction to Know who is an entrepreneur
Entrepreneurship
Appreciate the significance of entrepreneurship
Understand the meaning of entrepreneurship development
NOTES
Describe the significance of entrepreneurship in developing countries

1.2 Entrepreneur, Entrepreneurship and Enterprise


Entrepreneurship has attracted the attention of economists, psychologists,
sociologists, anthropologists, political scientists, academicians as well as government.
Entrepreneur and entrepreneurship have acquired special significance in the context
of economic development. Entrepreneurs combine available resources and produce
goods and services. According to classical economists, entrepreneur is one who
provides the fourth factor of production i.e.an enterprise. As the fourth factor, it
assembles, coordinates and manages the other factors namely land, labour and
capital. Enterprise is an undertaking or adventure which involves risk and
uncertainty and requires innovation. It requires the ability to think and start new
business. It is the basic unit for economic organization. It interacts with other
economic units. It obtains factors of production from society and supplies products/
services to society. It serves as the framework within which entrepreneur takes
decisions regarding what to produce, how much, when and how. Development is
the outcome of the efforts made in individual enterprises. In this manner,
entrepreneur is a person who sets up a business, entrepreneurship is the process
or action of setting up of new venture which is collection of various activities and
the set up venture is called an Enterprise which is the means used for producing/
selling goods/rendering services. Enterprise is the object. It is the result of the
efforts of an entrepreneur.

Figure 1.1 The Concept of Entrepreneur, Entrepreneurship, and


Enterprise

Entrepreneurship is considered as propensity of mind to take calculated


risk to achieve a predetermined business objective. It is the risk taking ability of an
individual coupled with correct decision making. It is the attempt to create value
through recognition of business opportunity, management of risk taking for seizing
that opportunity through venture creation, mobilizing of human, financial, material
resources for converting a profitable business idea into actual practice in the form
products and services for societal benefits. This is achieved through activities like
raising money, selecting location, arranging raw materials, hiring human resources,
introducing new products/services/new markets/new customers/new
Business
techniques/
new methods of production/new sources of raw materials Entrepreneurship - I about
etc. They bring 11
changes in production process, technology, marketing strategies etc. to improve Introduction to
quality of products/services. Entrepreneurship

Entrepreneur is a person and enterprise is a business proposition which


involves risk and uncertainty. An enterprise consists of people who work together
NOTES
primarily for the purpose of making and/or selling product/service. It may or may
not involve an innovation. It always involves risk taking, decision making, and
coordination of resources. Success of an enterprise depends upon various factors,
some of which are internal and some external. Few of these are within control of
entrepreneur and most of them are beyond control. Nowadays scanning of business
environment has become a crucial factor for success. Entrepreneurs try to monitor
business environment through techniques like SWOT analysis, business forecasting,
contingency planning etc. Entrepreneurs combine the available resources and
produce goods and services.
Entrepreneur is an innovator, a visualizer, an initiator, a risk taker, a leader,
an administrator, a planner, a decision maker, an organizer. Entrepreneurship is the
process of innovation in which entrepreneur takes initiative in an organized manner
and plans successful performance. He/she engages himself/herself in producing
and marketing an innovation. Entrepreneurship is concerned with vision. It is the
essence of leadership, planning and decision making activity. Check Your
Entrepreneurship is the process of creating something new with value by Progress
devoting necessary time and effort, assuming the accompanying financial, psychic,
and social risks, and receiving the resulting rewards of monetary and personal 1. Define entrepre-
satisfaction and independence. neurship. How is it dif-
ferent from the word
Entrepreneur is someone who undertakes an enterprise. He/she is someone entrepreneur?
who starts a new business or new organization or takes an existing organization.
Entrepreneurship most commonly manifests in the form of self-employment.

1.3 Concept of an Entrepreneur


The word entrepreneur is borrowed from French language. It is derived
from entrepreneur meaning to undertake; so in literal sense of the word,
entrepreneur is one who undertakes and sustains a business enterprise. Its usage
in French language can be traced much before the emergence of activities generally
associated with entrepreneurs today. Initially, the word was used in military sphere
and later on in construction, engineering and other related activities. It was only in
the 18th century that the term was applied almost exclusively to economic activities
in general. Several scholars have attempted to define the concept in various ways.
It is very difficult to define the term precisely.
In the modern context, Richard Cantillon is supposed to have used the
term entrepreneur for the first time in 1755. He defined an entrepreneur as an
agent who buys means of production at certain prices in order to combine them
into a product that he is going to sell at prices that are uncertain at the moment at
which he commits himself to his costs. He illustrated his concept of entrepreneur
by taking the case of a farmer. A farmer pays out contractual incomes which are
certain to the landlords and labourers; and sells at prices that are uncertain.
Similarly, merchants who commit themselves to certain payments in expectation
of uncertain receipts are essentially risk bearing directors of production and trade.
Thus, an entrepreneur is the individual who bears uncertainty and takes
risk. The spirit of enterprise makes one an entrepreneur. But Drucker disagrees Business
Entrepreneurship - I 12
Introduction to with this view. According to him, successful innovators are not risk takers. They
Entrepreneurship are successful to the extent they define risks and confine risk. In his words,
Successful innovators are conservative. They have to be. They are not risk
focused, they are opportunity focused.
NOTES
In the words of J. B. Say, entrepreneur is the economic agent who unites
all means of production the labour of the one, the capital or the land of the other
and who finds in the value of products which result from their employment,
reconstitution of the entire capital that he utilizes and the value of the wages, the
interest and the rent which he pays as well as profits belonging to himself. Thus,
Say used the term entrepreneur in the sense of an organizer who combines various
factors of production. He/she produces a valuable product and sells the produce
in market from which he/she pays to the suppliers of land, labour and capital.
What remains is his/her profit. Say makes a clear distinction between capitalist as
a financier and entrepreneur as a coordinator and organizer of a business enterprise.
This combining role is distinctive when applied to a new concern. When applied to
a going concern, it denotes little more than routine administration and control.
Say associated entrepreneur with the functions of coordination, organization
and supervision. He considered three factors essential for undertaking complex
operations moral qualities for work judgment, perseverance, knowledge about
business world; command over sufficient capital; and uncertainty of profits.
In the words of Evans, entrepreneurs are persons who initiate, organize,
manage and control affairs of a business unit that combines factors of production
to supply goods and services, whether the business pertains to agriculture, industry,
trade or profession.
Oxford English Dictionary defines entrepreneur as one who undertakes
an enterprise, especially a contractor, acting as an intermediary between capital
and labour. Anyone who undertakes this task is an entrepreneur.
Encyclopedia Britannica defines entrepreneur as an individual who bears
risk of operating a business in the face of uncertainty about future conditions.
According to McClelland, successful entrepreneurs are characterized by
an unusual creativeness, a propensity of risk-taking, a strong need for achievement.
According to Joseph A. Schumpeter, entrepreneurship is a creative activity
and an entrepreneur is one who innovates i.e. carries out new combinations or
enterprise. Innovation involves problem solving and entrepreneur is a problem
solver. Entrepreneur is a person who foresees a potentially profitable opportunity
and tries to exploit it. He/she is basically an innovator who introduces new
combinations. He/she makes new things or makes things in a new way. His/her
innovations may be in the form of introduction of a new product (one with which
consumers are not yet familiar), introduction of a new method of production (a
method not yet tested in the branch of manufacture concerned or based upon a
new scientific discovery but capable of existing in a new way, or a new way of
handling a commodity commercially), opening of a new market (a market which a
particular type of manufacturer in the country has not previously entered), a new
source of supply of raw materials (of half manufactured goods, irrespective of
whether this source already existed or has to be newly created). Evolving a
combination of all these activities is referred to as enterprise by Schumpeter.
Therefore, any person who makes this possible is an entrepreneur. He/she does
something uncommon. They have a dream. They want to make things actually
happen. They have a will to establish a private (independent
Business and innovative)
kingdom. They desire to experience the joy of creatingEntrepreneurship
something new - I and 13
of
getting something done. Entrepreneurship essentially consists of doing things that Introduction to
are not generally done in ordinary course of business routine. An entrepreneur is Entrepreneurship
one who innovates, raises money, collects inputs, organizes talents, provides
leadership and sets organization.
NOTES
Schumpeter makes a distinction between an innovator and an inventor.
An inventor discovers and finds out new methods or techniques. Innovators make
use of these inventions for commercial purposes. The inventor applies the ideas
conceived by the innovator to practice. An innovator is very distinct from routine
manager. A manager more or less looks after day-to-day routine affairs of an
organization. The innovator attempts to change the course of action to raise
production and /or productivity. In this manner, the entrepreneur is an innovator,
endowed with an innate ability to innovate something new or do the same in a
different manner. Being the first timer, there is no past experience and there is an
element of risk involved in the new approach.
Schumpeter did not equate entrepreneur with an inventor. An inventor is
one who creates a new product while Schumpeters entrepreneur exists if factors
of production are combined for the first time. Maintenance of a combination is not
an entrepreneurial activity.
Frank H. Knight says, entrepreneurs are a specialised group of persons
who bear uncertainty. Uncertainty is some amount of risk which cannot be ensured
against and cannot be calculated.
Carl Menger opined that economic changes do not arise from the
circumstances but from the individuals awareness and understanding of these
circumstances. The entrepreneur, therefore, becomes a change agent who
transforms resources into useful goods and services, thus, creates circumstances
leading to industrial growth. As per Mengers classic theory of production, resources
having no direct use in terms of fulfilling human needs were transformed intohighly
valuable products that directly fulfilled human needs. He saw entrepreneur as a
wise person who could envision this transformation and create the means to
implement it. He/she adds value to the original resource and this value is rewarded
through profits.
Leibenstein defines entrepreneur as an individual or a group of individuals
having four major characteristics: connection of different markets, capability of
making up market deficiencies (gap filing), input completion, and creation and
expansion of time defined.
According to Harbison, entrepreneur is essence of an organization which
comprises all people required to perform entrepreneurial functions.
Entrepreneurship comprises performance of several functions such as planning,
organization, co-ordination, control and routine supervision. These functions are
termed by Harbison as managerial resources. However, effectiveness of business
organization requires dynamic and innovative entrepreneurs. They are creative
thinkers who plan and initiate change. In this manner, creation of organizational
relationship constitutes the fundamental basis of entrepreneurship.
Adam Smith describes entrepreneur as an individual who forms an
organization for commercial purpose. He/she is a proprietary capitalist, a supplier
of capital and a manager who intervenes between a labour and consumer. Smith
also treated him/her as an employer, merchant, but explicitly considered him/her a
capitalist.
Business
Entrepreneurship - I 14
Introduction to Entrepreneur is one with unusual foresight to recognize potential demand
Entrepreneurship of goods and services. He/she is a change agent who transforms demand into
supply.
To quote Peter Drucker, An entrepreneur is one who always searches
NOTES
for change, responds to it, and exploits it as an opportunity. The response to
change is innovation. Innovation is an instrument of entrepreneurship. It is the
purposeful and organized search for changes. In the systematic analysis of
opportunities, such changes might offer scope for economic or social innovations.
An entrepreneur makes things happen rather than see things happen.
An entrepreneur innovates and creates resources because there is no
such thing as resource until someone finds a use for something and endows
economic value to it. Whatever improves the wealth producing potential of already
Check Your existing resources constitutes innovation. Innovation is an economic or social rather
Progress than a technical term. The test of innovation lies not in its novelty or scientific
content but in the market place.
2. Who is an entrepre- Drucker considers increasing the value and consumer satisfaction of a
neur? resource as an entrepreneurial activity. Entrepreneur converts material into a
3. How do you distin- resource, combine existing resources in a new or more productive manner.
guish between an inno- According to Peter Drucker, an entrepreneur need not necessarily be an owner of
vator and an inventor? business or a capitalist. A professional manager who mobilizes resources and
4. Is there a difference allocates them to make a commercial gain from an opportunity is also considered
between an innovator as an entrepreneur. A banker who mobilizes others money and allocates it areas
and a manager? of higher yield is very much an entrepreneur though he/she is not owner of money.
5. According to Peter
Drucker, an entrepre- According to Drucker, entrepreneurial role is one of getting and using
neur (must be/need resources. In an entrepreneurial role resources must be allocated to opportunities
not be ) owner of busi- whereas in managerial role, resources are allocated to solve problems.
ness. Entrepreneurship occurs when resources are redirected towards progressive
6. Encyclopedia opportunities and are not used for ensuring administrative efficiency. This redirection
Britannica defines en- of resources distinguishes between entrepreneurial and managerial role.
trepreneur as ---------
7. According to
McClelland, success-
1.4 Significance of Entrepreneurship
ful entrepreneurs are
In the words of Leibenstein, Per capita income growth requires shifts
characterized by an
from less productive to more productive techniques per worker, the creation or
-------------------------
adoption of new commodities, new materials, new markets, new organizational
forms, the creation of new skill, and the accumulation of new knowledge . The
entrepreneur, as gap filler and input-completer is probably the prime mover of the
capacity creation of these elements in the growth process.
Successful economic growth of countries like US, Japan, Germany, France
etc. is due to dynamic and innovative entrepreneurs, entrepreneurship and
enterprise development.
Economic development involves change and entrepreneur becomes the
best agent for this change. An entrepreneur brings various factors of production
together. He/she is an organisation builder. He/she harnesses land, labour, capital
and other resources for the betterment of the society. He/she identifies gaps in
fulfilling human needs and fills this gap by introducing new products/services, new
sources of raw materials/new markets, new methods of production/distribution. It
is an innovative function. It involves doing things in a new and better way. It is a
creative response to changes in the environment brought about by entrepreneur
Business
as a change agent. Entrepreneurship - I 15
Entrepreneurial ventures provide independence, autonomy to Introduction to
entrepreneurs. Entrepreneurship enables them to be their own masters. They get Entrepreneurship
an opportunity to achieve something on their own. They pursue their dreams and
ambitions through their enterprises and get the pleasure of fulfillment, self-
expression and self-actualization. Their vision, creativity, gets manifested through NOTES
their enterprises. They get an opportunity to stand out in the crowd and get
recognition for their contribution. They get an opportunity to enjoy their work and
thus are relieved of boring, unchallenging, uninteresting and unexciting work. They
need not bother about stress of working under boss. It makes them free from
depression and frustration arising out of dull working environment. Entrepreneurship
enables them to work in lively environment where there is pleasure, enjoyment, an
opportunity to exercise their ideas and explore their worth. It increases their self-
esteem and builds up self-confidence.
Entrepreneurship is a device for wealth creation. It is the dynamic process
of creating incremental wealth. The wealth is created by entrepreneurs who assume
risks in terms of capital, time, and career commitment.
Entrepreneurship contributes to creation and delivery of standard of living
to society. It is a means to societal development. It is beneficial for socio-economic
development of the society.
Entrepreneurs are instrumental in economic growth. They create products/
services and increase national production. They produce goods and services at
competitive costs by increasing production. With increase in number of
entrepreneurs, there is an overall increase in production and productivity. They
stimulate exports. They substitute imports. They conserve foreign exchange.
Entrepreneurs weaken monopoly of big business houses and contribute
for dispersal of economic power and equitable distribution of wealth. They invest/
reinvest capital/profit for better productivity and for betterment of the society.
Entrepreneurs create small businesses which generate wealth and a
tremendous number of jobs. Many entrepreneurs give rise to big businesses. In
this manner, entrepreneurship is a key driver of our economy.

1.5 Entrepreneurship Development


Entrepreneurship is mostly related to creation of new businesses. It is
important for new enterprise creation, job creation in private sector, and wealth
creation. It is also pertinent to creation of not-for-profit initiatives. Entrepreneurship
is about innovative practices, i.e. about generating ideas, creating new products/
services, new businesses, and new enterprises. It mobilizes human and non-human
resources.
Entrepreneurship development has been considered as the key to economic
development and societal welfare. It is essential for industrialization. It provides
employment and removes poverty. Kakinada experiment has proved that the myth
that entrepreneurs are born, not made no longer holds good and that it is certainly
possible to develop entrepreneurship through planned efforts. Thereafter,
government and NGOs are striving hard to initiate strategies and programs for
spread of entrepreneurial culture. A variety of schemes have been introduced by
the government in support of entrepreneurship. A number of institutions have been
set up by the government to help budding entrepreneurs in various ways. Some
institutions provide training. Some are meant for consultancy and technical know- Business
how. Some agencies provide financial assistance while some support marketing Entrepreneurship - I 16
Introduction to operations. Along with government agencies, non-governmental agencies also are
Entrepreneurship doing their best for supporting entrepreneurship.
A series of activities go into developing entrepreneurship and setting up of
an enterprise. A prospective entrepreneur has to make up his/her mind for
NOTES
entrepreneurial career. Simultaneously he/she has to identify promising business
opportunities and select suitable business idea(s). The next step is preparation of
business plan followed by mobilization of required resources for the enterprise,
establishing the venture and making it fully operational by managing it in a proper
manner.
Entrepreneurial process begins with identification of business opportunity.
An entrepreneur is alert and attentive to environmental happenings. He/she
immediately picks up certain situations and events as opportunities. As a vigilant
observer, an entrepreneur comes across various business opportunities. An
entrepreneur finds good business ideas from various opportunities on the basis of
their suitability, self-appraisal, family background, business experience, financial
position, technical background and other such factors. There are different sources
for exploring promising business ideas such as newspapers, magazines, business
experts, professionals, consultants, existing enterprises, bankers, government
officials, NGOs etc.
After finding an attractive business idea, an entrepreneur starts planning
for the venture. Business plan preparation is a blue print of the proposed business
venture. It involves an estimation of the resource requirements. It is a plan indicating
tie up of resources. It determines acquisition of resources and successful
management of the enterprise. Sometimes, an entrepreneur has to hire consultants,
experts for preparing business plan. It is a difficult task dealing with estimations,
calculations, projections etc.
After conceiving a good business idea, a good business plan is devised by
the entrepreneur. Now he/she has to mobilize resources. After an appraisal of
own resources, the entrepreneur has to acquire some resources from outside. In
the initial phases, the enterprise runs with entrepreneurs own resources. Then
efforts are made to acquire outside resources at lowest possible cost and with
maximum extent of control.
An attractive business idea is translated into a business plan which
comprises a judgment of requisite resources. Now the next step is establishment
of business venture. The entrepreneur has to set a schedule to establish timelines
for each stage of venture creation. Care has to be taken for setting feasible and
realistic deadlines.
Now the venture is created. It is a big achievement. But, managing the
enterprise is a big challenge. Until yet, there were estimations, approximations as
well as predictions about future. Whatever was visualized and imagined; now it is
to be faced in reality. The task of management is challenging and exciting. Human
as well as non-human resources are to be integrated together. Expected business
performance is based on proper management and coordination of finance, human
resources, operations and marketing efforts.

1.5.1 Some Models for Entrepreneurship Development


Some integrated models suggested for the development of
entrepreneurship are described below:
Business
Entrepreneurship - I 17
T.V. Rao (1975) in Entrepreneurial Disposition has included the following Introduction to
factors: Entrepreneurship

1. Need for motive the dynamic which for prospective entrepreneur has
the greatest possibility of achieving the goals if one performs those
NOTES
activities
2. Long term involvement is the goal either at thinking level or at activity
level in the entrepreneurial activity that is viewed as a target to be fulfilled
3. Resources personal, social and material resources which he/she thinks
are related to entry and success in the area of entrepreneurial activity
4. Socio-Political system to be perceived as suitable for establishment
and development of his/her enterprise
All these factors are additive in nature and its optimal presence lead to
entry point of entrepreneurship which leads to acquisition of material resources
and development of his/her enterprise.
B. S.Venkata Rao(1975) has described five stages for promoting small
entrepreneurship:
1. Stimulation- There is no dearth of entrepreneurial talent in any society.
However, all those persons with potential for entrepreneurship may not
be self-motivated. They may not get supportive families. They may not
get conducive environment. Due to discouraging environment, the
entrepreneurial spark may not be ignited. The stage of stimulation is
required in this background. Those who have hidden potential and latent
talent, they should get favourable atmosphere. There is a need to create
awareness and arouse interest about entrepreneurship.
This stage includes creation of industrial atmosphere, policy statement
emphasizing the role of small industry, wide publicity of industrial
development programme, formation of special schemes and creation of
support institutions. This stage is necessary to stimulate interest of the
backward region in industrial activity and to create awareness. Special
entrepreneurship awareness campaigns and motivation training is required
for stimulation phase.
2. Identification This stage is necessary to identify prospective
entrepreneurs. Identifying the right target audience is a good beginning.
According to the characteristics and requirements of target groups,
structured and standardized motivation and training programs need to
be organized. The prospective entrepreneurial force can be identified in
rural artisans, factory workers, persons who have formal training in
engineering and technology, and graduates in business administration
and management. With focused approach, untapped talent and unexplored
human resources can be diverted to the mainstream through
entrepreneurship. e.g. school drop outs, women, minority groups, juvenile
delinquents, prisoners, rural population, physically challengedetc.
3. Development This stage would include organization of motivation and
managerial training program along with advice on technology, formulation
of bankable project, location etc.
4. Promotion This can be the job of supporting institutions to provide
developmental facilities, services and incentives. Business
Entrepreneurship - I 18
Introduction to 5. Follow up This stage includes reviewing the policies and programmes
Entrepreneurship of the government and seeking of new ways with a view to make it
more effective.
Entrepreneurship is a behavior rather than a personality trait. It is risky
NOTES
in the sense that only a few of them know what they are doing. The
future is uncertain. There is no certainty about acceptability of the
outcome by market. The whole process of developing an entrepreneur,
making him/her start a venture, supporting and sustaining him/her involves
a cyclic process.
M.M.P. Akhouri suggested the entrepreneurship development cycle
consisting of the following components for the promotion and development of
entrepreneurship:
1. Stimulatory activities: These activities refer to all such activities that
stimulate entrepreneurship in any society. These activities ensure the
emergence of entrepreneurs in the society. They prepare the background
for entrepreneurship to germinate and for people to start looking for
entrepreneurial pursuits. They generate initial motivation and offer
opportunity to acquire skill. These can be obtained by various activities
such as entrepreneurial education; planned publicity for entrepreneurial
opportunities, identification of potential entrepreneurs through scientific
methods; motivational training to new entrepreneurs; help and guidance
in selecting products and preparing project reports; making techno-
economic information and product profiles available; evolving locally
suitable new products and processes; availability of local agencies with
trained personnel for entrepreneurial counseling and promotions; creating
entrepreneurial forums; recognition of entrepreneurs.
2. Support activities These activities refer to all such activities that help
entrepreneurs in establishing and running their enterprises. These activities
help a person to develop into an entrepreneur. They nurture and help
entrepreneurship to grow. This can be done by providing the necessary
infrastructure in the form of computers, internet connectivity, offering
consultancy and training, and providing all required information as to
how a person should groom himself/herself as an entrepreneur. Financial
assistance for projects and seminars could also promote entrepreneurship.
These activities can be promoted in the incubation centre to groom a
person to become an entrepreneur. The various support activities are
given below: registration of unit; arranging finance; providing land, shed,
power, water and so on; guidance for selecting and obtaining machinery;
supply of scarce raw materials; getting licenses/import licenses; providing
common facilities; granting tax relief or other subsidy; offering
management consultancy services; help marketing the product; providing
information.
3. Sustaining activities These activities help in continuous, efficient and
profitable functioning of an enterprise. These include modernization of
infrastructure, encouraging diversification, providing opportunities and
supporting industry-institute interaction through consultancy, promoting
quality, and organizing need-based common facilities centres. The various
sustaining activities are as follows: Help modernization; help
diversification/expansion/substitute production; additional financing for
full capacity utilization; deferring repayment/interest; diagnostic industrial
Business
extension/consultancy services; production units Entrepreneurship
legislation/policy
-I
change;
19
product reservation/creating new avenues for marketing; quality testing Introduction to
and approving services; need-based common facilities centres. Entrepreneurship

Canadian Foundation for Economic Education delineated various


stages of entrepreneurship development as follows:
NOTES
1. Formative stage: This relates to various factors that influence development
of desires, attributes, and attitudes that are found to be most highly
correlated with entrepreneurial success
2. Developmental stage: This relates to the learning and skill development
that equip and prepare an individual to consider the start-up and launch
of an entrepreneurial venture
3. Start-up stage: This refers to the specific skills and supports that are
needed by an individual during the start-up, launch and initial operation
stages of a venture
4. Growth stage: This refers to specific skills and supports that are required
by a successful entrepreneur who is looking to advance an initial start-
up venture to a period of growth and expansion

1.6 Entrepreneurship in Developing Countries


Entrepreneurship is often viewed as an important component instimulating
economic growth, innovation, and competitiveness and alleviating poverty.
Entrepreneurship in advanced countries is distinctive from that practiced in
developing countries. Entrepreneurship in developing countries is to be understood
and analysed with reference to issues like low economic development, poverty
alleviation, emerging markets, inefficiency of markets, economies in transition,
development of social as well as political infrastructure. Developing countries
should address cultural barriers to entrepreneurship. Culturally based beliefs,
traditions and ways of thinking affect entrepreneurial practices. Assessment of
cultural traits, business and regulatory environment, infrastructure, financial markets
is needed to know whether they act as barrier to entrepreneurial activities or
support entrepreneurship. Various development challenges have to be taken into
consideration. In many developing countries, even basic education is inaccessible
to majority of population. Innovative entrepreneurship requires a strong educational
foundation. Human capital is needed to create ideas. Human capital expands though
education. Education is important for entrepreneurship in developing countries.
There is a need to explore, and identify opportunities for entrepreneurial
initiatives in relation to political environment, political idealism, government policy
etc. In the context of risk and uncertainty that is prevailing in developing regions,
leadership role is of utmost importance. Further, attention is required for growth
oriented new enterprises which have potential to create sustainable economic growth.
There are several distinctive features that affect entrepreneurship in
developing countries. Some of these aspects impede entrepreneurship while others
facilitate entrepreneurship and enable new businesses to be successful. Lack of
capital and financial innovation is the major barrier. People in developing countries
have meagre personal saving. External financing has high interest charges. Due
to underdeveloped financial markets and expensive borrowing rates, entrepreneurs
from emerging economies rely mostly on informal sources of finance. They may
generate income from multiple jobs or businesses. The wide-ranging businesses Business
Entrepreneurship - I 20
Introduction to allow entrepreneurs to eliminate high levels of various market risks due to the
Entrepreneurship diversified portfolio strategy. Diversification gives entrepreneur insight into multiple
industries. Due to undeveloped nature of markets, the needs and opportunities in
developing countries are more extensive and diverse.
NOTES
According to William Diamond, entrepreneurship is equivalent to
enterprise which involves willingness to assume risks in undertaking an economic
activity particularly a new one.. It may involve an innovation but not necessarily
so. It always involves risk taking and decision making, although neither risk nor
decision making may be of great significance. In this definition, the term
entrepreneurship is used to refer to the qualities required to innovate, start a new
enterprise, accept challenge and bear risk. Few individuals possess these qualities,
and therefore, entrepreneurs are few in number in any society. With well-planned
and consistent efforts for inculcating enhancing these entrepreneurial qualities,
the movement of entrepreneurship development will get a momentum.
In a developed country, those who carry out innovations are termed as
entrepreneurs. In underdeveloped countries, imitators are also considered
entrepreneurs. Why this is so? Let us try to analyse.
There is a tremendous difference in nature and type of entrepreneurial
activities in developed and developing nations. A particular level of economic
development is needed for development of entrepreneurship. Attitude of society
towards entrepreneurs also matters a lot for creation of entrepreneurial spirit.
More and more innovators are found in advanced nations where majority
of the population is literate; state of the art infrastructural facilities are available;
and means of communication, information, transportation are well developed.
Advanced nations have a broad industrial base. They are in a position to create
their own research and development facilities. Their capital markets are in a position
to maintain continuous flow of resources for industry. With higher per capita income,
purchasing power of people in these nations is much higher. In such type of
conducive environment, more and more people are motivated to apply innovation
in actual practice. Such kinds of innovations are accepted by the society.
Entrepreneurial activities are not satisfactory in developing countries. There
are several barriers which retard the growth of entrepreneurship. Developing
economies are characterized by high percentage of illiteracy, lack of adequate
infrastructural facilities, rigid, orthodox people who are not open for new ideas,
and lack of innovations. In such a position, imitative type of entrepreneurship is
found in such economies and not of innovative type. Already developed foreign
technology is adopted by the imitative entrepreneurs. They do not possess courage
to innovate. They are not willing to innovate.
In this manner, an entrepreneur need not necessarily innovate, even if he/
she imitates any technique of production/marketing from a developed country; he/
she is labeled as an entrepreneur. He/she is an entrepreneur as long as he/she
initiates a business, undertakes risk and bears uncertainty. In developing economies
entrepreneurship is considered as a form of labour which guides the rest of labour
what to do and how to get things done. Schumpeters entrepreneur exists only if
factors of production are combined for the first time, entrepreneur in developing
countries may not necessarily fit into Schumpeters model. He/she definitely fits
into Ricardos theory. Ricardo included the term entrepreneurial ability as an
independent factor of production and profit as the reward for entrepreneurial ability.
Schumpeters innovating entrepreneurs are very rare in developing
Business
countries. According to Schumpeter, innovators need to be encouraged in developing
Entrepreneurship -I 21
countries. The transformation of an agrarian economy into an industrial economy Introduction to
requires a great deal of efforts, tremendous changes and initiative. Entrepreneurship

Schumpeters theory puts too much emphasis on innovative functions. It


ignores risk taking function and organizing aspects of entrepreneurship. An
NOTES
entrepreneur has to innovate and he/she has to assemble resources and put them
to optimum use. While combining resources and putting them to optimum use,
enough risk is involved. It is quite difficult to imagine an enterprise without risk. Check Your
Schumpeters entrepreneur is a large scale businessman who creates Progress
something new. But an entrepreneur cannot have large scale operations from the
very beginning. Moreover, developing countries need more imitators than innovators. 8. In a
There is a need of people who can adopt existing technology. They have to launch on country, those who
small scale due to imperfect market, shortage of capital, and scarcity of skilled labour. carry out innovations
are termed as entre-
Schumpeter did not explain why some countries had more entrepreneurial preneurs. (developed,
talent than others. He only pointed out that entrepreneurs are not a class in developing)
themselves like capitalists and workers. An individual is an entrepreneur only when 9. In
he/she actually carries out new combinations and ceases to be an entrepreneur countries, imitators are
the moment he/she settles down to running the established business. The also considered entre-
entrepreneur leads the means of production into new channels. preneurs. (underdevel-
oped, developed)
In addition to main entrepreneurial tasks, entrepreneurs from developing 10. Indian entrepre-
countries are required to perform several additional functions which loosen their neurs are
entrepreneurial focus. The absence of well-developed capital markets increases type (innovative/
their business risks which act as a major barrier for budding entrepreneurs. fabian)
Japanese entrepreneurs are imitative type of entrepreneurs. They can be 11. Japanese entrepre-
more appropriately described as creative imitators. They do not intend to be neurs are
innovative at the initial stages. Instead, they borrow and improve upon the type (innovative/imita-
innovations made by others. tive)
12.
Majority of entrepreneurs in developing countries like India are more of entrepreneur exists
Fabian type. They are extremely cautious and traditional in their approach and only if factors of pro-
outlook. There are many business houses in India which are unenthusiastic about duction are combined
expansion, diversification inspite of their sound financial position, image and for the first time
reputation. They usually restrict themselves to few markets. ( R i c a r d o s /
Schumpeters)
1.7 Summary
Realizing the importance of entrepreneurs and entrepreneurship in socio-
economic development of a country; government, policy makers, academicians,
researchers are attracted towards study of entrepreneurship development.
Entrepreneur is a person. Enterprise is a business enterprise which involves
risk and uncertainty. Entrepreneurship is the process of innovation in which
entrepreneur takes initiative in an organized manner for creation of an enterprise
to provide goods and services to society.
Sociologists, psychologists, economists and other disciplinarians have
interpreted the terms entrepreneur and entrepreneurship in terms of their theories
and principles. There is no unanimity while defining entrepreneur and
entrepreneurship. Initially the term was used in military sphere and later on in
construction, engineering and other related activities. In the 18th century the term
was applied almost exclusively to economic activities in general. In the modern
context, Richard Cantillonis supposed to have used the term entrepreneur for the Business
first time. Entrepreneurship - I 22
Introduction to Entrepreneurs are instrumental in economic growth. They create products/
Entrepreneurship services and increase national production. They stimulate exports. They substitute
imports. They conserve foreign exchange. They produce goods and services at
competitive costs by increasing production. With increase in number of
entrepreneurs, there is an overall increase in production and productivity.
NOTES
Entrepreneurs weaken monopoly of big business houses and contribute for dispersal
of economic power and equitable distribution of wealth. They invest/reinvest capital/
profit for better productivity and for betterment of the society.
Entrepreneurship is a device for wealth creation. It contributes to creation
and delivery of standard of living to society. It is a means to societal development.
It is beneficial for socio-economic development of the society.
A series of activities go into developing entrepreneurship and setting up of
an enterprise. A prospective entrepreneur has to make up his/her mind for
entrepreneurial career. Simultaneously he/she has to identify promising business
opportunities and select suitable business idea(s). The next step is preparation of
business plan followed by mobilization of required resources for the enterprise,
establishing the venture and making it fully operational by managing it in a proper
manner.
Some integrated models are suggested for development of
entrepreneurship. T. V. Rao emphasized need for motive, long term involvement,
resources and socio-political system for enterprise development. B. S. Venkata
Rao described five stages for promoting small entrepreneurship: stimulation,
identification, development, promotion, and follow-up. M. M. P. Akhouri suggested
entrepreneurship development cycle for promotion and development of
entrepreneurship as consisting of stimulatory activities, support activities and
sustaining activities. Canadian Foundation for Economic Education devised four
stages of entrepreneurship development as formative stage, developmental stage,
start-up stage, and growth stage.
In a developed country, those who carry out innovations are termed as
entrepreneurs. In underdeveloped countries, imitators are also considered
entrepreneurs. Entrepreneurial activities are not satisfactory in developing countries.
There are several barriers which retard the growth of entrepreneurship.

1.8 Key Terms


Developed country: A developed country, industrialized economy, or
more economically developed country is a sovereign state that has a
highly developed economy and advanced technological infrastructure
relative to other less industrialized nations. Most commonly, the criteria
for evaluating the degree of economic development are gross domestic
product (GDP), gross national product (GNP), the per capita income,
level of industrialization, amount of widespread infrastructure and general
standard of living; a country that allows all its citizens to enjoy a free and
healthy life in a safe environment
Developing country: A country that is poor and whose citizens are
mostly agricultural workers but that wants to become more advanced
socially and economically; a country with an underdeveloped industrial
base, and low human development index (HDI) relative to other
countries; a nation that lags behind most others in industrialization,
Business
Entrepreneurship - I 23
education, standard of living, healthcare, life expectancy and other Introduction to
technological and cultural norms Entrepreneurship

NOTES
1.9 Questions and Exercises
Questions
1. Developing countries need imitative rather than innovative entrepreneurs.
Comment.
2. Define the Schumpeterian innovative entrepreneurs. Are they found in
underdeveloped economies like India? If not, why?
3. Discuss the main functions of an entrepreneur.
4. Define entrepreneurship in your own words. Explain significance of
entrepreneurship development.
5. Who is an entrepreneur? Comment on the statement that entrepreneurs
are made, not born.
6. Innovation is the hallmark of entrepreneurship. Discuss critically.
7. Explain the main characteristics of entrepreneurship.
8. What is entrepreneurship? Explain its importance in the society.
9. Why is entrepreneurship so important to a developing economy? Discuss.
10. Schumpeters innovating entrepreneurs are very rare in developing
countries. Comment.

Exercise
1. Interview an entrepreneur and ask him/her the charms of being an
entrepreneur.

Multiple Choice Questions

1. Choose the correct answer from the following alternatives:


i. Entrepreneurship is a function of innovation
ii. Entrepreneurship is uncertainty bearing
iii. Entrepreneurship is a way of life
iv. All of these
2. Successful innovators are conservative. They have to be. They are not
risk focused, they are opportunity focused. Who said this?
i. Richard Cantillon
ii. Peter Drucker
iii. Joseph Schumpeter
Business
iv. David McClelland Entrepreneurship - I 24
Introduction to 3. Which of the following is not true?
Entrepreneurship
i. Innovating entrepreneurs are very rare in developing countries
ii. In underdeveloped countries, imitators are also considered
entrepreneurs NOTES

iii. More and more innovators are found in advanced nations


iv. Developing countries have a broad industrial base
4. Which of the following statements is false?
i. Entrepreneurs are instrumental in economic growth.
ii. Entrepreneurs stimulate exports.
iii. Entrepreneurs substitute imports.
iv. Entrepreneurs exploit customers.
5. Choose the wrong statement from the following alternatives
i. Entrepreneur is an innovator
ii. Entrepreneur is a decision maker
iii. Entrepreneur is a gambler
iv. Entrepreneur is a visualizer
6. In the modern context, is
supposed to have used the term entrepreneur for the first time in
1755.
i. Richard Cantillon
ii. J. B. Say
iii. Joseph Schumpeter
iv. David McClelland
7. According to , entrepreneurship is
a creative activity and an entrepreneur is one who innovates.
i. Peter Drucker
ii. Joseph Schumpeter
iii. Frank Knight
iv. Adam Smith

Answers
Check Your Progress

5. need not be

8. Developed
Business
Entrepreneurship - I 25
9. Underdeveloped Introduction to
Entrepreneurship
10. Fabian

11. Imitative
NOTES
12. Schumpeters

Multiple Choice Questions

1. iv

2. iii

3. iv

4. iv

5. iii

6. i

7. ii

1.10 Further Reading


Charantimath Poornima, Entrepreneurship Development and Small
Business Enterprises, Pearson Education, 2006
Entrepreneurship Awareness Camp (EAC), Suggested Reading/Reference
Material, Compiled by Raman Gujaral, Entrepreneurship Development Institute of
India, Ahmedabad
Faculty Development Programme, Suggested Reading/Reference Material,
Compiled by S. B. Sareen, Entrepreneurship Development Institute of India,
Ahmedabad
Reddy P. Narayana, Entrepreneurship Text and Cases, Cengage Learning,
2010

Business
Entrepreneurship - I 26
Understanding
Entrepreneurship UNIT 2 : UNDERSTANDING
ENTREPRENEURSHIP
NOTES

Structure

2.0 Introduction
2.1 Unit Objectives
2.2 Entrepreneurship: Concept and Growth
2.3 Dimensions of Entrepreneurship Development
2.4 Entrepreneurship and Management
2.5 Distinction between an Entrepreneur and a Manager
2.6 Summary
2.7 Key Terms
2.8 Questions and Exercises
2.9 Further Reading

2.0 Introduction
In the previous unit you have read about nature and importance of
entrepreneurs. Obviously, various questions may have been raised in your mind:
What is entrepreneurship? How has the concept of entrepreneurship evolved and
developed? What exactly is the meaning of entrepreneurship development? In what
manner it is related with management? This unit tries to answer these questions.

2.1 Unit Objectives


After going through this unit, you will be able to

l Learn about the concept of entrepreneurship

l Analyze evolution of the concept of entrepreneurship


l Explain various dimensions of entrepreneurship development
l Understand the linkage between entrepreneurship and management
l Know the distinction between an entrepreneur and a manager

2.2 Entrepreneurship: Concept and Growth


Entrepreneur is a person who creates an enterprise. The process of
creation is called as entrepreneurship. The term entrepreneurship has been
used in various ways. It is hard to define. It is defined differently by different
experts. Many economists, sociologists, psychologists, and behavioral scientists have
Business
made attempts to define this concept in their respective fields. Entrepreneurship has
Entrepreneurship - I 27
been a subject of debate and discussions. Some consider entrepreneurship as a Understanding
function of innovations, while others view it as risk taking. Some call it a managerial Entrepreneurship
function and some associate it with organization and leadership. There has been a
definitional problem concerning entrepreneurship. Let us see some important
definitions of entrepreneurship to understand what entrepreneurship is all about. NOTES
A.H. Cole defined entrepreneurship as the purposeful activity of an
individual or a group of individuals undertaken to initiate, maintain or aggrandize a
profit oriented business unit for production, or distribution of economic goods and
services.
According to Frederick Harbison, entrepreneurship is the skill to build
an organisation.
In the words of Robert Ronstadt, entrepreneurship is the dynamic
process of creating incremental wealth. This wealth is created by individuals who
assume major risks in terms of equity, time, and/or career commitment of providing
value for some product or service. The product or service itself may or may not
be new or unique but the value must be infused by entrepreneur through allocation
of necessary skills and resources.
In the light of various controversies and contradictions, it is essential to
trace out the evolution and development of entrepreneurship.
The word entrepreneur is derived from the French verb entreprendre
meaning to undertake. It was originally used to designate an organizer of musical
and other entertainment. The word entrepreneurship appeared first in French
according to Encyclopedia Britannica. In the early 16th century, it was applied to
those who were engaged in military expeditions.
For Quesnay, entrepreneur was a rich farmer who applied his intelligence
and wealth for profit. In his days (1700AD) farming alone added value and generated
income.
In the 17th century, it was extended to cover civil engineering activities
such as construction and fortification. It was only in the beginning of the 18th
century that the word was used to refer to economic activities. The entrepreneur
and his unique risk bearing function were first identified in the early 18th century
by Richard Cantillon, an Irishman living in France. He defined an entrepreneur
as a person who buys factor services at certain prices with a view to sell its
product at uncertain prices in the future. He conceived of an entrepreneur as a
bearer of non-insurable risk. He portrayed an entrepreneur to be the one discharging
the functions of direction and speculation.
Frank Young maintains that entrepreneurial activity is generated by
particular family backgrounds and experiences as a member of certain kind of
groups. He defined entrepreneur as a change agent.
Liebenstein identified gap filling function as an important characteristic
attributable to entrepreneurship. He defined entrepreneur as an individual or a
group of individuals characterized by creation and expansion of markets, connection
of different markets, capability of making up market deficiencies (gap filling), and
input completion.
Joseph Schumpeter viewed entrepreneur as a person who foresees a
potentially profitable opportunity and tries to exploit it. He/she is basically an
innovator who introduces new combinations. He/she makes new things or makes Business
things in a new way. Entrepreneurship - I 28
Understanding He makes a distinction between an inventor and an innovator. An inventor
Entrepreneurship discovers and finds out new methods or techniques. Innovators make use of these
inventions for commercial purposes. Similarly, an innovator is distinct from
traditional, routine manager. A manager manages in a routine and traditional manner
whereas an innovator attempts changes in the manner of functioning NOTES in a drastic
manner.
Benjamin Higgins defined entrepreneurship as the function of foreseeing
Check Your investment and production opportunity, organizing an enterprise to undertake a
Progress new production process, raising capital, hiring labour, arranging for the supply of
raw materials and selecting managers for day to day operation of the enterprise.
1. According to
Quesnay, entrepreneur
was ----------- 2.3 Dimensions of Entrepreneurship
2.
defines an entrepre- Experts have tried to explain the concept of an entrepreneur and
neur as one who al- entrepreneurship development in different ways. Views of various specialists and
ways searches for theories propounded by them give us valuable inputs about evolution and
change, responds to it development of entrepreneurship. The various stages of evolution and development
and exploits it as an of entrepreneurship make us understand the societal perception about
opportunity. entrepreneurship over a period of time. Budding entrepreneurs can pick up promising
3. How does ideas and profitable opportunities from the theoretical analyses. Manohar U.
Schumpeter make a Deshpande has attempted to review the development of the concept in economic
distinction between an literature in the following way.
inventor and an inno-
vator? Entrepreneurship: A Function of Innovation
Schumpeters innovator is one who perceives opportunities to innovate
i.e. to carry out new combinations or enterprise. In his view, the concept of new
combination leading to innovation covers the following:
i. The introduction of new goods, that is the one with which consumers
are not yet familiar, of a new quality
ii. The introduction of new method of production, that is yet to be tested by
experience in the branch of manufacture concerned which need, by no
means, to be founded upon a scientifically new discovery and can also
exist in a new way of handling a commodity commercially.
iii. The opening of a new market that is a market into which the particular
branch of manufacture of the country in question has not previously
entered, whether or not this market has existed before.
iv. The conquest of a new source of supply of raw material or semi-
manufactured goods, again irrespective of whether this source already
exists or whether it has first to be created.
v. The carrying out of a new organization, of any industry like creation of
monopoly position through fructification or breaking up of a monopoly
position.
The carrying out of the above mentioned combinations, Schumpeter calls
enterprise and the individual who carries them out he calls entrepreneur.
An entrepreneur is one who innovates. Schumpeter has identified a
dynamic concept of entrepreneurship. He gives too much emphasis on innovation.
It excludes risk taking and organizing aspects of entrepreneurship
Business which are needed
Entrepreneurship - I 29
for enterprise building. But an entrepreneur is not simply an innovator. He/she Understanding
also assumes risk and organizes human efforts along with non-human resources. Entrepreneurship
Entrepreneurs are motivated and talented people. They are the key figures in
development.
NOTES
Schumpeterian entrepreneur is an entrepreneur only when he/she tries
new combinations to innovate and to produce new things. He/she ceases to be an
entrepreneur the moment he/she establishes himself/herself in running the routine
activity.
Schumpeter makes a distinction between an innovator and an inventor.
An inventor discovers new products, methods, materials. An innovator is one who
utilizes inventions and discoveries to make new combinations to produce newer
and better products. An inventor produces ideas while the innovator applies these
ideas. An inventor deals with technical work and an entrepreneur converts technical
work into economic performance by commercializing the invention. An innovator
not only originates as the inventors does but he/she exploits the invention
commercially.
Schumpeters concept of entrepreneurship includes not only independent
businessmen, but managers also who bring out innovations. Individuals who merely
operate an established business in a traditional and routine manner without
performing innovative functions are excluded from the concept of Schumpeters
entrepreneurs. Individuals who operate their enterprises successfully but lacking
innovation are not considered as entrepreneurs. Schumpeters innovating
entrepreneur represents enterprise with R & D and innovative character.
Developing countries lack such type of entrepreneurs.
Schumpeters entrepreneurs are innovators who deal with large scale
businesses. In developing and underdeveloped countries, entrepreneurs do not
deal with large scale business enterprise in the beginning. They start small
enterprises. They do not deal with new/modern technology, rather they prefer
traditional technology. Actually such countries need more imitative entrepreneurs
than innovating entrepreneurs.
Paul H. Wilken has identified various types of changes initiated by
entrepreneurs as given below:
1. Initial expansion- original production of goods
2. Subsequent Expansion- subsequent change in the amount of goods
produced
3. Factor Innovation- Increase in supply or productivity of factors.
a. Financial- procurement of capital in new form
b. Labour- procurement of labour from new source or of new type;
upgrading of existing labour
c. Material- procurement of material from new source or use of a
new material
4. Production Innovations- changes in production process
a. Technological- use of new production technique
b. Organizational- change of form or structure of relationships
among people Business
Entrepreneurship - I 30
Understanding 5. Market Innovations- changes in size or composition of market
Entrepreneurship
a. Product- production of new good, change in quality or cost of
existing goods.
b. Market- discovery of a new market NOTES

Entrepreneurship: A Function of Group Level Pattern


Frank W. Young has accepted the Schumpeterian definition of
entrepreneur as that of an innovator. In his view, entrepreneurial characteristics
are rooted in social clusters, ethnic communities, or occupational groups. He said
that instead of individuals, groups with higher differentiation have the capacity to
react. He is not ready to accept the entrepreneurial characteristic at the individual
level. Entrepreneurial activities are in the form of groups. These groups, in turn,
influence the emergence or development of entrepreneurs in a given society.
Youngs theory is a theory of change based on societys incorporation of
reactive sub-groups. A group will become reactive as per Youngs theory, when
the three conditions coincide. The conditions are: first, when a group experience
low status recognition, secondly, when the denial of access to important social
networks and thirdly when the group has better institutional resources than other
groups in the society at the same level.

Entrepreneurship: A Function of Managerial Skills and Leadership


Bert F. Hoselitz states that, a person who is to become an industrial
entrepreneur must have additional personality traits to those resulting from a drive
to amass wealth. In addition to being motivated by the expectations of profit he
must also have some managerial abilities and more important he must have ability
to lead. He maintains that financial skills have only a secondary consideration in
entrepreneurship. According to him, managerial skills and leadership are important
facets of entrepreneurship. He said that an industrial entrepreneur creates his/her
own commodity and its acceptability is uncertain. Therefore, the entrepreneur
assumes more risk than those in trading and lending profession.
Hoselitz further suggests that entrepreneurship can develop in a society
when its culture permits a variety of choices and where social processes are not
rigid and in a situation which encourages the development of personalities interested
in enterprise.
According to Hoselitz, culturally marginal groups of persons play an
important role in economic development. He holds the view that, because of their
ambiguous position in society, marginal men forming a cultural or social stand
point are particularly suited to make creative adjustments in situations of change
and developing innovations in social behaviour in the course of this adjustment
process.

Entrepreneurship: An Organization Building Function


Fredrick Harbison states that organisation building ability is the most
critical skill needed for industrial development. According to him, entrepreneurship
means the skill to build an organization. He viewed organization building as the
most critical skill needed for economic development as it facilitates the use of

Business
Entrepreneurship - I 31
other innovations. He spots the crux of entrepreneurship in his/her ability to multiply Understanding
himself/herself by effectively delegating responsibilities to others. Harbisons Entrepreneurship
entrepreneur is an organisation builder who must be able to harness the new
ideas of different innovators to the rest of the organization, Such persons are not
always the men with ideas or men who try new combinations of resources but NOTES
they may simply be good leaders and excellent administrators.
Harbison did not propound any theory of entrepreneurship but he has
made very interesting observations relating to entrepreneurship as a factor of
economic development. He highlighted individuals organizational skill, creativity,
and ability to plan and initiate changes.
Harbisons definition of entrepreneurship lays more stress on managerial
skills and creativity so far as organization is concerned. His definition, as it appears,
is not far from Schumpeters concept of innovation. It also allows creation of new
organization as innovation and Harbison also emphasizes the organization building
ability. But he maintains that the ability to create an organization is the most crucial
skill which facilitates the economic use of other innovations. If this skill is absent
then other innovations fail to stimulate economic development.

Entrepreneurship: A Function of High Achievement


David McClelland concentrated on economic growth and factors that
influenced such growth. McClelland highlighted that the desire to achieve is the
most important motivating factor for entrepreneurial functions. A society with a
large number of people having high desire of achievement is conducive to economic
growth. McClellands type of entrepreneurs does not work hard at routine tasks.
They take keen interest in the results of their decisions. They prefer to work hard
on the tasks that involve challenge and risk.
McClelland like Hagen attributes the inculcation of the achievement orientation
of child rearing practices which stress standards of excellence, maternal warmth,
self-reliance, training, and low father dominance. He emphasized two important points
in connection with development of entrepreneurship in any society: first creation of
conducive social climate to enable children to grow and become individuals with the
motivation of achievement, and second improvement in the performance of existing
entrepreneurs through necessary inputs, training and education.
McClelland identified two characteristics of entrepreneurship. First, doing
things in a new and better way. This is synonymous with the innovative
characteristic given by Schumpeter. And, second, decision making under
uncertainty i.e. risk as identified by Cantillon.

Entrepreneurship: Input-Completing and Gap-Filling Function


Harvey Liebenstein defines entrepreneur as an individual or a group of
individuals having four major characteristics: connection of different markets,
capability of making up of market deficiencies (gap filling), input-completing, and
creation and expansion of time-binding input transforming entities (i.e. firms).
Further, he distinguishes two broad types of entrepreneurial activity. First, that
routine entrepreneurship is associated with the managerial function of the business;
and second, the new entrepreneurship which is basically of Schumpeterian type
characterized by aggressive assemblage of information and the analysis of results
derived from sound combination of factors.
He identified gap filling as an important attribute of entrepreneurship. In
economic theory, the production function is considered to be well defined and Business
Entrepreneurship - I 32
completely known. But theory is silent about the keeper of the knowledge of
Understanding production function. Where and to whom in the firm this knowledge is supposed to
Entrepreneurship be available is never stated. In reality there exist larger gap of knowledge about
the production function. In fact, there are many deficiencies regarding the production
function. It is the entrepreneurial function to make up the deficiencies or to fill the
gaps. NOTES

Entrepreneurship: A Function of Status Withdrawal


Everett Hagen suggests that economic growth has been led not by
individuals randomly distributed throughout a society but disproportionately by
individuals from some distinctive group. He identifies creative innovation or
change as the fundamental characteristic of economic growth.
Hagen after analyzing traditional societies maintains that the positions of
authority are granted in such societies not on the basis of individual ability but on
the basis of his/her status. This structure is characterized by typical authoritarian
personality. In contrast, Hagen visualizes an innovational personality. He has
postulated a sequence of the formation of creative and authoritarian personalities.
He identified child-rearing practices as the main element in giving a particular
shape to all the personalities. Hagens principal theme is that such creative
personalities or groups emerge when the members of some social group experience,
what he calls, the withdrawal of status respect. It may occur when a traditionally
alike group is displaced by force from its previous status by another traditional
group, or when any superior group changes its attitude toward a subordinate group
or on migration to a new society.
Hagen views economic development as brought about by a change in
social, political, cultural and personality-oriented inter-relationships. According to
him, initiation of change in society comes as a result of a shift in the attitude of
groups or classes of people in society, particularly the less elite. The motive behind
the shift is to gain status or control by undertaking rigorous entrepreneurial activity.
The less elite in the society are a group of individuals who are creative but alienated
from traditional values. They are driven by a desire to assert their importance in
the area of their choice.

Entrepreneurship: A Function of Social, Political, and Economic Structure


John Kunkel has elaborated a behaviouristic model of entrepreneurship.
The students of economic theory have repeatedly pointed out that entrepreneurs
are not equally distributed in the population, and minorities (religious, ethnic, migrated,
displaced elites) have provided most of the entrepreneurial talent. But all the
minorities are not important sources of entrepreneurship. He argues that the
marginality does not guarantee entrepreneurship. He states that industrial
entrepreneurship depends upon four structures which are found within a society
or community: limitation structure, demand structure, opportunity structure, and
labour structure. The supply of entrepreneurs depends on the existence and extent
to which these four factors are found in a society. In limitation structure,
entrepreneur is viewed as the most important deviant individual and such behavior
pattern is restricted. The society limits specific activities and this limitation structure
affects all members of society. It is basically social and cultural in nature. Demand
structure is mainly economic and changes with economic progress and government
policies. Behaviour of people can be made entrepreneurial by manipulating certain
selected components of the demand structure. Opportunity structure consists of
availability of capital, management and technological skills, information concerning

Business
Entrepreneurship - I 33
production methods, labour and markets, opportunity to learn, all the activities Understanding
associated with effective planning and successful operation of industrial enterprises. Entrepreneurship
Labour structure is concerned with supply of competent and willing labour. The
supply of labour is governed by several factors such as available alternative means
of livelihood, traditionalism and expectations of life. In this manner, entrepreneurial NOTES
supply depends upon these four structures. Any discrepancy between objective
structures and actual incidence of entrepreneurs is due to inadequate or incorrect
perceptions of various structures. Entrepreneurship depends on rather specific
combinations of circumstances which are difficult to create and easy to destroy.

Entrepreneurship: A Function of Religious Beliefs


Religion and its impact on enterprising culture was first analysed by Max
Weber in the Western context. According to him, religious functions are an
important influence on individuals and the nurturing of an entrepreneurial culture
in the society. Certain favourable or unfavourable special attitudes or religious
sanctions pertaining to acquisition or renunciation of wealth determine conducive
or detrimental circumstances in a given society for the spirit of capitalism to take
roots. In his examination of religious attitudes towards wealth acquisition, Weber
observes that Protestant Christian ethics generates, favourable circumstances
for entrepreneurial ventures, while Hinduism discourages capitalistic ventures.
Webers theory suited the colonial rulers who wanted to encourage European
entrepreneurship in India.
However, Weberian model is inadequate to explain entrepreneurship in
Indian situation. It has been severely criticized by subsequent researchers who
held the view that the theory was based on incorrect assumptions, which are: a)
there is a single system of Hindu value, b) the Indian community internalized those
values and translated them to day-to-day behavior, and c) these values remained
immune to and insulated against external pressures and change. The rapid growth
of entrepreneurship in India since independence proves that Hinduism is not averse
to the spirit of capitalism and to adventurous spirit.
In addition to the above, some important contributions with reference to
supply of entrepreneurship have been explained below:
Thomas Cochrans theory highlights the sociological aspects of
entrepreneurial supply. It maintains that the fundamental problems of economic
development lie in such non-economic aspects as cultural values and expectations,
social behavior and social sanctions. These social factors determine supply of
entrepreneurs and their talents. Entrepreneurs character is determined by schooling
facilities and child rearing practices.
Thomas Cochran demonstrates dynamics of such entrepreneurship model
by selecting instances from American economic history. He highlights three
important changes that have taken place in the last 150 years in the US economy.
First, the rapid introduction of industrial machinery in the first half of the 19th
century; second, the rise of large corporations and subsequent professional
management during the second half of the 19th century third, the spread of mass
production techniques during the 19th century. During each of these major change
periods, the social factors in American culture operated through the entrepreneur.
Thus, the individuals performance as entrepreneur is influenced both by his/her
own attitude toward his/her occupation and the operational requirements of the
job. The attitude of a person, in turn, is largely determined by the social values and
ethos.
Business
Entrepreneurship - I 34
Understanding According to Frank Young, entrepreneurial activities are in the form of
Entrepreneurship groups. In his view, entrepreneurial characteristics are rooted in social clusters,
ethnic communities, occupational groups, or politically oriented functions of
individuals.
NOTES
In the words of Peter Drucker, an entrepreneur is one who is always in
search for change, responds to it and exploits it as an opportunity. The response to
change is innovation. According to Drucker, innovation is a specific instrument of
entrepreneurship. Entrepreneurs have to learn to practice systematic innovation.
Systematic innovation, according to him, consists in the purposeful and organised
search for changes and in the systematic analysis of the opportunities. Such changes
might offer scope for economic and social innovation. He emphasized innovation
and resource. He says a thing is regarded as resource when its economic value is
recognized.
According to Drucker, three conditions have to be fulfilled. First,
Innovation at work. It requires knowledge and ingenuity. It makes great demands
on diligence, persistence, and commitment. Second, to succeed, innovation must
build on their strengths. Third, innovation always has to be close to the market-
focused on the market, indeed market driven. Drucker says, entrepreneurship is
practice, a discipline that has a knowledge base i.e. theory. The foundation of
entrepreneurship lies in concept and theory rather than in intuition. The focus
should not be on traits of entrepreneurs but on their actions and behavior. It is a
purposeful task that can be organized and learnt. Drucker emphasizes
entrepreneurship behavior rather than personality traits. Entrepreneurs with diverse
personalities and traits did well and succeeded in entrepreneurial ventures.
According to Drucker, entrepreneurship is not confined to big business
and economic institutions. It is also equally important to small business and non-
economic institutions. Emergence of entrepreneurial economy is the result of
applications of entrepreneurial skills to small enterprises, new enterprises, non-
business sector and exploitation of new opportunities for satisfying human needs.
Drucker opined that an entrepreneur need not be a capitalist or an owner.
A banker who mobilizes others money and allocates it in areas of higher yield is
very much an entrepreneur though he/she is not owner of the money.
In the words of Francis A. Walker, true entrepreneur is one who is
endowed with more than average capacities in the task of organizing and
coordinating various other factors of production. He considered an entrepreneur
as an organizer and coordinator of various factors of production. He/she should
be a pioneer. The supply of such true entrepreneurs is however quite limited and
enterprise in general consists of several grades of organizational skill and
coordinating capability. Entrepreneurs are endowed with different levels of
organizational skill and coordinating capacity. Entrepreneurs with higher level of
competency are more successful and effective in earning superior rewards in
terms of profit in comparison with their counterparts. The more efficient and
competent entrepreneurs receive a surplus reward over and above managerial
wages which constitutes true profit ascribable to superior talent.
Peter Kilby attempted to study entrepreneur in greater detail and gave a
comprehensive list of activities critical to entrepreneurial success in the context of
an underdeveloped country (Please refer the section 3.5 of UnitIII). In his opinion,
Entrepreneurial performance in those roles involving exchange relationships and
political administration is vigorous and effective. On the other hand, entrepreneurs
typically do not apply themselves with equal intensity or Business
skill to their task in the
Entrepreneurship - I 35
realms of management control and technology. Deficiencies in these latter areas Understanding
represent, in many instances, the operational bottlenecks to indigenous industrial Entrepreneurship
development.
These definitions convey the essence of entrepreneurship. However, they
NOTES
do not fully cover the scope of entrepreneurship.
Entrepreneurship is truly a multi-dimensional, multi-faceted concept. It
has a wide, deep connotation. It is concerned with innovation underpinning the
starting of a business; wealth creation; deployment of resources; enhancement of
value. However, it is not just restricted to starting a business. It is not just a way of
conducting a business. It is not just generation of revenue by application of
resources with an eye on innovative output. It is not just a style of management. It
is not just a career option. It is application of entrepreneurial thinking to practice.
It connotes entrepreneurial thinking. It deals with a special kind of mindset. It is Check Your
linked with a peculiar type of personality style. Its application is in business sector, Progress
social sector, political field, academics, public service, sports, tourism, agriculture,
health, in every area of human endeavor. It can be thought of as a way of life. 4. An inventor
Entrepreneurs continue to be entrepreneurs forever. Whenever they sense an ideas while the innova-
opportunity, they grab it with the entrepreneurial mindset. Whatever they do, they tor
do it in an entrepreneurial way. Wherever they are, they apply entrepreneurial these ideas. (applies,
thinking to practice in any area of human endeavor. produces)
In this manner, the terms entrepreneurship, an entrepreneur, being 5. An
entrepreneurial have a broader, wider and deeper connotation. deals with technical
work and an
converts technical
2.4 Entrepreneurship and Management work into economic
performance by com-
At one time, entrepreneurship was logically seen as an integral part of mercializing the inven-
business and management. In business schools, entrepreneurship education was tion. (inventor, entre-
structured into curriculum as such under management. Over a period of time, it preneur)
was realized that entrepreneurship is not just a form of management. There is 6. Match the following
now a clear realization that entrepreneurship requires more focused thinking. It is A
to be considered as an independent subject and beyond managerial practices. It is A.Joseph Schumpeter
now evolving as a separate domain by itself under social sciences discipline, just B. Frank Young
like the subject of management. C. David McClelland
D. Max Weber
Entrepreneurs are commonly defined as those who launch new ventures.
However, entrepreneurship is concerned with old businesses, new businesses, big
B
corporates as well as small and micro enterprises also. It deals with innovation,
i. Theory of achieve
investment, risk taking, creation of new products, new methods, new markets.
ment motivation
An entrepreneur creates his/her business world on his/her own from ii. Theory of innovation
scratch. A manager joins an established business and manages it with the help of iii Theory of religious
available resources. He/she deals with day-to-day affairs in a routine manner beliefs
whereas an entrepreneur attempts change and not maintaining status-quo. There iv. Theory of change
is a significant difference between entrepreneurship and management, although
sometimes these terms are used as synonymous. In the words of Irving Kristol,
More and more, chief executives refer to themselves as managers sometimes
even professional managers. If that indeed is what they are then they are widely
overpaid. A good executive is above all an energetic and shrewd entrepreneur,
creating all new opportunities for profitable economic transactions. It is only the
possession of this talent....that justifies the high salary they receive.

Business
Entrepreneurship - I 36
Understanding A manager is primarily concerned with those activities relevant to predictive
Entrepreneurship management process i.e. with activities related to production and control. An
entrepreneur is primarily concerned with activities relevant to adaptive management
process. However, the management process as we conceived it is not a dichotomy.
It is rather a continuum, and incorporates both administrative NOTESas well as
entrepreneurial element. Administrative element and entrepreneurial element both
are complementary within an organisation and sometimes within a particular role.
Depending upon differences in environment, size of enterprises, scale of operations;
nature and degree of administrative and entrepreneurial domain is chosen.
An entrepreneur deals with entrepreneurial activities of management
process. An administrator holds attitudes related to administrative orientation of
the management process.
An entrepreneur is in search for change; he/she responds to it and exploits
it as an opportunity. He/she perceives a need and then brings together various
resources required to meet that need. He/she organises various factors for
production to initiate changes. Management consists of continuous activity of
combining and coordinating factors of production.
Robert D. Hisrich and Michael P. Peters analyzed entrepreneurial and
administrative managerial styles along five key business dimensions: strategic
orientation, commitment to opportunity, commitment to resources, control of
resources, management structure. They compared entrepreneurial domain and
administrative domain as follows:
Entrepreneurial domain is characterized by rapidly changing technology,
social values, consumer economics and political values. Their strategic orientation
is driven by perception of opportunity whereas it is driven by currently controlled
resources for managers. Administrative focus deals with pressures concerned
with social contacts, performance measurement criteria, planning systems and
cycles.
Commitment to opportunity is revolutionary and of short duration for
entrepreneurs and for managers, it is evolutionary and of long duration. The main
features with reference to commitment to opportunity for entrepreneurs are action
orientation, short decision windows, risk management, acceptance of reasonable
risks, and limited decision constituencies. Administrative domain comprises of
multiple constituencies, negotiation of strategic course, risk reduction, coordination
with existing resource base and management of fit.
Entrepreneurial decision style regarding commitment of resources is
multistaged with minimal exposure at each stage. It is featured by lack of long-term
control over the environment, social need for more opportunity per resource unit,
and international pressure for more efficient resource use. Pressures are regarding
lack of predictable resource needs, lack of control over environment, social demands
for appropriate use of resources, foreign competition etc. Managerial decision style
regarding commitment of resources is single staged with complete commitment upon
decision. Its main features are personal risk reduction, incentive compensation,
managerial turnover, capital allocation systems, and formal planning systems.
Entrepreneurial domain for control of resources is episodic and concerned
with use or rent of required resources. The pressures are increased specialization,
long resource life compared to need, risk of obsolescence, risk inherent in any
new venture, and inflexibility of permanent commitment to resources. Administrative
domain regarding control of resources is concerned with ownership
Business or employment
of required resources. The pressures are with reference to power, status
Entrepreneurship -I and
37
financial rewards, coordination of activity, efficiency measures, inertia, cost of Understanding
change, industry structures. Entrepreneurship

Management structure in entrepreneurial domain is flat with multiple


informal networks. Its main pressures are coordination of key non-controlled
NOTES
resources, challenge to legitimacy of owners control to hierarchy, employees desire
for independence. Management structure in administrative domain has formalized
hierarchy. There is a need for clearly defined authority and responsibility,
organizational culture, reward systems, management theory.

2.5 Distinction Between an Entrepreneur and a


Manager
An entrepreneur is one who bears risk, innovates, imitates and also
organizes business by performing entrepreneurial functions. The main motive of
an entrepreneur is to begin a venture. Entrepreneurs strongly believe in themselves
and in their ability to make good decisions. The scope of operations for an
entrepreneur is very vast which begins with exploring business opportunities and
continues with market survey and customer feedback. He/she always assumes all
risks and uncertainty involved in running the enterprise. The rewards entrepreneurs
get for bearing risks involved in the enterprise are profits which are highly uncertain
and not fixed. He/she acts as an innovator/change agent. Personality of an
entrepreneur is striking and dynamic. An entrepreneur possesses qualities like
need for achievement, vision, risk bearing ability, hardworking, energetic,
resourceful, versatile, knowledgeable etc. Successful entrepreneurs are successful
leaders because they have to seek opportunities, initiate projects, gather resources,
set goals, direct and guide others to accomplish goals.
A manager is one who manages to get work done assigned to him/her in
the best possible manner by performing managerial functions. Managers decision
making is limited to plans and procedures. The main motive of a manager is to
render services to an established and settled enterprise. Managers scope of
operations is associated with managerial functions and activities. He/she does not
bear any risk involved in enterprise, rather shy away from risk to some extent;
often attributing risk to luck or to forces beyond their control. He/she gets salary
which is certain and fixed. A manager only executes plans prepared by
entrepreneur. A manager needs to possess knowledge in management principles
and practice.
Entrepreneur is a person who conceives, and controls a business enterprise.
The term conveys enterprise, innovation, opportunism, individuality. Manager
manages an enterprise. The term manager conveys organization, planning,
professionalism, rationality, predictive management process.
An entrepreneur is an owner of an enterprise and seeks to maximize
returns whereas a manager is an employee who is considered responsible for
proper utilization of resources. He/she may or may not be responsible for overall
direction and growth of the enterprise. There is a basic difference between
approaches in running daily routine. An entrepreneur looks for creative and
innovative ways to solve problems and thinks beyond constraints and resources.
On the other hand, a manager typically thinks with constraints and resources and
tries to use the available resources with efficiency and effectiveness. He/she
deals with day to day affairs of a going concern on established lines.
Business
Entrepreneurship - I 38
Understanding From the above discussion, it is clear that an entrepreneur differs from a
Entrepreneurship manager. At times, an entrepreneur can be a manager also. A manager may not
be an entrepreneur. An entrepreneur performs a different function from a manager
and has different beliefs and approaches about management and about business.
NOTES

Table 2.1: Distinction between an Entrepreneur and a Manager

Entrepreneur Manager
Check Your Motive To start a venture by To render services/
Progress setting up an enterprise. manage to an enterprise
He/she is not guided by already established by
7. How does an profit motive. someone. He/she is
entrepreneur differ interested in salary which
from a manager? is fixed and certain.
Status Entrepreneur is self- Manager is a salaried em-
employed. Being the ployee in an enterprise.
owner of enterprise, he/ He/she depends upon his/
she is his/her own boss her employer
Vision Understands organization Understanding is narrow
as a whole and limited to the scope
of work
Pre-requisites High achievement motive, Knowledge in manage-
innovation, vision, risk ment theory, principles and
t aki ng at t i t ude, sel f -practice
confidence
Innovation E n t r e p r e n e u r i s a n Manager may not be an
innovator. He/she adopts innovator. He/she
an innovative approach manages established
business on the basis of
fixed rules, policies,
procedures. He/she
adopts a realistic
approach
Risk Bearing Entrepreneur assumes Manager implements
risk and uncertainty entrepreneurs ideas into
involved in enterprise. practice. He/she does not
He/she is a moderate undertake risk. His/her risk
risk-taker exposure is low
Rewards Reward for risk bearing Salary of a manger is
is profit which is highly fixed and certain.
uncertain. No guarantee Rewards are guaranteed
for rewards. Possibility of either through salary or
losses through promotions

Ellen Fagenson provides a different angle on the psychological differences.


Entrepreneurs tend to value self-respect, freedom, a sense of accomplishment,
and an exciting life style. Managers tend to value true friendship, wisdom, salvation,
and pleasure. Entrepreneurs want something different out of life as compared to
managers.
Business
Entrepreneurship - I 39
According to Joseph Schumpeter, a manager is one who deals with day to day Understanding
affairs of a going concern. But an entrepreneur attempts to change the factor Entrepreneurship
combinations and increase productivity and profits. An entrepreneur launches a
new enterprise and a manager operates an existing one.
NOTES
The roles of entrepreneur and manager may, however, overlap.
Entrepreneurs while initiating their enterprises have to apply their managerial skills
to implement their innovations. Due to limitations of resources, an entrepreneur
may have to do the role of a manager. Similarly managers have to use entrepreneurial
skills for managing change and innovation.

2.6 Summary
The term entrepreneurship has been defined differently by different
persons. The word entrepreneur is derived from the French verb entreprendre
meaning to undertake. The word entrepreneurship appeared first in French
according to Encyclopedia Britannica. In the early 16th Century, it was applied to
those who were engaged in military expeditions. In 17th Century, it was extended
to cover civil engineering activities. It was in the beginning of 18th Century that the
word was used to refer to economic activities. The entrepreneur and his/her unique
risk bearing function were first identified by Richard Cantillon.
Schumpeters entrepreneur is one who perceives opportunities to innovate.
According to him, an entrepreneur is an entrepreneur only when he/she tries new
combinations to innovate and to produce new things.
Frank Young has accepted the Schumpeterian definition of entrepreneur
as that of an innovator. In his view, entrepreneurial characteristics have to be
analysed in the form of groups; entrepreneurial characteristics are rooted in social
clusters, ethnic communities, or occupational groups.
According to Bert Hoselitz, managerial skills and leadership are important
facets of entrepreneurship. Hoselitz suggests that entrepreneurship can develop
in a society when its culture permits a variety of choices and where social processes
are not rigid and in a situation which encourages the development of personalities
interested in enterprise.
Fredrick Harbisons entrepreneur is an organization builder who must be
able to harness the new ideas of different innovators to the rest of the organization.
He viewed organization building as the most critical skill needed for economic
development as it facilitates the use of other innovations.
David McClelland highlighted that the desire to achieve is the most
important motivating factor for entrepreneurial functions. He identified two
characteristics of entrepreneurship; doing things in a new and better way and
decision making under uncertainty.
Harvey Liebenstein defines entrepreneur as an individual or a group of
individuals having four major characteristics: connection of different markets,
capability of making up market deficiencies (gap filling), input-completing and
creation and expansion of time-binding input transforming entities i.e. firms.
Everett Hagen suggests that economic growth has been led not by
individuals randomly distributed throughout a society but disproportionately by
Business
Entrepreneurship - I 40
Understanding individuals from some distinctive group. He identified creative innovation or
Entrepreneurship change as the fundamental characteristics of economic growth.
John Kunkel argues that marginality does not guarantee entrepreneurship.
He states that industrial entrepreneurship depends upon four structures which are
NOTES
found within a society or community: limitation structure, demand structure,
opportunity structure, labour structure.
According to Max Weber, religious functions are an important influence
on individuals and the nurturing of an entrepreneurial culture in the society.
An entrepreneur differs from a manager. An entrepreneur launches a
new enterprise and a manager operates an existing one. The roles of entrepreneur
and manager may, however, overlap. Entrepreneur while initiating their enterprises
have to apply their managerial skills to implement their innovations. Managers
have to use entrepreneurial skills for managing change and innovation

2.7 Key Terms


Marginal: Pertaining to a margin, situated on the border or edge, one
that is considered to be at a lower or outer limit, as of social acceptability
Marginality: The property of being marginal or on the fringes
Minority: The smaller number or part, especially a number or part
representing less than half of the whole; a group of people that differ in
some way from the majority of the population or any part of a whole that
is smaller than the other parts; a racial, religious, ethnic, or political group
smaller than and differing from the larger, controlling group in a
community, nation etc.

2.8 Questions and Exercises


Questions
1. Give a brief account of the origin of the concept of entrepreneurship.
2. Discuss the contribution made by David McClelland in understanding
entrepreneurship development.
3. What are the differences between a manager and an entrepreneur?
4. What is entrepreneurship? Narrate the origin and growth of entrepreneurship?
5. Entrepreneurship is a process of giving birth to an enterprise. Discuss.
6. Are there some similarities between a manager and an entrepreneur? Describe.
7. Describe the contribution of Frank young to the theory of entrepreneurship.
8. Discuss briefly the main theories of entrepreneurial supply.
9. Analyse the theory of entrepreneurship propounded by Everett Hagen.
10. According to Schumpeter, entrepreneurship is a function of innovation.
Elaborate.
Business
Entrepreneurship - I 41
Exercises Understanding
Entrepreneurship
1. Ask five entrepreneurs what the term entrepreneurship means to
them. Try to realize the commonalities and differences of these
definitions.
NOTES

Multiple Choice Questions


1. -highlighted that the
desire to achieve is the most important motivating factor for
entrepreneurial functions.
i. Peter Drucker
ii. David McClelland
iii. Joseph Schumpeter
iv. Fredrick Harbison
2. Fredrick Harbison states that is
the most critical skill needed for industrial development
i. Creativity
ii. Organisation building ability
iii. Leadership
iv. Innovation
3. According to Hoselitz, and
are important facets of entrepreneurship.
i. Innovation and creativity
ii. Managerial skills and leadership
iii. Innovation and leadership
iv. Managerial skills and innovation
4. Entrepreneur and his/her unique risk bearing function was first identified
in the early 18th century by
i. J.B. Say
ii. Quesnay
iii. Richard Cantillon
iv. Francis Walker
5. isan owner of an enterprise
and seeks to maximise returns whereas is an
employee who is considered responsible for proper utilization of resources.
i. leader, organizer
ii. organizer, manager
Business
Entrepreneurship - I 42
Understanding iii. manager, entrepreneur
Entrepreneurship
iv. entrepreneur, manager

NOTES
Answers
Check Your Progress
1. a rich farmer who applied his intelligence and wealth for profit
2. Peter Drucker
3. produces, applies
4. inventor, entrepreneur
5. A. ii
B. iv
C. i
D. iii

Multiple Choice Questions


1. ii
2. ii
3. ii
4. iii
5. iv

2.9 Further Reading


Deshpande Manohar U., Entrepreneurship of Small Scale Industry, Deep
and Deep Publications
Hisrich Robert D., Peters Michael P., Shepherd Dean A., Entrepreneurship,
Tata McGraw Hill Education Pvt. Ltd., New Delhi, 2010

Business
Entrepreneurship - I 43
Introducing the Entrepreneur
UNIT 3: INTRODUCING THE
ENTREPRENEUR
NOTES

Structure

3.0 Introduction
3.1 Unit Objectives
3.2 The Entrepreneurial Personality
3.3 Entrepreneurial Mindset
3.4 Entrepreneurial Functions
3.5 Summary
3.6 Key Terms
3.7 Questions and Exercises
3.8 Further Reading

3.0 Introduction
Whenever you see a successful business, someone made a courageous
decision Peter Drucker
Entrepreneur is a key figure in entrepreneurship. He/she is one who creates
a new business in the face of risk and uncertainty for the purpose of achieving
profit and growth by identifying significant opportunities and assembling the
necessary resources to capitalize on them. He/she powers the process of economic
development. He/she has been defined in various ways an innovator, a capitalist,
a risk taker, a resource assembler, an organization builder, a change agent, an
opportunist, a decision maker, a visionary, a leader, a dreamer, a problem solver
and so on. Actually, an entrepreneur is all combined into one a multifaceted
personality. Let us discuss various facets of this versatile, multidimensional
personality.

3.1 Unit Objectives


After going through this unit, you will be able to
Understand the personality of an entrepreneur
Explain the difference between an entrepreneur and a small business
owner
Identify the characteristics and mindset of a successful entrepreneur
Describe various functions performed by an entrepreneur
Know about entrepreneurial competencies
Describe the entrepreneurial profile and evaluate your potential as an
Business
entrepreneur
Entrepreneurship - I 44
Introducing the Entrepreneur
3.2 The Entrepreneurial Personality
Let us try to understand what constitutes an entrepreneur. Then it would
be possible for us to develop the characteristics and the skill set necessary for
NOTES
successful entrepreneurship.
The term entrepreneur is defined in a variety of ways. The concept of
entrepreneur varies from country to country depending upon the level of economic
development. From time to time it changes as perceptions change.
Quesnay defined entrepreneur as a rich farmer who applies his intelligence
and wealth for profit.
Peter Kilby once compared entrepreneur with Heffalump, an imaginary
animal which was hunted by many individuals, but no one succeeded in capturing
him. The Heffalump never actually appears and no one actually sees one. All
those persons who claim to have seen him describe differently about his particulars
and thus no agreement exists in their description about the animal. His notion of
the Heffalump was based on the animal of that name which appears in the Winnie
the Pooh stories.
The word entrepreneur is a French coinage. Cantillons entrepreneur is
someone who engages in exchanges for profit; specifically, he/she is someone
who exercises business judgment in the face of uncertainty.
According to Adam Smith, entrepreneur is a prudent man who is frugal
(i.e. he/she accumulates capital) and is an agent of slow but steady progress.
Martin Luther King defines an entrepreneur as a person who has a dream
and will work against all obstacles to achieve it.
E.E. Hagen defines an entrepreneur as an economic person who tries to
maximize his/her profits by innovation, involve problem-solving and get satisfaction
in using his/her capabilities on attacking problems.
J. B. Say, an aristocratic industrialist, associates entrepreneur with the
function of coordination, organization, and supervision. According to him, an
entrepreneur is the most important agent of production who provides continuing
management and brings together the factors of production. Says entrepreneur
must have judgement, perseverance and knowledge of the world as well as that of
business. He/she must possess the art of superintendence and administration.
Francis Walker says, entrepreneur is one who is endowed with more than
average capacities in the task of organising and coordinating the factors of
production, i.e. land, labour, and capital.
A.H. Cole defined entrepreneurship as the purposeful activity of an
individual, undertaken to initiate, maintain or aggrandize profit by production or
distribution of goods and services.
Bert F. Hoselitz stated that a person who is to become an industrial
entrepreneur must have additional personality traits to those resulting from a drive
to amass wealth. In addition to being motivated by the expectations of profit, he/
she must also have some managerial abilities and more important he/she must
have the ability to lead.
According to Fredrick Harbinson, entrepreneurship means the skill to build
Business
an organization. Harbisons entrepreneur is not an innovator but an organization
Entrepreneurship -I 45
builder who must be able to harness the new ideas of different innovators to the Introducing the Entrepreneur
rest of the organization.
According to David McClelland, an entrepreneur is one who likes to take
reasonable risk, and has high degree of need for achievement. He identified two
NOTES
characteristics of entrepreneurship first doing things in a new and better way
and second decision making under uncertainty.
Frank Knight described entrepreneurs as a specialized group of persons
who bear uncertainty and risk; and uncertainty is defined as risk which cannot be
calculated. According to Knight, entrepreneur is the economic functionary who
undertakes such responsibility which, by its very nature, cannot be insured or
salaried.
J.A.Timmons in his book The Entrepreneurial Mind defined
entrepreneurship as the ability to create and build something from practically
nothing. Fundamentally, a human creative activity, it is finding personal energy by
initiating, building and achieving an enterprise or organization rather than by just
watching, analyzing or describing one. It requires the ability to take calculated risk
and reduce the chances of failure. It is the ability to build a founding team to
complement the entrepreneurial skill and talents
According to George Bernard Shaw, people fall into three categories: i.
Those who make things happen, ii. Those who watch things happen, and iii. Those
who are left to ask what did happen. Generally, entrepreneurs fall under the first
category. Entrepreneur is a self-employed person.
Rotter refers to an entrepreneur as a person with a high internal locus on
control.
Schumpeter defines an entrepreneur as a person who is willing and able
to convert a new idea or invention into a successful innovation. According to
Schumpeter, entrepreneurship is a progression of change where innovation is the
important function of entrepreneur. It is the necessary requirement for economic
development. Innovation is the starting point of development. Entrepreneurship is
the willingness and ability of an individual to seek investment opportunities, set up
and run an enterprise successfully.
Robert Ronstadt indicated the entrepreneurial traits of creativity and the
ability to tolerate ambiguous situations for building thriving organizations.
According to Gilbraith, an entrepreneur must accept the challenge and
should be willing hard to achieve something.
Peter Drucker defines an entrepreneur as one who always searches for
change, responds to it and exploits it as an opportunity. Innovation is the basic tool
of entrepreneurs, the means by which they exploit change as an opportunity for a
different business or service.
E.E. Hagen defines entrepreneur as an economic person who tries to
maximise his/her profits by innovation, involve problem solving and gets satisfaction
from using his/her capabilities on attacking problems.
According to Mark Casson, an entrepreneur is a person who specializes
in taking judgmental decision about the coordination of scarce resources.
According to Max Weber, entrepreneurs are a product of particular social
condition in which they are brought up and it is the society which shapes individuals Business
as entrepreneurs. Entrepreneurship - I 46
Introducing the Entrepreneur International Labour Organisation (ILO) defines entrepreneurs as those
people who have the ability to see and evaluate business opportunities, together
with the necessary resources to take advantage of them and to initiate appropriate
action to ensure success.
NOTES
Akhouri describes an entrepreneur as a character who combines
innovativeness, readiness to take risk, sensing opportunities, identifying and
mobilizing potential resources, concern for excellence, and who is persistent in
achieving the goal.
Entrepreneurship is the process by which individuals pursue opportunities
without regard to resources they currently control. With good ideas, entrepreneurs
create new products/services/organizations with the help of their skills and hard
work. Entrepreneurs have great potential to contribute to society and economy. It
is interesting to analyze entrepreneurs personalities, their characteristics, skills,
attitudes and try to explain their behaviour. Entrepreneurs can be differentiated
from non-entrepreneurs by personality characteristics. Entrepreneurial personality
is different from ordinary/normal people. Defining entrepreneurial characteristics
and attributes is a challenging task. In the words of Lanko, Todays entrepreneurs
are big and tall, and short and small. They come from every walk of life, every
race and ethnic setting, all age groups, male and female, and from every educational
background. There is no mould for the entrepreneur. Entrepreneurs make their
own mould.
Individuals who possess the same characteristics as entrepreneurs have
the tendency or potential to perform entrepreneurial tasks than those who do not
possess such characteristics. Although it is difficult to generalize about personality
traits of a successful entrepreneur, some qualities seem to be more significant
than the others. Research in entrepreneurship indicates that entrepreneurs possess
distinctive personality characteristics. Study of personality characteristics of
entrepreneurs can be used to reveal potential for entrepreneurship. On the basis
of such kind of study, it is possible to identify those who possess entrepreneurial
potential and those who do not possess. Entrepreneurship development programmes
would be more effective in developing and enhancing the entrepreneurial potential
on the basis of such study.
You must be anxious to know what kind of person makes an entrepreneur.
Entrepreneur is a person endowed with special skills and qualities. He/she is
characterized by a high degree of self-esteem and a positive self-concept. He/she
has a perfect self-appraisal and is well aware about own strengths and weaknesses.
Entrepreneurs have a strong desire to achieve, to succeed, to win, to do
something unique and something which is very different. They like to excel in
whatever they do. Everyone dreams. Entrepreneurs have a firm determination to
fulfill their own dreams. They tend to think ahead. They know how to make it
happen by means of a clearly chalked out plan of action. They have a future
orientation.
Entrepreneurs search for business opportunities and materialize their
dreams into actual reality. They have the ability to sense environmental opportunities
and make a wise choice of promising business ideas on the basis their own priorities
and suitability. They are capable of converting adversity into opportunities.
Entrepreneurs are pioneers. They are innovators. They introduce something
new into society. They have vision. They think far ahead of their times. There is
always uncertainty about acceptability for their ideas/products/services.
Business But they
are self-confident and optimistic. They dont give up. TheyEntrepreneurship - I work
continue their 47
even in the face of risk and uncertainty. They have a high level of tolerance for Introducing the Entrepreneur
ambiguity and uncertainty. They like to take calculated risk and courageously face
challenges and overcome hurdles.
They like freedom, autonomy and independence. They enjoy being their
NOTES
own masters. They dont like to work for others. They want to be responsible for
their own decisions.
They are realistic. They are flexible in their decisions in the light of
situational demands. They have the ability to respond to changes in a flexible
manner. They are creative. They know problem solving. They are expert in time
management. They set time bound targets and plan to achieve those without fail.
They have the capacity to work long hours even in the face of various stresses
and strains. They are extremely energetic and enthusiastic. They give their complete
wholehearted commitment and dedication. They have good interpersonal skills.
Entrepreneurs are self-motivated. Major motives which influence
entrepreneurs are to be independent, to excel, to prove one-self, to utilize talent/
skills, to do something unique, to get greater economic rewards.
A review of literature related to entrepreneurial characteristics reveals a
wide range of common characteristics associated with entrepreneurs such as need
for achievement, need for affiliation, locus of control, risk-taking, tolerance of
ambiguity, type-A behavior etc.
John Kao identified eleven common characteristics as follows: total
commitment, determination and perseverance; drive to achieve and grow;
opportunity and goal orientation; taking initiative and personal responsibility;
persistent problem solving; realism and a sense of humour; seeking and using
feedback; internal locus of control; calculated risk taking and risk seeking; need
for status and power; integrity and reliability.
When we turn the pages of business history, we come across several
prominent names of successful entrepreneurs such as Tata, Birla, Kirloskar, Ambani,
Narayan Murthy, Henry Ford, Azim Premji, Indra Nooyi, Oprah Winfrey, Naina
Lal Kidwai, Anu Aga and others who made a humble beginning and made good
fortune. Success of an enterprise is attributed to success of entrepreneur himself/
herself. While going through their success stories, some common personal
characteristics are seen. The important personal qualities are discussed below:
Need for achievement: Entrepreneurs are highly ambitious. They are
highly motivated. They have a strong desire to achieve. They are highly energetic.
They are action oriented. They act continuously to make their dreams true and
achieve the goals. They tend to set challenging goals and strive to achieve these
goals. Such individuals value feedback and on the basis of feedback assess their
accomplishments.
Individuals with a high need for achievement have an intense aspiration to
be successful. They are more likely to behave entrepreneurially. They persist on a
task only if they believe that they are likely to succeed.
McClelland defines achievement motivation as behaviour towards
competition with a standard for excellence. It is a trait that is dominant among
entrepreneurs. It also refers to the desire to outperform other people. Individuals
with high need for achievement find satisfaction in comparing themselves with
others. They get motivated by this comparison.
Business
Entrepreneurship - I 48
Introducing the Entrepreneur Vision: Entrepreneurs have a good foresight about future business
scenario. They can visualize the future trends likely to take place in market and
plan their business decisions accordingly. They are proactive in their approach.
They are always alert to opportunities. They are very quick to sense and grab
opportunities. NOTES
Innovative: Innovation is an essential entrepreneurial characteristic.
Innovativeness is the focal point of entrepreneurship. Entrepreneurs are constantly
on the look out to do something different and unique. They may or may not invent
new products or new methods, but they are able to foresee the possibility of applying
inventions for their enterprises with an eye on profitability. Enterprising persons
quickly sense and seize opportunities. With their innovative skills and creativity,
they apply inventions for profitable use.
Ability to take risks: Entrepreneur is a person who organizes, operates
and assumes risk for a business venture. The idea of risk-taking appears in almost
all the definitions of entrepreneurship. Risk taking is identified as a characteristic
which distinguishes entrepreneurs from non-entrepreneurs and from managers.
Risk-taking propensity is defined as the perceived probability of receiving
awards associated with success of a situation that is required by the individual
before he/she subject himself/herself to the consequences associated with failure,
the alternative situation providing less reward as well as less severe consequences
than the proposed situation. A high propensity to take risks is considered as an
important characteristic of an entrepreneur.
Entrepreneurs have a strong determination. They can take decisions under
uncertainty. Some entrepreneurs take high risks. Some prefer a conservative
approach to risk. Generally successful entrepreneurs undertake moderate risks in
situations where they have some degree of control or skill in realizing profit. They
are often referred as calculated risk takers.
Tolerance for ambiguity: When there is insufficient information to
structure a situation, an ambiguous situation is said to exist. The manner in which
a person perceives an ambiguous situation and organizes the available information
to approach it reflects his/her tolerance of ambiguity. McClelland defines intolerance
for ambiguity as a tendency to perceive ambiguous situations as a source of threat.
A person who has a high tolerance for ambiguity finds ambiguous situations
challenging. He/she strives to overcome unstable and unpredictable situations and
do his/her best. On the other hand, a person with low tolerance for ambiguity
tends to find unstructured and uncertain situations uncomfortable and want to
avoid such situations.
Entrepreneurs work in an uncertain environment. They eagerly undertake
the unknown and unforeseen. They willingly seek out and manage uncertainty.
Highly optimistic: Entrepreneurs are future oriented. They have a positive
approach. They are dynamic, enterprising, and enthusiastic. They look forward
towards favourable business environment. They do not get disturbed by problems.
They know how to sail through troubled waters. They do not complain about
problems, they always focus on solutions. They look towards failures also with a
positive approach. They have a strong will to succeed. They have a hope of success
instead of fear of failure. This instills a lot of confidence among them which leads
to success.
In spite of all the challenges and difficulties inherent in the entrepreneurial
Business
lifestyle, entrepreneurs are highly optimistic about life and Entrepreneurship - I They
about the world. 49
look at difficulties, adverse situations as opportunities to be explored. They are Introducing the Entrepreneur
problem solvers. They look at a problem as a learning opportunity. They are
confident of their abilities and skills. They take initiative. They are committed and
completely dedicated to their dream.
NOTES
They are good at decision making. The decisions are based on precise
information and evaluation. They are good planners,
Self-esteem: Entrepreneurs are self-confident. They have high self-
esteem. They believe in themselves. They do not pay any attention to criticism.
They know what is good for them and what they should do. They are self-
motivated. They have a strong desire to succeed.
Independence: Entrepreneurs prefer to work for themselves rather than
for others. They want to be responsible for their own actions. They like to be their
own bosses. They dislike working for others.
Adaptability: Entrepreneurs are adaptive and flexible. They can quickly
adapt themselves to environmental changes. They are realistic about themselves
and about their ideas and actions. They are professional in their approach and
objective in their attitude.
They do not compete but collaborate with their competitors. They believe
in win-win strategy. They look at competition with a positive approach.
Good communication skills: Entrepreneurs maintain good human
relations. They are fantastic at team work. They know how to get the things done.
They quickly connect with others. They are good at networking. They maintain
meaningful relationship with influential people.
Team leadership: Entrepreneurs are good at team work. They prefer to
work in teams and lead from within.
Hard work: Willingness to work hard, stamina, persuasion and
perseverance distinguish successful entrepreneurs from unsuccessful ones. Even
in the face of adversity, they do not change their convictions. They strive hard to
reach their destination. They stick to their commitment.
Perseverance: Entrepreneurs possess the ability to withstand repeated
rejection and disappointment. After undertaking any task, entrepreneurs take that
as a commitment. They dont give up. They are able to learn lessons from failures
and prevent damage of their self-esteem. They solve all the problems and work
sincerely until the task is successfully completed.
High Internal locus of control: According to Rotters locus of control
theory, an individual perceives the outcome of an event as being either within or
beyond his/her personal control. Locus of control refers to the perceived control
over the events in ones life. Peoples beliefs in personal control over their lives
influence their perception of important events, their attitude towards life, and their
work behaviors. People with internal locus of control believe that they are able to
control what happens in their lives. They understand that their own actions,
decisions and responses matter a lot. People with external locus of control tend to
believe that most of the events in their lives result from being lucky, being at the
right time, and the behaviours of powerful individuals. Rotter hypothesized that
those with an internal locus of control would more likely to strive for achievement
as compared to those with an external locus of control.
People with high internal locus of control take responsibility for doing the things Business
Entrepreneurship - I 50
that need to be done. They have faith in their ability to determine their own success.
Introducing the Entrepreneur Entrepreneurs have greater internal locus of control than general population.
They believe in their own ability to control the consequences of their endeavour
by influencing their socio-economic environment rather than leave everything to
luck. They strongly believe that they can govern and shape their own destiny.
NOTES
BOX 3.1

Entrepreneurial Profile as Devised by David McClelland:


David McClelland characterized entrepreneurs as high achievers
possessing the following traits:
Desire for responsibility: Entrepreneurs see a deep sense of personal
responsibility for outcome of ventures they start. It is essential for
them to have acommand over the resources, maintain productive
Check Your combination of these resources and create value.
Progress
Preference for moderate risk: Entrepreneurs systematically observe
business environment before taking any decision. They dont take
1. What are the char-
unlimited wildrisk. Rather they are calculated risk takers.
acteristics of a suc-
cessful entrepreneur? Confidence in their ability to succeed: Entrepreneurs are optimistic
about chances of their success. They are confident about their
2. Entrepreneurs are capability. They dont believe in luck. They believe in themselves.
-------- Desire for immediate feedback: Entrepreneurs have high on need for
i) High risk takers, ii) achievement. They strive for perfection, excellence, improvement.
Moderate risk takers, They are interested in betterment. They deal with something new,
iii) Low risk takers, iv) something challenging and obviously they look for reaction and
Do not take risks response of society.
High level of energy: Entrepreneurs are more energetic and
enthusiastic than general population in the society.
Future orientation: Entrepreneurs look ahead. They have vision. They
sense, select and then try to exploit opportunities from the environment.
Skill at organizing: Entrepreneurs convert their dreams into reality
through the framework of organizing. They integrate human and non-
human resources of production together to create want satisfying
products/services to society. They know how to put right people
together to accomplish a task.
Value of achievement over money: Entrepreneurs are high achievers.
Their primary motive is achievement. They look towards money as a
symbol of achievement.

In this section, we have discussed the characteristics of successful


entrepreneurs. However, what is important is what an entrepreneur does, and not
the characteristics he/she may or may not possess. Entrepreneurs are not cut out
from the same mold. Not all the characteristics are necessary for every entrepreneur
in a particular proportion, or with a particular combination to achieve success. It is
not possible to devise a set of characteristics which will definitely lead towards
success.

Entrepreneurship versus Small Business Management


The terms entrepreneurship and small business management have been
used interchangeably. Both form a company, start a business, sell product/services,
and make money. However, it is important to know that Business
these two terms are
Entrepreneurship - I 51
defined quite differently and refer to different practices. Ultimately, an entrepreneur Introducing the Entrepreneur
or a person engaged in entrepreneurship is someone who innovates or creates.
On the other hand, a small business manager is a person who is engaged in the
actual management of a business.
NOTES
Entrepreneur is anyone who runs or organizes a business enterprise with
high risk and initiative. He/she solves problems, create value and change the way
things work. A businessman is simply any person engaged in business for making
money. To be a businessman, there is no requirement of risk or initiative. All
businessmen are not entrepreneurs but all entrepreneurs are businessmen.
In practical usage, entrepreneur means generally someone who initiated
i.e. founded and started a business enterprise. The term businessman is a broad
term which encompasses entrepreneurs also according to the practical usage of
the term. However, classical definition of the term entrepreneur differs.A small Check Your
business owner who starts a small business but never creates new products/ Progress
services, or develops new ways to manage his/her business only engaged in an
act of entrepreneurship when he/she started the business. 3. is
Entrepreneurs take risks, businessmen play it safe. Entrepreneurs innovate, someone who inno-
businessmen recreate. Entrepreneurs think with their minds, businessmen think vates or creates. (en-
with their wallets. Entrepreneurs love what they do; businessmen dont always trepreneur / manager)
love what they do. Entrepreneurs focus on cooperation, businessmen focus on On the other hand,
competition. Entrepreneurs are market leaders and they focus on value whereas is a per-
businessmen are market players and they focus on profit. Entrepreneurs are usually son who is engaged in
excited while businessmen are usually worried. the actual manage-
ment of a business (a
It is interesting to note that some entrepreneurs never want to become small business man-
full-time managers. They prefer to hire professional managers to look after the ager / entrepreneur)
routine functioning of the organization. 4. The term
is a
broad term which en-
3.3 Entrepreneurial Mindset compasses
also. ( businessmen,
While studying entrepreneurial personality, it is essential to understand
entrepreneurs)
entrepreneurial mindset i. e. how the mind is trained to think and react.
Entrepreneurial mindset is a certain set of characteristics that defines the way an
entrepreneurial mind functions and responds to various situations. A mindset reflects
the way the mind responds to various situations. It is the way in which
entrepreneurial mind functions. It is not just any one characteristic, but an entire
collection of thoughts and reactions that come together to create the whole.
Entrepreneurship involves doing things in an untraditional, unconventional and
unorthodox manner. Naturally, entrepreneurs require unique, uncommon and special
thought process which is significantly different from other ordinary human beings.
Differentiation of an entrepreneur is in the way in which they think and react
which can be referred to as entrepreneurial mindset.
Let us begin with the original word entrepreneur. We have seen that the
word comes from a French verb, entreprendre meaning to undertake or do
something. Economists gradually refined the definition by adding various attributes
to the definition. The first step was to relate it to business during the 16th century.
By the 18th century risk had been added in that the business venture had no
guarantee of profit. In the 19th century other skills such as knowledge skills, business
skills, and management skills were added. Later on in the last century calculated
risk and by mid-century the concept of innovation had been added. All these
definitions and additions were from economists which focused entirely on traditional Business
Entrepreneurship - I 52
Introducing the Entrepreneur western business model. According to this model, success is measured in terms of
financial parameters like return on investment (ROI) or profit. However, it is
possible to have entrepreneurs that do not maximize profit or return on investment.
The concept of social entrepreneurship disproves the financial basis for measuring
entrepreneurship. NOTES
The term entrepreneur closely resembles antahprerana-a word in
Sanskrit - which means self-motivation. It means intuition i.e. direct perception of
truth, fact etc independent of any reasoning process.
Economists referred some other traits of entrepreneurs like willingness to
take calculated risks. They deal with innovation. There is uncertainty about market
acceptance for innovative ideas. However, entrepreneurs do not get discouraged.
They dont give up. They are optimistic. They believe in themselves. They have a
clear vision. The vision is based on needs and problems that need solving. They
are totally committed to the vision. They are known for converting an adversity
into an opportunity. They are problem solvers. Others see problems but
entrepreneurs look at opportunities.
Personality characteristics influence the decision making skills and behavior
process. Entrepreneurs face situations in a unique manner. They have a special
frame of mind, due to which they look, think, decide, and respond to situations in a
special manner. They do not react in a common and traditional manner like other
common people. The decisions, actions, responses of entrepreneurs are typical of
their mindset. Entrepreneurial mindset influences the manner in which they monitor
the environment, perceive problems as well as challenges; and makes a smart
choice of opportunities.
While making efforts for developing entrepreneurial mindset, special
attention is needed for the following characteristics: a clear and achievable vision,
self-awareness, confidence, self-motivation, a willingness to take risks, lack of
fear of failure, a willingness to work hard.
Entrepreneurial mindset makes the difference between success and failure
of their business ventures. It is characterized by their dreams, ambitions, passionate
nature, curious mind, opportunistic nature, ability to think big, positive outlook
towards life, self-confidence, dedication, commitment and undaunted focus.
Some aspects of entrepreneurial mindset may be a part of inborn traits,
but of course all of them can be cultivated through proper efforts and training.
Entrepreneurs are prepared for a tough journey. Along with passion,
commitment and total dedication is needed to survive in the face of various
challenges and difficulties. To sustain through the difficult times, entrepreneurs
should be able and willing to reach out to appropriate persons for getting moral
support, emotional backing and financial assistance as and when needed.
Entrepreneurs should ensure that they are in a company of resourceful persons.
They have to interact with experts and professionals, share experiences from
time to time, get advice, counselling as well as guidance and boost up morale.

Entrepreneurial Competencies
Initiation of entrepreneurship involves perceiving an idea of enterprise,
converting that idea into reality, organizing various resources, and getting the things
done through various activities, operations, persons and organizations for seeking
market acceptance and societal sanction. Those who think about entrepreneurship
Business
Entrepreneurship - I 53
career are not ordinary people. They are innovative. They are blessed with some Introducing the Entrepreneur
special skills and competencies.
A competency can be defined as an underlying characteristic of a person
which results in effective and/or superior performance in a task. It may be a
NOTES
motive, trait, skill, or a body of knowledge, or a combination of any of these which
one uses to his/her advantage.
Competencies are of two kinds:
Hard skill competencies Hard skill competencies refer to skills that are
acquired through academic education or through work experience.
Soft skill competencies Most soft skills are like traits such as initiative,
self-confidence, assertiveness, persuasion, persistence, information seeking, seeking
and acting on opportunities, problem solving, commitment, systematic planning,
efficiency orientation, desire for excellence, perfection, and high quality.
Entrepreneurial competencies can be defined as characteristics such as
generic and special knowledge, motives, traits, self-image, social roles and skills
which result in birth of a venture, its survival and/or growth. In short, the
competencies required by an individual for starting a business venture and carrying
it on successfully are known as entrepreneurial competencies.
Entrepreneurial competencies may be classified into two types: Personal
entrepreneurial competencies and Venture initiation and success competencies.

Personal Entrepreneurial Competencies:


These are required to perform the tasks effectively and efficiently. This
includes the following:
Initiative: It is an inner urge in an individual to do or initiate something
Ability to see and act on opportunities: Entrepreneurs look for opportunities
and take action on such opportunities
Persistence: It means the capacity or skill to take repeated and different
actions to overcome obstacles
Information seeking: A successful entrepreneur always keeps his/her eye
and ear open. He/she should accept new ideas which can help him/her in realizing
experts for getting their expert advice.
Concern for high quality of work: Entrepreneurial persons act to do things
that meet or beat existing standards of excellence
Commitment to work: Successful entrepreneurs are prepared to make all
sacrifices for completing the commitments they have made
Commitment to efficiency: Entrepreneurial persons have to look and find
ways to do things faster or with fewer resources or at a lower cost. They should
try new methods aimed at making work easier, simpler, better and economical.
Systematic planning: Entrepreneurial persons should be able to develop
and use the logical step by step plans to reach goals.
Problem solving: Entrepreneurial persons are supposed to possess the
skill of identifying new and potentially unique ideas to reach goals. They should
generate new ideas or innovative solutions to solve problems. Business
Entrepreneurship - I 54
Introducing the Entrepreneur Assertiveness: They assert own competence, reliability or other personal
or companys qualities. They also assert strong confidence in own companys
products or services.
Persuasion: Entrepreneurs should have the ability to successfully pursue
NOTES
others to perform the activities effectively and efficiently.
Use of influence strategies: Entrepreneurs should have the competence of using a
variety of strategies to influence others. Such entrepreneurs can develop business
contacts and use influential people to accomplish his/her own

Venture Initiation and Success Competencies:


An entrepreneur must also possess the competencies required for launching
the enterprise and for its survival and growth. These competencies may be further
divided into two categories of competencies.
Enterprise launching competencies: These comprise of competency to
understand the nature of business, competency to comply with Government
regulations, competency to deal with business, competency to finance business,
competency to locate business, competency to plan marketing strategy, competency
to choose type of ownership, competency to obtain technical assistance,
competency to develop a business plan, competency to determine the potential as
an entrepreneur.
Enterprise management competency: These include the competency to
protect business, competency to manage customer credit and collection,
competency to manage finances, competency to manage business records,
competency to manage sales efforts, competency to promote products and services
of business, competency to manage human resources, competency to manage
business.
Robert Hisrich classified skills required by entrepreneurs into three main
Check Your
areas: technical skills, business management skills and personal management skills.
Progress
Technical skills involve such things as writing, listening, oral presentations,
5. What do you know organizing, coaching, being a team player, and technical know-how.
about the term entre-
preneurial mindset? Business management skills include those areas involved in starting,
developing, and managing an enterprise. Skills in decision making, marketing,
6. Write in short about management, financing, accounting, production, control, and negotiation are essential
entrepreneurial com- in launching and growing a new venture.
petencies.
The final skill area involves personal entrepreneurial skills. Some of these
skills differentiate an entrepreneur from a manager. Skills included in this
classification are inner control (discipline), risk taking, innovativeness, persistence,
visionary leadership, and being change oriented.

3.4 Entrepreneurial Functions


As we have seen above, entrepreneurs are the persons who initiate,
organize, manage, and control the affairs of a business enterprise so as to organise
factors of production together and provide goods and services; the business may
pertain to agriculture, industry, trade or profession.
Peter Kilby identified functions of an entrepreneur in the form of four
major tasks as follows: Business
Entrepreneurship - I 55
A. Exchange relationship Introducing the Entrepreneur

1. Perceiving market opportunities


2. Gaining command over scarce resources
NOTES
3. Purchasing inputs
4. Marketing of products and responding to competition
B. Practical administration
5. Dealing with public bureaucracy (concessions, licenses and taxes)
6. Managing human relations within the enterprise
7. Managing customer and supplier relations
C. Management control
8. Managing finance
9. Managing production (control by written records, supervision,
coordinating input flows with orders, maintenance)
D. Technology
10. Acquiring and overseeing assembly of factory
11. Industrial engineering (minimizing inputs with a given production
process)
12. Upgrading process and product quality
13. Introducing new production techniques and products
Kilby suggested that in the strict sense entrepreneurs will perform only
the first two functions listed above and for the other eleven functions; he will
employ experts in the related lines. He has enumerated about 13 functions of an
entrepreneur as noted above which can also be classified into three broad categories
risk bearing, organization and innovation. He 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 described entrepreneur as a decision maker. He described
the following functions of an entrepreneur:
1. The determination of business objectives of enterprise and change of
those objectives as conditions require or make advantageous;
2. The development of an organization including efficient relations with
subordinates and all employees;
3. The securing of adequate financial resources, relations with existing and
potential investors;
4. The requisition of efficient technology equipment and the revision of it
as new machinery appears;
5. The development of a market for the products and the devising of new
products to meet or anticipate consumers demand; and
Business
Entrepreneurship - I 56
Introducing the Entrepreneur 6. The maintenance of good relations with public authorities and with society
at large
A variety of views and contradictions are seen in literature on
entrepreneurial functions. However, entrepreneurial functions in a general manner
NOTES
can be listed as innovation, risk bearing, uncertainty bearing, and management.
Innovation is a distinguishing feature of entrepreneurship. It implies doing
of new things or doing of things that are already being done in a new way. It is
concerned with new products/services, new customers, new markets, new
technology, new raw material, new sources of raw material, new organization,
new methods of production and so on.
Entrepreneurship involves various types of risks. Promotion of an
entrepreneurial venture involves physical hardships, emotional strains due to
uncertainty about market acceptability, income as well as societal sanction. Along
with personal risks and financial risks, there are risks associated with technology,
knowledge and skill. Entrepreneurs take calculated risks in creating and running
an enterprise.
Uncertainty bearing refers to the uncertain trend of markets, business.
The ability to handle uncertainty is a must. Entrepreneurs tend to have a high
tolerance for ambiguous, ever changing situations.
Obviously, planning becomes the first step for the sake of setting up a
business enterprise. The entrepreneur has to plan product/service to be produced,
select the location, determine about form of organization, estimate capital
requirement, choose sources of capital/resources, customer segment(s), type of
market, marketing strategy and so on. In this manner, decision making plays an
important role in entrepreneurial planning. Consequently, the entrepreneur has to
organize and coordinate various factors of production, and ensure optimum utilization
of available resources. In this manner, entrepreneur has to manage his/her
enterprise by tackling day to day affairs and ensuring its smooth functioning.
At initial stage, the functions are mostly performed by entrepreneurs all
by themselves. Later on, as the enterprise grows, necessarily delegation of routine
tasks and functions is needed.
In advanced and developed economies, entrepreneur can be merely a
promoter; but in underdeveloped economies, entrepreneur has to perform a wide
range of activities and tasks due to various types of market imperfections and
infrastructural bottlenecks.

3.6 Summary
Entrepreneurs have most often been thought of as being born with some
special traits and skills. However, in due course of time, several research studies
were conducted on entrepreneurs and their enterprises. These empirical surveys
revealed that entrepreneurs are not people born with innate quality. They are not
exceptional and extra ordinary human beings blessed with some inborn traits. People
realized that actually entrepreneurship is a calculated and well planned career
option which leads towards wealth generation and economic development. Kakinada
experiment proved that entrepreneurs can be developed with training.
Entrepreneurship is not like basic science. It falls with the domain of social sciences.
It is linked with various streams of knowledge. Much of the research is applied. It
is difficult to generalize the findings easily. Business
Entrepreneurship - I 57
Anyone, regardless of age, gender, religion, race, or any other characteristic Introducing the Entrepreneur
can become an entrepreneur. Entrepreneurship is not a mystery. It is a practical
discipline. It is not a genetic trait. It is a skill that can be leant.
Existing corporations have also realized that in this highly competitive world,
NOTES
being entrepreneurial is a must. Many big corporates created numerous corporate
entrepreneurship programmes to promote entrepreneurs within who will enable
future growth for these enterprises.
A number of researchers have tried to identify the traits responsible for
entrepreneurship. They could not devise a combination of entrepreneurial
characteristics; they could not identify a definite formula for success. However,
innovation, creativity, need for achievement, risk bearing attitude etc are considered
to be the characteristics of a successful entrepreneur.
Entrepreneurship is not a matter of heritage. Entrepreneurs are not
necessarily born, they can be groomed with proper awareness, education and
training. If you possess certain skills, qualities, personality traits, mental aptitude;
you can become a successful entrepreneur. You may not be from a business family,
you may not be rich, you may not belong to a business community/caste/class; still
you can fulfill your dream of entrepreneurship by identifying and sharpening the
necessary behavioural traits/aptitude through counseling and motivational training.
You need to possess a strong desire to succeed, entrepreneurial capability, initiative,
problem solving.
Entrepreneurs identify opportunities that no one has earlier noticed.
Creativity and innovation enables entrepreneurs to think in a unique and new way.
They apply innovative ideas to business. They monitor environment, sense
opportunities, martial resources and apply their innovative ideas into actual practice.
They are able to get the things done. They take calculated risks and create value.
A competency is a combination of knowledge, skills and appropriate
motives or traits that an individual must possess to perform a given task.

3.7 Key Terms


Win-win strategy: A conflict resolution process that aims to
accommodate all disputes; win-win outcomes occur when each side of
a dispute feels they have won. Since both sides benefit from such a
scenario, any resolutions to the conflict are likely to be accepted
voluntarily

3.8 Questions and Exercises


Questions
1. Discuss the main functions of an entrepreneur.
2. What do you understand by the term entrepreneur? Give the main
characteristics of an entrepreneur.
3. Project the personality of an entrepreneur.
4. How does an entrepreneur differ from a manager?

Business
Entrepreneurship - I 58
Introducing the Entrepreneur 5. Is entrepreneurship different from small business management?
Express your own views.
6. Who is an entrepreneur? What are the characteristics of successful
entrepreneurs?
NOTES
7. In what manner entrepreneurship and small business management are
related to each other?
8. What are the popular myths around entrepreneurship?
9. Why should an entrepreneur require a different mindset?
10. Describe the entrepreneurial profile and evaluate your potential as an
entrepreneur.

Exercise
1. Conduct an interview of a successful entrepreneur from your city. Find
out his/her qualities, and functions performed by him/her for promotion
of entrepreneurial venture.

Multiple Choice Questions


1. Which of the following is not the characteristic of an entrepreneur?
i. Adaptability
ii. Self-driven
iii. Risk taking
iv. Sound financial position
2. Which of the following is not a myth on entrepreneurship
i. Entrepreneurship involves risk taking
ii. Entrepreneurs are motivated by money
iii. Entrepreneurship is for people with money
iv. Entrepreneurship is a sure way to riches
3. Choose the correct answer from the following alternatives
i. Walker devised locus of control of theory
ii. Entrepreneurs have external locus of control
iii. People with internal locus of control have faith in their ability to
determine their own success
iv. People with external locus of control believe that they are able to
control their lives
4. refers to an entrepreneur as a person with a high
internal locus of control.
i. Schumpeter
ii. G. B. Shaw Business
Entrepreneurship - I 59
iii. Rotter Introducing the Entrepreneur

iv. Martin Luther King


5. defines an entrepreneur as one who always
searches for change, responds to it and exploits it as an opportunity NOTES

i. E. E. Hagen
ii. Ronstadt
iii. Liebenstein
iv. Peter Drucker
6. Choose the wrong alternative from the following
i. Entrepreneurs have a strong desire to achieve
ii. Entrepreneurs are innovators
iii. Entrepreneurs take calculated risk
iv. Entrepreneurs like to work for others
7. Which of the following is a typical characteristic of entrepreneurs?
i. Need for achievement
ii. Need for power
iii. Need for avoidance
iv. Need for affiliation
8. Pick the odd one out.
i. Innovation is a distinguishing feature of entrepreneurship
ii. Entrepreneurship is a practical discipline
iii. Entrepreneurship is a genetic trait
iv. Entrepreneurship is a skill that can be leant

Answers
Check Your Progress
2. moderate risk takers
3. entrepreneur, a small business manager
4. businessman, entrepreneurs

Multiple Choice Questions


1. iv
2. i
3. iii Business
Entrepreneurship - I 60
Introducing the Entrepreneur 4. iii
5. iv
6. iv
NOTES
7. i
8. iii

3.9 Further Reading


Hisrich Robert D., Peters Michael P., Shepherd Dean A., Entrepreneurship,
Tata McGraw Hill Education Pvt. Ltd., New Delhi, 2010
Shankar Raj, Entrepreneurship Theory and Practice, Vijay Nicole Imprints
Pvt. Ltd., Chennai, 2012
Zimmerer Thomas W., Scarborough Norman M., Essentials of
Entrepreneurship and Small Business Management, PHI Learning Pvt. Ltd., 2011

Business
Entrepreneurship - I 61
Entrepreneurial Career
UNIT 4 : ENTREPRENEURIAL CAREER

NOTES

Structure

4.0 Introduction
4.1 Unit Objectives
4.2 Charms of Being an Entrepreneur
4.3 A Journey Towards Entrepreneurship Career
4.4 Myths of Entrepreneurship
4.5 Problems Faced by Entrepreneurs
4.6 The Dark Side of Entrepreneurship
4.7 Summary
4.8 Key Terms
4.9 Questions and Exercises
4.10 Further Reading

4.0 Introduction
The best way to predict the future is to create it. - Peter Drucker
For a long time, there was a belief that entrepreneurs are born, and not made.
Entrepreneurship was not considered as a career option. It was for either naturally
gifted persons, wealthy individuals or school drop outs. It was never the most sought
after career option. No one thought about taking efforts to plan for entrepreneurial
career. It was considered to be the last resort when all other career options failed.
However, several research studies in the past few decades have shown
that millions of small businesses have been started by common people and these
enterprises have been doing well on the basis of disciplined practice of a number
of repeated and structured activities. It was attempted to identify the factors that
inspired entrepreneurs, to develop a profile of entrepreneurs in the light of their
upbringing, their personality set up, their socio-economic background, the factor
responsible for their success etc. Researchers documented these activities of
practicing entrepreneurs and other information details for the benefit of new aspiring
entrepreneurs. There is an emerging body of knowledge about entrepreneurship.
Now, in the light of comprehensive and all round efforts of the government for
entrepreneurship development, and consequent positive change in the societal
attitude about entrepreneurship as a career; it is now safe to consider
entrepreneurship as a career option.
Entrepreneurship has been evolving as an independent body of knowledge.
Literature is now available on various aspects of entrepreneurship. Researchers,
experts from various academic disciplines such as economics, psychology,
management, commerce, sociology etc are increasingly being attracted towards Business
Entrepreneurship - I 62
entrepreneurship. Researchers have started studying various practices of small
Entrepreneurial Career businesses, their initiation, management, growth as well as problem solving. Budding
entrepreneurs now have tremendous literature to learn from.
Now society has started giving sanction to entrepreneurship career option.
Successful entrepreneurs are being recognized. There is awareness about
NOTES
entrepreneurship. Entrepreneurial ecosystem has been developed in the form of
support of different institutions, availability of finance etc.

4.1 Unit Objectives


After going through this unit, you will be able to
Explain the role of entrepreneurs in society
Comprehend entrepreneurship as a career
Appreciate benefits of entrepreneurship
Learn about myths as well as challenges associated with
entrepreneurship
Realize the risks associated with tasks of an entrepreneur
Know about capacity building for entrepreneurship

4.2 Charms of Being an Entrepreneur


Twenty years from now you will be more disappointed by the things that
you didnt do than by the ones you did. So throw off the bowlines. Sail away from
the safe harbor. Catch the trade winds in your sails. Explore, Dream, Discover.-
Mark Twain
An educated person may opt for wage employment in government sector/
public sector/private sector and get fixed salary. The other career option is
entrepreneurial employment in which new ventures are set up. Wage employment
is self-saturating whereas entrepreneurial employment is self-generating. Wage
employment blocks employment opportunities for others for another few years
and entrepreneurship creates numerous employment opportunities for others.
Entrepreneurial employment generates wealth. It provides an outlet for the urge
of self-expression, excellence, perfection, innovation. All entrepreneurs are self-
employed, but all self-employed persons may not be entrepreneurs.
Entrepreneurship refers to identification of innovative ideas and setting up of a
new enterprise. Entrepreneurs bear risk, mobilize resources, and organize
production, market products/services. They take independent decisions. They are
problem solvers. Entrepreneurial orientation is creative, innovative whereas wage
employment is of routine type. It maintains status quo. There may not be excitement
in work. Work may become dull, boring. Your initiative, creative ideas may not
find an outlet in a job. Your boss may not allow you to experiment with new ideas.
Work may become monotonous with the same routine over a number of years.
Quite often, people feel depressed and get frustrated.
Entrepreneurs create their own destiny. They establish own enterprises
and their own world. They decide their own rules and policies and take actions on
their own. They write their own script. They need not seek approvals. They need
not get sanctions. There is no waiting for the sake of realizing a good idea into
actual practice. They can take their own decisions. TheyBusiness
enjoy full freedom and
Entrepreneurship - I 63
liberty. They get the pleasure of being their own boss. There is no one to dictate. Entrepreneurial Career
They can try their own ideas enthusiastically in a creative manner. They are
responsible for their own actions. It gives a sense of independence at work. They
can achieve their full potential by giving their 100 per cent contribution.
NOTES
Entrepreneurship provides individuals the chance to be their own boss,
make meaningful decisions. To quote Jerome Turner, an entrepreneur, I was
tired of making others rich, tired of asking permissions, and tired of saying, Yes
sir. I started my own business because I have the freedom to do what I want,
when I want. I am responsible to one person-me-and I love it! Entrepreneurs
love business ownership. They are in charge of their own lifestyle which may be
completely impossible in salaried employment. They can decide things for
themselves. They can set their own priorities and structure things in the best possible
way. They can be completely free of corporate politics.
Entrepreneurs get opportunities for self-realization and fulfillment. They
can fulfill their need for self-actualization out of their ventures. Entrepreneurial
ventures enable them to deal with areas of their interests, their expertise. There is
unlimited enjoyment at work. They work for their own sake and not for someone
else. Entrepreneurship creates satisfaction of fulfilling desires. They learn extremely
useful practical skills which is beneficial for them throughout their career in or out
of entrepreneurship.
Sharon Beasley says that one of the biggest reasons she started her own
business was to challenge her and see how far her own abilities could take her. To
quote her, I started my company because I wanted to know that I could. I wanted
to push my abilities into areas that my traditional employer would not allow.
Entrepreneurs can do a wide variety of things. They get the pleasure of doing
something valuable for the world around them.
Entrepreneurs get recognition for their work. They work independently
for their own dreams and ambitions. They are able to create wealth from their
innovative products/services. They can stand out in the crowd with the help of
their unique activities. They contribute to society. They are among the respectable
persons of the society and are recognized for their efforts.
Entrepreneurship is often associated with attractive financial rewards.
They generate impressive profits. As the saying goes, Nobody ever becomes
rich working for somebody else. In salaried employment, an employee gets a
fixed amount as salary. Those who want to earn more money leave employment
and aspire for entrepreneurial career. Such persons are motivated by the possibility
of earning a good amount of money through entrepreneurial ventures.
Entrepreneurial career is infinitely preferable to salaried employment.
Entrepreneurs get independence, freedom, sense of accomplishment, recognition,
pleasure of achievement and wealth creation. They create their own world by
pursuing their dreams and ambitions. They prove themselves with the help of their
enterprises through innovative and creative products/services. They do what they
enjoy. They have fun at their work. Self-actualization needs are manifested through
entrepreneurial ventures. Entrepreneurship is basically a joyful expression of ones
contribution to society. Along with earning unlimited financial emoluments they
pursue the pleasure of contributing to community development, societal welfare,
economic development, and national development.
If you look for more excitement then taking the entrepreneurial path might
be the right choice. It can make a big difference. It will empower you to stand out Business
in the crowd. Its an opportunity for self-expression and self-actualization. Entrepreneurship - I 64
Entrepreneurial Career Entrepreneurship offers a sense of empowerment. It offers an opportunity to reach
your full potential. In the words of Harvey McKay, Find a job doing what you
love, and youll never have to work a day in your life. The journey rather than the
destination is the entrepreneurs greatest reward.
NOTES
4.3 A Journey Towards Entrepreneurship Career
The greatest glory is not in never failing but in rising up every time we fall - Confucius
Check Your In the previous units 1, 2 and 3, we have seen evolution of the concept of
Progress entrepreneurship. Then we discussed various definitions of entrepreneur and
entrepreneurship developed by various disciplinarians and specialists. Although
1. Wage employment each definition views entrepreneurs from different perspectives, there is a common
is thread containing various ideas such as newness, organizing, wealth generation
whereas entrepre- and risk taking. Creative persons naturally get attracted towards entrepreneurship
neurial employment career. Entrepreneurship enables them to apply their creative and innovative ideas
is (self-gener- into actual practice. Along with the pleasure of creation they enjoy independence
ating, self-saturating) and money making also. What makes an individual to take risks involved in starting
2. Wage employment a new venture? Many people still do not consider entrepreneurship as their career
choice. Let us discuss the dynamics of entrepreneurial decision process. There is
employment opportu- a big change involved in entering entrepreneurship career and leaving present
nities for others and career or lifestyle.
entrepreneurship
numerous employment A decision to leave the present career and start an entrepreneurial venture
opportunities for oth- may be the result of push influence or pull influence. Pull influences include factors
ers. (blocks, creates) which attract individuals towards entrepreneurial career such as independence,
3. All entrepreneurs freedom, childhood impact, dream, ambition, money making glamour etc. Push
are self-employed, but influences comprise of factors which compel or make individuals take
all self-employed per- entrepreneurship like unemployment, dissatisfaction in job, large family to support,
sons may not be entre- limited income, favorable government policy etc.
preneurs. Do you A decision to change career and venture into entrepreneurship is not an
agree? Discuss. easy one. There is a general tendency to maintain status-quo and to continue with
same or related work areas. Experience in manufacturing may motivate individuals
to enter into trading activity on their own. Those who are experienced in trading
may plan for manufacturing units of their own. If creative ideas are not entertained,
people may resign and initiate their own enterprises. In this manner, disruption of
some kind may direct individuals to overcome the inertia, to leave the present
career and lead towards creation of new enterprises. However, choice of
entrepreneurship career reflects positive perception of the individuals towards
entrepreneurial career path. The decision to start a new enterprise occurs when
an individual perceives that forming a new enterprise is both desirable and possible.
What makes it desirable to venture into entrepreneurship?
Choice of entrepreneurship career is influenced by various factors such
as child rearing practices, personal background, family, peers, teachers, culture;
government etc., interplay of many such factors motivates individuals towards
choosing entrepreneurship career.
If establishing business enterprises is valued in a society, more and more
persons will be motivated for forming new enterprises. Child upbringing, parental
influence, stimulus for teachers may support entrepreneurship. Education has a
tremendous role to mould entrepreneurial minds and provide the needed knowledge
base. Formal education trains the mindset and develops the skills needed to form
and run a new enterprise. Business
Entrepreneurship - I 65
Teachers can play a very effective and meaningful role in developing an Entrepreneurial Career
impression about entrepreneurship as a viable and desirable career option. Peer
pressure also matters a lot. However, no environmental factor is totally for or
against entrepreneurship.
NOTES
Now as discussed above, due to several reasons and influences, individuals
perceived entrepreneurship as a desirable career option, what about the possibility
of new venture creation? Let us analyze.
The government supports creation of new enterprises by providing
appropriate infrastructure. Availability of adequate sources of finance matters a
lot. Majority of the new enterprises get finance from personal savings, friends,
relatives, credit. There is often a need of additional risk capital. Market knowledge
and assessment is one more requirement for getting success. Up-to-date information
about market size, competition, market acceptability, marketing mix composition is
often necessary before making a decision about launching a new enterprise.
A role model can be one of the powerful influences in motivating the
budding entrepreneurs. The aspirants often identify themselves with the role model
and see themselves as successful in similar kind of businesses.
After finding entrepreneurship as a good proposition, the potential
entrepreneur must possess or acquire necessary education, management skills
and financial resources to establish entrepreneurial venture.
After knowing about the charms of being an entrepreneur from the previous
section 4.2, you must be thinking about developing your career as an entrepreneur.
Let us discuss the steps for developing a career as an entrepreneur.
To begin with, there is a need for self-appraisal. You have to assess your
own interests, your aptitude and abilities. You have to identify yourself with
entrepreneurial personality. Try to explore your own ability, skills, capability and
attributes. Ask yourself Who am I? the answer should focus your strengths,
your skills, and how you use them. Now your self-assessment is done. You have
identified your assets and hurdles. You are in a position to evaluate the feasibility
of success Do you feel confident that you can become a successful entrepreneur?
Create your plan. And begin executing it.
If you are confident and enthusiastic about being an entrepreneur, then
the next step is investigating possible career opportunities. When you are looking
to find a job, you can turn to newspapers, various job sites on internet. But when
you are seeking an entrepreneurial career, it is not so easy to seek an attractive,
promising and profitable business idea. As an entrepreneur you create a job for
yourself. You are required to be alert and attentive in sensing and identifying various
business opportunities. The business opportunities could be related to your interests,
hobbies, your past experience, expertise, your family background, your education..
Follow your passion. Ensure that you are following your own passion
while making choice of your business. You will have to spend many long hours for
your entrepreneurial venture. Your passion will help you to be happy and fully
dedicated to your work. At hard times, your passion will be keeping you alive,
excited and optimistic. With passion, you will not only be successful but also enjoy
your life.
Do not imitate others. Learn to trust your instincts. Listen to your heart.
Consult your family members, your friends. Ask for their advice.
Business
Entrepreneurship - I 66
Entrepreneurial Career If you are not able to come across an inspiring business idea, then jot
down a number of things which you dont like, which you think should be changed,
which frustrate you, with which you are not comfortable with. Enlist the problems
you are facing in your life. You may get a great business idea to deal with because
many others in the society may be thinking like you. NOTES
Document your idea. Think about finance. It usually takes more money
than anticipated. Make an assessment about various sources of finance. Think
about returns. Focus on uncertainties that can disrupt business.
Love what you do. Do not look at what others had found success. In the
words of Steve Jobs, Your time is limited, so dont waste it living someone elses
life. Dont be trapped by dogma which is living with the results of other peoples
thinking. Dont let the noise of others opinions drown out your own inner voice.
And most importantly have the courage to follow your heart and intuition. They
somehow already know what you truly want to become. Everything else is
secondary.
The decision to change present lifestyle and form a new enterprise is not
an easy one. It takes tremendous courage and energy to change and adopt
something unique and different. A strong force is required to overcome the inertia,
leave the present lifestyle and to opt for something new.
Identifying entrepreneurs is the first step to enable them to succeed. To
start and own a business is an extremely attractive idea. It enables one to be his/
her own boss. It is an excellent opportunity to follow the passion. Basically
entrepreneurs need to be passionate about their business. However, there is a
need of commitment. There is a need to be prepared for the tough journey.
To become successful entrepreneur, it is desirable to be properly educated.
A strong and knowledgeable foundation, an access to educational opportunities to
gain knowledge and skills, is often helpful for success. Further, as and when needed
a provision of guidance and advice has to be made. An entrepreneur must have
specialized knowledge and skills. He/she must have an attitude for entrepreneurship.
This capability can be developed and nurtured.
Richard Branson encourages people to travel if possible, especially young
entrepreneurs. He says, Travel broadens the mind, exposing you to new cultures,
different problems and better business approaches. You might learn why a
successful business model in one part of the world will not work in another or you
might even meet different people who can push your business ideas forward.
As long as you have a desire to innovate, the curiosity to try new
approaches and the passion to change an industry, you will have all the makings
of a successful entrepreneur.

4.4 Myths of Entrepreneurship


There are a number of myths surrounding entrepreneurship over a number
of years. Entrepreneurship is practiced by only a small section of the society and
not by the majority. Creation of myths around entrepreneurs is understandable.
One can easily get mislead by these myths. Some of these myths are discussed
below. You should know realities as well as truths about entrepreneurship path.
Myth 1: Entrepreneurship is for people with money
Business
Entrepreneurship - I 67
Fact: There is a common misunderstanding that most successful Entrepreneurial Career
entrepreneurs start their companies with millions in venture capital to develop
their idea. Generally people have perception that entrepreneurship is for rich people.
It is not possible for them to start an enterprise without investing enough capital.
This is a misconception. There are a number of examples of successful NOTES
entrepreneurs who did not have sound financial background. At the same time
there are some rich persons who met with failure in entrepreneurial endeavor in
spite of their sound financial position. No doubt, an enterprise needs capital for
survival and in absence of adequate financing at right time, there is high probability
of failure. However, adequate and sufficient capital cannot guarantee success.
And many times, failure due to poor financing has been found resulted from other
reasons such as poor financial management, lack of proper planning, managerial
incompetence etc.
With an attractive idea, it is simply possible to convince financers and
begin with the activity. Locating borrowers for a promising business opportunity is
not a difficult job. You need bootstrapping skills or the ability to find resources
creatively through a variety of means.
A number of new sources of financing are becoming available now for
setting up a venture. Initial capital for a venture can be raised from a number of
outside sources. Various government institutes, private agencies readily finance
budding entrepreneurs. Availability of personal finance is no more a constraint for
entrepreneurship.. Sound financial background is not at all a pre-requisite for
entrepreneurship. Many successful entrepreneurs did not have a strong financial
position in the initial stages of their ventures. Still then they could manage with the
help of various outside sources of finance.
Myth 2: An entrepreneur is an exceptionally gifted person, endowed by
god with a fantastic ability
Fact: People used to believe that entrepreneurs are born, and not made.
This myth is based on the mistaken belief that some people are genetically
predisposed to be an entrepreneur. They thought that characteristics of
entrepreneurs are inborn traits and cannot be taught or learned. There is no born
entrepreneur. Although some persons may be blessed with inborn talents, but
certainly it does not imply that it is very difficult to be an entrepreneur and get
success. It is now proved that, with training entrepreneurial skills can be imbibed
and enhanced. Entrepreneurship is a set of skills that anyone can learn. Some of
the common attributes of a successful entrepreneur include creativity, initiative,
passion, perseverance, motivation, networking ability, physical and emotional
stamina, good decision making skills, planning and organizing skills etc
Entrepreneurship is not necessarily genetic. If you desire, you can acquire
the skills for initiating and owning a business. There are number of examples of
ordinary persons of society venturing into entrepreneurship and getting success.
One should not get disheartened by giving too much emphasis on individual strength
of an entrepreneur. Actually no enterprise can be run successfully by just single
person; an entrepreneur requires a good team for success. Networking has its
own significance for business success.
Case studies of successful entrepreneurs show varied motives. Some
successful entrepreneurs are entrepreneurs by chance. Some of them became
entrepreneur due to some need. Some were compelled by circumstances towards
entrepreneurship. Some entrepreneurs came across some opportunity which was
related with their interest and passion. They planned to exploit that opportunity Business
and made it happen. In this manner, an entrepreneurial venture is born. Opportunity Entrepreneurship - I 68
Entrepreneurial Career identification requires alertness to environmental happenings, exposure to the outside
world and your willingness and determination to do.
Myth 3: All you need is luck to be an entrepreneur
NOTES
Fact: Luck favours the brave. But, of course, success in entrepreneurship
is not based on sheer luck. Entrepreneurs have vision. They are good at planning.
They are always alert to environmental opportunities and in sensing profitable
business opportunities. They are well prepared with their self-appraisal. They are
confident. They know which opportunities to capture, which ones are suitable for
them. However, attentive entrepreneurs seize opportunity and people attribute it
to luck. The success can be attributed to preparation, knowledge, desire, and
determination. Largely it is hard work, good decision making and business savvy.
In the words of William Bygraves, There is no more luck in becoming
successful at entrepreneurship than in becoming successful at anything else. In
entrepreneurship, it is a question of recognizing a good opportunity when you see
one and having the skills to convert that opportunity into a thriving business. To do
that, you must be prepared. So in entrepreneurship, just like any other profession,
luck is where preparation and opportunity meet.
Myth 4: Entrepreneurs do it all themselves
Fact: This myth suggests that entrepreneurs have skills and with these
skills they get success. No doubt, entrepreneurship is a set of skills. But in several
cases, it is seen that success in entrepreneurship is not an individual pursuit. Behind
entrepreneurial success, there is a large team of competent and capable individuals.
Myth 5: Entrepreneurs are risk-taking gamblers
Fact: Entrepreneurs are usually moderate risk takers like other common,
ordinary people of the society. They dont jump into the dark. They dont take
wild, uncalculated risks while establishing their enterprises. No doubt, they are
engaged in something unique, different, untried, and untested; they carefully and
systematically assess the risk and then only venture into the unknown with a clear
judgement of calculated risk. Richard Branson, founder of Virgin Enterprises
observed, Business opportunities are like buses; theres always another one
coming. He could have said, Look before you leap to make the same point.
Thats what entrepreneurs do; they wait for the right bus.
Myth 6: Entrepreneurs are motivated primarily by money
Fact: Entrepreneurs do not seek financial rewards. They do not seek
business building as a path to riches. Money is rarely the motive for entrepreneurs
to start their enterprises. No doubt, many of the entrepreneurs make a fortune, but
they are not at all after wealth accumulation. Money can never be the primary
motive of entrepreneurs. They want status. They are interested in excellence,
perfection, self-fulfillment, achievement and ultimately the power to make the
world better. They seek pleasure in community welfare.
Entrepreneurs look at money as a measure of performance rather than an
end in itself. Money may be in the form of profit, salary etc.
Myth 7: Entrepreneurs should be young and energetic
Fact: Of course it helps to be energetic, but it is not at all a common
feature to be young and energetic to be an entrepreneur. Rather for being a
Business
Entrepreneurship - I 69
successful entrepreneur; skills, talent, experience and expertise are found to be Entrepreneurial Career
the common standards.
Myth 8: A successful entrepreneur must invent something really innovative
Fact: All successful entrepreneurs are not innovators. When you look at NOTES
novel and unique things, sense that they can be improved, incorporate value to
them and present to the market that is what entrepreneurship is. You may not be
an inventor, you may not be an innovator, but even if you adopt some innovations
of others for the betterment of the society; it makes you a successful entrepreneur.
Myth 9: Entrepreneurs are introverted loners
Fact: Entrepreneurs are not at all anti-social. They are deeply immersed
in their work. They give their hundred per cent to their business. They are absolutely
devoted and committed to their work. For them demands of their venture are
more important than their social relations. But that doesnt mean that they are
reserved or that they like to live in isolation. Work is their first love. All other
priorities are secondary.
Myth 10: Men make better entrepreneurs than women
Fact: Women have proved to be equally good and successful like men
entrepreneurs. They are in no way inferior to men. However, they face certain
barriers due to their womanhood such as their household responsibilities, child
rearing, home making, lack of mobility, gender discrimination, typical feminine
values which are contrary to entrepreneurship, less access to capital, lack of
confidence, lack of self-esteem etc. On the contrary, women are blessed with
some traits which are conducive to entrepreneurship. They are hardworking, soft
spoken, sensitive, careful, more accurate, more optimistic, and skillful at dealing
with people. They are good at multitasking. They connect with others naturally.
They seek advice readily.
Men and women are designed to be different. Men and women in business
are meant to be different. A woman in business is mostly different than in her
personal life. Of course, the same thing is true for a man also.
Myth 11: Most successful entrepreneurs start their companies with a break-
through invention usually technological in nature
Fact:Many entrepreneurs do well even without their own inventions. Many
successful enterprises may not be technology-based. Several entrepreneurs get
success by replicating existing products/services with only a marginal improvement
by slight modification of someone elses idea.
Myth 12: Successful entrepreneurs have strong track records and years
of experience in their industries.
Check Your
Fact: Of course, founders of successful companies readily taste success Progress
in subsequent ventures. They become more knowledgeable and proficient in their
field later on. 4. What are the
There are many examples of first generation entrepreneurs with little or reasons for creation of
no background experience in the field who enjoy success by being highly responsive a number of myths
and adaptable. around entrepreneurs?

Business
Entrepreneurship - I 70
Entrepreneurial Career
4.5 Problems Faced by Entrepreneurs
Pain is temporary, quitting lasts forever. - Lance Howard
Oxford advanced dictionary of current English defined entrepreneurship
NOTES
as the ability to organize a business undertaking and assume the risks for the sake
of profit, also as the willingness of one to start, control and direct the processes of
production of goods and services and bear risks too. Entrepreneurship is a risky
proposition in comparison with a salaried job in an established enterprise.
Entrepreneurs have to shoulder the responsibility of using their own judgement,
using their ability to create new values, coping adversity, uncertainty, risks of failure
and loss. It is important to be aware about the challenges commonly faced by
entrepreneurs so that one gets a clear idea about the path towards entrepreneurship.
To find a right business opportunity and to select a promising and feasible
business idea is one of the foremost challenges faced by almost every entrepreneur
at the time of initiating the business venture. Developing a brilliant business idea is
indeed not an easy task. Entrepreneurs must sense opportunities while others see
problems. Entrepreneurs have to transform problems into business opportunities
and then elicit an attractive and viable business idea.
Particularly entrepreneurs face challenges with regard to access to finance
in new as well as already existing business. Entrepreneur has to convince investors
about feasibility of the business idea/project. To convince the investors about a
new unique business idea is not an easy task. He/she must have good convincing
skills and a perfect flawless business plan. He/she should possess the skill to sell
idea/vision to the financiers. Banks demand collateral security. It is not possible
for the entrepreneurs to fulfill this demand. High interest rates, lack of credit pose
other problems for entrepreneurs. There is a risk of losing entire investment. There
is uncertainty of income. Obviously stress level is high.
Entrepreneurs have to work long hours. They have to put hard work.
Their day is never restricted to fixed office timings like from 10.30 am to 5.30 pm.
An entrepreneur has to work 24x7 if required. There are physical hardships as
well as emotional strains. There may be injustice with family responsibilities and
social obligations due to busy schedule of entrepreneurs. Sometimes individuals
are discouraged from entering into entrepreneurship career path because they
fear lower quality of life.
Many entrepreneurs venture into entrepreneurship with an eye on unlimited
income potential. They build their enterprises for the sake of being their own boss.
They wish to develop their own destiny. Some of them may be lacking passion for
what they are doing. When they begin to experience difficulties and hardships of
managing business, it is difficult for them to accept the actual reality. Some
entrepreneurs suffer from depression and anxiety.
Entrepreneurs always work on ways to improve their organizations/
products/services/business practices. They are required to keep themselves updated
regarding changes and trends in the market. It is a gigantic task to face competition
from big players in the market. Big established brands have a long standing in the
market. There is a high level of awareness about market leaders. Further, there is
a competition from other small players also.
Competition is a big challenge for entrepreneurs especially for startup
entrepreneurs. In this globalized era, there is cut-throat competition in almost all
Business
Entrepreneurship - I 71
product categories and in all sectors of the economy. Small entrepreneur has to Entrepreneurial Career
assess market and make a strategic plan to ensure survival and growth.
Some entrepreneurs face marketing problems such as lack of marketing
orientation, developing a market plan, branding, advertising, actual selling, identifying
NOTES
and understanding customers, developing new products and services etc.
Human resource management is another big challenge for entrepreneurs.
Entrepreneurs have to find hardworking and trustworthy employees. For efficient
functioning of business enterprise, a good business team is required. The team
should possess diverse talent in which team players should supplement and
complement each other. It should be passionate about the future vision. Finding
and retaining qualified employees is a difficult task.
Choice of a good business location with good transportation network and
other conveniences and amenities is another important issue.
Technology problems faced by entrepreneurs are mainly related to
inadequacies of physical infrastructure such as improper transport facilities, irregular
power supply. There is a need of efficient communication network, transportation
network, water supply, electric power supply.
Majority of the entrepreneurs suffer due to lack of adequate infrastructure.
Basic infrastructure requirements such as connectivity, proper and efficient modes
of transport, effective means of communication, power, water, land are not
commonly available in our country.
Of course, government is providing basic needs in terms of infrastructure
to budding and existing entrepreneurs. Government policy is supportive for
entrepreneurs. Sometimes there are obstacles in implementation of policy,
procedural formalities, lengthy procedures etc. For getting loans collateral security
is required. In absence of collateral security, it is difficult to convince the financiers.
Like a plan to get into business, there is a need of a plan to get out of it. An
exit strategy is required to be planned before starting a business. After death of
the founder many businesses crush due to lack of exit plan. Exit strategy is important
for long term survival of a business. Some entrepreneurs use a certain benchmark
as a target such as annual sales, annual turnover, asset base, customer base, market
saturation, number of users etc. After the specific target is achieved, they exit the
business.
There are a number of social and cultural barriers which are difficult to
overcome readily. Getting societal approval and sanction is a difficult task for
entrepreneurs. Society looks at entrepreneurship as a risky proposition. It is not a
preferred occupation which is the most sought. Entrepreneurs have to convince
their family members, friends, relatives for choice of entrepreneurship career.
Check Your
In addition, entrepreneurs face common problems such as negative
Progress
mindset, lack of support, political instability, and technological set back, high tax
rates, time management, setting goals, measuring performance, accessing and
5. Which are the most
getting useful information, lack of skill and experience, high cost of production and
difficult challenges for
so on.
entrepreneurs in your
Entrepreneurial education and training definitely contributes significantly opinion?
for development of entrepreneurship among society. Aspiring entrepreneurs benefit
immensely out of these training programmes and EDPs. However, there is limited
access for education about entrepreneurship Business
Entrepreneurship - I 72
Entrepreneurial Career
4.6 The Dark Side of Entrepreneurship
A ship in port is safebut that is not what ships were designed for!
Risk-taking was one of the earliest identified characteristic
NOTES of an
entrepreneur. Cantillon and later Mill both portrayed an entrepreneur as an individual
who assumed risk for the firm. In fact, Mill included the term risk bearing to
distinguish entrepreneurs from managers. According to Mill, entrepreneurial
functions consisted of direction, control, superintendence and risk-bearing. Later,
Schumpeter noted the innovating nature of an entrepreneur and the inherent risks
associated with this kind of innovative behavior.
Hisrich defines entrepreneurship as the process of creating something
new with value by devoting the necessary time and effort, assuming the
accompanying financial, psychic, and social risks, and receiving the resulting rewards
of monetary and personal satisfaction and independence.
Britain encyclopedia defines entrepreneur as a person who organizes and
manages a job or economic association and receives its risks. Entrepreneurship is
a process in which entrepreneur establishes new jobs and firms, new creative and
growing organizations associated with risk taking by new and creative ideas and
identification of new opportunities and resource mobilization. Entrepreneurs are
widely believed to be willing to assume more risks than managers and salaried
employees. Burch argues: the antithesis of the entrepreneur is a person who
never loses because he or she never puts himself/herself at risk.
Generally entrepreneurship is considered as a function of risk bearing and
entrepreneurs are perceived as insane risk-takers. One of the entrepreneurs
personality traits is risk-taking. In comparison with a salaried job in an established
organization, entrepreneurship involves risks of various kinds. Let us see which
challenges and risks are being faced by entrepreneurs. Awareness about challenges
in the way of entrepreneurship will develop a high level of preparedness to face
those and take necessary precautions for their avoidance and prevention.
Successful entrepreneurs are willing to take greater risks than others in
the society. They prevail against the odds by intuitively jumping onto the right
opportunity at the right time. Successful entrepreneurs are successful not because
they adopt better decision processes but because they seize whatever opportunities
come their way. Successful entrepreneurs systematically reduce risk using different
decision making processes in line with needs of the situation.
Generally risk is related to uncertainty in loss occurrence. It is measurable
uncertainty. It is defined as objective uncertainty about occurrence of adverse
events. Entrepreneur is the recipient of risk tending to overtake business risks.
Business risks arise due to uncertainty about future effects of current decisions.
Business choices should consist of an assessment of outcomes and possibilities
that if differs from expectations.
Frank Knights Risk Bearing theory is based on economic principles.
Entrepreneur has to cope with various challenges which are unknown and
unpredictable. There lies uncertainty. The main function of an entrepreneur is to
act in anticipation of future events. Uncertainty bearing is essential to production.
It is a factor of production and the reward for it is a part of normal cost of production.
Entrepreneur earns profit because he/she undertakes risk. Profit is a payment for
the assumption of risks the entrepreneur undertakes.
Business
Entrepreneurship - I 73
Brockhaus defines risk taking as the perceived possibility of receiving Entrepreneurial Career
the rewards associated with success of a proposed situation, which is required by
an individual before he/she will subject himself/herself to the consequences
associated with failure, the alternative situation providing less reward as well as
less severe consequences than the proposed situation. Risk-taking refers to the NOTES
tendency to engage in behaviours that have the potential to be harmful or dangerous,
yet at the same time provide the opportunity for some kind of outcome that can be
perceived as positive. In general, entrepreneurs are perceived as more risk prone
than other people. They deal with various types of risks as follows:
Financial risk is normally risk associated with any form of financing. It is
the probability of actual return being less than expected return. Financial risk
includes credit risk, inflation, and cost risk. Majority of the entrepreneurs invest
their savings and borrow money on the basis of their personal relations. They
expect adequate returns on the investment. Sometimes they get attractive returns
and sometimes there is a possibility of limited income. If they fail, there is a possibility
of loss. They take risks of failure.
Market risk is the risk that value of an investment decreases due to market
factors. There are four standard market risk factors: interest rate risk i.e. the risk
that interest rate will change; equity risk i. e. the risk that stock prices will change;
commodity risk i. e the risk that commodity prices such as crude oil, copper etc
change; currency risk i.e. the risk that foreign exchange rate will change.
Environmental risk is the risk associated with economic or administrative
consequences of slow or catastrophic environmental pollution and other disasters.
Technology risk is the risk associated with implementation of new
technology in business.
Political and economic risk is the risk of loss when investing in a given
country caused by changes in a countrys political structure or policies such as tax
laws, tariffs, expropriation of assets or restriction in repatriation of profits.
An operational risk is a risk arising from execution of a companys business
functions such as breakdown of key equipment, human error, technical failure etc.
Human risks comprise of personal risks, consumer risks, government risk,
and public risk
Entrepreneur has to sacrifice the pleasures associated with family life,
social life. The start-up phase of entrepreneurial venture needs total and
wholehearted commitment. There is a need of high energy, and time. Due to this,
there may be injustice with family and social roles.
Career risk: Some persons resign their jobs to start their entrepreneurial
ventures. If he/she fails, is it possible to find a new job? Is it possible to return to
his/her previous job?
Mental risk/psychological risk: Perhaps the biggest risk an entrepreneur
takes is the risk of mental health. In the initial struggling period, there are mental
tensions, stress, anxiety which have destructive influences.
Natural risk recognizes that entrepreneurial decisions alone do not
determine financial outcomes. Luck also plays a crucial role.
Zimmerer and Scarborough described the following risks that an
entrepreneur may encounter: Business
Entrepreneurship - I 74
Entrepreneurial Career Time risk: This risk entails the time implication of taking a new idea through
the product development phase until it could be considered right for the market
Investment risk: This includes the cost of establishment of a new venture,
those related to the total product development process as well as those concerned
NOTES
with the physical manufacturing of the total product.
Technical risk: All the technical aspects associated with product
development process are considered. The final product has to satisfy the set
technical quality standards.
Competitive risk: There is a possibility of competitors offering the same or
comparable products in the market. Success rate of competitors in comparable
markets is also an indication of risk.
In general, to overcome risks, various strategies are used such as risk
avoidance (elimination), risk reduction (mitigation), risk transfer (outsourcing or
insurance), and risk retention (accepting and budgeting). Risk avoidance includes
not performing an activity that could carry risk. Risk reduction includes methods
to reduce the severity of loss or likelihood of loss from occurring. Risk retention is
a viable strategy for small risks where the cost of insuring against the risk would
be greater over time than the total losses sustained.
However, you must not let these risks make you apprehensive towards
taking the entrepreneurial path. There are many institutions to help budding as
Check Your
well as existing entrepreneurs. Some of these institutions are government agencies
Progress
central governments as well as state government while some are non-
governmental organisations (NGOs). There are a plethora of government schemes
6. Enlist various types
to help new entrepreneurs and to encourage people to take up entrepreneurial
of risks that an
path at national level, state level, district level as well as at local level also.
entrepreneur may
encounter. No doubt, starting a business is hard. It can be pretty tough. At times
entrepreneurs feel frustrated. They are depressed. Emotionally unstable and weak
persons may give up. But there are also times when they feel on top of the world.
There are incredible benefits associated with entrepreneurship as discussed above.

Mentoring of Entrepreneurs
Mentoring is an important aspect foran entrepreneur. Entrepreneurs
venture into the unknown, unforeseen. They challenge the obvious. Most of the
times, they take untrodden path in the face of uncertainty, risks, pressures and
strains. This journey will be reaching definitely towards success with guidance,
counselling, advice from mentors. Entrepreneurs do not have experience. They
are the first-timers. Mentor acts as a strong guiding force. May mistakes and
errors can be avoided with advice from mentors. Mentoring at a desired time
interval often frees an entrepreneur of fears, problems, frustrations and
disappointments. Counselling from mentors relieves entrepreneurs from emotional
outbreaks. Now after consultation with mentors, entrepreneurs learn not to react.
They respond to the situations in a planned and cool manner. Entrepreneur can
ensure that he/she is in right direction after a counselling session with the mentor.
Mentors provide relaxation, reassurance, encouragement to entrepreneurs.
Entrepreneurs trust in their mentors. They respect the knowledge, wisdom,
experience of the mentors. Mentors wish to support entrepreneurs. They are
interested to see them successful. They have a personal interest in entrepreneurs
and making them flourish. They dont expect anything in return. There is no financial
consideration involved. Mentoring may not work well if Business
it is done as a service for
a fee. Entrepreneurship - I 75
Entrepreneurial Career

4.7 Summary
Entrepreneurship offers scores of benefits and opportunities to
NOTES
entrepreneurs. It provides them independence, freedom, opportunities for self-
fulfillment, recognition for their work, attractive financial rewards. Entrepreneurship
is a joyful expression of ones contribution to society, economy and nation.
A decision to venture into entrepreneurship is concerned with a
comprehensive decision process. The decision is taken when the individual is
convinced about desirability and possibility of the career. The choice of
entrepreneurship career is influenced by various factors such as child rearing
practices, personal background, family, peers, teachers, culture, government etc.
There are a number of myths surrounding entrepreneurship. It is crucial
to be aware about reality as well as truths about entrepreneurship path.
Inability to produce convincing business plans, lack of knowledge about
appropriate sources of finance, hard work, competition are some of the problems
faced by entrepreneurs.
Generally entrepreneurship is considered as a function of risk bearing and
entrepreneurs are perceived as insane risk-takers. They deal with various types
of risk as financial risk, market risk, environmental risk, technology risk, political
Check Your
and economic risk, operational risk, human risk, career risk, natural risk etc. In
Progress
general, various risk strategies are used as risk avoidance, risk reduction, risk
transfer, and risk retention.
7. What is mentoring?
8. Why does an
4.8 Key Terms entrepreneur need a
mentor?

Non-government organization (NGO): An organisation that is neither


a part of a government nor a conventional for-profit business. Usually
set up by ordinary citizens, NGOs may be funded by governments,
foundations, businesses or private persons
Exit strategy: planned exit of an owner fromhis/her business; a means
of leaving ones current situation, either after a predetermined objective
has been achieved, or as a strategy to mitigate failure
Bootstrap: A situation in which an entrepreneur starts a company with
little capital. An individual is said to be boot strapping when he/she
attempts to found and build a company from personal finances or from
the operating revenues of the new company
Mentor: A character in Greek mythology who was appointed by
Odysseus as a person-in-charge of his son Telemachus, to help him lead
the kingdom in his absence and also take care of his place.

4.9 Questions and Exercises


Questions
1. What are the popular myths around entrepreneurship?
Business
Entrepreneurship - I 76
Entrepreneurial Career 2. Discuss the pros and cons associated with entrepreneurship career.
3. Entrepreneurship is a function of risk bearing. Do you agree?
Elaborate.
NOTES
4. Write an essay on capacity building for entrepreneurship.
5. Present the benefits associated with entrepreneurial career path.
6. How should an individual proceed for an entry into entrepreneurial
career?
7. What are the charms of being an entrepreneur?
8. Describe the risk management strategies of entrepreneurs

Exercises
1. Meet five entrepreneurs. Discuss the problems faced by them in the
beginning of their enterprises.
2. Ask an entrepreneur about the risks faced by him/her for his/her
enterprise.

Multiple Choice Questions


1. Following is the reason why entrepreneurs require mentor?
i. Lack of experience
ii. Handling difficult situations
iii. Trusted resource person
iv. All the above
2. Which of the following is not a myth?
i. Entrepreneurship is for people with money
ii. Entrepreneurs are born
iii. Entrepreneurs are risk taking gamblers
iv. Entrepreneurs can be made
3. Pick out the odd one.
i. Entrepreneurs must be innovators
ii. Entrepreneurs are introvert loners
iii. Successful entrepreneurs have strong track record
iv. Women entrepreneurs face certain barriers due to their
womanhood
4. Choose the wrong statement from the following
i. Entrepreneurs work from 10.30 am to 5.30 pm
ii. Entrepreneurs have to put hard work
Business
Entrepreneurship - I 77
iii. Entrepreneurs work 24x7 if required Entrepreneurial Career

iv. Entrepreneurs work for long hours


5. Which of the following problems is not faced by entrepreneurs?
NOTES
i. High interest rates
ii. Bossing
iii. Collateral security
iv. Uncertainty of income
6. Choose the wrong statement from the following alternatives:
i. Entrepreneurs create their own destiny
ii. Entrepreneurs enjoy full freedom and liberty
iii. Entrepreneurs do not accept personal responsibility
iv. Entrepreneurs love business responsibility

Answers
Check Your Progress
1. self-saturating, self-generating
2. blocks, creates

Multiple Choice Questions


1. iv
2. iv
3. iv
4. i
5. ii
6. iii

4.10 Further Reading


Zimmerer Thomas W., Scarborough Norman M., Essentials of
Entrepreneurship and Small Business Management, PHI Learning Pvt. Ltd., 2011

Business
Entrepreneurship - I 78
Theories of Entrepreneurship
UNIT 5 : THEORIES OF
ENTREPRENEURSHIP
NOTES

Structure

5.0 Introduction
5.1 Unit Objectives
5.2 Economic Theories of Entrepreneurship
5.3 Sociological Theories of Entrepreneurship
5.4 Cultural theories of Entrepreneurship
5.5 Psychological Theories of Entrepreneurship
5.6 Conceptual Models of Entrepreneurship
5.7 Summary
5.8 Key Terms
5.9 Questions and Exercises
5.10 Further Reading

5.0 Introduction
The concept of entrepreneurship and its theory have been evolved over a
period of time. There are different opinions on the emergence of entrepreneurship.
A discussion on different theories of entrepreneurship helps us to comprehend
various perspectives of entrepreneurship. It develops an understanding of
development of the domain of entrepreneurship over a period of time. The theories
of entrepreneurial supply give numerous insights and views regarding societal
perception about entrepreneurship. Various writers have developed various theories
on entrepreneurship. These theories can be categorized as sociological theories,
economic theories, cultural theories and psychological theories. Sociologists and
psychologists focus on the reasons, motives, urges and drives behind
entrepreneurship. They are interested in various perspectives of entrepreneurial
personality and behavior patterns. Economists are keen on consequences of
entrepreneurial behavior and activities. Management experts are interested in
characteristics of entrepreneurs, and in their approaches and techniques of
achieving their goals. An effort is made in this section to capture the essence of
these theories of entrepreneurship propounded by experts and specialists from
various disciplines.

5.1 Unit Objectives


After going through this unit, you will be able to
Explain various theories on entrepreneurship development
Understand various factors which influence the emergence and
development of entrepreneurship Business
Entrepreneurship - I 79
Comprehend opinions of economists, sociologists, psychologists etc on Theories of Entrepreneurship
emergence of entrepreneurship
Know about various conceptual models of entrepreneurship
NOTES
5.2 Economic Theories
Entrepreneurship and economic development are interrelated and
interdependent. According to economists, entrepreneurship and economic growth
will take place in those situations where particular economic conditions are most
favourable.
In the opinion of economists, entrepreneurship develops when economic
conditions are favourable. So, economic incentives and concessions are the forces
behind the development of entrepreneurial activities. Peoples inner drives, in many
cases, have been found associated with economic gains. When it is found that
there is a gap between demand and supply for a product/service, entrepreneur
senses such kind of business opportunities and indulge in entrepreneurial venture.
Lack of emergence of entrepreneurship may be due to lack of favourable economic
policies and benefits, and various types of market imperfections.
Some theories propounded by eminent economists regarding
entrepreneurship and economic development are explained below:

Richard Cantillons Theory of Entrepreneur as a Risk Taker


French economist Richard Cantillon coined the term entrepreneur to
describe a person who served as a go-between indicating that the person acted
as a bridge between a person with money or venture capital, and the person who
created an enterprise by taking up the opportunity. He suggested that this made
the entrepreneur an active risk taker because he/she became an agent who bought
at a certain set price to sell at an uncertain price in the future. Cantillon cited an
example of a farmer who pays a set amount of money to landlord and sells his/her
produce at prices that are uncertain, in which he/she becomes a risk-taker due to
the uncertainty concerning the profit that he/she may or may not get.

Papanek and Harris Theory


According to G. F. Papanek and J. R. Harris, when certain economic
conditions become favourable, entrepreneurship and economic growth will take
place. Entrepreneurship development is a function of economic incentives. This is
one of the basic traits which drives entrepreneur to take up entrepreneurial activities.
Economic incentives are integral factors that motivate entrepreneurs to undertake
risk-taking activities. According to these economists, it is the link between
individuals inner urge and the desired economic gains that play a pivotal role for
development of entrepreneurial competencies. According to Papanek and Harris,
in many cases, it has been revealed that, economic gain is a sufficient factor for
an entrepreneur to practice entrepreneurship. These incentives and gains are
regarded as sufficient condition for emergence of entrepreneurship. When an
individual recognizes that the market for a product or service is out of equilibrium,
he/she may purchase or produce at the prevailing price and sell to those who are
prepared to buy at the highest price. Lack of vigorous entrepreneurship is due to
various kinds of market imperfections and inefficient economic policies.

Business
Entrepreneurship - I 80
Theories of Entrepreneurship According to Papanek and Harris, economic incentives are the main drive
for entrepreneurial activities. Sometimes it may not be directly apparent but inner
drives have always been associated with economic benefits. These incentives
and benefits are considered as the sufficient condition for emergence of
entrepreneurship. NOTES

Harvey Leibensteins Theory of X-efficiency


Harvey Leibenstein propounded the theory of X-efficiency which was
also popularly called the gap-filling theory. According to Leibenstein, entrepreneurial
action is caused by finding the degree of inefficiency of the use of resources
within a firm. Entrepreneurial functions are determined by the X-efficiency. X-
efficiency arises because either resources of firm are not properly utilized or they
are wasted. He pointed out that there always exist some deficiencies in the
production function or input-output relationship. These deficiencies or gaps exist
because all the inputs in the production function cannot be marketed. It is the
function of entrepreneur to marshal all inputs to increase efficiency of the existing
methods of production to earn profit. He highlighted twin functions of entrepreneur
namely gap filling and input completing.
While executing entrepreneurial functions, entrepreneur has to mobilize
all inputs to derive the final output. But some inputs like motivation and leadership
are vague and their output is questionable. It is the function of entrepreneur to
marshal all inputs to increase efficiency of existing methods of production to earn
profit.
This theory says that the supply of entrepreneurship is governed by input
completing ability and inadequate motivational state.. Leibenstein pointed out that
if there are some deficiencies in the production function or in the input-output
relationship, the gap in these areas leads to entrepreneurship. X-efficiency, factors
in the degree of inefficiency in the use of inputs within a firm, occasioned either
because of improper utilization of resources within a firm or its wastage, or because
of inadequate motivation of people in a firm.
The theorys primary features are the identification of two broad levels of
entrepreneurship. First type of entrepreneurship known as routine entrepreneurship,
practiced by the larger companies or existing companies, is linked with the functions
of management of business. The second type of entrepreneurship is new
entrepreneurship or the innovation driven entrepreneurship or creation of new
enterprises. This entrepreneurship is characterized by collection of information
and analysis of results derived from sound combination of factors.

Kirzners Theory of Adjustment


Israel M. Kirzner coined the theory of adjustment of price. According to
Kirzner, the most essential entrepreneurial element is alertness to information rather
than possession of it. Entrepreneurs need to be alert to confront any disequilibrium
in market. Entrepreneurs with their superior telescopic faculty keep themselves
all the while alert to confront any disequilibrium in the market.
The theorys main feature concerns the understanding and adjustment of
price. The entrepreneur runs his/her enterprise more successfully and profitably
based on the adjustment of price in the market. He reflects that prevalence of
wrong price in market may reduce profit of entrepreneur. In this case, buyer may
pay higher price or seller may accept a lower price which may give rise to
Business
opportunities for profit. Further, if different prices prevail in the same market,
Entrepreneurship - I 81
there is opportunity for profitable arbitrage between two segments of market. Theories of Entrepreneurship
Adjustment of price is chief role of entrepreneur. Kirzner used the term entrepreneur
as the equilibrating force in the market. By acting on previously unnoticed profit
opportunities, the Kirznerian entrepreneur corrected the market process and drove
it towards equilibrium. So according to Kirzner, entrepreneurs possess exceptional NOTES
foresight and are alert to disequilibrium. Alertness enables entrepreneur to intervene
in market and change price. In this manner, economy in purchase and profitable
selling result in economic gains, brings into mutual adjustment those discordance
elements which resulted from prior market ignorance, thus laying the foundation
for profitable ventures.

Knights Theory of profit


F. H. Knight, in his book, Risk, Uncertainty, and Profit propounded theory
of profit with regard to entrepreneurship. He pointed out entrepreneurs as a
specialized group of persons with special talents who bear risks and deal with
uncertainty. They are recipients of profits which are purely a reward for taking
the risk and functioning under uncertainty. In his opinion, the supply of
entrepreneurship depends upon ability of the entrepreneur, willingness of the
entrepreneur and the power to extend guarantee to others.
According to Knight, uncertainty is identified with situations where the
probability of an outcome alternative cannot be determined either by prior reasoning
or by any statistical inference. Knight also suggested that an entrepreneur is a
person who willingly carries on responsible activities which are neither insured
nor salaried, and thus has risk bearing. Risk bearing implies assuming responsibilities
of loss or gain that may occur due to unforeseen contingencies of future. Knight
also identified that elasticity of supply of self-confidence as an important factor
that determines level of profit and size of the entrepreneur. Entrepreneur takes
responsibility of business enterprise and guarantees certain specified sums to
employees, landlords, lenders etc. since most of the work of an entrepreneur
depends on three factors, namely the ability of the entrepreneur, willingness of the
entrepreneur, and the power to extend guarantees to others.

Jean Baptistes Theory of Separating Profits of Entrepreneurship and


Investment

Jean Baptiste defined the term entrepreneur as referring to a person


who coordinated and managed land, labour, and capital, each belonging to a different
person, in order to produce a product. The money obtained by this person, the
entrepreneur, through the sales of product, was used to pay rent on land, wages
for labour and interest on capital, and what remained thereafter was his/her profit.
This theory clearly separated the role of a capitalist as a person who supported
the venture by financing it, and the entrepreneur as the person who organized and
executed the venture.

Joseph A. Schumpeters Theory of Creative Destruction


According to Joseph A. Schumpeter, development is not an automatic
or spontaneous process but it must be deliberately and actively promoted by some
agency within the system. It is an agent who provides economic leadership that
changes the initial conditions of the economy and causes discontinuous dynamic
changes. The process of economic development can be generalized by five different
types of events. Firstly, it can be the outcome of the introduction of a new product
in the market. Secondly, it can be the result of a new production technology. Thirdly,
Business
it may arise on account of a new market. Fourthly, it may be the consequence of Entrepreneurship - I 82
Theories of Entrepreneurship a new source of supply. Fifthly, it may be due to the new organization of any
industry. Evolving a combination of all these activities is referred to as enterprise
by Schumpeter. Any person who makes this possible is an entrepreneur. By nature,
he/she is neither a technician, nor a financier, but he/she is considered an
innovator. Psychologically, entrepreneurs are not solely motivated by profit. They
NOTES
want to make things happen. Schumpeterian innovation is a creative response to
a situation and entrepreneurship is essentially a creative activity.

Check Your Schumpeters theory of entrepreneurship is a pioneering work of economic


Progress development. According to Schumpeter, an entrepreneur is one who perceives
opportunities to innovate i.e. to carry out new combinations or enterprise. And
1. How have econo- entrepreneurship is an activity mainly concerned with innovations and use of untried
mists looked at entre- technologies. Innovation involves problem solving and entrepreneur is a problem
preneurs? solver. He called the process of replacing existing products, processes, markets,
sources of supply of raw materials and existing businesses as creative destruction.
He indicated innovation as integral part of entrepreneurship and entrepreneurs as
train blazers in the process of creative destruction. He believed that entrepreneurs
played a major role in economic development as they were capable of identification
of opportunities, and harnessing the necessary resources to execute the plan in
such a way as to reap maximum profits, which in turn contributed to economic
growth.
Schumpeter believes that entrepreneurs are primarily motivated by will to
power; will to found a private kingdom, will to conquer. Their main characteristics
are an intuitional capacity to see things in a way which afterwards proves correct,
energy of will and mind to overcome fixed habits of thought and capacity to withstand
social opposition.
According to Mark Casson, a renowned economist, an entrepreneur is
a person who specializes in taking judgmental decisions about coordination of scarce
resources. He propagated a functional definition of entrepreneur and his/her qualities
crucial for success in his book The Entrepreneur An Economic Theory. His
theory focused on demand supply relationship and identification of qualities. The
market forces of demand and supply act as crucial parameters for entrepreneurial
activities, according to Casson, demand for entrepreneurship stems from the need
to adjust to change and supply of entrepreneurship is limited by this scarcity of the
desired personal qualities. Casson identified some important qualities of successful
entrepreneurs. According to him, qualities of a person drive him/her to take up
entrepreneurial initiative and these qualities are mostly innate. He considers
imagination as an important quality for getting success in entrepreneurship.
He suggested that in development of successful entrepreneurship, there
is a need of two things: i. Demand for entrepreneurship need to be adjusted as per
changing needs of time, ii. The deficient qualities of entrepreneur should be made
good by personal care.

5.3 Sociological Theories of Entrepreneurship


Sociologists argue that entrepreneurship is most likely to emerge under a
specific social culture. In their opinion, social sanctions, cultural values, and role
expectations are responsible for emergence of entrepreneurship. According to
sociologists, the emergence of entrepreneurship mainly depends on favorable social
climate. Advocates of cultural theory point out that entrepreneurship is the product
Business
Entrepreneurship - I 83
of culture. Entrepreneurial talents come from cultural values and cultural systems Theories of Entrepreneurship
embedded into the cultural environment.
The theories explaining how sociological factors accelerate the growth of
entrepreneurship are explained below:
NOTES
Theory of Religious Belief by Max Weber
Weber has propounded the theory of religious belief. According to him,
entrepreneurism is a function of religious belief and impact of religion shapes
entrepreneurial culture. He emphasized that the entrepreneurial energies are
exogenous supplied by means of religious beliefs. In Webers words, religious
beliefs produce intensive exertion in occupational pursuits, the systematic ordering
of means to end, and accumulation of assets. It is these beliefs which generate a
drive for entrepreneurial growth.
According to Weber, entrepreneurs are a product of the particular social
conditions in which they live, and it is the society which shapes personality of
individuals as entrepreneurs. According to Max Weber, entrepreneurship or social
change brought about by an entrepreneurial culture is based on two main aspects
spirit of capitalism and protestant ethic. Capitalism is an economic system
characterized by economic freedom and private enterprise. According to him,
spirit of capitalism helps entrepreneur engage in various activities that bring more
profit. Profit motive along with attitude towards acquisition of money drives an
individual towards entrepreneurship. According to Weberian theory, spirit of
capitalism can be grown only when mental attitude in the society is favourable to
capitalism. This attitude can be provided by the protestant ethic, irrespective of
background, personality type of the individual and experiences in the society. This
profit motive coupled with an attitude leaning towards acquisition of money, urges
an individual to start a new venture. According to Weber, the motive of profit
guided protestant ethic to become entrepreneurial whereas Hinduism lacks this
sort of mental attitude which acts as an obstruction in their way to entrepreneurship.
Weber made a distinction between spirit of capitalism and adventurous
spirit. He says, spirit of capitalism is influenced by strict discipline and adventurous
spirit is affected by free force of impulse. Entrepreneurship culture is governed by
both these factors. The aspect of adventurous spirit is underscored because this,
along with the spirit of capitalism, can induce greater motivation and develop risk-
taking ability, leading to the aspiration to create wealth.
This theory was criticized by many researchers because of the following
unrealistic assumptions which Weber highlighted:
i. There is only one system of Hindu value.
ii. The Indian community internalized those values and translated them in to
daily routine. iii. These values remained immune to and insulated against external
pressures and change.
Emergence of a large number of entrepreneurs in the post-independence
era proved that Hinduism is neither a stumbling block nor a demotivating religious
belief to the spirit of capitalism and to the spirit of adventure to start innovative
enterprises.

Theory of Social Change by Everett E. Hagen


In his theory of social change, Everett Hagen propounded how a traditional
Business
society becomes one in which continuing technical progress takes place. The theory Entrepreneurship - I 84
Theories of Entrepreneurship reveals a general model of the society which considers interrelationship among
physical environment, social structure, personality and culture. He contemplated economic
growth as product of social change and political change. According to Hagen, most of
the economic theories of underdevelopment are inadequate. He viewed entrepreneur as
a creative problem-shooter who brings about economic development NOTES which is mingled
with political and social changes. Hagens theory lays emphasis on creative personality
as a causal link in entrepreneurial behavior and status withdrawal. He considers
withdrawal of status respect as the trigger mechanism for changes in personality formation.
But his model of entrepreneurship fails to give any policy variable for development of
entrepreneurship. The status withdrawal would occur in the natural evolutionary process
of the society and not by any deliberate attempt.
According to Hagen, it is the social group that plunges into rigorous
entrepreneurism which experiences the status withdrawal or withdrawal of status
respect. They are a group of individuals, creative and alienated from traditional
values, driven by a gnawing burning drive to prove themselves (to themselves as
well as to their fellows) seeking for an area in which to do preferably an area in
which they can gain power and in some symbolic way they can vent their rage at
the elites who have caused their troubles. Their inner urge will culminate into
entrepreneurism disregarding their traditional values and turning to innovative
entrepreneurship. When withdrawal of status respect occurs, it leads to four
different responses and creation of four different personality types, namely:
Retreatist: one who constantly does his/her work in the society but remains
indifferent to his/her own position
Ritualist: One who adopts a kind of defensive personality and acts in the
ways accepted and approved in the society without any hope of improving
his opposition
Reformist: One who initiates rebellion and attempts to establish a new
order in the society
Innovator: A creative individual who converts all odds into opportunities
and is likely to become an entrepreneur
Hagens creative personality is the mix of Schumpeters innovation and
McClellands high need for achievement.
Everett Hagen propounded the theory that entrepreneurs are creative
problem solvers, who bring about economic development together with political
and social changes. He rejected the idea that the solution to economic development
lies in imitating western technology. He put forward the view that encouraged the
basis of technology as an integral part of socio-cultural development. He
discouraged the followers syndrome as being a characteristic of the entrepreneur.
This is because technology is an integral part of socio-economic complex, and
super-imposition of the same into different socio-cultural set up may not serve the
purpose.
Hagen, in his book How Economic Growth Begins, depicts historic shift
as the crucial force which has brought about social change and technological
progress thereby leading to the emergence of entrepreneurial class from different
castes and communities. The historic shift caused some groups of the lesser elite,
who previously held commanding position in the social hierarchy, feel that they
were no longer valued and regarded. As a result of this, their inner urge was
kindled to take up entrepreneurial venture through personality formation and thus
Business
they become competent enough to take up any kind of venture.
Entrepreneurship - I 85
He was also of the view that historic shifts are a factor in producing Theories of Entrepreneurship
leading changes and creation of entrepreneurs. His key noting was that the
withdrawal of status and respect in society for a group of individuals who are
creative but alienated from traditional values, drives strong desire to prove
themselves among their fellowmen in a particular area. These individuals prefer NOTES
to take up new areas where they can gain power, and in some symbolic way, vent
their rage at the elites who have caused them problems. Their individual inner
urge culminates in entrepreneurial activities disregarding traditional values.
In his study of origin and background of entrepreneurs in several countries,
Hagen concluded that entrepreneurs have emerged from certain communities and
castes. Hagen elucidates his point by using the example of role of the samurais in
Japan who were considered as innovative entrepreneurs in Japans industrial
revolution. However, Hagens analysis fails to give policy measures for backward
countries which are striving for economic development as he identifies status
withdrawal as the causal factor in the emergence of creative personality and
withdrawal of status. Hagens theory falls short in explaining the same in Indian
context, where there has been little entrepreneurial activity seen from the neglected
part of the society. There are many disadvantaged minority groups in India which
have not supplied a good number of entrepreneurs.

Frank Youngs Theory of Group Level Patterns


Frank Young, in his theory, A Micro-sociological Interpretation of
Entrepreneurship, points out that entrepreneurial initiative is a function of group
level pattern. In general, Youngs theory of entrepreneurial supply is more a function
of group level pattern than individual capability. He disregards the claim that
entrepreneurs work single-handedly. He puts forward entrepreneurship as an
outcome or a product of family background, experience and exposure of an
individual as a member of the group and as a reflection of general values.
Entrepreneur as a member of a particular group does not work alone. In his words,
he is simply the most visible member from an economic point of view what is
typically a cluster of families whose activity is mutually reinforcing and coordinated
by a coherent look on the world.
Young incorporated the idea of reactive subgroups which play the most
important role in enterprise creation. His theory of entrepreneurship is a theory of
change based upon societys incorporation of reactive subgroups. According to
him, a group becomes reactive when three important conditions coincide: when
low status recognition is found in a group; when access to important social networks
is denied; when the group has better institutional resources than other groups in
the society at the same level. The re-activeness of a sub-group which experience
low status in the larger society will lead to entrepreneurial behavior if the group
has better institutional resources than others in the society at the same level. This
model suggests creation of supporting institutions in the society as the determinant
of entrepreneurship. He has elaborated on the shortcomings of the psycho-generic
interpretations of entrepreneurship.
He has elaborately analysed the shortcomings of psychogeneric
interpretation of entrepreneurship. He has suggested a casual sequence where
transformation codes are developed by the solidarity groups to improve their
symbolic position in their larger structure and thus become entrepreneurs. Young
regarded solidarity groups as main agencies for building entrepreneurship. He
maintains that entrepreneurial characteristics are found in clusters, ethnic
communities, occupational groups or politically-oriented groups. In the words of
Business
Young, Of these groups, those who show a certain reactiveness or solidarity Entrepreneurship - I 86
Theories of Entrepreneurship define the degree to which members create, maintain a coherent definition of
their situation that size upon the rhetoric of religion or politics as a vehicle for
expressing their deviation view of the world.
The solidarity of entrepreneurial groups reduces a number of economic
NOTES
problems that crop up in case of individual entrepreneur. This effort is likely to
reduce economic problems through the device of recombination of factors related
to production, higher standards of labour, search for new resources, technology
and markets and a more effective management of money and time. as such, the
entrepreneur builds confidence which he derives from the concept of solidarity in
a pragmatic manner by the solution of economic and social problems.
Young conducted a Thematic Apperception Test (TAT) on a group of
entrepreneurs. The following findings are derived from the test: the test revealed
the tendency to depict the situation as a problem to be solved, an awareness of
pragmatic efforts required, confidence on their ability to solve problems, willingness
to take views of eachindividual in turn and analyse the situation as he/she perceives
before suggesting any outcome.
Youngs theory of entrepreneurial supply is a function of group level pattern
which gives emphasis on the concept of solidarity clusters, ethnic communities
and all the above groups.

Thomas Cochrans Theory of Entrepreneurial Supply


The theory, propounded by Thomas Cochran, centers round the sociological
aspect of entrepreneurial supply. Cochran believed that fundamental problems of
economic development are non-economic. He emphasized on the cultural values,
role expectation and social sanctions as the major factors of entrepreneurship.
According to Cochran, the demonstration of this model of dynamics of
entrepreneurs gives thrust upon the social factors for the major changes. He pointed
out that the model is based upon the American Economic history which proves
that American economy has experienced major changes during 19th century due
to entrepreneurial dynamism. The reasons for the changes are quick adoption of
mechanical devices in the first half of the 19th century, growth of professional
management in the corporate sector that started in the second half of the 19th
century, widespread application of mass production techniques in the 19th century.
In each of these major transformations, the social factors operating through
entrepreneur appear to be well marked.
He considered entrepreneur as a role model of society representing model
personality. This personality is a composite of person, his/her skills, styles and
motives. The entrepreneur plays a social role. The role is partly shaped by the
modal personality that is a derivative of social conditioning of his generation.
Cochran contemplated, this relatively simple framework of an entrepreneurial
role defined by personality of the actor, the expectations of the groups with power
to sanction deviations from expected behavior and the operational needs of the
function to be performed subsumes all the social and cultural factors. He pointed
out that individuals performance as entrepreneur is governed by the following
elements - attitude of entrepreneur towards his/her own occupation, the role
expectation held by sanctioning groups, and the operational occupational
requirements of job. In fact, both the first and the second elements are determined
by societal values whereas the last element is governed by the changes over a
period of time in extraneous parameters such as population, technology, consumer
Business
Entrepreneurship - I 87
demand, tastes and preferences of customers etc. Societys values are the most Theories of Entrepreneurship
important determinant of attitude and role expectations. The attitude of a person is
largely determined by the social values and ethos.
Cochran pointed out that in corporate organizations, senior officers or the
NOTES
Board of Directors have well-defined expectations. They are known as defining
groups and entrepreneurial role is closely defined by them. According to him,
Primary cultural factors operating on the personality of the executive and the
defining of his role by those involved must accommodate to some degree to the
necessities of the operation to be carried out.
According to Cochran, the executives inner character is conditioned by
childrearing and schooling common to the cultural legacies. He contemplated,
This relatively simple framework of an entrepreneurial role defined by personality
of the actor, expectations of groups with power to sanction deviations from expected
behavior and operational needs of the function to be performed subsumes all social
or cultural factors.
According to Randall G. Stokes, socio cultural values channel economic
action. He portrays that entrepreneurship is likely to emerge under specific social
sanctions, social culture and economic action. He suggests that personal and societal
opportunities and the presence of requisite psychological distributions may be seen
as conditions for an individuals movement into industrial entrepreneurship.

Bert F. Hoselitzs Theory


Hoselitzs theory claims that culturally marginal groups promote Check Your
entrepreneurship and economic development. According to Hoselitz, culturally Progress
marginal groups are peculiarly suited to making creative adjustments and thereby
develop genuine innovations. He put forth that, from a cultural point of view, minority 2. According to soci-
groups are the spark plugs that ignite entrepreneurial and economic development. ologists, the emer-
Marginal men, because of their ambiguous position in social and cultural contexts, gence of entrepre-
display a mindset particularly suited for making a creative adjustment to situations neurship mainly de-
and changes. And they develop genuine innovations particularly in social behavior. pends
Another aspect of Hoselitzs theory involves possession of certain 3. Match the pairs:
personality traits, namely those related to managerial and leadership skills. Though A
entrepreneurs are not motivated by business and profits, they must also have the 1. Theory of religious
ability to lead people. The theory also reveals that in several countries, belief
entrepreneurial talents are found to spring from particular socio-economic 2. Theory of Entrepre
backgrounds. Entrepreneurs have emerged from a particular social caste of neurial supply
community in various countries. He gave the notable examples of the Samurai in 3. Theory of social
Japan, the Christian in Lebanon, the Halaih Memon in Pakistan, the Marwaris and change
Parsees in India Yoruba in Nigeria, Kikuyu in Kenya etc. These are considered to 4. Theory of Group
be the social classes that are dominant sources of entrepreneurship. The protestant level pattern
ethic of the west is said to have contributed to emergence of a new class of
industrialists. Everett E. Hagen also concluded that entrepreneurs have emerged B
from certain communities and castes. a. Thomas Cochran
b. Max Weber
c. Frank Young
5.5 Psychological Theories d. Everett E. Hagen

According to proponents of this theory, entrepreneurship is most likely to


emerge when a society has sufficient supply of individuals possessing particular
psychological characteristics. Psychological characteristics influence the supply
of entrepreneurs in a society. According to psychologists, the emergence of Business
Entrepreneurship - I 88
Theories of Entrepreneurship entrepreneurship is dependent on individuals possessing special psychological
characteristics. They say that entrepreneurship is most likely to emerge when a
society has sufficient supply of individuals possessing particular psychological
characteristics. Psychological theories portray emergence and supply of
entrepreneurs on the basis of theory of personal resourcefulness and theory of
NOTES
entrepreneurial supply. Psychological theories revealed the fact that existence of
economic input may not itself guarantee success in entrepreneurial venture;
organizational and psychological factors need to be investigated further.

Theory of Achievement Motivation by David McClelland


According to David C. McClelland, it is the high need for achievement
which drives people towards entrepreneurial activities. His theory of achievement
motivation is based on three aspects need for achievement, need for power and
need for affiliation.
McClelland stated entrepreneurs as self-confident and that they do not
believe in mere luck. He emphasized need for achievement (n Ach) or achievement
orientation as the most important factor for explaining economic behavior and
individuals having a strong desire for achievement more likely to succeed as
entrepreneurs. According to him, they strive hard, passionately overcome the odds
against them and get success through excellence. They are not money oriented,
but have a very strong desire for recognition and personal accomplishment and
this desire inspires them towards entrepreneurship and money generated as the
index of their achievement. To quote McClelland, Need for achievement is a
desire to do well, not so much for the sake of personal recognition or prestige, but
for the sake of an inner feeling of personal accomplishment.
Those with high need for power pertains (n Pow) to the desire by a person
to be influential in a group. He/she believe in position of authority. Such persons
seek leadership in politics, business, education etc. Successful managers seem to
have high need for power. They have a longing for influencing others and directing
authority.
Persons with high need for affiliation (n-Aff) take pleasure in social
relationships. They love others and wish to be loved by others. They take interest
in popularity, friendship, social support, interpersonal relationship. This n-Aff is not
predominant among managers but it helps them in influencing their subordinates.
McClelland emphasized child rearing practices and then gave importance
to achievement motives. This achievement motive is inculcated through child rearing
practices, which stress standard of excellence, maternal warmth, self-reliance
training and low father dominance. Individuals with high achievement motives
tend to take keen interest in situations of high risk, desire for responsibility and
desire for a concrete measure of task performance. After identifying achievement
orientation as key variable in development of entrepreneurship, McClelland
suggested motivation training programme as the policy measure which will make
them really willing and eager to exploit new opportunities provided.

John Kunkels Theory of Entrepreneurial Supply


According to John Kunkel, psychological and sociological variables are
the major determinants for emergence of entrepreneurs. He considered
entrepreneurial supply by suggesting a behavioristic model. His model

Business
Entrepreneurship - I 89
suggests that entrepreneurial behavior is a function of surrounding social structure, Theories of Entrepreneurship
both past and present, and can really be influenced by manipulable economic and
social incentives. The model is based upon experimental psychology which identifies
sociological variables as the determinants of entrepreneurial supply.
NOTES
Each of the above theories is incomplete and inadequate and fails to explain
the phenomenon of entrepreneurship. None of them is right or wrong.
Entrepreneurship is influenced by a multitude of factors. No single factor by itself
can generate or explain entrepreneurship since it is an outcome of a complex and
varying combination of socio economic, psychological and other factors. Economic,
political and legal factors can be quickly manipulated to make the environment
favourable for emergence of entrepreneurship whereas social and psychological Check Your
factors take a long time to change. Progress

5.6 Conceptual Models of Entrepreneurship 4. What do psycholo-


gists say about emer-
A number of studies have been conducted over a period of time dealing gence of entrepre-
with emergence of entrepreneurship. The models suggested for the development neurship?
of entrepreneurship can be stated in the following categories. Two important models
which contribute to the emergence as well as sustenance of entrepreneurship and
entrepreneurial talents in an environment are
Conceptual model of entrepreneurship by John J. Kao.
Integrated contextual model of entrepreneurship by Abdul Aziz Mahmud

Conceptual Model of Entrepreneurship


John Kao developed a conceptual model of entrepreneurship. This model
is presented in figure 5.1 below
Figure 5.1 Conceptual Model of Entrepreneurship

The Entrepreneurial Personality: The most important element is person.


Without the person who makes things happen, there can be no output. Creative
ideas are generated by persons. The ideas are implemented through the framework
of organization through application of technology through the efforts and vision of
persons. It is important to understand entrepreneurial personality, entrepreneurial
talent, style, skills, qualities, motivation, psychological preferences etc. Various
attempts have been made to identify entrepreneurial traits, but there is no unanimity
regarding the list of these traits needed by entrepreneurs for getting success. Business
Entrepreneurship - I 90
Theories of Entrepreneurship Orvis Collins and David Moore used a psychoanalytic approach to analyse
autonomy, independence, and self-reliance among successful manufacturing
entrepreneurs in Michigan, US. The entrepreneur was viewed as driven by
unresolved conflicts around authority stemming from the early relationship with
his/her parents. The study concluded that the fathers were typically unsupportive
NOTES
whereas mothers were devoted to sons and ready to rely on them rather than their
fathers. The ambivalence towards authority resulted in difficulty in forming long
term partnerships. There was a high need to dominate and a fear of being dominated.
The entrepreneurs were interested in achievement and autonomy more than in
social status and money.
Abraham Zaleznik and his colleagues viewed entrepreneur as a person
deeply influenced by a turbulent and disrupted childhood. He/she was motivated
by persistent feelings of dissatisfaction, rejection and powerlessness stemming
from conflicted relationship with parents. Need for relief from these painful conflicts
may lead to self-destructive or creative and innovative efforts like developing a
new enterprise.
Manfred Kets de Vries identified six main elements of entrepreneurial
personality: environmental turbulence; struggles around issues of authority with
ones parents; a feeling of rejection; painful feelings of anger, hostility, and guilt;
identity confusion (identification with the person causing the hurt); and adopting
the reactive mode to painful feelings (guilt, rebellion, impulsiveness).
Vries describes leadership style of entrepreneur as self-limiting. The
entrepreneurial personality may materially affect company succession.
Entrepreneurs identify closely with their enterprise and depend on it as a source
of self-esteem. Their need for control over the enterprise may conflict with the
companys need for sharing of authority by a larger group.
Entrepreneurial style refers to social interaction, the interface between
self and others. It determines how one is perceived. It is an important means by
which the entrepreneur achieves his/her goals through others.
Motives are those personal factors which drive the individual towards a
particular goal. These are the sources of entrepreneurial zeal.
The Entrepreneurial Task: The entrepreneur is both a dreamer and a doer.
He/she has to perform various tasks such as creative, interpersonal, managerial,
and leadership tasks to sense and exploit an opportunity. There are number of
sources through which opportunity can be identified. Entrepreneur must possess
the ability to perceive opportunities which others cannot. To exploit the opportunity
and convert it into actual reality, he/she has to organize and integrate human and
non-human resources; lead his/her team in the direction of achieving enterprise
goals. The entrepreneurial tasks depend upon personality of entrepreneur,
organizational strategy and the environment. The nature and variety of tasks as
well as the modes of influence may change as the organization evolves.
The major task of entrepreneur is to recognise and exploit opportunities.
He/she must have the ability to be aware about various sources of information
and perceive environmental opportunities. The entrepreneur is not only a dreamer,
but a doer or implementer as mentioned above. He/she has to monitor environment,
see an opportunity, acquire human and other resources, and maintain a productive
combination of the resources for the sake of a productive and profitable enterprise.
The Entrepreneurial Environment: Entrepreneurship is to a great extent
controlled by environment. Entrepreneurial environmentBusiness
comprises of various
Entrepreneurship - I 91
constituents like economic, social, cultural, political, legal, technical, ecological, Theories of Entrepreneurship
etc. The environmental greatly influences entrepreneurship. Sometimes it facilitates,
or restrains entrepreneurship. Availability of capital, educational institutions, right
quality of human talent in right quantity, cultural values and norms; stable
government, technological inventions and innovations etc are elements of NOTES
entrepreneurial environment.
To exploit opportunity, entrepreneurs must possess special skills, expertise
and experience. There is a need of adequate capital and infrastructural support.
Societal sanctions, social approval to entrepreneurs, technological developments
and progress, encouraging societal attitude, supportive government policies constitute
entrepreneurial environment.
The Organizational Context: It is the immediate setting which comprises
of organizational structure, systems, division of work, job description, work culture
etc in which entrepreneurial work takes place. These elements may facilitate or
restrict creativity, freedom, autonomy and entrepreneurship. To some extent
entrepreneur creates an organizational context and tasks regarding coordination,
integration and leadership etc. An appropriate organizational context is that which
matches best with personal vision, with key tasks to be performed and with the
environment.
Box 5.1

John Kaos Analytical Framework of Entrepreneurship

1. The Person: Personality, Skills, Experience, Motives and Psychological


preferences.

2. The Task: Perceiving opportunity, Marshalling resources, Providing


Leadership.

3. The Environment: Availability of Resources, Infrastructure, Competitive


pressures, Social values, Rules and Regulations, State of Technology

4. The Organization: Structure, Rules, Policies, Culture, Human resource


systems, Communication systems.

Fig 5.2 Integrated Contextual Model of Entrepreneurship Business


Entrepreneurship - I 92
Theories of Entrepreneurship The model prepared by Abdul Aziz Mahmud consists of political,
organizational, economic, socio-cultural and psychological factors. The model is
presented in the chart 5.2 above.

NOTES
5.7 Summary
It is beneficial to learn various theories of entrepreneurship. It develops
an understanding of various perceptions of entrepreneurship. Various doyens from
different disciplines have developed a plethora of theories. These theories can be
categorized as sociological theories, economic theories, cultural theories, and
psychological theories. Sociological theories interpret emergence and growth of
entrepreneurship from sociological angle. They focus societal perceptions, social
processes, social norms, social sanctions, traditions etc. Economic theories view
economic parameters such as economic climate, policies, incentives etc and their
impact on entrepreneurial emergence. Advocates of cultural theory view towards
entrepreneurship as the product of culture. Cultural theories analyse cultural values
and cultural systems. Proponents of psychological theory explain emergence and
supply of entrepreneurs on the basis of psychological characteristics.

5.8 Key Terms


Economic development: The focus of government to improve our
standard of living through creation of jobs, support of innovation and
new ideas, creation of higher wealth, and creation of an overall better
quality of life; the sustained concerted actions of policy makers and
communities that promote the standard of living and economic health of
a specific area
Economic growth: An increase in the capacity of an economy to
produce goods and services compared from one period of time to another;
increase in market value of goods and services produced by an economy
over time

5.9 Questions and Exercises


Questions
1. Explain John Kaos conceptual model of entrepreneurship.
2. Explain various theories on the supply of entrepreneurship.
3. Discuss the contribution of McClelland in developing the theory of
entrepreneurship.
4. Explain Henry Liebensteins analysis regarding entrepreneurship.
5. Write a note on origin and growth of entrepreneurship.
6. What do sociologists say regarding supply of entrepreneurship?
7. Describe the views of psychologists about entrepreneurship.
8. Present the economic theories of entrepreneurial supply.
9. Write in detail about the theory of social change propounded by Frank
Business
Young. Entrepreneurship - I 93
10. Note down in your own words Schumpeters theory of creative Theories of Entrepreneurship
destruction.

Exercise
NOTES
1. Meet a professor of entrepreneurship. Discuss various theories of
entrepreneurship and prepare your own report on emergence of
entrepreneurship.

Multiple Choice Questions


1. French economist
coined the term entrepreneur to describe a person who served as a
go-between indicating that the person acted as a bridge between a
person with money or venture capital, and the person who created an
enterprise by taking up the opportunity.
i. G.F. Papanek
ii. Richard Cantillon
iii. J. R. Harris
iv. Harvey Liebenstein
2. Harvey Liebenstein propounded the Theory of
i. Creative destruction
ii. Religious beliefs
iii. X-efficiency
iv. Adjustment of price
3. coined the theory of adjustment of price.
i. F. H. Knight
ii. J. B. Say
iii. John Kunkel
iv. I. M. Kirzner
4. Choose the wrong alternative from the following
i. Schumpeters theory of creative destruction
ii. Max Webers theory of profit
iii. Leibensteins gap-filling theory
iv. Hagens theory of social change
5. Choose the wrong statement of the following
i. According to John Kunkel, psychological and sociological variables
are the major determinants for success of entrepreneurs
ii. According to Max Weber, it is the high need for achievement which
drives people towards entrepreneurial activities Business
Entrepreneurship - I 94
Theories of Entrepreneurship iii. Hoselitzs theory claims that culturally marginal groups promote
entrepreneurship and economic development
iv. Cochrans theory centres round the sociological aspect of
entrepreneurial supply
NOTES
6. Harvey Leibensteins theory of X-efficiency was also popularly
known as
i. Gap-filing theory
ii. Theory of profit
iii. Theory of adjustment
iv. Theory of creative destruction
7. The Entrepreneur An Economic Theory is written by
i. Everett Hagen
ii. Mark Casson
iii. G. F. Papanek
iv. J. R. Harris
8. According to , the most essential
entrepreneurial element is alertness to information rather than
possession of it
i. I. M. Kirzner
ii. J. B. Say
iii. Richard Cantillon
iv. Max Weber
9. Max Weber propounded the theory of
i. Social change
ii. Religious belief
iii. Group Level pattern
iv. innovation
10. emphasized on the cultural values,
role expectation, and social sanctions as the major factors of
entrepreneurship
i. Frank Young
ii. Thomas Kochran
iii. Bert Hoselitz
iv. David McClelland

Business
Entrepreneurship - I 95
Answers Theories of Entrepreneurship

Check Your Progress


2. favourable social climate
NOTES
3. Match the Pairs
1. b
2 a
3 d
4 c

Multiple Choice Questions


1. ii
2. iii
3. iv
4. iii.
5. ii
6. i
7. ii
8. i
9. ii
10. ii

5.10 Further Reading


Deshpande Manohar U., Entrepreneurship of Small Scale Industry, Deep
and Deep Publications, 1984
Khanka S.S., Entrepreneurial Development, S. Chand and Co., New Delhi,
1999
Mohanty Sangram Keshari, Fundamentals of Entrepreneurship, PHI
Learning, New Delhi, 2010

Business
Entrepreneurship - I 96
Classification of
Entrepreneurs UNIT 6 : CLASSIFICATION OF
ENTREPRENEURS
NOTES

Structure
6.0 Introduction
6.1 Unit Objectives
6.2 Classification of Entrepreneurs
6.2.1 Danhofs Classification Based on Adaptability
6.2.2 Singhs Classification Based on Nature of Economy
6.2.3 Guptas Classification From Development Angle
6.2.4 Arthur Coles Classification
6.2.5 Classification Based on Motives
6.2.6 Classification by Behavioral Scientists
6.2.7 Classification by Ucbasaran, Alsos, Westhead and Wright
6.2.8 Raj Shankars Classification
6.2.9 Classification Based on Expertise
6.2.10 Classification Based on Motivation Levels
6.2.11 Classification Based on Type of Business
6.2.12 Joe Abrahams Classification
6.2.13 Zimmerer and Scarboroughs Classification Based on Cultural
Diversity
6.2.14 Schollhammers Classification Based on Entrepreneurship
Practice
6.2.15 Robert Hisrichs Classification of Start-up Enterprises
6.2.16 Classifications Based on New Trends
6.2.17 Other Classifications
6.3 Summary
6.4 Key Terms
6.5 Questions and Exercises
6.6 Further Reading

6.0 Introduction
To classify entrepreneurship and practice of entrepreneurship into various
types or categories is not an easy task. There are no definitive classifications.
However, entrepreneurship literature is abundant with various categories of
entrepreneurs on the basis of different criteria propounded by various experts
from different disciplines. It is interesting to learn various categories of
entrepreneurship. We will take into consideration various broad categories of
Business
entrepreneurs and analyse these types for the purpose of Entrepreneurship
appreciating the- Iconcept
97
and nature of entrepreneurs in a better manner. Further, it will help in understanding Classification of
intricacies of the practice of entrepreneurship. A detailed analysis of various types Entrepreneurs
of entrepreneurs will help in identifying different approaches for development of
entrepreneurship. Each category of entrepreneurs is associated with some unique
features, characteristics, issues and challenges in the practical setting. One of the NOTES
objectives of this classification is to facilitate the study of these characteristic
features so as to boost up entrepreneurship development of a specific kind; identify
challenges and come up with appropriate solutions and framework. Such a
compilation of entrepreneurship categories and their detailed analysis will augment
chances of success of entrepreneurial ventures. In this unit, we shall analyse and
classify various types of entrepreneurs.

6.1 Unit Objectives


After going through this unit, you will be able to
Understand various types of entrepreneurs
Be aware about new types of entrepreneurs and latest trends in
entrepreneurship
Appreciate the concept and nature of entrepreneurs in a better manner
Boost up entrepreneurship development of a specific kind

6.2 Classification of Entrepreneurs


In the society, various types of entrepreneurs are seen dealing with different
kinds of activities. They are found in trade, in industry, in service sector, in agriculture
and in various areas of human endeavor. Depending upon different contexts, multiple
interpretations of entrepreneurship are seen. Experts and various disciplinarians
have classified entrepreneurs in various ways. In this section, we shall examine
the classification of entrepreneurs on the basis of various considerations:

6.2.1 Danhofs Classification of Entrepreneurs based on


Adaptability
In the initial stages of development, entrepreneurs tend to have less initiative
and drive. As development proceeds, they become more innovating and enthusiastic.
Similarly, when entrepreneurs are shy and humble, the region is underdeveloped.
With innovative and enthusiastic entrepreneurs, business as well as economy gets
developed. Based on a study of American agriculture, Clarance Danhof classifies
entrepreneurs into four classes based on their readiness to adapt to new technologies,
products or markets. The four types of entrepreneurs are Innovative, Imitative,
Fabian and Drone.
Innovative entrepreneurs are very innovative. They are always on the
lookout for new products, new markets, new methods of production, new sources
of raw material, reorganizing the enterprise. They bring about a transformation in
lifestyle. They show a high tendency of undertaking risks. They are aggressive in
experimentation and putting it into practice. They present their products/services
with zeal and devotion. Such entrepreneurs are mostly found in developed countries
which possess adequate infrastructural facilities needed for research and
development and favourable environment where people look forward to change Business
and improvement. They are very much helpful for their country. Such entrepreneurs Entrepreneurship - I 98
Classification of are rarely found in underdeveloped countries. They can work only when a certain
Entrepreneurs level of development is already attained.
Imitative entrepreneurs are not very innovative. They do not innovate
themselves. They imitate existing entrepreneurs and set up their enterprise in the
NOTES
same manner on the basis of techniques and technology innovated by others.
They try to improve or even copy successful innovations of others. They do not
innovate changes themselves, they imitate technology, techniques and methods
innovated by others. These entrepreneurs are characterized by their readiness to
adopt successful innovations of successful entrepreneurs. Such entrepreneurs are
particularly suitable for underdeveloped countries where they find it safer to imitate;
people in these nations prefer to imitate technology, knowledge, and skill already
available in developed countries. Such adoption saves costs of trial and error.
These entrepreneurs contribute significantly in spreading culture of entrepreneurship
in the society. They adopt successful technology, techniques which are already
tried, tested and accepted by the market and thereby generate employment. They
can be considered as agents of economic development.
Fabian entrepreneurs are timid, very cautious and highly traditional.
They are the second generation entrepreneurs. They are highly skeptical while
practicing any change in their enterprises. They are very skeptic about taking a
step unless and until they are definite, it would be a loss, if not steps are not taken
in time. They are doubtful about adopting or innovating new technology in their
enterprise. They are shy and lazy. They are not adaptable to the changing
environment. Their dealings are determined by custom, religion, tradition and past
practices. They are not much interested in taking risk. They try to follow the
footsteps of their predecessors. They neither have the desire to introduce new
changes nor the will to adopt new methods of production. They are highly traditional
in nature. Many of them prefer their traditional areas of operation. They imitate
only when it becomes clear that failure to do so would result in a great loss or
collapse of the enterprise otherwise they continue with their existing business with
the old techniques and technology. They change only when there is an imminent
threat to the existence of their enterprise.
Fabian are more applicable in the Indian rural agricultural environment.
Traditional acquired land is passed on from generations to generations. They try to
run their business in a primitive manner with traditional methods. They rarely find
any need for changes.
Drone entrepreneurs refuse to adopt and use opportunities to make
changes in their enterprises. They are stubborn to changes. Such entrepreneurs
may sometimes even suffer losses but they are not ready to make changes. They
resist changes and continue to operate in traditional way. They do not like to
change their existing business. They are fond of traditional business, old technology/
machineries. They are pushed out of the market when their operations become
uneconomical and their products lose marketability. They are conservative and
orthodox in their approach. They are laggards. They refuse to adopt change even
though they become aware about environmental changes and in spite of the
knowledge about considerable changes taken place in society.
The classification of Danhof shows that an economy which is making
technical advancement has a large number of innovating and adoptive entrepreneurs
and less number of Fabians and drones. Technological advancement may not take
place even if innovators are present, if the actual control and ownership of production
is in the hands of Fabians or drones.
Business
Entrepreneurship - I 99
6.2.2 Singhs Classification of Entrepreneurs based on Classification of
Entrepreneurs
Nature of Economy
A slight variation from Danhofs grouping is offered by Singh. While
classifying entrepreneurs, it takes into consideration the nature of economy. NOTES
According to this view, the nature of economy (developed, developing, and
underdeveloped economies) of a society influences the type of entrepreneurship
and its emergence. Check Your
Progress
Innovative entrepreneurs, mostly found in developed economies, are
characterized by aggressive experiments. He/she is clever and deft in putting
1. Who is a Fabian
forth alternatives and multiple solutions.
entrepreneur?
Imitative entrepreneurs, operative in developing economy, are revolutionary
and marked by their readiness to adopt successful innovations. 2.
entrepreneurs are
Exploitative entrepreneurs survive and operate in under-developed found mainly in ad-
economy. He/she survives in societies with high economic disparity, exploits all vanced and developed
possibilities for personal benefits through enterprises. Other features are no dignity economies. (Innova-
of labour, low self-esteem. tive/Imitative)
Model or ideal entrepreneur emphasizes on the social benefit aspect, 3.
spends profits on unit expansion, goes in for product diversification and assumes entrepreneurs are
total responsibilities for success or failure. Such an entrepreneur has remarkable very few in number in
ability to marshal resources; and can operate in any kind of economy. developing economies.
(Innovative/Imitative)
6.2.3 Guptas Classification of Entrepreneurs from
Development Angle
Gupta, in his classification, integrates sociological, psychological, and
economic perspective of entrepreneurship development as shown below:
Prime mover type entrepreneurs set in motion a powerful sequence
of development, growing, expanding, and diversification oriented.
Manager type entrepreneurs keep the unit running, handle the
environment effectively, and do not initiate development.
Minor innovator type entrepreneurs contribute to economic progress
by finding better use of societys resources although his/her contribution individually
may be small.
Initiator type entrepreneurs enter in the diffusion process of innovation
and slowly development begins.
Satellite type entrepreneurs are ancillary type. They assume supplier
role and slowly move towards independent runner.
Local trading type entrepreneurs restrict themselves to local market.
They hesitate to go beyond that.

6.2.4 Arthur Coles Classification of Entrepreneurs


Empirical entrepreneur never introduces anything revolutionary and
follows the principle of rule of thumb. Such entrepreneurs are similar to drone
entrepreneurs.

Business
Entrepreneurship - I 100
Classification of Rational entrepreneur is well informed about general economic
Entrepreneurs conditions. He/she takes rational decisions depending upon the situation. He/she
is ready to introduce even revolutionary changes on the basis of general economic
conditions.
NOTES
Cognitive entrepreneur is well informed, draws upon advice of experts
and introduces changes that reflect complete break from the existing scheme of
enterprise

6.2.5 Classification of Entrepreneurs by Evans based on


Motives
Managing entrepreneurs are interested in security.
Innovating entrepreneurs want excitement.
Controlling entrepreneurs above all desire power and authority.

6.2.6 Classification of Entrepreneurs by Behavioural


Scientists
Solo operators prefer to set up their business individually. They introduce
and run their enterprises on their own with the help of their own ideas and own
funds. They essentially work alone, introduce their own capital and if essential
employ very few employees. Majority of the entrepreneurs are solo operators in
the beginning of their enterprises. They operate their business mainly in the form
of proprietorship type of concern.
Active partners jointly put their efforts and resources to set up their
enterprise. They start/carry on their enterprises as joint ventures. They actively
participate in managing daily routine of enterprise. Enterprises which are managed
by active partners get success in their operations. Those who contribute their
funds but not actively participate in business are called as simply partners
Inventors are creative. They are interested in research and innovation.
They primarily engage themselves in R & D activities. They invent new products,
new technologies, new production methods etc.
Challengers take challenges to establish their business. They face
challenges boldly. They convert odds and adversities into opportunities and make
profit and get success. They keep on improving various aspects of their business.
When one challenge seems to be met, they begin their search for a new challenge.
For them, in absence of challenge there is no charm in life. They truly feel that
challenge adds spice to life. They never hesitate to plunge themselves into
uncertainties.
Buyers (entrepreneurs) simply purchase existing enterprises and run them
successfully. They do not like to bear much risk. They explore opportunities to
purchase existing enterprises. They need not indulge in initiation of enterprises.
They make themselves free from building infrastructure and other facilities. They
buy ongoing enterprises. If the enterprises are sick, they bring about turnaround
management with the help of their experiences, and expertise.
Life timers take business as inseparable and essential part of life. Family
enterprises mainly depend upon personal skills of such life timers. They have a
strong desire to succeed. They like to shoulder responsibility and prove themselves.
Business
Entrepreneurship - I 101
6.2.7 Classifications of Entrepreneurs by Ucbasaran, Classification of
Entrepreneurs
Alsos, Westhead and Wright
One of the most commonly found classifications is based on the research
of Ucbasaran, Alsos, Westhead and Wright. In their article published in a journal NOTES
Entrepreneurship Theory and Practices in 2001, they focus on entrepreneurial
research context and process issues. They divide entrepreneurs into five types,
namely, Nascent entrepreneur, Novice entrepreneur, Habitual entrepreneur, Serial
entrepreneur and Portfolio entrepreneur.
A nascent entrepreneur is involved in the process of starting up right
from the conceptualizing part. He/she strongly desires to start business. He/she
can be very persevering for achieving goals. Most of the people who start businesses
typically imitate products and start by servicing a small niche group or market.
A novice entrepreneur is one who has no prior business ownership
experience. He/she wishes to start business for the first time.
A habitual entrepreneur is one who has prior business ownership
experience.
A serial entrepreneur is one who has started and run businesses in the
past, has run it successfully or closed it down, has either successfully sold it off to
another person or logically brought it to an end. So, in a sense, he/she routinely
starts up and sells or closes down businesses. He/she is adaptable, always looks
towards next big thing and has a high tolerance for stress. Serial entrepreneurs set
up businesses, and bring them to a stage of development where they can move on
either by selling according to a pre-determined exit strategy, or place the enterprise
in the hands of a successor or group of successors whilst retaining some degree
of investment and/or strategic input, whilst they start their next venture, with a
view to repeating the process again. Majority of serial entrepreneurs are leap
froggers, people who start a company, manage its growth until they get bored, and
then sell it to start another. A few are jugglers (or parallel entrepreneurs), people
who start and manage several companies at once. In the words of Dick Kouri,
Starting a company is a very imaginative, innovative, energy-driven, fun process.
Serial entrepreneurs cant wait to do it again
A portfolio entrepreneur is one who retains the original business and
builds a portfolio of additional businesses around it, either through purchasing or Check Your
starting up related or new businesses. When an opportunity is found, he/she looks Progress
at businesses more as a portfolio of investments, rather than just a passionate
endeavor. He/she is more like an investor who has a portfolio of investments. For 4. A
a portfolio entrepreneur, his/her portfolio companies are very similar to investments. entrepreneur is one
who has no prior
6.2.8 Raj Shankars Classification of Entrepreneurs business ownership
experience.
Raj Shankar discussed four broad categories of entrepreneurship as detailed below: 5. A
Entrepreneurship by chance: All entrepreneurs are not innovators. Not entrepreneur is one
all of them became entrepreneurs motivated by their innovative ideas. Not all of who has prior
them set up their enterprises for producing/marketing innovative products. Many business ownership
times, due to an opportunity there is emergence of a new enterprise. No doubt, experience.
these entrepreneurs take risks, create their enterprises, nurture them, provide job
opportunities, create wealth etc. However, the starting point for entrepreneurship
is chance occurrence or something that came by, which is exploited by entrepreneur
to his/her advantage. Business
Entrepreneurship - I 102
Classification of Entrepreneurship by need Sometimes salaried income is not sufficient
Entrepreneurs and adequate to meet family needs. People may not find a good job with an attractive
package in a big corporate. Then they find different means to support themselves
or supplement their family income. In such situations, small businesses such as
shops, kirana stores etc are started out of the strong survival need. These
NOTES
entrepreneurs typically address financial needs of self, immediate family, and
possibly few people around.
Entrepreneurship by choice These entrepreneurs chose
entrepreneurship career on their own as their deliberate choice. Out of their
ambition, personal interest, passion; they explore their environment, identify a suitable
promising business opportunity and exploit it with their own style. Such kind of
entrepreneurial ventures see a huge success.
Entrepreneurship by force Second-generation owners of businesses
typically fall in this category. They may not have personal interest in
entrepreneurship. They may not have the skill to create, grow an enterprise by
identifying opportunity, organising resources etc. They are pushed into the practice
of entrepreneurship by force of environmental conditions. Unemployed persons
may be compelled towards entrepreneurship as the last resort. Less educated or
uneducated persons enter into entrepreneurship.

6.2.9 Classification of Entrepreneurs based on their


Expertise
Technical entrepreneurs constitute enormous power of the country.
They apply innovative technology and develop improved quality goods, services.
They are technically educated or experienced. They concentrate more on
production than marketing. They depend upon their skill in production techniques
and quality of craftsmanship.
Non-technical entrepreneurs deal with non-technical aspects of
products which they deal with. They focus more on marketing and distribution and
less on production. They dont have expertise in production techniques. They strive
to develop effective marketing and distribution strategies for increasing demand
for their products.
Professional entrepreneurs are dynamic. They keep on identifying
innovative ideas and convert them into actual reality in the form of enterprises.
They are always in search of a new project. They are active and dynamic. They
take keen interest in establishing new businesses. They never stay in business for
a long time. After getting success, they sell out their established and settled
businesses; they dont like to manage those activities which have now become
routine and monotonous for them. They dont find any challenge now. Again they
continue their search for new challenging projects.

6.2.10 Classification of Entrepreneurs based on


Motivation Levels
Pure entrepreneurs are motivated by psychological and economic
rewards. They are guided by profit motive. They undertake entrepreneurial activity
for their personal satisfaction in work, ego, or status. They believe in their worth
and their own performance.
Induced entrepreneurs are induced to take up entrepreneurial task due
to support of the government in the form of various policy measures regarding
Business
Entrepreneurship - I 103
financial assistance, marketing as well as training assistance, skill training, Classification of
consultancy, scarce raw materials, land at cheap rates, tax exemption, incentives, Entrepreneurs
subsidies and concessions. Various promotional agencies provide inducement to
persons to become entrepreneurs.
NOTES
Motivated entrepreneurs are motivated through entrepreneurial
motivation training. They are influenced by the desire for self-fulfillment. They
are trained to develop need for achievement, improve self-confidence.
Spontaneous entrepreneurs are self-motivated. They start their own
enterprises spontaneously. They are blessed with natural talent. They are confident.
They are self-confident and positive in their approach. Their inner drive motivates
them towards entrepreneurship.

6.2.11 Classification of entrepreneurs based on type of business


Business entrepreneurs are individuals who conceive an idea for a
new product/service and then create a business to materialize their idea into reality.
They may set up a small business unit or a big enterprise. Mostly entrepreneurs
are found in small business enterprises. Entrepreneurship flourishes when size of Check Your
business is small. Progress

Trading entrepreneurs undertake trading activities. They are not 6. entre-


concerned with manufacturing activity. They undertake trading as their enterprise preneurs are moti-
or business. Business entrepreneurs are treated as trading entrepreneurs in recent vated through entre-
years. They recognize feasible market opportunities and convert them into business preneurial motivation
enterprises. They identify potential markets, stimulate demand for their products, training.
and create desire and interest for their products/services in the market. They 7. entre-
possess the ability to push ideas ahead to promote their business. preneurs are self-mo-
Industrial entrepreneurs are concerned with manufacturing of products/ tivated.
services. They comprise large scale, medium scale, small scale, micro and tiny
entrepreneurs. They are basically manufacturers. They identify potential needs of
customers and develop product/service to meet the needs. They have the ability
to convert economic resources and technology into a profitable venture.
Agricultural entrepreneurs undertake agricultural work like raising and
marketing of crops, fertilizers and various other inputs of agriculture. They use
modern methods of agriculture such as modern irrigation facilities, mechanization,
irrigation, pesticides, HYV seeds etc.
Corporate entrepreneurs possess and exercise the skill in organizing
and managing corporate undertakings. A corporation for business organization is
formed and registered under a statute which gives it a separate legal entity.
Corporate entrepreneurs undertake their business activities under legally registered
company or trust.
Service entrepreneur engages himself/herself in service activities. He/
she possesses skill and vocational training of a particular kind of their choice or
interest. Service entrepreneurs indulge in various activities like repair and
maintenance, beauty parlors etc

6.2.12 Joe Abrahams Classification of Entrepreneurs


Joe Abraham, in a book Entrepreneurial DNA, based on a study of over
100 entrepreneurs, suggests that entrepreneurs fall into four distinct types of
entrepreneurial DNAs that leverage unique strengths, weaknesses and tendencies Business
that are typical in each specific type of entrepreneur. Entrepreneurship - I 104
Classification of A builder has a drive to build highly scalable businesses very fast. These
Entrepreneurs individuals measure success through a very unique lens infrastructure. It drives
the decisions they make and the strategy they build and deploy. They arent satisfied
with a certain amount of personal income or goodwill toward man.
NOTES
An opportunist is highly optimistic master promoter. These individuals
enjoy marketing and selling. They are wired to sniff out well-timed money making
opportunities, jump in at the right time, ride the wave of growth up and (hopefully)
jump out at the peak. They measure success based on the amount of money they
make (or will make) when they arent working. They are drawn to business
opportunities where leverage can be used to create residual and renewal income.
This behavioural preset in entrepreneurs make them impulsive decision maker
especially when it comes to money-making opportunities; a trait that can serve
them very well or be the source of their demise.
A specialist is an expert. They generate most of their new business from
referrals and networking. They measure success based on their personal income.
Their businesses tend to grow fairly well in the startup and early growth phase,
but as soon as their personal income meets preset targets, they do into customer
service mode.
Innovators sense and exploit business opportunities. They love to invent,
design and tinker. They are least interested in money, in operating a business.
They measure success based on the impact of their product or service on society.
This research has proved that entrepreneurs come in very different profiles.
Some are innovator builders. Others are specialist-opportunists.

6.2.13 Zimmerer and Scarboroughs Classification based


on Cultural Diversity of Entrepreneurship
As we have seen above, virtually anyone has the potential to become an
entrepreneur. Thomas Zimmerer and Norman Scarborough explored the diverse
mix of people who lead towards entrepreneurship as follows these groups are
women, minorities, immigrants, part-timers, home-based business owners, family
business owners, copreneurs, corporate castoffs, and corporate dropouts:
Young entrepreneurs: Entrepreneurs such as Narayan Murthy, Bill
Gates, Steve Jobs are getting hero status and the young generation is looking
towards them as role models to follow. Decrease in job opportunities in government
and other sectors, less promising career paths, technological advances, shift towards
service economy and growing importance of entrepreneurship course is attracting
young generation towards entrepreneurship.
Women entrepreneurs: Entrepreneurship enables women to be
independent. They get financial freedom through their enterprises. Flexible working
hours and convenient business location empowers women to strike a right balance
of domestic duties and enterprise demands. They can exercise their own ideas;
can remain engaged in areas of their interests through entrepreneurship. At the
same time they earn money, establish their own identity and become a respectable
member in the society. However, they have to traverse their journey through the
hurdles of low self-esteem, gender discrimination in the male dominated society.
Minority entrepreneurs: Due to discrimination, minority groups had
less access to entrepreneurship. With increasing opportunities for education,
upsurge of information sources, more and more exposure, awareness, there is a
Business
Entrepreneurship - I 105
significant increase in minority entrepreneurs setting up their business enterprises Classification of
and getting success. Entrepreneurs

Immigrant entrepreneurs: Immigrant entrepreneurs are characterized


by their desire and dedication. Nowadays they are better educated and more
NOTES
experienced. They have limited resources available with them.
Parttime entrepreneurs: Part-time entrepreneurs experiment with their
own ideas. They assess the customer reactions, market response, market demand
on the basis of feedback and systematic study. They get an experience of being
self-employed. If they get encouraging results, and still continue with their interest
in entrepreneurial endeavor; they become full-time businesses. They wait and
watch before taking decision in favour of entrepreneurial undertaking. Until then
they enjoy the security of regular salaried income before entering into business by
playing a safe game.
Home-based businesses: Previously home-based businesses were
mostly cottage industries. Presently due to IT revolution and technological
breakthroughs, home-based businesses have become diverse. Now we can call
them electronic cottages. They may use internet and World Wide Web to operate
e-business. They may be high-tech companies or service enterprises. Home-based
businesses offer various conveniences. Home is the first choice location for many since
it permits a flexible lifestyle and work style. Start-up and operating costs are meager.
Family businesses: A family-ownedbusiness includes two or more
members of a family with financial control of the company. A major threat for
family businesses is threat from within management succession.
Co-Preneurs: Co-preneurs are entrepreneurial couples who work
together as co-owners of their businesses. They create a division of labour that is
based on expertise as opposed to gender. They direct their energies and talent
towards a common purpose. It is found that companies co-owned by spouses
represent one of the fastest growing business sectors. It is not for everyone, but if
works extremely well for many couples and often leads to success in business.
Corporate Castoffs: Many large corporations have been downsizing for
the sake of regaining their competitive edge. Big corporations lose their flexibility
and speed. Due to layoffs, executives as well as blue-collar workers are losing
their jobs. These corporate castoffs have become a good source of entrepreneurial
activity. Such ventures mostly survive and prosper in an effective manner in less
time. These entrepreneurs have good education. They have business knowledge
and experience of several years.
Corporate Dropouts: The dramatic downsizing has created trust gap
among the employees left in the corporate after restructuring. Due to this trust
gap, there is an increasing tendency of leaving the corporate and becoming
entrepreneurs. Now such entrepreneurs enjoy their work because this is their
own choice and interest and on their own they accepted the path. Several times
individuals get unfair treatment in large, rigid and impersonal corporate. Such
persons find entrepreneurial endeavours rewarding and satisfying to them. Mostly
they enjoy success in their newly launched ventures since they are educated,
experienced and have a good networking.

6.2.14 Schollhammers Classification of Entrepreneurship


Hans Schollhammer has classified the various ways in which
entrepreneurship can be practiced in an organization as follows: Business
Entrepreneurship - I 106
Classification of Administrative entrepreneurship: The firm simply moves a step beyond
Entrepreneurs the formal R&D projects to encourage greater innovation or new inventions. The
distinction that makes R&D entrepreneurial may be a state of mind, a corporate
philosophy of R&D personnel. However, these are only partial contributors to
bringing a new product in the market or implementing a new technology.
NOTES Other
corporate personnel and resources help commercialize R&D innovations.
Opportunistic entrepreneurship: In this kind, formal structural ties are
loosened as product champions seek out and take advantage of unique opportunities.
The traditional R&D perspective is avoided in favour of encouraging individuals
to pursue ideas inside and outside the organization. The opportunistic model suggests
that the managers accept some degree of isolation from corporate halls, tread
their career paths, but also work simultaneously to exploit opportunities within
reasonable boundaries. They may cautiously shed the seclusion of water-tight
corporate principles in pursuit of profits, but within reasonable limits. They may
share generously in rewards.
Acquisitive entrepreneurship: The acquisitive approach encourages
corporate managers to look external for innovations that can lead to rapid growth
and profits. Instead of developing ideas internally, corporations actively seek other
firms that have invented new products or processes.
Imitative entrepreneurship: The imitative approach takes advantage
of other firms ideas and inventions. Sometimes it may be perceived as corporate
espionage.
Incubative entrepreneurship: After acquiring new products or patents,
corporates must allocate resources to commercialise the acquisitions. This activity
begins with an intense focus on development corporate creates venture development
units to nurture new products or technology.

6.2.15 Robert Hisrichs Classification of Start-up


Enterprises
Robert Hisrichs classification system divides start-ups into four categories:
Cottage Company, lifestyle firms, foundation companies, and high-potential ventures.
A cottage company (or micro-enterprise) is a privately held business
that generally employs fewer than 10 people and has revenues of less than $1
million. This type of firm often supplements traditional employment or other income,
has only one employee (usually the owner), may or may not be operated as a
home business, and often experiences very little growth.
A lifestyle firm is privately held and usually achieves only modest growth
due to the nature of business, objectives of the entrepreneur, and limited money
devoted to research and development. This type of firm may grow after several
years to 30 or 40 employees and have annual revenue of about $2 million. A
lifestyle firm exists primarily to support the owners and usually has little opportunity
for significant growth and expansion.
The third type of start-up the foundation company is created from
research and development and lays the foundation for a new business area. This
firm can grow in 5 to 10 years from 40 to 400 employees and from $10 million to
$20 million in yearly revenues. Since this type of start-up rarely goes public, it
usually draws the interest of private investors only, not the venture-capital
community.
Business
Entrepreneurship - I 107
The final type of start-up the high-potential venture is the one that Classification of
receives the greatest investment interest and publicity. While the company may Entrepreneurs
start out like a foundation company, its growth is far more rapid. After 5 to 10
years, the company could employ around 500 employees, with $20 million to $30
million in revenue. These firms are also called gazelles and are integral to the NOTES
economic development of an area.

6.2.16 Classification of Entrepreneurs based on New Trends


Gifford Pinchot III used the term intrapreneurs to depict the persons who
resigned from their well-paid executive positions to launch their own ventures.
Intrapreneurs are corporate entrepreneurs. They are enterprising persons within
boundaries of an organization. They are paid employees who use all their
entrepreneurial skills for growth of their organizations. They are innovators like
entrepreneurs. They introduce new products/services.
Social entrepreneur or a sociopreneur is a person who practices
entrepreneurship with a social bent. In the words of Christopher Poizat, Social
entrepreneurs are people who recognize social problems, decide to roll up their
sleeves, and get into action using entrepreneurial principles to organize, create,
and manage a venture to implement social change that is sustainable, good for the
planet and for the highest good of humanity. Sociopreneurs apply their skills not
only for profit making, but for achieving social and environmental goals. They
provide products and services with the intention of creating social good and fulfill
economic, social and environmental objectives. Profit is often reinvested into the
enterprise rather than being distributed to shareholders. Many people with a motive
of helping others turn to social enterprises.
Technopreneur is the person behind technology-driven enterprise. He/
she can understand and create technologies, or take technologies and apply them
correctly. Tech entrepreneurship is concerned with founding technology enterprises.
They are seldom associated with the day to day running of a successful enterprise,
but are often the creators. Informally they are referred to as techies, geeks, or
nerds. They develop improved quality of goods with his/her innovative abilities
and craftsmanship. They are very intelligent, and motivated. They are required to
imbibe entrepreneurial and technical skills. They do something unconventional.
They need to possess human relations skills for the sake of interaction with influential
and wealthy people within technology industry.
Technology entrepreneurship is one of the most difficult paths which suit
a relatively small number of people. One must possess strong technical skills as
well as the ability to deal with high risk of failure. It is a very high-potential path
with a chance of high earnings and large direct impact. However, they have to
work long hours.
Edupreneurs are academic entrepreneurs. They innovate and introduce
a significant and remarkable change regarding teaching/learning methodology, style,
presentation, evaluation etc.
Mompreneurs are a relatively new trend in entrepreneurship.
Entrepreneur.com defines Mompreneur as a female business owner who is actively
balancing the role of mom and the role of entrepreneur. Due to internet, it is
possible for mothers to deal with online business while attending their duties as a
mother. Some work at home; some have branched out into family-friendly office
spaces. They balance the demands of business and requirement of their children.
They do their work during the time when their children do not require much attention. Business
Entrepreneurship - I 108
Classification of They may take up the kind of wok as they had before having children, remotely
Entrepreneurs logging into office networks and telecommuting.
When a married couple shares ownership, commitment, and responsibility
for a business, such type of enterprising couples are termed as copreneurs.
NOTES
Ontrepreneurs/netpreneurs bring out innovation through internet. They
launch online businesses.
Paper entrepreneurs represent a new class of entrepreneurs. They
deal with buying and selling of shares, and companies. They mastermind takeovers,
mergers. They carry on financial operations on a global scale; their offices are
independent of any national economy or government.
Solopreneur is an individual who operates alone in an enterprise and
manages all aspects of the business on his/her own. This has been made possible
due to IT revolution and various IT devices.
Lifestyle entrepreneurs choose businesses that reflect their passions
and they are more focused on doing something they love than on the pure profit
motive for starting a business. This includes making deliberate choices to fit a
business around a way of living.
Lifestyle entrepreneurship can be defined as a career or job that is chosen
to match preferred lifestyle values and activities, rather a career and then arranging
your life to synchronize with it. Life entrepreneurs view their decision not as a
career but a life strategy to achieve self-fulfillment. They are motivated by a
desire to earn a respectable living. They are capable and competent. They have
passion. They have a positive attitude and a firm determination to control their
own future. They maintain a balance between their work life and their family life.
They take pleasure in their career attainment and achievements. At the same time
they find satisfaction in spending quality time with their family, friends and making
a cheerful social contribution.
The focus of lifestyle entrepreneurship is around the value of personal
freedom. Due to explosion of technology, businesses now very conveniently are
automated. They can be managed online and need not be geographically specific.
Flexible e-workers or e-lancers are a growing trend which is supported by mobile
technology. Online platforms are creating new workplace models or virtual settings
to find solutions for business challenges. There is a slow revolution in the society
in the nature of work. More and more people especially young generation work in
flexible contract based structures which are entrepreneurial and less tied to specific
times, places, and employers. One of the new rules of work is that it can happen
wherever you are, anywhere in the world. The young generation is increasingly
adopting lifestyle entrepreneurship as their preferred career path. They apply
technology with ease to streamline their work. They are attracted towards the
type of businesses which are primarily online, where costs are substantially lower
and obviously the risks are also subsequently much lower.
In the light of global competitiveness, tight financing concept, technological
innovations etc; new products/services are conceived, created, tested, produced
and marketed very quickly and with great speed. Todays entrepreneur needs to
have a different mindset about establishing and operating a company. The mindset

Business
Entrepreneurship - I 109
is called as ultrapreneuring. According to James B. Arkebauer, ultrapreneurs Classification of
identify a business opportunity, determine its viability and form a company. It Entrepreneurs
requires assembling a competent management team who then develop, produce
and market product/service. Then they sell majority interest in the company with
maximum leverage of both talent and money in the shortest time period. NOTES
Ultragrowth companies are not made to pass on to next generation.
Ultrapreneurs create them, then sell out, merge or combine. Their life long challenge
is to do it again and over again. Such ultrapreneurs possess characteristics such
as achievement, action orientation, commitment, energy, goal setting, growth
orientation, honesty, innovation, intelligent, leadership, risk tolerance, self-confidence.

6.2.17 Other Classifications of Entrepreneurs


Entrepreneurs may also be classified into new (first generation) and
established entrepreneurs, rural and urban entrepreneurs, individual and institutional
entrepreneurs, private and public entrepreneurs, men and women entrepreneurs,
educated and uneducated entrepreneurs, technical and non-technical entrepreneurs,
modern and traditional entrepreneurs, and born and made entrepreneurs.
Check Your
New of first generation entrepreneurs start their enterprises on their own. Progress
They are self-made entrepreneurs. They do not possess family business background.
Their enterprises are based on their skills, interests, experience and expertise. 8. Intrapreneurs are

Established entrepreneurs are from business families. entrepreneurs.
Rural entrepreneurs are from rural area i.e. from villages. They establish 9. Edupreneurs are
their enterprises in rural areas either in khadi or village industries or in farm
entrepreneurship. According to Khadi and Village industry Commission (KVIC), entrepreneurs
village industry or rural industry means any industry located in rural area, population
of which does not exceed 10,000 which produces any goods or renders any services
with or without use of power ad in which fixed capital investment per head of an
artisan or a worker does not exceed a thousand rupees. This definition has recently
been modified by the government. Accordingly, any industry located as village
industry in rural area, village or town with a population of 20,000 and below and an
investment of Rs. 3 crores in plant and machinery is considered as village industry.
Rural entrepreneurs have tremendous scope to set up village industry.
Urban entrepreneurs work in urban area i.e. in cities. They enjoy certain
locational advantages.
Individual entrepreneurs are commonly seen dealing with small
enterprises. They introduce their enterprises with the help of their own ideas, own
funds, their skill and intelligence. They are ready to bear risk for the sake of profit.
They make quick decisions. They are flexible. They seek assistance from
government and other promotional agencies.
Institutional entrepreneurs comprise of a group of entrepreneurs. For
large scale enterprises where decision making process is complex in matters
concerned with investment, capital, finance, and marketing, there is a need of
institutionalization of such enterprises.
Private entrepreneur is motivated by profit and as such would not enter
those sectors of the economy in which profits are less. This forces government to
start enterprises in these sectors and thus, we have public entrepreneurs. In
less developed countries, there is a due to lack of sufficient private entrepreneurs
there is a prominent role of public entrepreneurs. Business
Entrepreneurship - I 110
Classification of Men entrepreneurs dominate businesses right from the early days. They
Entrepreneurs did not allow women to enter business.
Women entrepreneurs are those women or group of women who initiate,
organize, and operate a business enterprise. Government of India defines women
NOTES
entrepreneurs enterprise as an enterprise owned and controlled by a woman and
having minimum financial interests of 51 per cent of the employment generated in
the enterprise to women.
An educated entrepreneur is one who has received basic education
i.e. he/she can read and write. He/she is a literate person who has undertaken
school and /or college education.
An uneducated entrepreneur is one who is either an illiterate person
or a person who even does not know how to read and write.
Modern entrepreneurs are engaged in economic activities in accordance
with current demand of the market. They deal with products according to the
latest trends in the market. They are very fast and quick in adopting changes.
Traditional entrepreneurs adopt traditional approach and outlook
towards business.
Some people are born with certain inherent qualities. They are called
born entrepreneurs. They possess all the inborn qualities of entrepreneurs. They
know how to get the things done through others. Born entrepreneurs are those
who are lucky to inherit business. They learn business skill right from their childhood.
They are more efficient and effective than others in business.
Made entrepreneurs are those who are not born entrepreneurs. They
become entrepreneurs through training. They learn from past experience and from
others through trial and error.
Classical entrepreneurs are traditional and stereotype in their approach.
They are motivated by their economic gain. They strive for optimizing profit.

6.3 Summary
Entrepreneurs differ in their attitudes, skills, thoughts, approaches and actions.
We have seen various categories of entrepreneurs on the basis of varied criteria.
Clarence Danhof classified entrepreneurs on the basis of economic
development as innovative entrepreneurs, imitative entrepreneurs, Fabian
entrepreneurs and drone entrepreneurs.
Singh classified entrepreneurs as innovative entrepreneurs, imitative
entrepreneurs, exploitative entrepreneurs and model or ideal entrepreneurs.
Gupta classified entrepreneurs from development angle as prime mover
type, manager type, minor innovative type, initiator type, satellite type, and local
trading type entrepreneurs.
Arthur Coles categories of entrepreneurs are empirical entrepreneurs,
rational entrepreneurs, and cognitive entrepreneurs.
On the basis of motives, Evan classifies entrepreneurs as managing
entrepreneurs, innovating entrepreneurs and controlling entrepreneurs.
Business
Entrepreneurship - I 111
Behavioural scientists talk about various types of entrepreneurs as solo Classification of
operators, active partners, inventors, challengers, buyers, and life timers. Entrepreneurs

Ucbasaran, Alsos, Westhead and Wright divide entrepreneurs into five


types, namely, Nascent entrepreneur, Novice entrepreneur, Habitual entrepreneur,
NOTES
Serial entrepreneur and Portfolio entrepreneur.
According to Raj Shankar, four broad categories of entrepreneurship are
entrepreneurship by chance, entrepreneurship by need, entrepreneurship by force
and entrepreneurship by choice.
On the basis of their expertise, there are various types as technical
entrepreneurs, non-technical entrepreneurs and professional entrepreneurs.
Based on their motivation level we find various types as pure entrepreneurs,
induced entrepreneurs, motivated entrepreneurs and spontaneous entrepreneurs.
On the basis of type of business, entrepreneurs can be categorized as
business entrepreneurs, trading entrepreneurs, industrial entrepreneurs, agricultural
entrepreneurs, corporate entrepreneurs and service entrepreneurs.
Joe Abraham suggests four distinct types of entrepreneurs as a builder, an
opportunist, a specialist and an innovator.
Zimmerer and Scarborough explored diverse groups of entrepreneurs as
women, minorities, immigrants, part-timers, home-based business owners, family
business owners, copreneurs, corporate castoffs, and corporate dropouts.
Schollhammer classified various types on the basis of practice of
entrepreneurship as administrative entrepreneurship, opportunistic entrepreneurship,
acquisitive entrepreneurship, imitative entrepreneurship and incubative
entrepreneurship.
Robert Hisrichs classification system divides start-ups into four categories:
cottage company, lifestyle firms, foundation companies, and high-potential ventures.
Based on new trends, new types of entrepreneurs are social entrepreneurs,
technopreneurs, edupreneurs, mompreneurs, copreneurs, ontrepreneurs/netpreneurrs,
paper entrepreneurs, solopreneurs, lifestyle entrepreneurs, ultrapreneurs.
Other classifications of entrepreneurs include new (first generation) and
established entrepreneurs, rural and urban entrepreneurs, individual and institutional
entrepreneurs, private and public entrepreneurs, men and women entrepreneurs,
educated and uneducated entrepreneurs, technical and non-technical entrepreneurs,
modern and traditional entrepreneurs, and born and made entrepreneurs.

6.4 Key Terms


Sustainable development: The development that meets the needs of
the present generation without compromising the ability of future
generations to meet their own needs
Downsizing: make (something) smaller; in a business enterprise,
downsizing is reducing the number of employees on the operating payroll,
it is intended to be a permanent downscaling
Layoff :A period of enforced unemployment
Business
Entrepreneurship - I 112
Classification of
Entrepreneurs 6.5 Questions and Exercises
Questions
1. Describe in detail Danhofs classification of entrepreneurs.
NOTES

2. Distinguish between:
i. Innovating entrepreneur and imitative entrepreneur
ii. Business entrepreneur and trading entrepreneur
iii. Corporate entrepreneur and agricultural entrepreneur
iv. Fabian entrepreneur and drone entrepreneur
v. Intrapreneur and ultrapreneur
3. Classify entrepreneurs on the basis of motivation level
4. Discuss new types of entrepreneurs based on latest trends
5. Explain the classification of start-up enterprises by Robert Hisrich?
6. How will you classify entrepreneurs on the basis of motivation levels?
7. Can you classify entrepreneurs based on type of business?
8. Discuss the types of entrepreneurs classified by Ucbasaran, Alsos,
Westhead and Wright.
9. How do behavioural scientists classify entrepreneurs? Describe.
10. Describe Zimmerer and Scarboroughs classification of entrepreneurs
based on cultural diversity.

Exercise
1. Meet five entrepreneurs, which categories of entrepreneurs they
belong? Prepare a report.

Multiple Choice Questions


1. entrepreneurs imitate only when it becomes
clear that failure to do so would result in a great loss or collapse of
their enterprise otherwise they continue with the existing business with
old techniques and technology.
i. Innovative
ii. Imitative
iii. Fabian
iv. Drone
2. entrepreneurs may sometimes even suffer losses
but they are not ready to make changes.
i. Innovative Business
Entrepreneurship - I 113
ii. Imitative Classification of
Entrepreneurs
iii. Fabian
iv. Drone
NOTES
3. entrepreneurs keep the unit running,
handle the environment effectively, and do not imitate development.
i. Prime mover type
ii. Manager type
iii. Minor innovative type
iv. Initiator type
4. prefer to set up their business individually.
i. Solo operators
ii. Active partners
iii. Inventors
iv. Challengers
5. take business as inseparable and essential part
of life. Family enterprises mainly depend upon personal skills of such
entrepreneurs
i. Life timers
ii. Buyers
iii. Challengers
iv. Solo operators
6. A - is one who has started and run
businesses in the past, has run it successfully or closed it down, has
either successfully sold it off to another person or logically brought it
to an end.
i. A habitual entrepreneur
ii. A portfolio entrepreneur
iii. A serial entrepreneur
iv. A novice entrepreneur
7. are entrepreneurial couples who work
together as co-owners of their businesses.
i. Family businesses
ii. Challengers
iii. Buyers
iv. Co-preneurs
8. entrepreneurs are from business families. Business
Entrepreneurship - I 114
Classification of i. Established
Entrepreneurs
ii. New
iii. Private
NOTES
iv. Public
9. entrepreneurs do not like to bear much risk. In
order to reduce risk involved in setting up a new enterprise, they like
to buy the ongoing one.
i. Buyer
ii. Inventor
iii. Life timer
iv. None of the above
10. entrepreneur is also
known as adoptive entrepreneur.
i. New
ii. Imitative
iii. Drone
iv. Innovative

Answers
Check Your Progress
2. Innovative
3. Innovative
4. Novice
5. Habitual
6. Motivated
7. Spontaneous
8. Corporate
9. Academic

Multiple Choice Questions


1. iii
2. iv
3. ii
4. i
5. i Business
Entrepreneurship - I 115
6. iii Classification of
Entrepreneurs
7. iv
8. i
NOTES
9. i
10. ii

6.6 Further Reading


Zimmerer Thomas W., Scarborough Norman M., Essentials of
Entrepreneurship and Small Business Management, PHI Learning Pvt. Ltd., 2011
Reddy P. Narayana, Entrepreneurship Text and Cases, Cengage Learning,
2010

Business
Entrepreneurship - I 116
Entrepreneurial Environment
UNIT 7: ENTREPRENEURIAL
ENVIRONMENT
NOTES

Structure

7.0 Introduction
7.1 Unit Objectives
7.2 Entrepreneurial Environment
7.3 Factors affecting Entrepreneurial Growth
7.4 Barriers to Entrepreneurship
7.5 Summary
7.6 Key Terms
7.7 Questions and Exercises
7.8 Further Reading

7.0 Introduction
All that is valuable in human society depends upon the opportunity for
development accorded to the individual Albert Einstein
Entrepreneurship does not emerge and grow spontaneously.
Entrepreneurial activity at any time depends upon a combination of social, cultural,
economic, psychological, political and other factors. Entrepreneurship is a function
of environment. The concept of entrepreneurship changes with change in
environment. It is necessary to consider the influence of environment on the concept
of entrepreneurship.
Emergence and development of entrepreneurship depends upon these
support factors. Environmental factors exert a strong influence on the personal
background and personality of entrepreneurs. Entrepreneurs also create an impact
on the environment. Due to constant interaction with the environment, it is essential
to understand the impact of the interplay of these environmental components and
consequent adaptation to decide the nature and degree of entrepreneurial activity.
A detailed analysis of various components of entrepreneurial environment is
presented in this unit.

7.1 Unit Objectives


After going through this unit, you will be able to
Understand various environmental factors which influence the
emergence and development of entrepreneurship
Know the impact of Government actions on entrepreneurship
development
Discuss the factors influencing growth of entrepreneurship
Business
Analyze barriers to entrepreneurship Entrepreneurship - I 117
Entrepreneurial Environment
7.2 Entrepreneurial Environment
Entrepreneurship is influenced by a multitude of factors mainly at two
levels external and internal. In comparison, internal factors are more important
NOTES
than the external. The influencers at the individual level are intrinsic and more
powerful.
The factors related to the individual prompt him/her to consider
entrepreneurship. The individual wants independence of work. He/she may want
to be his/her own boss, or experience freedom. Maybe he/she is interested in a
marketing/manufacturing/distribution opportunity related with his/her skills/interests/
hobbies/expertise/experience. Internal influencers are more important since they
are related with the individual. They are intrinsic and the strongest.
The individual wants to experience freedom, or independence at work.
When he/she has the ability to identify a market opportunity and possess confidence
about market success, there is emergence of an enterprise.
Family plays a crucial role in shaping personality. Child rearing practices
either create or destroy entrepreneurial spirit. When family grooms children in
such a manner as to create self-confidence, makes them think independently,
develops their inquisitiveness, enables them to experiment with their own ideas,
accept failure with patience, perseverance and optimistic attitude; of course,
entrepreneurial personalities are provided to the society.
Persons coming from families who run family businesses are most likely
to take up business. Right from their childhood they get business training.
Entrepreneurial skills get developed due to business environment in the family.
They become aware about pros and cons of business. In the light of this awareness,
they get shaped. They begin to believe strongly in self employment and in the
benefits of running own business. They see the benefits of business and wish to
continue with the family tradition. On the other hand, in families where salaried
employment is supposed to be safe and comfortable; children aspire for good and
safe jobs. They do not think of business being the risky proposition. Typically
middle class families plan to get good education for the sake of getting a good job
so that they can lead comfortable, safe and secure life. For them the belief is
salaried job is key to successful life. They never dream about business since
business for them is risky and uncertain.
The impressions and beliefs developed in childhood are firm and influence
persons for their lifetime. Second generation entrepreneurs get family support
readily and its easy for them to convince the family members for any venture. In
the initial struggle, for meeting the challenges until the enterprise functioning is
streamlined, there is a need of family backing. Entrepreneurship requires total
commitment and dedication. It is a time consuming task. Family members should
accept and tolerate such kind of demands of entrepreneurial tasks. It becomes
easier to bear stresses, strains, pressures, and risks with the strong support of
family members and get success. Otherwise, opting for entrepreneurship career
against family wish is not easy.
Friends, peers, relatives can play a very important role in entrepreneurship.
Their support, guidance, advice matters a lot. They may provide a little help to the
ventures or they may become partners in business. With good understanding,
encouragement and motivation, entrepreneurial journey will reach the destination
of success. Some big companies have been founded by good friends like Narayana Business
Entrepreneurship - I 118
Entrepreneurial Environment Murthy, Nandan Nilekani, N.S. Raghvan, S. Gopalakrishnan, S. D. Shibulal, K.
Dinesh, and Ashok Arora; Hewlet and Packard; Steve Jobs and Steve Woznaik.
Friends, peers, relatives may provide inspiration, guidance, advice, support
to entrepreneurs. They may also frustrate entrepreneurs due to comparison with
NOTES
their activities, status and position. Especially in the stuggling phase, an
entrepremneur may be apprehensive about his/her choice of entrepreneurship
career in comparison with friends, peers or relatives. However, entrepreneurs
can learn a lot from successes and failures of friends as well as peers. Good
relationships with friends, peers and relatives will make a good network for
entrepreneurs.
The external economic environment is composed of many elements, each
of which influences growth and development of entrepreneurship. Regarding
external influencers, a social or cultural factor may boost up enterprise creation.
Business background, belonging to a specific community may induce individuals
for entrepreneurial ventures. Social pressures like the need to prove/establish oneself
may prompt an individual to attempt entrepreneurship. Government policy also
improves chances of entrepreneurs for success. Various facilities, grants, subsidies
etc also influence promotion of entrepreneurship. As far as external environment
Check Your is concerned, favourable economic conditions, a social need, cultural norm,
Progress technological breakthrough may trigger setting up of an enterprise. Ease of access
to a source of finance, being born in an enterprising business community etc. may
1. Define entrepre- be a strong influence. Government policy contributes to promotion of
neurship. How is it dif- entrepreneurship by means of incentives, subsidies, facilities etc.
ferent from the word Influence of economic system on entrepreneurship:
entrepreneur?
There are three types of economic systems as capitalism, socialism and
mixed economy.
Capitalistic system is also known as market economy or free economy. In
this system, there is a competitive market and consumer sovereignty prevails.
This economy is characterized by mobility of resources and complete freedom to
enter any business. This system is prevailing in all major developed countries of
the free world. Such economic system favours rapid growth of entrepreneurship
as the business climate is highly conducive. Such a system offers tremendous
market opportunities, makes enormous capital available, enables large scale
operation and profitability due to large size of market. There is comparatively less
risk and uncertainty leading towards incentives for invention and innovation. Such
kind of economy fosters growth of economy as well as growth of entrepreneurship.
Socialist economy is also known as closed economy. In this system domestic
economy is completely isolated from world economy and there is no free world
trade. It is not market oriented but is a centrally planned system controlled by
central government of the country .In such a system, market opportunities in
domestic as well as foreign market are highly limited. Are controlled resources
and thereby leads towards low productivity and non-optimal allocation of resources.
Business and industry are controlled and managed by either government or party
bureaucracy. There are no entrepreneurs but only salaried managers running
ventures. Such kind of economy is not conducive to growth of economy or to
growth of entrepreneurship. This system prevails in socialist/communist countries.
Mixed economy prevails in most of the developing countries. It is a mixture
of capitalistic and centrally planned system comprising of a large public sector
Business
Entrepreneurship - I 119
which is centrally planned and a market economy including private, co-operative Entrepreneurial Environment
and joint sectors. The public sector is developed in those sectors where massive
capital investment is required and private entrepreneurs are not in a position to
raise the necessary capital. It is developed in those areas where risk is high and in
core sectors/strategic industries. In such system market opportunities exist, but NOTES
entrepreneurs are faced with problems of technical know-how, non-availability of
technical manpower, lack of adequate infrastructural facilities and social overheads.
In such economies entrepreneurs grow but at a slow rate. They have a limited
growth rate and make meager profits.

Influence of Socio-Cultural Environment


Culture and social values influence human behavior in general and
entrepreneurial behavior in particular. With changing times, human behavior and
entrepreneurial behaviour also changes accordingly. This is the reason of varied
and diverse definitions and changing concepts regarding entrepreneurship. These
definitions differ because they were formulated in the context of differing socio-
cultural climates.
Culture changes and many factors contribute to cultural changes.
McClelland found that there were sharp cultural differences between the developed
and developing countries which explain the differences in entrepreneurial behavior.
He argued that some people, notably entrepreneurs, have a psychological need
for high achievement and this is not possible in a tradition-ridden economy. High
achievement is possible only in societies with high social mobility and cultural
freedom as they offer better achievement opportunities. Creative entrepreneurs
like Henry Ford can come up only in a dynamic society which offers high social
mobility and cultural freedom and not in a tradition-bound, custom-dominated
society. In fact, theories of entrepreneurship are developed and concepts of
entrepreneurship blossom only in a society where a large class of successful
entrepreneurs exist. This is so with the developed countries. In developing countries
even though the entrepreneurs are small, a large class of such entrepreneurs is
emerging. There is a need to develop a concept of entrepreneurship and theories
of entrepreneurship relevant to the socio-cultural conditions of the mixed economy
prevailing in such countries. It has been observed that the traditional social and
cultural values in such countries are not to growth of entrepreneurship and there is
an urgent need for social and cultural transformation to accelerate their economic
growth and growth of entrepreneurship.
Religion influences human behavior, entrepreneurial behavior and attitudes.
The issue is to what extent religion is conducive to growth of attitudes and values
favourable to development of entrepreneurship. Entrepreneurial attitudes are
conditioned by religious beliefs and traditions.
Socio-religious conditions and attitudes in developed and developing
countries are markedly different. The conditions in developed countries are
conducive to growth of entrepreneurship while those in developing countries are
not as conducive. As a result, concepts and theories of entrepreneurship relevant
and significant in developed countries provide no clues and no useful guidance for
promoting entrepreneurship in developing economies. They only indicate the need
for social transformation in developing countries to create a climate favourable
for the growth of entrepreneurship.
Norms and values within a socio-cultural setting are important for
emergence of entrepreneurship. In professional vocabulary, such system is referred
to as the legitimacy of entrepreneurship in which the degree of approval or Business
Entrepreneurship - I 120
Entrepreneurial Environment disapproval granted to entrepreneurial behavior influences its emergence and
characteristics if it does emerge. Schumpeter recognizes the importance of such
legitimacy in terms of appropriate social climate for entrepreneuship. Cochran
calls it cultural themes and sanctions. The social status accorded to entrepreneurship
by the society is a crucial factor in terms of entrepreneurial legitimacy.
NOTES For the
sake of increasing this legitimacy of entrepreneurship, there is a need for change
in the traditional values which are not supportive to entrepreneurship. A complete
change of those values may not be required. A re-interpretation of the traditional
values or its synthesis with the newer ones will increase the entrepreneurial
legitimacy. Generally it is believed that in a society with high entrepreneurial
legitimacy, entrepreneuship is most likely to emerge. However, there are instances
of emergence of entrepreneurship even when entrepreneurial legitimacy is low or
negative with the active intervention of government policy and actions.
Social mobility needs to be considered for understanding its impact on
entrepreneurship. Social mobility involves the degree of mobility, both social and
geographical, and the nature of mobility channels within a system. There are varied
opinions regarding impact of social mobility on entrepreneurship. Some scholars
believe that a high degree of mobility is conducive to entrepreneurship. Some
experts experienced that lack of mobility possibilities promoted entrepreneurship.
They noted that gaps in rigid social systems boosted entrepreneurship. Some
scholars talked about the need for both flexibility and the denial of social mobility.
Yale Brozen emphasized that a system should neither be too rigid nor too flexible.
According to him, if it is too flexible, then individual will gravitate towards other
roles; if it is too rigid, entrepreneurship will be restricted along with other activities.
A study by S.S. Khanka also supported Brozens view. The movement of young
and educated males not only resulted in denudation of the potential entrepreneurs
in the region, but also returned migrants did not assume entrepreneurial roles
because of inter alia their lack of business knowledge due to their mobility channels
to the armed forces. It was also pointed out that the degree and nature of social
mobility alone was not likely to uinfluence entrepreneurship, but its influence was
largely determined by other non-economic factors.
Some scholars also hold the view that social marginality also promotes
entrepreneurship. They believe that individuals or groups on the perimeter of a
given social system or between two social systems provide the persons to assume
entrepreneurial roles. They may be drawn from religious, cultural, ethnic, or migrant
minority groups, and their marginal social position is generally believed to have
psychological effects which make entrepreneurship particularly attractive for them.
The legitimacy of entrepreneurship and social mobility largely determine
the influence of marginality on entrepreneurship. In situations in which
entrepreneurial legitimacy is low, mainstream individuals will be diverted to non-
entrepreneurial roles and entrepreneurial roles will be relegated to marginals. On
the contrary, in case of high entrepreneurial legitimacy, mainstream individuals
will assume entrepreneuship and marginals will have to find other roles as means
of mobility. From the social mobility point of view, marginal individuals and groups
will be restricted, by definition, from access to the established mobility channels in
a situation. Thus, mainstream individuals and groups will have primary access to
these channels. As such, marginals are likely to play entrepreneurial roles in a
situation.
Several factors are attributed to increase in the likelihood of marginals
becoming entrepreneurs such as presence of positive attitude towards
entrepreneurship within the group, a high degree of groupBusiness
solidarity or cohesion,
Entrepreneurship - I 121
the relative social blockage. However, marginality alone, like many other factors, Entrepreneurial Environment
cannot be considered a sufficient condition for promoting entrepreneurship. Not
all the marginal groups are likely to be entrepreneurs particularly in situations in
which mainstream entrepreneurs exist. The vulnerable marginal efforts for
entrepreneurship are most likely to be negated by political attacks. Whether NOTES
marginality promotes entrepreneuship will depend upon a favourable condition of
other factors.
Entrepreneurial security is a significant factor for entrepreneurship
development. With a fear of loss, they will not opt entrepreneurship and increase
their insecurity. A.H.Cole suggests minimal security while McClelland mentions
moderate certainty. However, according to Peterson and Berger, entrepreneuship
is more likely to emerge under turbulent conditions than under conditions of
equilibrium. F. Redlich provides midlle position in this regard when he says that
insecurity does not hinder entrepreneurship, but rather that different kinds of
insecurity will result in different kinds of entrepreneuship.
According to McClelland, a constellation of personality characteristics
which are indicative of high need achievement is the major determinant of
entrepreneurship development. If average level of need achievement in a society
is reltively high, one would expect a relatively high amount of entrepreneurship
development in that society.
E. E. Hagen attributed withdrawal of status respect of a group to
emergence of entrepreneurship. He discussed history of Japan and analysed the
reasons for fast growth of Japan than any non-western society except Russia due
to two historical differences. First, Japan had been free from colonial disruption
and secondly, the repeated long continued withdrawal of expected status from
important groups (Samurai) in the society drove them to retreatism which caused
them to emerge alienated from traditional values with increased creativity. This
led them to the technological progress in entrepreneurial roles.
Hagen asserts that the initial condition leading to eventual entrepreneurial
behavior is the loss of status by a group. He postulates four types of events can
produce status withdrawal: the group may be displaced by force; it may have its
valued symbols denigrated; it may drift into a situation of status inconsistency; and
it may not accept the expected status on migration to a new society. He further
postulates that withdrawal of status respect would give rise to four possible reactions
and create four different personality types: Retreatist who continues to work in
a society but remains indifferent to his/her work and position; Ritualist who adopts
a kind of defensive behavior and acts in the way accepted and approved in his/her
society but no hopes of improving his position; Reformist is a person who foments
a rebellion and attempts to establish a new society; Innovator is a creative
individual and is likely to be an entrepreneur. Hagen maintains that once status
withdrwal has occurred, the sequence of change in personality formation is set in
motion. He refers that status withdrawal takes a long period of time as much as
five or more generations to result in the emergence of entrepreneurship.
Political systems like monarchy, democracy, fascism, communism, military
dictatorship greatly influence the basic attitudes of people as well as of entrepreneurs
and the availability of opportunities for growth of entrepreneurship. The political
system because of its power to pass laws, create institutions and provide
opportunities and incentives or ban or discourage activities, wields a high degree
of influence on economy and entrepreneurship. The political system is able to
modify the environment and transform society to create conditions which can
Business
either promote or inhibit economic and entrepreneurship growth. Entrepreneurship - I 122
Entrepreneurial Environment The Government influences emergence and development of
entrepreneuship in various ways. It boosts up development of entrepreneurship
and economic development through its industrial policies, five-year plans. It creates
basic infrastructural facilities, utilities, services. it provides various concessions,
benefits, subsidies etc to budding as well as established entrepreneurs.NOTESIt creates
an institutional support system for supporting entrepreneurs.
It is observed that, with active and strong role of government for economic
development, entrepreneurship flourishes. With inactive and passive role of the
government, entrepreneuship cannot grow. Supportive government actions are
conducive for growth of entrepreneuship.
The external environment is dynamic. It keeps on changing and affects
individuals as well as organizations. The nature and degree of change depends
Check Your upon the nature of relationship and degree of dependence with the environment.
Progress Entrepreneurial growth depends upon favourable business environment. Healthy
business environment needs forward and mature social behaviour, encouraging
1. What is the role of cultural norms, proficient and conducive economic policies, encouraging and
family in shaping en- supportive government policies.
trepreneurial personal-
ity? 7.3 Factors Affecting Entrepreneurial Growth
2. There are three
types of economic sys- Favorable environment encourages people to take up entrepreneurial
tems as ---------- activities. Entrepreneurship is the outcome of interaction between different factors
3. Explain the meaning which can be categorized as personal characteristics, family background, economic
of legitimacy of en- factors, socio-cultural factors, psychological factors, political factors etc.
trepreneurship.
Personal characteristics: Personal characteristics consist of age,
education, technical qualifications, caste, religion, marital status etc. Age is a crucial
consideration in the light of career choice decision. Being techno savvy, young
persons are more eager to face challenges. Education and technical skills make
an individual more organized and systematic, which helps him/her in sensing
opportunities and coordinating various resources. Marital status may be more
conducive to entrepreneurial growth.
Family background: Family background plays a significant role in the
growth of entrepreneurship. Persons from business families and communities get
business training right from their childhood. Persons from rich and educated families
have better access to education and institutions. Caste and religion also influence
entrepreneurship.
Economic factors: Growth of entrepreneurship is an essential component
of economic growth. In the words of Wilken, the same factors that promote
economic growth and development account for emergence of entrepreneurship.
Economic incentives play a vital role in influencing people to move towards
entrepreneurship. The following are some economic factors which promote
emergence of entrepreneurship:
Capital is one of the most essential requirements for entering into
entrepreneurial activities. Adequate supply of capital promotes entrepreneurship
whereas lack of capital hampers entrepreneurship. With capital, entrepreneurs
can put their innovative ideas into actual reality. Availability of capital enables an
entrepreneur to organize various human and non-human resources such as land,
machine, raw material, and labour together. With increasing availability of capital,
entrepreneurial activities also increase. Business
Entrepreneurship - I 123
Availability of raw material enhances entrepreneurial activities. In absence of Entrepreneurial Environment
availability of adequate raw material of requisite quality, entrepreneurship would
be hampered.
Availability of human resources facilitates entrepreneurial initiatives.
NOTES
Presence of skilled labour is a crucial factor for success in entrepreneuship. There
is concentration of several manufacturing enterprises in certain regions because
of availability of skilled labour needed for such enterprises. Lack of adequate
quality and quantity of work force hampers entrepreneurship.
In addition to capital, raw material and human resource, ready availability
of market attracts entrepreneurship. Presence of market brings money for
entrepreneurs. Favourable market conditions boost up entrepreneurship. Market
potential, its size, its growth, composition also matters a lot for entrepreneurship.
Expanding market is attractive for entrepreneurs. Along with present market
opportunities, future market opportunities also need to be ensured. In absence of
sufficient market opportunities, entrepreneurs will not be willing to establish their
enterprises.
Potential market with increasing demand is essential for attracting
entrepreneurs. Along with market opportunities, it is important to ensure future
market opportunities i.e. future growth potential for encouraging entrepreneurial
activities. Entrepreneurs analyze whether the market is expanding or not. They
are interested to know the rate of growth of market in immediate future. Size and
composition of market influence entrepreneurship.
The above discussion suggests that market opportunities, availability of
capital and existence of infrastructural facilities are crucial factors influencing
growth of economy and growth of entrepreneurship. Lack of capital is sometimes
bridged by import of capital by way of joint ventures with foreign corporations or
by inviting multinationals for setting up enterprises in the country.
Social and psychological factors: Economic factors are the necessary
conditions, but they are not sufficient conditions for emergence of entrepreneurship.
Along with favourable economic environment, positive social environment is needed
for entrepreneurship development. Sociologists and psychologists state that,
influence of economic factors on entrepreneurship development depends upon
existence of social and psychological factors in the society. The following social
and psychological factors influence development of entrepreneurship in a society
in a significant manner.
Favourable attitude of people in a society towards entrepreneurship is
one of the driving forces behind encouraging entrepreneurial activities. People
aspire for professions where there is a high perception in the society. In the Indian
society, traditionally, businessmen were looked down. The attitude of society
towards business was negative. However, things are changing for better. There is
a shift in the attitude of people towards business and entrepreneurship. And more
and more people are now taking to entrepreneurship.
Entrepreneurship is more likely to emerge in a socio-cultural setting in
which legitimacy for entrepreneurship is high. The degree of approval or
disapproval granted to entrepreneurial behavior influences its emergence.
Schumpeter recognizes the importance of such legitimacy in terms of an appropriate
social climate for entrepreneurship whereas Cochran calls it cultural themes and
sanctions. Katzin considers social status of entrepreneurs as one of the most
important contents of entrepreneurial legitimacy. Some scholars have suggested Business
the need for a change in the traditional values which are assumed to be opposite to Entrepreneurship - I 124
Entrepreneurial Environment entrepreneurship for the sake of increasing the legitimacy. They proposed that for
facilitating entrepreneurship complete change may not be required, rather they
suggested re-interpretation of traditional values or its synthesis with the newer
values. In this manner, there seems to be a firm belief that entrepreneurship is
more likely to emerge when the legitimacy is high. Some experts opined that
NOTES
entrepreneurship can emerge even when entrepreneurial legitimacy is low or even
negative when role of government is strong and positive to overcome the negativity.
Behavior of people in terms of choice of jobs etc depends upon social
norms and values. In an open and flexible society, people feel free to exercise
their own choices and go for innovation and creativity. Entrepreneurship emerges
in a society which characterizes openness and flexibility. In a society which respects
successful entrepreneurs, innovations, change, uniqueness, there will be
development of such kind of innovative activities. If society celebrates
entrepreneurship, and felicitates successful entrepreneurs, young generation gets
motivated to perceive entrepreneurial careers since entrepreneurs are role models
for their society. If society accords respect for people for remarkable work,
recognizes their worth; more and more development of entrepreneurial activities
will be seen. In an orthodox and traditional society, people would not be happy to
accept entrepreneurial career.
Another factor that affects entrepreneurship is social mobility. Social
mobility is crucial for entrepreneurial emergence. It involves the degree of mobility,
both social and geographical, and the nature of mobility channels within a system.
High degree of social mobility is conducive for entrepreneurship. Hoselitzs need
for openness of a system and McClellands need for flexibility imply the need
for possibility of mobility within a system for entrepreneurship development. Some
experts hold the view that a lack of mobility possibilities promotes entrepreneurship.
Some talk about entrepreneurship emerging out of gaps in a rigid social system.
Rostow notes the need for both flexibility and the denial of social mobility.
According to Brozen, a system should neither be too rigid nor too flexible. He
says, if it is too flexible, then individual will choose other roles and if it is too rigid,
entrepreneurship will be restricted along with other activities.
Some scholars hold the view that social marginality also promotes
entrepreneurship.they believe that individuals or groups on the perimeter of a given
social system or between two social systems provide persons to assume
entrepreneurial role. They may be drawn from religious, cultural, ethnic or migrant
minority groups, and their marginal social position is generally believed to have
psychological effects which make entrepreneurship attractive for them.
Entrepreneurial security is an important facilitator of entrepreneurial
behavior. If individuals are fearful of loosing their economic assets or of being
subjected to various negative sanctions, they will not be inclined to increase their
insecurity by behaving entrepreneurially. A.H. Cole suggests minimal security.
McClelland speaks of moderate security. According to Peterson and Berger,
entreprenurship is more likely to emerge under turbulent conditions than under
conditions of equilibrium. Redlich suggests that insecurity does not hinder
entrepreneurship, but rather that different kinds of insecurity will result in different
kinds of entrepreneurship.
David McClelland put forward need achievement as the major
determinant of entrepreneurship development. He proved that need achievement
can be developed through intensive training programmes with the help of Kakinada
experiment. In a society with more than average level of need achievement, more
Business
and more people would be opting for entrepreneurship. To Entrepreneurship
answer a simple- question
I 125
as to why it is that groups respond differently to similar conditions, McClelland Entrepreneurial Environment
gives explanation with the concept of achievement motivation to account for
differences in response to similar conditions.
E. E. Hagen proposes withdrawal of status respect to explain genesis
NOTES
of entrepreneurship. He believes that loss of status by a group leads to eventual
entrepreneurial behavior. He postulates that four types of events can produce
status withdrawal: the group may be displaced by force, it may have its valued
symbols denigrated, it may drift into a situation of status inconsistency; and it may
not have accepted the expected status on migration to a new society.
Hagen proposes that once status withdrawal has occurred, the sequence
of change in personality formation begins. He refers that status withdrawal takes
a long period of time, as much as five or more generations, to result in the emergence
of entrepreneurship.
Political factors: Political affiliation and linkages, political stability, financial
stability, support services influence emergence and development of
entrepreneurship.
Government: Government policy, legislations influence a person to
become an entrepreneur by creation of conducive and favourable socio-economic
settings where risks are very less. Government creates basic infrastructural facilities,
utilities, supportive services, incubation facilities, incentives, concessions, subsidies,
grants, support innovations and inventions and influences entrepreneurship. All
departments of the government focus on entrepreneurship development. Various
ministries such as ministry of MSME, ministry of HRD, ministry of agriculture
etc. promote entrepreneuship through various initiatives.
Increasingly new opportunities are emerging in service sector. Relatively
low start-up costs attract entrepreneurs towards service businesses.
The Government of India has adopted economic reforms in terms of
liberalization, privatization, globalization of market. It has allowed multinational
companies to invest in India. It has formulated various incentive schemes of self-
employment. After liberalization and globalization, tremendous business
opportunities have become available for entrepreneurs. Market opportunities are
now not restricted to domestic market. Due to opening of international business
environment, positive environment is created for growth of entrepreneurs.
IT revolution contributed for the spread of entrepreneurship development.
Digitization, advances in information technology opened a number of business
opportunities. It is now possible to operate business at low cost, at any place/
space as per convenience due to user-friendly equipments and devices. Impediments
like huge investment in infrastructure, requirement of a physical place, fixed working
hours etc now no longer exist.
India being the second highest populated country in the world has
tremendous potential for entrepreneurship development. Skilled human resources
are available at comparatively cheaper rates.
Entrepreneurial orientation in education is also one of the factors for
growth of entrepreneurship in the society. The inclusion of entrepreneurship
development in curriculum has a significant influence in nurturing entrepreneurial
talent. After liberalization, there is a significant change in the approach of
educationists towards entrepreneurship.
Business
Entrepreneurship - I 126
Entrepreneurial Environment In this manner, personal factors, family background, economic factors,
social factors, psychological factors, political factors, Government legislations
influence emergence of entrepreneurship. These factors are integral, they are
mutually dependant. They constantly interact with each other. As a result of interplay
of all these factors, we find a certain degree and level of entrepreneurship
NOTES in a
society.

7.4 Barriers to Entrepreneurship


We have seen in the above section, how certain economic, social,
psychological factors and government initiatives support development of
entrepreneurship. When these factors exert negative influence on entrepreneurship
and entrepreneurial behaviour, they are termed as barriers to entrepreneurship.
Check Your These environmental barriers can be economic, social, cultural or personal barriers
Progress as discussed below.
Among the economic barriers, lack of adequate capital when needed, is
4. Entrepreneuship is
found to be the major barrier for promoting entrepreneurship. Availability of cheap
more likely to emerge
labour in developing economies was found to be a facilitating factor for
in a socio-cultural set-
entrepreneurial growth, but sometimes factors such as poor quality of labour,
ting in which legiti-
unskilled and unproductive workers, inadequate quantity of workforce acted as
macy for entrepre-
barriers. In developed economies high cost labour is a barrier for entrepreneurship.
neurship is
Lack of adequate supply of desired quality of raw material is another barrier for
(high/low).
growth of entrepreneurship.
5. High degree of so-
cial mobility is Societal barriers are rooted deep in the society. Some societies overcome
(condu- some barriers easily whereas sometimes some barriers are very difficult to
cive/not conducive) for overcome.
entrepreneurship.
Every society has some unwritten norms of acceptable social behavior.
People like to get societal sanction for their behavior. They want to conform to the
accepted behavior pattern. If such norms are broken, there is no societal approval;
on the other hand, there is a pressure to conform to the accepted practices.
Following socially accepted norms and behavior patterns is dealing with conformity
and rigidity which hampers creativity and innovation and do not encourage change.
Entrepreneurs challenge the obvious, they question the status quo; they want to do
something different. But they are sensitive to the reaction of others in the society.
The desire to get societal sanction and to conform to the accepted patterned
practices is a major barrier for entrepreneurship.
Children are more creative and innovative than adults. When they grow
up, societal conditioning makes them stereotyped in their thinking and mindset.
Mental playfulness, daydreaming, fantasy, lateral thinking, originality of thought,
creativity are driven out and practical thinking, security aspects are emphasized.
Being emotional is discouraged. Instead of intuition, and subjective evaluation,
importance is given to reasoning, logic and rational thinking.
In some societies entrepreneurship is not considered as a respectable
profession; they do not give high status to entrepreneurs. Lower social status of
entrepreneurs and lack of legitimacy pose barriers to entrepreneurship.
Social values play a key role to determine whether individuals are behaving
entrepreneurially or not. If most people consider starting a new business a desirable
career choice, if those individuals who are successful at starting a new business
policy enjoy a high level of status and respect in the society; if media attention to
Business
Entrepreneurship - I 127
entrepreneurship (by promoting successful ventures) contribute or not to develop Entrepreneurial Environment
an entrepreneurial culture in a country
In building an entrepreneurial culture, education and media play crucial
roles, particularly regarding the education of very young people (on primary and
NOTES
secondary levels).
Even in advanced societies and in developed nations, innovative and
dynamic entrepreneurs are very few in numbers. Only few individuals venture out
to set up their own individual enterprises. This clearly indicates presence of personal
barriers to entrepreneurship. Very few individuals have a perfect clarity of mind
and thought. Very very few of them see dreams of their own. Many of the times
it is found that individuals do their best only in the face of adversity; in the normal
functioning and routine circumstances they never give their 100%. There is a
general tendency to continue with the traditional norms and age old practices
followed through generations by ancestors.
Entrepreneurs must have a tolerance for ambiguity. Most of the times
they have to work in the face of uncertainty. Most people dont like uncertainty.
Fear of failure, low tolerance for ambiguity and uncertainty, low capacity for risk
bearing work against entrepreneurship.
Few people normally are motivated to initiate new ventures. They generally
lack motivation due to the risk involved in a new venture. Being motivated to
promote an enterprise and maintaining the motivation while facing different
obstacles is a difficult task. Setting up an enterprise, overcome various difficulties
requires a lot of patience and a problem solving attitude. The attitude of finding
shortcuts and quick solutions, being impatient are some barriers to entrepreneurship.
People often have stereotype ideas based on past experiences with a few
individuals and certain specific situations. There is a tendency of prejudice with
people and situation. Lack of clear perception, inaccurate understanding of
experiences due to shortcomings in opinions and beliefs is a barrier to
entrepreneurship. We tend to believe the obvious within a set stereotyped pattern
and within a framework of societal boundaries. Many of us never look beyond the
set boundaries.
Karl H. Vesper has identified the following barriers:
Lack of a viable concept
Lack of market knowledge
Lack of technical skills
Lack of seed capital
Lack of business know-how
Complacency lack of motivation
Social stigma
Time pressures and distractions
Legal constraints and regulations
Monopoly and protectionism
Inhibitions due to parents Business
Entrepreneurship - I 128
Entrepreneurial Environment Vesper lists certain environmental factors that help to reduce the effect of
these barriers as noted below:
Market contacts
Local incubator companies, NOTES

Capable local manpower


Technical education and support
Supplier assistance and credit
Local venture capitalists
Venture savvy bankers
Capable local advisers
Entrepreneurial education and
Successful role models
Neeta Baporikar discussed three types of barriers:
Entry barriers are those barriers which limit access to identified business
opportunities and capitalization of those opportunities. The existing entry barriers are:
A cultural bias in identifying and managing the entrepreneurial development
process.
Limited industry- specific data and insufficient market information Limited
effectiveness of the infrastructural base
Existence of visible and invisible obstacles to entry of a specific societal
group (e.g. women) into business
Unorganized capital market and traditional feasibility assessment processes
Unsympathetic and cumbersome government attitude
Hostile Environment
Limited access to technology
Survival barriers are the constraints on the conditions essential for the
continuity of small business entity. Observed survival barriers include the following:
A behavioural pattern that could impair basic managerial practices.
Constraining practices within the capital market
The threatening shadow of changing technology
Limited learning
Cultural management of resources
Failure of guidance agencies to guide
Scarce information and limited discrimination of that information

Business
Entrepreneurship - I 129
Exit Barriers are those constraints limiting the termination of those small Entrepreneurial Environment
industrial ventures that have outlined their business viability or the growth of such
ventures to a different size category. Identified entry barriers include:
Emotional commitment of entrepreneurs to his venture.
NOTES
Specialized assets, sunk funds.
Increasing demand for managerial skills
Fear of failure.

7.5 Summary
Entrepreneurial activity at any time is dependent upon an interplay of
socio-economic, cultural, psychological and other factors. Various environmental
factors influence personality/personal background of entrepreneurs. Personality
of entrepreneurs is shaped by the environment in which they are born, brought up
and work. Entrepreneurs also influence the environment. Interaction between
entrepreneurs and their environment and consequent adaptation is a continuous
process.
Entrepreneurship is influenced by a multitude of factors mainly at two
levels external and internal. The influencers at the individual level are intrinsic
and more powerful.
The factors related to the individual prompt him/her to consider
entrepreneurship. The individual wants independence of work. He/she may want
to be his/her own boss, or experience freedom. Maybe he/she is interested in a
marketing/manufacturing opportunity related with his/her skills/interests. Internal
influencers are more important since they are related with the individual. They are
intrinsic and the strongest. The individual wants to experience freedom, or
independence at work. When he/she has the ability to identify a market opportunity
and possess confidence about market success, there is emergence of an enterprise.
Regarding external influencers, a social or cultural factor may boost up
enterprise creation. Business background, belonging to a specific community may
induce individuals for entrepreneurial ventures. Social pressures like the need to
prove/establish oneself may prompt an individual to attempt entrepreneurship.
Government policy also improves chances of entrepreneurs for success. Various
facilities, grants, subsidies etc also influence promotion of entrepreneurship. The
external economic environment is composed of many elements, each of which
influences growth and development of entrepreneurship. As far as external
environment is concerned, favourable economic conditions, a social need, cultural
norm, technological breakthrough may trigger setting up of an enterprise. Ease of
access to a source of finance, being born in an enterprising business community
etc. may be a strong influence. Government policy contributes to promotion of
entrepreneurship by means of incentives, subsidies, facilities etc.
The external environment is dynamic. It keeps on changing and affects
individuals as well as organizations. The nature and degree of change depends
upon the nature of relationship and degree of dependence with the environment.
Entrepreneurial growth depends upon favourable business environment. Healthy
business environment needs forward and mature social behaviour, encouraging
cultural norms, proficient and conducive economic policies, encouraging and Business
supportive government policies. Entrepreneurship - I 130
Entrepreneurial Environment An insight into barriers to entrepreneurship develops a deep understanding
about entrepreneurs personality and the process of entrepreneurship. A knowledge
about inhibiting factors helps budding entrepreneurs, government and society to
develop strategy to overcome them and devise effective programmes to create a
conducive entrepreneurial climate. NOTES
Some barriers to entrepreneurship are personal and some are
environmental. The personal barriers can be motivational or perceptional.
Entrepreneurs who lack toughness and perseverance often give up. Due to initial
obstacles faced by them , they lose their commitment after the venture starts
functioning. Lack of clarity, misunderstanding lead to wrong perception about
enterprise functioning and outcome. Non-accessibility of capital, non-availability
of trustworthy, reliable human resources, inadequate infrastructure, no easy access
to market are some barriers related to economic environment. Cultural values in
our society linked with rituals, status-quo, conventionalism, cultural taboos restrain
entrepreneurial spirit. Certain types of work are considered unsuitable for people
of specific culture. A political environment characterized by instability and insecurity,
political policies, excessive government intervention in the form of controls, delays,
corruption, red tapism etc discourge entrepreneus.
If a country wants to be more proactive in developing an entrepreneurial
culture, it is relevant to implement consistent policies and programs on restructuring
the capability of education system toward providing entrepreneruail competencies
proactivenss, innovativenessm responsibility for their own choices etc
There is a need to get an insight in several individual attributes such as
perception of opportunities, perception of own capabilities, to act entrepreneurially,
fear of failure, and entrepreneurial intentions

7.6 Key Terms


Legitimacy for entrepreneurship: A system of norms and values
within a socio-cultural setting for emergence of entrepreneurship in
which degree of approval or disapproval granted entrepreneurial
behavior influences its emergence and characteristics if it does
emerge.

7.7 Questions and Exercises


Questions:
1. What factors do influence the emergence and development of
entrepreneurship?
2. What factors prevent emergence of entrepreneurs in Indian society?
3. Discuss the economic barriers to entrepreneurship.
4. What is entrepreneurship development? What economic, social and
psychological factors influence the growth and development of
entrepreneurship in a society?
5. Discuss the role of government in promoting entrepreneurship in India.
Business
Entrepreneurship - I 131
6. According to you what are the important factors affecting Entrepreneurial Environment
entrepreneurial growth?
7. Entrepreneurship does not emerge spontaneously. Discuss.
8. Why should we study barriers to entrepreneurship? NOTES

9. Give examples of barriers arising out of socio-cultural environment.


10. What do you know about personal barriers to entrepreneurship?
suggest some meaningful strategies to overcome them.

Exercise:
1. Read at least two case studies of successful entrepreneurs and
prepare a report on the factors which helped them and the factors
which acted as barriers for them.

Multiple Choice Questions


1. Which of the following is a false statement?
i. Capitalist economy is characterized by mobility of resources and
complete freedom to enter any business
ii. Socialist economy is also known as free economy
iii. Socialist economy is not conducive for growth of entrepreneurship
iv. Capitalistic system fosters growth of economy
2. Choose the wrong statement
i. Capitalistic system is also known as maket economy
ii. Socialist economy is also known as closed economy
iii. Mixed economy prevails in most of the developing countries
iv. Capitalistic system prevails in most of the developing countries
3. Which one of the following alternatives is false?
i. High degree of social mobility is conducive for entrepreneurship
ii. Need achievement can be developed through intensive training
iii. McClelland speaks of moderate security
iv. Entrepreneurship is most likely to emerge in a soccio-cultural
setting in which lefitimacy for entrepreneurship is low
4. David McClelland put forward as the major
determinant of entrepreneurship development
i. Withdrawal of status respect
ii. Need achievement
iii. Legitimacy of entrepreneurship
iv. Minimal security
Business
Entrepreneurship - I 132
Entrepreneurial Environment 5. Pick the odd one out
i. Entrepreneurs must have a tolerance for ambiguity
ii. Even in developed nations, innovative entrepreneurs are few in
numbers NOTES

iii. Social barriers are very easy to overcome


iv. Societal barriers are rooted deep in the society

Answers
Check Your Progress
3. Capitalism, socialism, mixed economy
4. High

5. Conducive

Multiple Choice Questions


1. ii
2. iv
3. iv
4. ii
5. iii

7.8 Further Reading


Baporikar Neeta, Entrepreneurship and Project Management, Himalaya
Publishing House, Mumbai, 2011.
Deshpande Manohar U., Entrepreneurship of Small Scale Industries
Concept, Growth, Deep and Deep Publications, New Delhi
Gupta C.B., Srinivasan N.P., Entrepreneurship Development in India,
Sultan Chand and Sons, New Delhi, 2005
Khanka S.S., Entrepreneurial Development, S. Chand and Co., New Delhi,
1999
Mohanty Sangram Keshari, Fundamentals of Entrepreneurship, PHI
Learning, New Delhi, 2010
Reddy P. Narayana, Entrepreneurship Text and Cases, Cengage Learning,
Delhi, 2010
Talebi Kambeiz, Influence of Environment on Entrepreneurship, SEDME,
Sep. 1992, 37-47

Business
Entrepreneurship - I 133
Entrepreneurial Environment

Appendix
GEMs Key Entrepreneurial Framework Conditions
NOTES
The Global Entrepreneurship Monitor (GEM) report is an annual survey
of entrepreneurial attitudes, activities, and aspirations around the world conducted
by a consortium of academic researchers across the globe.
1. Entrepreneurial finance: The availability of financial resources
equity and debt for small and medium enterprises (SMEs)
(including grants and subsidies)
2. Government policy: The extent to which public policies support
entrepreneurship. This EFC has two components- 2a.
entrepreneurship as a relevant economic issue, and 2b. taxes or
regulations are either size-neutral or encourage new and SMEs
3. Government Entrepreneurship Programs: The presence and quality
of programs directly assisting SMEs at all levels of government
(national, regional, municipal)
4. Entrepreneurship education: The extent to which training in creating
or managing SMEs is incorporated within the education and training
systems at all levels. This EFc has two components 4a.
entrepreneurship education at basic school (primary and secondary)
and 4b. entrepreneurship education at post-secondary levels (higher
education such as vocational, college, business schools etc)
5. R & D transfer: The extent to which national research and
development will lead to new commercial opportunities and is
available to SMEs
6. Commercial and legal infrastructure: The presence of property
rights, commercial, accounting and other leal and assessment
services and institutions that support or promote SMEs
7. Entry regulation: This EFC contains two components:
a. Market dynamics The level of change in markets from year
to year, and
b. Market openness The extent to which new firms are free to
enter existing markets
8. Physical infrastructure: Ease of access to physical resources
communication, utilities, transportation, land or space at a price
that does not discriminate against SMEs
9. Cultural and social norms: The extent to which social and cultural
norms encourage or allow actions leading to new business
methods or activities that can potentially increase personal wealth
and income
Source: http://www.gemconsortium.org/docs/download/3616

Business
Entrepreneurship - I 134
Creativity and Innovation
UNIT 8 : CREATIVITY AND INNOVATION

NOTES

Structure

8.0 Introduction
8.1 Unit Objectives
8.2 Creativity
8.2.1 Component Elements of Creativity
8.2.2 Attributes of Creative Individuals
8.2.3 Barriers to Creativity
8.2.4 The Creative Process
8.2.5 Inculcating Creativity
8.2.6 Heuristics for Stimulating Creative Ideas/Insights
8.2.7 Techniques of Developing Creative Thinking
8.3 Innovation
8.3.1 Principles of Innovation
8.4 Summary
8.5 Key Terms
8.6 Questions and Exercises
8.7 Further Reading

8.0 Introduction
Joseph Schumpeter termed entrepreneurs as innovators saying that
entrepreneur is one who introduces something new in the economy. Peter Drucker
also emphasized innovation as the basic tool of entrepreneurship. Entrepreneurs
set up new ventures. They bring about changes in the use of resources in society
and create wealth. They depend upon innovation for setting new ventures.
Innovation helps in development of new ideas through which the opportunities are
identified and new ventures are established.
Persons with inclination and aptitude for entrepreneurship may be
motivated, and trained further to become successful entrepreneurs. Concern for
excellence is a common trait of majority of entrepreneurs. To become an
entrepreneur one should develop creativity in oneself.
The need of the hour is to establish entrepreneurial culture and move
towards an entrepreneurial society. For inculcating entrepreneurial culture, special
emphasis has to be laid on innovation and creativity right from early childhood
through child rearing practices, socialization, schools, colleges, universities, other
social and educational institutions. Each and every one should possess
entrepreneurial spirit. They should feel like bringing about improvement
Business in whatever
they do in their daily routine, at work, at play, at rest everywhere.
Entrepreneurship - I 135
Creativity and Innovation
8.1 Unit Objectives
After going through this unit, you will be able to
Be on familiar terms with creativity and innovation NOTES

Understand creative thinking process and describe the steps


Know about various techniques for developing creative thinking
Be aware about mental locks that limit creativity

8.2 Creativity
Creativity is the ability to develop new ideas and to discover new ways of
looking at problems and opportunities. It is development of novel solution to a
perceived problem. It is the ability to bring something new into existence. The
emphasis is on the ability and not the activity of bringing something new into
existence. Even if no effort is made to convert the conceived idea into reality, the
person is a creative person.
Innovation is the ability to apply creative solutions to problems and
opportunities to enhance or to enrich peoples lives. Innovation is the process of
doing new things. Creativity is thinking new things and innovation is doing new
things. Creativity is the ability to conceive while innovation is doing new things.
Ideas are useless until they are converted into useful products/services. Innovation
transforms dreams into actual reality. It converts creative ideas into useful
applications.
Creativity is a pre-requisite to innovation. Innovation helps in development
of new ideas through which opportunities are identified and new enterprises are
established. According to Schumpeter, a person is an entrepreneur only when he/
she is engaged in innovative behavior. Entrepreneurship is a creative activity and
entrepreneur is an innovator who introduces something new in the economy.
Peter Drucker views entrepreneurship as a creative and innovative
response to the environment and an ability to recognize, initiate and exploit an
economic opportunity. Creativity is the ability to sense an opportunity where others
see chaos, contradiction and confusion; it is the ability to spot the patterns and
trends that define an opportunity.
Entrepreneurship and innovation are characterized by creative process in
the economy directed at generation of jobs, community development and economic
growth. Entrepreneurs succeed by thinking and doing new things or old things in
new ways. Simply having a great new idea is not enough; transforming the idea
into a tangible product, service or business venture is important.
Creativity has been defined by J.A. Timmoans as, the ability to create
and build something from practically nothing. It is the application of a persons
mental ability and curiosity to discover something new. It is the act of relating
previously unrelated things. It requires the ability to relate and connect, to put
things together in novel ways. It is concerned with producing unique ideas, concepts,
and ways of doing things that would not have occurred normally in routine
functioning. It is a distinct way of looking at the world. It is concerned not only
with generating new creative ideas and /or insights, but also with convincing the
concerned people and applying those ideas into actual reality. It is not restricted to Business
Entrepreneurship - I 136
Creativity and Innovation thinking. Its scope and application comprises all aspects of human endeavor
imaginative exploration and conceptualizations of difficult problems and issues,
working out and testing their solutions, implementing solutions by securing
cooperation of all the concerned individuals.
NOTES
Creativity is the ability to bring something new into existence, to invent
into a new form. It is not the ability to create out of nothing, but the ability to
generate new ideas by combining, changing or reapplying existing ideas. The
emphasis is on ability and not the activity of bringing something new into existence.
Creativity can be defined in a simple manner in terms of the output(s) of
creative effort. In this sense, it may be defined as the discovery or production of
something that is novel and also useful or relevant or economical or superior or
valuable. There must be a significant difference between the product or the outcome
of the creative effort and the existing product(s) or outcome(s).
Two important aspects of creativity exist process and people. The process
is goal oriented; it is designed to attain a solution to a problem. People are the
resources that determine the solution. The process remains the same, but the
approach that the people use varies.

8.2.1 Component Elements of Creativity


Creativity is exhibited through the following four dimensions or forms of
mental capability:
1. The ability to generate a large number of relevant ideas relatively rapidly
with reference to a given problem/situation/issue under consideration. It
is termed as conceptual fluency.
2. The ability to shift perspectives/viewpoint, to move from one frame of
reference to another, and to change or vary the approaches to solutions
to problems. It is termed as conceptual flexibility.
3. The ability to produce unusual, novel, atypical answers to questions,
responses to problems, and interpretation of issues, situations and events.
It is termed as originality.
4. The ability to challenge and find meaning, in complex and ambiguous
problem/ situations, and to enjoy the efforts to analyze, integrate, clarify
and resolve them. It is termed as complexity orientation.
These four elements of creativity are inextricably linked with individuals
knowledge, experience and imagination on one hand and high level of motivation
and interest towards problem solving on the other.
William Miller argues that people often do not recognize when they are
being creative, and they frequently overlook opportunities to be creative. He
suggests that the path to creativity begins by first recognizing all of the ways in
which we are or can be creative. People in organizations can channel their creativity
into seven different areas:
Idea Creativity: Thinking up a new idea or concept, such as an idea for
a new product or service or a way to solve a problem.
Material Creativity: Inventing and building a tangible object such as a
product, an advertisement, a report or a photograph.
Business
Entrepreneurship - I 137
Organization Creativity: Organizing people or projects and coming up Creativity and Innovation
with a new organization form or approach to structuring things.
Relationship Creativity: Innovative approaches to achieving collaboration,
cooperation, and win-win relationship with others. The person who
NOTES
handles a difficult situation well or deals with a particular person in
anespecially effective manner is being creative in a relationship or one-
on-one context.
Event Creativity: Producing an event or occasion, such as award
ceremony or annual meeting. Finding a way to bring two opponents
together. The creativity here also encompasses decor, ways in which
people are involved, sequence of happenings, background and so forth.
Inner Creativity: Changing ones inner self. Being open to new approaches
to how we do things and thinking about ourselves in different ways,
achieving a change of heart, or finding a new perspective or way to look
at things i.e. a significant departure from how one has traditionally looked
at them.
Spontaneous Creativity: Acting in a spontaneous or spur-of-the-moment-
manner, such as coming up with a witty response in a meeting and off-
the-cuff-speech, a quick and simple way to settle a dispute or an
innovative appeal when trying to close a sale.
A creative individual mingles, combines, differentiates, and expands his/
her past experiences and leaning, in order to generate non-obvious and new
concepts, approaches, methods, themes, or variations and extensions of knowledge.
Creative thinking involves the ability to find solutions to problems by
changing ones point of view when normal approaches or conventional channels
fail to provide the needed answers.

8.2.2 Attributes of Creative Individuals


Psychological research has identified and highlighted the distinguishing
attributes of creative individuals. These attributes or personality traits are as follows:
A strong sense of curiosity
Openness and independent thinking and judgment
The ability to see things in unusual ways
Accepting and reconciling apparent opposites or paradoxes
Tolerance of ambiguity
Keen sensitivity, fostering intuition
A strong sense of autonomy
Not bound by group standards and controls
Persistence and motivation
Highly developed imagination and visualization ability
The ability to generate a large number of ideas and view points
Business
Flexibility, originality, the ability to focus and concentrate
Entrepreneurship - I 138
Creativity and Innovation The attributes listed above are present in all individuals in varying degrees,
but in creative persons they are seen to be found in a conspicuous manner and
combination.
Lowerfield and Guilford identified eight characteristics of a creative person
NOTES
on the basis of research as sensitivity, fluency, flexibility, originality, redefinition
skills, ability to abstract, ability to synthesize, and coherence of organisation.
Another perspective towards creativity in individuals is provided by the
neuropsychological theory of specialization in two cerebral hemispheres of brain.
This theory holds that the left side of the brain is primarily associated with logical,
rational and analytical modes of thinking. The right side on the other hand is primarily
associated with emotional thinking, initiative, experience, inspiration and imagination.
According to this perspective, creative individuals may be viewed as those in
whom the right side of the brain is relatively dominant.

8.2.3 Barriers to Creativity


There are a lot of barriers due to certain pre-conceived ideas. The barriers
which obstruct the growth of creative thinking are self-imposed, restricted mindset,
compliance nature, running away from challenge, time pressures, uncooperative
management, rigid company policies, pessimistic employees, jumping to conclusion,
fear of being branded a fool etc.
People do not need to be creative for most of their daily activities. Basically,
they develop patterns and routines for being efficient. The type of thinking that
makes a person efficient in daily routine becomes a barrier for creativity.
According to Roger von Oech, there are ten creative blocks. These are
summarized below:
The right answer- the fallacy that there is only one correct solution to
a problem
Thats not logical the belief that logic is fine for the development of
ideas but stifles creativity
Be practical the tendency to allow practical considerations to kill
concepts, halt the search for ideas, and deter one from considering
alternatives
Follow the rules ignoring the fact that most revolutionary ideas are
disruptive violations of existing systems and beliefs
Avoid ambiguity strict adherence to one fixed perspective on a
situation
To err is wrong failure to see the connection between error and
innovation: when you fail, you learn what doesnt work and can adjust
Play is frivolous unwillingness to acknowledge the creative power
of play
Thats not my area restriction of creativity through thinking that is
overly narrow and focused

Business
Entrepreneurship - I 139
Dont be foolish unwillingness to think unconventionally out of fear Creativity and Innovation
of appealing foolish
Im not creative the worst of the blocks: self-condemnation that
trumps talent, opportunity, and intelligence
NOTES
Efforts should be made to remove the barriers that block creativity within
a person. There is a need of positive thinking, an open mind, deliberate and planned
efforts, insight and perception to arouse and enhance creativity.

8.2.4 The Creative Process


Entrepreneurs create new ideas and set up their new enterprises. New
ideas are generated through a creative process. The creative process involves
five commonly agreed phases or steps as flows:
I. Task presentation
This stage is similar to germination or seeding process. A person should
have a strong desire to discover something. He/she should have an internal
motivation to investigate, to gather information for problem solving. Creative ideas
emerge from deep interest in or curiosity about a problem or a particular issue.
II. Preparation
In this stage, an individual attempts to define the problem, gather
information, and find out the right answer. For the sake of a creative search for
background knowledge various sources are reading, travelling to new places,
discussion with experts from different disciplines, talking with anyone and everyone
about the subject, joining professional groups and associations, attending seminars,
conferences etc.
III. Incubation
It is the stage of subconscious assimilation of information. There also
may be information gathering in this stage, although it may not be intentional.
Creative individuals allow their subconscious to ponder over the tremendous amount
of information gathered during the preparation phase. This incubation process
often occurs while individuals are engaged in activities totally unrelated to the
subject or problem; even when they are sleeping. Getting away from a problem
and letting the subconscious mind work on it fosters creativity. Engaging in routine,
mindless activities such as grass cutting, housekeeping etc,; exercise regularly;
playing; thinking about the problem before going to bed; meditation; sit back and
relax on a regular basis are some of the approaches which induce incubation.
IV. Idea generation
Multiple ideas and solutions are generated at this stage. This is the most
exciting phase of the creative process. It is often difficult to distinguish between
incubation and idea generation phase. Some ways to speed up the idea generation
stage are daydream and fantasize about the problem, practice hobbies, work in a
leisurely environment, put the problem on the back burner, keep a notebook at bedside
to record late-night or early-morning ideas, take breaks while working etc.
V. Idea validation and implementation
Ideas generated in the previous stage need to be verified as realistic and
useful. This is the most difficult step of a creative Endeavour and requires self-
Business
discipline and perseverance. Entrepreneurship - I 140
Creativity and Innovation In the journey towards successful development of their best ideas,
entrepreneurs fail several times. To facilitate this phase some useful suggestions
given by Donald F. Kuratko and Richard M. Hodgetts are: increase your energy
with proper exercise, diet and rest; educate yourself in the business planning process
and all facets of business; test your ideas with knowledgeable people;NOTEStake notice
of your intuitive hunches and feelings; educate yourself in the selling process;
learn about organizational policies and practices; seek advice from others (e.g.
friends, experts); and view the problems you encounter while implementing your
ideas as challenges.

8.2.5 Inculcating Creativity


In order to develop a creative approach to problems and ways of coping
with them innovatively, there is a need to cultivate certain basic thinking skills.
These skills are vital for gaining insights and formulating solutions to a wide
spectrum of problems. These essential skills are:
1. Convergent thinking
2. Divergent thinking
3. Making forced relationships
4. Recognizing positive potential in a problem
5. Dissecting ideas
6. Visualizing future solution state(s)
Convergent thinking consists of those abilities which enable one to reach
a right solution to problems which mostly have one right solution. Problems that
may potentially have plural solutions require the exercise of divergent thinking
mechanism. Convergent thinking narrows down and focuses thoughts, reducing
them to a point where logic and evaluation may be applied.
Divergent thinking involves approaches or perspectives that may be
uncommon or unusual, resulting in novel solutions. It directs ones thinking away
from narrow confines or limits of a given problem. It encourages the play of
imagination over wide, though relevant fields. It is imaginative and illogical.
Creative process exhibits the ability to connect two or more apparently
different or disparate ideas, concepts, elements or entities. This aspect or
characteristic of the creative process is called forcing relationships. Making forced
relationship stimulates new insights towards problem solving. These insights emerge
from comparisons of dissimilar objects or entities depending on what the insights
are wanted for.
The ability to find positive potential in a problem is a mark of creative
openness, receptivity and flexibility. Recognition of positive potential may sensitize
a person to new opportunities and useful courses of action which may compensate
for the negative aspects, or enable a person to make the best of a bad situation.
Dissecting an idea implies developing a list of what is useful or relevant,
and then identifying what is missing. The list of what is useful may be prepared by
using insights from convergent and divergent thinking or by making forced
relationships.
Visualizing one or more future solution states of a complex problem calls
Business
for developing a clear and detailed picture of the future with a successful- solution
Entrepreneurship I 141
being implemented. If one can get a rather clear and specific mental picture of Creativity and Innovation
what will happen because of a successful solution, it would be easier for him/her
to understand the kinds of changes needed to bring that picture to life.

8.2.6 Heuristics for Stimulating Creative Ideas/Insights NOTES


P. N. Rastogi has identified a number of heuristics for stimulating creative
thinking. Heuristics are tactical rules or guidelines based on empirical experience.
They have been observed to work in practice. A list of such heuristics may be
outlined as below: Check Your
Progress
Adapting, additive change, analogical metaphors, anomaly, association,
basic questions, diagramming/sketching, changing scale, challenging assumption(s)/
frame breaking, check listing, combinations and mergers, confronting the impossible, 3.
contrast/reversal/inversion, detecting weak spots/links, empathetic involvement, consists of those
explaining and listening, fantasy, forced relationship(s), generalizing, idealizing, abilities which enable
imagery/visualization/envisionment, intuiting, learning from nature, meditation, one to reach a right
partitioning, plural perspectives/approaches, restructuring/reforming, summarization, solution to problems
simplification, special range view/constraint relaxation, substitution, summarization, which mostly have
using the ridiculous, vicarious thinking, withdrawal and return. one right solution
(convergent thinking /
8.2.7 Techniques of Developing Creative Thinking divergent thinking)
The creative thinking process requires the use of systematic methods/ 4.
techniques/approaches for generation of creative ideas. Some of the important involves approaches or
techniques which focus primarily on facilitation of creative thinking in and by perspectives that may
individuals are described below: be uncommon or
unusual, resulting in
Redefinition techniques
novel solutions.
Random stimulus techniques (convergent thinking /
divergent thinking)
Envisionment/Visualization approach
5.Enlist the steps of
PMI method creative process.
ISA perspective
Abstraction approach
Thinking hat method
Redefinition techniques make you look at a problem or a challenge from a
new perspective and change the range of ideas that become available to you. You
can redefine a given problem by skirting around the problem, challenging the problem
boundaries, probing with WHYs and using analogy and metaphor.
Random stimulus techniques take one out of ones linear conventional
ways of thinking. There are two kinds of stimulus, one is physical- touch it, feel it,
pick it up and look at it, one can find such a stimulus when one goes for a walk or
visits a new place. The other kind of random stimulus is words. Another way to
force ones way out of left brain thinking and into more novel approaches is to
substitute words chosen randomly for the events or things. The search for an
association or an insight, triggered by the word stimulus, may lead to new ideas or
novel approaches.
Envisionment/visualization approach focuses on visualizing the problem,
and picturing it in ones mind as a design. The approach then moves forward
Business
towards redesigning the situation in terms of reshaping and realizing its various Entrepreneurship - I 142
Creativity and Innovation components towards the desired redesign. This exercise, in turn, enables one to
notice gaps, perceive non-obvious inter relationships, contemplate the functions of
components and question the constraints and limitations in the existing situation.
PMI Method, designed by DeBono, calls for identifying and segregating
NOTES
positive (P), negative or minus (M), and merely interesting (I), aspects in, and of,
a given problem situation. Such identification and segregation assist in the analysis
of situation. The thinker/ problem solver may focus on enlarging or maximizing
the P- dimension through converting Is and Ms into Ps.
ISA (Idea Sensitive Area) perspective, suggested by DeBono, is meant to
designate defined area in which the thinker believes that a new idea could make a
significant difference. This tool calls for segmenting a given problem situation into
distinct zones, and examining as to how a new change, idea or concept introduced
in a zone of high significance would produce a cascading series of effects.
Abstraction approach calls for tackling a problem at a high level of
abstraction. By viewing a problem in terms of abstract categories like structure,
function, process and goals instead of its concrete or specific elements and details,
one avoids getting locked into one particular view of the problem.
Thinking hats method, developed by DeBono, proposes six thinking hats
corresponding to several differentiated states of mind. Wearing a hat in the context
of creative problem solving means that the thinker focus on a given problem
exclusively in terms of the state of mind denoted by the concerned Hat while
searching for a solution. White hat looks for hard facts, figures, and information,
holding ones emotions or preferences away from them. Red hat permits one to
react emotionally, giving free rein to hunches, feelings, and intuition without the
necessity to justify them. Black hat connotes negative aspects, finding logical
faults, errors, inadequacies or risks in any situation or idea. Yellow hat enables one
to look at positive side such as hopes, dreams, wishes, and opportunity seeking. It
should always be used before black hat thinking. Green hat makes you creative
going beyond the known and obvious alternatives towards generating new ideas,
concepts, and perceptions. The blue hat is the controlling hat which examines
thinking about the thinking needed to explore the subject. It calls for the use of
other hats, sets the focus, and shapes the questions. It is responsible for summaries,
overviews, and conclusions. This method enables one to separate emotions,
information, logic, hope and creativity in ones thinking pattern and evolve a rich
synthesis of the insights provided by each of them.
Some techniques for generating creative ideas in groups are described below:
Brain storming
Reverse Brain storming
Nominal group technique (NGT)
TKJ technique
Induced dissociation
Checklist technique
Attribute listing
Synectics
Business
Entrepreneurship - I 143
Morphological method Creativity and Innovation

Delphi method
Dialectical approach
NOTES
Genetic learning approach

Brain storming technique, developed by Osborn, involves encouraging


group members to produce ideas in a natural manner without any apparent concern
about their validity or appropriateness. Combining ideas and improving on ideas
are preferred techniques, no criticism is allowed. The group leader facilitates the
creative process by encouraging the members to build on previous ideas, modifying
previous ideas and setting goals for a certain number of ideas to be generated.
Some of the important rules of brainstorming are focus on quantity and not quality,
encourage crazy ideas, build on others ideas, postpone criticism, and work with a
deadline.
Reverse Brain storming is a variation of the brain storming technique.
The group here is asked to focus on as many things wrong with the product,
process, system or service as they can. The focus may then shift towards ratifying
the deficiency.
Nominal group technique, developed by Delbecq and Ven de Ven, consists
of silent generation of ideas by participants in writing. After displaying of the ideas
on a flip chart severe discussion of each of the ideas in terms of its perceived
importance, clarity, basis and logic takes place, followed by brief, impersonal and
voluntary comments by the members.
TKJ Technique, developed by Kabayashi and Kawakita, elicits different
perspectives and experiences, and tries to synthesize them. The synthesis should
lead to a definition of a problem solution, which is acceptable to all participants. It
puts as much emphasis on the process of problem formulation, as on the process
of problem solving.
Induced dissociation techniques consist of looking at a product/object,
while trying to keep the mind in a blank state. The purpose is to obtain a new and
unusual view of the product/ object.
Check list technique consists of a check list of questions, ideas and
concepts to be applied in questioning an existing product.
Attribute listing involves a listing of all meaningful attributes of a procedure,
process or product and then focusing on ways of improving or upgrading any or all
of them.
Synectics, an approach developed by Gorden, is the joining together of
different and apparently irrelevant elements to resolve a paradox or a problem. It
requires a team of highly trained people from different fields to collectively work
on a problem. The team uses analogy and metaphor for making the strange familiar
and for making the familiar strange. It aims at churning the mind so that new
ideas, concepts and visions emerge and rise to its surface
Morphological methods, developed by Zwicky, focuses on identifying
and considering all possible combinations that might be relevant in solving a problem.
Most appropriate combinations are selected and examined for subsequent testing,
verification, modification, evaluation and development. Business
Entrepreneurship - I 144
Creativity and Innovation Delphi method, developed by Helmer, constitutes a panel of experts to
deal with a specific issue or question. It doesnt aim at getting unanimity. It focuses
on stimulating individual creativity by peer group stimulation.
Dialectical Approach, proposed by Churchman, proceeds by forming
NOTES
two research teams, both the teams are given the same data regarding the problem.
These teams deliberately produce conflicting solutions to the given problem(s). A
confrontation between the two teams and their respective solutions brings out
their implicit assumptions. A creative synthesis of the opposing proposal and their
viewpoints is then sort to be achieved.
Genetic Learning approaches towards the generation of creative ideas/
insights draws on the theory of biological evolution. It tries to mimic the evolutionary
process in its quest for new/ novel and adaptively robust creative concepts, ideas,
insights and perspectives.

8.3 Innovation
Myers and Marquis provide a comprehensive definition of innovation as:
Innovation is not a single action but a total process of interrelated sub processes.
It is not just the conception of a new idea, nor the invention of a new device, nor
the development of a new market. The process is all these things acting in an
Check Your integrated fashion.
Progress
In the words of Peter F. Drucker, Innovation is the specific function of
entrepreneurship. It is the means by which the entrepreneur either creates new
6. Enlist major wealth-producing resources or endows existing resources with enhanced potential
qualities of a creative for creating wealth. Innovation is the key function of entrepreneurship. It is the
person. means by which they become catalysts for change.
It is the process of doing new things. It is the process by which
entrepreneurs convert opportunities into marketable ideas which requires dedication
and perseverance along with vision to create a good idea. Majority of the innovations
result from a conscious, purposeful search for new opportunities. Most successful
innovations are simple and focused. As Thomas Edison said, Genius is 1 per cent
inspiration and 99 per cent perspiration; it often involves more work than genius.
Creativity is concerned with the ability to conceive. Innovation is doing
new things. It transforms creative ideas in to useful applications. Ideas have little
value until they are converted into useful products or services. Innovation transforms
creative ideas into useful applications. According to Schumpeter, a person is an
entrepreneur only when he/she is engaged in innovativebehavior. This innovative
behavior is an entrepreneurial function
Creativity is a pre-requisite to innovation. Creativity is assumed to have
greater tinge of art and artistic expression; innovation is said to be more on the
application and business side of the enterprise. Innovation may lack creativity but
the application of the idea itself could make it novel. Creativity is the ability to
develop new ideas and to discover new ways of looking at problems and
opportunities. Innovation is the ability to apply creative solutions to those problems
and opportunities to enhance or to enrich quality of life.
Creativity is the thinking of novel and appropriate ideas. Innovation is the
successful implementation of those ideas within an organization.
Business
Entrepreneurship - I 145
Four basic types of innovation exist, ranging from the totally new to Creativity and Innovation
modifications of existing products/services, as explained below:
Invention: the creation of a new product/service/process, often one that
is novel or untried
NOTES
Extension: the expansion of a product/service/process already in
existence. Such concepts make a different application of a current idea
Duplication: the replication of an already existing product/service/process.
It is, however, not simply copying but improving, enhancing the concept
with entrepreneurs creative niche at the marketplace.
Synthesis: the combination of existing concepts and factors into a new
formulation. This involves taking a number of ideas or items already
invented and finding a way so together they form a new application.

Paul Trott shows a typology of innovations as follows:


Product innovation: the development of a new or improved product
Process innovation: the development of a new manufacturing process
Organizational innovation: a new venture creation, a new internal
communication system, introduction of a new accounting procedure
Management innovation: total Quality Innovation (TQM), Business
Process Re-engineering (BPR)
Production innovation: quality circles, Just-in-time (JIT) manufacturing
system, new production planning software
Commercial/marketing innovation: new financing arrangements, new
sales approach
Service innovation: internet based financial services
Schumpeter makes a distinction between an innovator and an inventor.
An inventor discovers new methods and new materials. It is an act of developing
new products or process. An innovator utilizes or applies inventions and discoveries
to produce newer and better quality products. It is the process of creating a
commercial product from an invention. An inventor produces ideas and an innovator
implements them for economic gain. An inventor brings something new onto being
while an innovation brings something new into use. Technical criteria are used to
determine the success of an invention, while commercial criteria are used to
determine the success of an innovation. It is an innovator who commercially exploits
an invention.
Innovation is concerned with the commercial and practical application of
ideas or inventions. Invention is conception of the ideas whereas innovation is the
subsequent translation of the invention into the economy.
The conception of new ideas if the starting point for innovation. A new
idea by itself is neither an invention nor an innovation. It is merely a concept or a
thought or collection of thoughts. The process of converting intellectual thoughts
into a tangible new artifact (usually products/process etc) is an invention. The
conversion of invention into product is innovation. This process involves a number
Business
of activities and processes. Innovation depends on inventions. Inventions need to Entrepreneurship - I 146
Creativity and Innovation be harnessed to commercial activities. Innovation is the management of all the
activities involved in the process of idea generation, technology development,
manufacturing and marketing of a new (or improved) product or manufacturing
process or equipment.
NOTES
Invention is the process of coming up with absolutely new combinations
of technologies or new ideas that can see some practical application. On the other
Check Your hand, discovery is identifying something that already exists in the natural
Progress environment. It typically arises out of keen observation, experimentation and
realization whereas invention comes from more of experimentation and deep
thinking. Invention becomes eligible as an intellectual property of the institution in
7.Enlist the four basic the form of a patent, copyright etc. But discovery is attributed to the discoverer
types of innovation. although intellectual rights are not possible over discovered items.

Sometimes people confuse between nature of an entrepreneur and an
8. inventor. An inventor is an individual who creates something new for the first
(creativity/innovation) time. He/she is highly focusedindividual motivated by his/her own work and ideas.
is a pre-requisite to He/she is creative, well educated, willing to take risks, has the ability to tolerate
- ambiguity and uncertainty, and has a high level of self-confidence. He/she is a
(creativity/innovation) problem solver and not likely to be motivated by monetary considerations. He/she
has family background, education, job experience mostly contribute in his/her efforts
regarding invention.
An entrepreneur in obsessed with his/her venture and strive to ensure its
survival and growth. For implementation and commercialization of an invention,
entrepreneur and entrepreneurship is needed. Inventor is not interested in
implementation and execution part. He/she may not like to modify the invention
for the sake of feasibility if required whereas entrepreneurs take interest in ensuring
feasibility and marketability. Entrepreneur and entrepreneurship is required for
institutionalizing inventors work.

8.3.1 Principles of Innovation


David F Kuratko and Richard M Hodgetts suggested innovation principles.
These principles can be learned and, when combined with opportunity, can enable
individuals to innovate. The major motivation principles follow:
Be action oriented. Innovators always must be active and searching for
new ideas, opportunities or sources of Innovation.
Make the product, process or service simple and understandable. People
must readily understand how the innovation works
Make the product, process or service customer-based. Innovators always
must keep the customer in mind. The more an innovator has the end-
user in mind, the greater the chance the concept will be accepted and
used.
Start small. Innovators should not attempt a project or development on a
grandiose scale. They should begin small and then build and develop,
allowing for planned growth and proper expansion in the right manner
and at the right time.
Aim high. Innovators should aim high for success by seeking a niche in
the market place.
Try/test/revise. Innovators always should follow the rule of try/test and
Business
revise; this helps work out any flaws in the product, process or- Iservice.
Entrepreneurship 147
Learn from failures. Innovation doesnt guarantee success. More Creativity and Innovation
important, failures often give rise to innovations.
Follow a mile stone schedule. Every innovator should follow a schedule
that indicates milestone accomplishments. Although the project may run
NOTES
ahead or behind schedule, it still is important to have the schedule in
order to plan and evaluate the project.
Reward heroic activity. This principle applies more to those involved in
seeking and motivating others to innovate. Innovative activity should be
rewarded and given the proper amount of respect. These also means
tolerating and, to a limited degree, accepting failures as a means of
accomplishing innovation. Innovative work must be seen as heroic activity Check Your
that will reveal new horizons for the enterprise. Progress
Work, work, work. This is a simple but accurate exhortation with which
to conclude the innovative principles. It takes- not genius or mystery- to 9. In your own words,
innovate successfully. state what is meant by
the term innovation.
8.4 Summary 10. Distinguish
between innovation
Everyone is creative to some degree. Some have a greater aptitude for and invention.
creativity than others. People have to be taught to think and act creatively. They
have to be brought up in an environment that encourages them to develop their 11. Do you find any
creativity. difference between
invention and
Creativity is the soul of entrepreneurship. It is needed to develop innovative discovery?
business concepts. It is the capacity to develop new ideas, concepts and processes.
Entrepreneurs get success by thinking and doing new things or old things in new
ways. Having a great new idea is good, but converting that idea into actual reality
into a product/service is crucial for business. Entrepreneurship is about making
things happen. It deals with practical implementation. Entrepreneurs are always
in search of unique opportunities. They need to develop an ability to see, sense,
and create opportunities and convert adversities into opportunities.
Conceptual fluency, conceptual flexibility, originality and complexity
orientation are the four elements of creativity which are linked with individuals
knowledge, experience, and imagination on one hand and high level of motivation
and interest towards problem solving on the other.
People in organizations can channel their creativity into seven different
areas: idea creativity, material creativity, organization creativity, relationship
creativity, event creativity, inner creativity and spontaneous creativity.
There are a lot of barriers due to certain pre-conceived ideas. The barriers
which obstruct the growth of creative thinking are self-imposed, restricted mindset,
compliance nature, running away from challenge, time pressures, uncooperative
management, rigid company policies, pessimistic employees, jumping to conclusion
and fear of being branded a fool.
The creative process involves five commonly agreed phases or steps as
task presentation, preparation, incubation, idea generation, idea validation and
implementation.
To develop a creative approach to problems and ways of coping with
them innovatively, there is a need to cultivate certain basic skills like convergent Business
Entrepreneurship - I 148
Creativity and Innovation thinking, divergent thinking, making forced relationships, recognizing positive potential
in a problem, dissecting ideas and visualizing future solution state(s).
Some of the important techniques which focus on facilitation of creative
thinking in and by individuals are redefinition techniques, random stimulus techniques,
NOTES
envisionment/visualization approach, PMI method, ISA perspective, abstraction
approach, thinking hat method.
Some techniques for generating creative ideas in groups are brain storming,
reverse brain storming, nominal group technique (NGT), TKJ technique, induced
dissociation, checklist technique, attribute listing, synectics, morphological method,
Delphi method, dialectical approach, and genetic learning approach.
Innovation is the process of doing new things. Creativity is concerned
with the ability to conceive. Innovation is doing new things. It transforms creative
ideas in to useful applications. Ideas have little value until they are converted into
useful products or services.
Creativity is a pre-requisite to innovation. Creativity is the ability to develop
new ideas and to discover new ways of looking at problems and opportunities.
Innovation is the ability to apply creative solutions to those problems and opportunities
to enhance or to enrich quality of life.
The four basic types of innovations are invention, extension, duplication
and synthesis.
Paul Trotts typology of innovations is product innovation, process
innovation, organizational innovation, management innovation, production innovation,
commercial/marketing innovation, and service innovation.
An invention brings something new onto being while an innovation brings
something new into use. An innovator utilizes or applies invention and discoveries
to produce need satisfying and profit making entities.

8.5 Key Terms


Creativity: A phenomenon whereby something new and somehow
valuable is formed. The created item may be intangible (such as an idea,
a scientific theory, a musical composition or a joke) or an original physical
object (such as an invention, a literary work or a painting)
Innovation: Something original and more effective and, as a
consequence, new; a process that brings together various novel ideas in
a way that they have an impact on society

8.6 Questions and Exercises


Questions
1. Creativity is a pre-requisite to innovation. Comment on the statement
and explain the creative process.
2. Define creativity and innovation. How do you differentiate creativity
and innovation?
3. Discuss various techniques of inculcating creative thinking among
Business
individuals.
Entrepreneurship - I 149
4. Explain the various phases of creative process. Creativity and Innovation

5. What makes an entrepreneur creative?


6. Write a note on creative personality.
NOTES
7. Discuss various barriers to creativity.
8. To develop a creative approach, there is a need to cultivate certain
basic skills. Express your views on inculcating creativity

Exercise
1. Write creative solutions to improve your exam percentage.

Multiple Choice Questions


1. Which of the following is not an attribute of creative individuals?
i. The ability to see things in unusual ways
ii. Pleasant personality
iii. Tolerance of ambiguity
iv. A strong sense of curiosity
2. Which of the following is a wrong statement?
i. Left side of the brain is primarily associated with logical, rational
and analytical modes of thinking
ii. Right side of brain is primarily associated with emotional thinking,
initiative, experience, inspiration and imagination.
iii. Both i and ii are right
iv. Both i and ii are wrong
3. Which of the following is not a barrier of creativity
i. Im not creative
ii. Thats not my area
iii. Be practical
iv. To err is right
4. Tick the right statement about the Thinking Hats Method
i. White hat looks for hard facts, figures and information
ii. Black hat enables one to look at positive side such hopes, dreams,
wishes and opportunity seeking
iii. Yellow hat connotes negative aspects, finding logical faults,
errors, inadequacies or risks
iv. Red hat makes you creative going beyond the known and obvious
alternatives towards generating new ideas, concepts and perceptions.
Business
Entrepreneurship - I 150
Creativity and Innovation 5. Which one of the following is technique for generating creative ideas in groups?
i. Redefinition techniques
ii. Random stimulus techniques
NOTES
iii. Brainstorming
iv. Thinking hat method
6. technique involves encouraging group members to produce
ideas in a natural manner without any apparent reason about their validity
or appropriateness
i. Brain storming
ii. PMI method
iii. ISA perspective
iv. Random stimulus techniques
7. Brainstorming techniques is developed by -
i. Osborn
ii. Kabayashi
iii. Kawakita
iv. Delbecq
8. Select the wrong one
i. Check list technique consists of a check list of questions, ideas
and concepts to be applied in questioning an existing product
ii. Attribute listing involves a listing of all meaningful attributes of a
procedure, process or product and then focusing on ways of
improving or upgrading any one or all of them
iii. Both i and ii are true
iv. Both i and ii are wrong
9. Pick the wrong alternative of the following
i. Dialectical method Churchman
ii. Delphi method Helmer
iii. Morphological methods Zwicky
iv. Synectics method Kabayashi
10. Which one of the following is wrong?
i. Technical criteria are used to determine success of an invention
ii. An invention brings something new into use
iii. Innovation is the process of creating a commercial product for profit
iv. It is an innovator who commercially exploits an invention
Business
Entrepreneurship - I 151
Answers Creativity and Innovation

Check Your Progress

3. convergent thinking
NOTES
4. divergent thinking

8. creativity, innovation

Multiple Choice Questions


1. ii
2. iv
3. iv
4. i
5. iii
6. i
7. iv
8. iv
9. iv
10. ii

8.7 Further Reading


Kuratko Donald F., Hodgetts Richard M., Entrepreneurship in the new
Millennium, Cengage Learning, New Delhi, 2011.
Morris Micheal H., Kuratko Donald F., Covin Jeffrey G., Entrepreneurship
and Innovation in Corporations, South Western Cengage Learning, New Delhi,
2008.
Rastogi P. N, Managing Creativity for Corporate Excellence, Macmillan
India Ltd., New Delhi, 1996.
Taneja Satish, Entrepreneurship Development, Himalaya Publishing House,
Mumbai, 2010
Zimmerer Thomas W., Scarborough Normon M., Wilson Dough, Essentials
of Entrepreneurship and Small Business Management, PHI Learning, New Delhi,
2011.

Business
Entrepreneurship - I 152
Creativity, Innovation and
Entrepreneurship UNIT 9 : CREATIVITY, INNOVATION AND
ENTREPRENEURSHIP
NOTES

Structure

9.0 Introduction
9.1 Unit Objectives
9.2 Peter Druckers Theory of Innovation and Entrepreneurship
9.3 Creativity, Innovation and Entrepreneurship
9.4 Creative Thinking
9.5 Generation of Business Ideas
9.6 Project Identification
9.7 Creative Enterprise
9.8 Enhancing Creativity
9.9 Summary
9.10 Key Terms
9.11 Questions and Exercises
9.12 Further Reading

9.0 Introduction
Innovation and entrepreneurship are very closely related with each other.
Innovation is the essence of entrepreneurship. In the words of Schumpeter,
entrepreneurship is a creative activity and entrepreneur is essentially an innovator.
According to Schumpeter, the dream and will to establish a private kingdom, will
to conquer, joy of creating, getting things done, exercising ones energy and ingenuity
are the motives that inspire innovative entrepreneur to undertake innovation.
Innovation manifests itself in problem solving activities and entrepreneur is a
problem solver. He/she converts problems into opportunities. He/she goes beyond
the known, the obvious, the traditional.. He/she does things in a better way, in a
unique manner with an application of innovation. One who behaves in a traditional
way can hardly become an entrepreneur.
Peter Drucker argued that innovation is the tool of entrepreneurship.
Innovation begins with creative ideas. Creativity is the starting point for innovation.
Innovation is the manner in which entrepreneur searches for new opportunities. It
is the way in which ideas are converted into profitable solutions. The importance
of innovation is not in its novelty but in its market acceptability and success.
Entrepreneurship is characterized by innovation, risk-taking and pro-
activeness. Entrepreneurs have to develop creativity, creative skills and skills of
innovation. Risk taking refers to the manner in which innovation is inserted into
the organization. It indicates willingness to commit resources to promising and
profitable opportunities. Entrepreneurs exhibit adaptability, perseverance in making
Business
things happen. Entrepreneurship - I 153
Creativity, Innovation and
9.1 Unit Objectives Entrepreneurship

After going through this unit, you will be able to


Comprehend the relationship between innovation, creativity and NOTES
entrepreneurship
Describe why creativity and innovation are integral parts of
entrepreneurship
Be aware about Peter Druckers theory of innovation and
entrepreneurship
Understand how entrepreneurs can enhance their own creativity and
that of their team members
Appreciate the meaning of a creative enterprise
Know the role of creativity in idea generation and project identification

9.2 Peter Druckers Theory of Innovation and


Entrepreneurship
The very foundation of entrepreneurship is the practice of systematic
innovation. Peter Drucker opined that an entrepreneur is one who always searches
for change, responds to it and exploits it as an opportunity. He emphasized innovation
and resource as important factors which lead to emergence of entrepreneurship.
He considers innovation as the real hub of entrepreneurship which creates resource.
A thing is regarded as resource when its economic value is recognized. Drucker
contends that entrepreneurship involves increase in value, satisfaction to customer
creation of new values and combination of existing materials or resources. He
says innovation, resources and an entrepreneurial behavior are keys to
entrepreneurship.
In his book Innovation and Entrepreneurship, Peter Drucker defines
entrepreneurship as a systematic, professional discipline available to anyone in an
organization. He talked about entrepreneurship as a tool to be implemented by
managers and organizational leaders for business growth. He believed that
entrepreneurship is something that can be strategically employed by any
organization, right from start-up firm to an established one, at any time. He argued
that managers can systematically undertake Schumpeters type of innovation to
revitalize business and non-business organizations.
In the words of Drucker, Innovation is the specific instrument of
entrepreneurship. It is the act that endows resources with a new capacity to create
wealth. An entrepreneur introduces resources in the economy in new ways which
adds value of some kind. They discover and exploit unused capacity of resources,
generate wealth and contribute to economic growth. They create wealth through
innovation and drive the economy. The resources could be natural resources such
as plants, animals, minerals etc. They could be physical resources. They could
also be an intellectual thing such as a patent, a technological breakthrough or
special expertise in a specific area.
Entrepreneurship is not natural. It is not creative. It is work. Specifically,
entrepreneurial management requires policies and practices in four major areas: Business
Entrepreneurship - I 154
Creativity, Innovation and The organization must be made receptive to innovation and willingness
Entrepreneurship to perceive change as an opportunity rather than a threat.
Systematic measurement or at least appraisal of a companys
performance as entrepreneur and innovator is mandatory, as well as
NOTES
built-in-learning to improve performance
Entrepreneurial management requires specific practices pertaining to
organizational structure, to staffing and managing, and to compensation,
incentives and rewards
There are some donts: things not to do in entrepreneurial management.
Regarding execution of innovation management in organizations, there is
a need of change in approach. Instead of trying to find ways to overcome resistance
in innovation; the executives should look forward to find ways to make the
organization receptive to innovation, want innovation, reach for it and work for it.
Innovation should not be something which is applied against opposition and trying
to minimize opposition. Instead, innovation must be part and parcel of routine.
This requires specific policies:
First, innovation, rather than holding on to what already exists, must be
made attractive and beneficial to managers
Second, the importance of the need for innovation and the dimensions of
its time frame must be both defined and spelled out
And finally, there needs to be an innovator plan, with specific objectives
laid out
Innovation requires hard work. Capable and competent people, financial
and other resources should be devoted to innovation. An innovation starts small
but it should end big. There has to be a realization that all existing products, services,
markets, distribution channels, processes, technologies have limited and usually
short life expectancies. Whatever is outworn, obsolete, no longer productive, as
well as mistakes, failures and misdirection of effort should be abandoned in a
systematic manner. The business must be managed as to perceive in the new an
opportunity rather than a threat. It must be managed to work today on the products,
services, processes and technologies that will make a better and different tomorrow.
In companies that are managed for entrepreneurship, there are two
meanings on operating results: one to focus on the problems and one to focus on
opportunities. Managers focus what is presented to them. What is not presented
tends to be overlooked. Mostly managers are presented problems. They pay attention
to problems seriously and solve them. Special attention needs to be given for
opportunities in entrepreneurship. The entrepreneurial spirit and culture has to be
imbibed throughout all the levels of organizational hierarchy.
Peter Druckers entrepreneur always searches for change, responds to it
and exploits it as an opportunity. He/she accepts change in the normal routine
working and exploits it as an opportunity. To quote Drucker, Innovation, which is
the specific function of entrepreneurship, is the means by which the entrepreneur
either creates new wealth-producing resources or endows existing resources with
enhanced potential for creating wealth.
Thomas Edison, an inventor and a successful businessman said, Genius
is one percent inspiration and ninety-nine percent perspiration. In spite of the
Business
experience of Edison, unfortunately hard work component could not achieve
Entrepreneurship - I 155
needed attention as an enabler of success. Rather increasingly flash of inspiration Creativity, Innovation and
was considered significant for entrepreneurship. Entrepreneurship

Peter Drucker said, Innovation and entrepreneurship are purposeful tasks


that can (and should) be organized. These attitudes and skills can be cultivated.
NOTES
The search for innovation can be systematized and managed. For this,
characteristics such as an open mind, learnability, vision, ability to sense opportunities
even in adverse situations etc are possessed by successful entrepreneurs.
Peter Drucker says that systematic innovation means monitoring seven
sources for innovative opportunity. The first four lie within the enterprise. They
are essentially symptoms.
1. The unexpected the unexpected success, failure or outside event
2. The incongruity between reality as it actually is and reality as it is
assumed to be or as it ought to be. A discrepancy between what is
and what should be.
3. Innovation based on process need. This is task focused rather than
situation focused.
4. Changes in industry structure or market structure that catch everyone
unawares
The second set of sources for innovative opportunity involve changes
outside the enterprise or industry
5. Demographics population changes
6. Changes in perception, mood and meaning
7. New knowledge, both scientific and nonscientific
To master the discipline of innovation we must do three things:
Focus on the mission
Define the results we are after
Assess what were doing and how we are doing it
Peter Drucker says, Entrepreneurship is risky because so few of the so-
called entrepreneurs know what they are doing. He believes that innovation can
be undertaken in a systematic way. Then the results would be consistently positive.
He suggests that aspiring entrepreneurs should pay attention to various low risk
sources as follows:
Demographics: Changes in demographics are unambiguous. They have
the most predictable consequences.
Process need: Innovation based on a process need starts out with the job
to be done. According to Drucker, the need perfects a process that already exists,
replaces a link that is weak, (or) redesigns an existing old process by supplying the
missing link everybody in the organization always knows the need exists. Yet
usually no one does anything about it.
Changes in perception: Drucker writes, If general perception changes
from seeing the glass as half full to seeing it as half empty there are major
innovative opportunities. Business
Entrepreneurship - I 156
Creativity, Innovation and Choice of low-risk sources of opportunity leads towards success provided
Entrepreneurship there is carefully planned execution.

9.3 Creativity, Innovation and Entrepreneurship


NOTES
Entrepreneurship is a creative activity. Entrepreneurship is doing things
Check Your that are generally not done in the ordinary course of business. In the words of
Progress Peter Drucker, entrepreneurship can be viewed as a creative and innovative
response to the environment and an ability to recognize, initiate and exploit an
economic opportunity.
1. In his book
Peter Drucker defines Entrepreneurship is characterized by the ability to create new and
entrepreneurship as a meaningful ideas that solve the needs, problems, difficulties and challenges faced
s y s t e m a t i c , by people every day. Entrepreneurs invent new products, services, technology;
professional discipline improve existing products, services; find out ways to provide products, services
available to anyone in with fewer resources; discover new knowledge etc and create value in the society.
an organization. They maintain a new, productive combination of resources; develop core
competencies and outmaneuver competition with their own style.
2.Enlist the seven
sources for innovative Creativity is an individual ability that can lead to an idea or invention by
opportunity devised by the creative person. The process of innovation converts invention or idea into a
Peter Drucker. marketable product/service. Entrepreneurship is ability, characteristic that enables
the process of innovation in materializing a marketable product/service into actual
reality in spite of many odds.
Entrepreneurship requires creativity. It is a creative activity. At all the
steps of the process of entrepreneurship, creativity is needed. Creativity shows
imagination and originality of thought. It goes beyond normal, routine, traditional,
conventional and everyday thinking. It is said to emerge from an interaction between
entrepreneur and the situation facilitated by favoutable conditions and environment.
The essence of creativity has to be understood with reference to a creative
personality, a creative process, and a creative environment. A creative personality
is self-motivated. It strives to fulfill need for self-actualization. It seeks pursuit of
perfection and excellence. The creative process deals with project identification,
generation and selection of business ideas. It is characterized by flexible, original
and lateral thinking. The creative environment provides the context for creative
thinking. It is composed of social, cultural, economic, political context.
According to Robert Gahim, creativity consists of anticipation and
commitment. Anticipation involves having a vision of something that will become
important in the future before anybody else has it. Commitment is the belief that
keeps one working to realize the vision despite doubt and discouragement.
Creativity in individuals is often the origin for innovation. An entrepreneur
is an innovator who introduces something new in an economy. Innovation involves
problem solving and an entrepreneur is a problem solver. An entrepreneur does
things in a new and better way. Innovation may be in the form of a new product,
new quality of existing product, a new source of raw material, a new market, a
new manufacturing process,
Harvards Ted Levitt says that creativity is thinking new things, and
innovation is doing new things. Entrepreneurs succeed by thinking and doing new
things or old things in new ways. Having a great new idea is good. But transforming
that idea into a tangible product, service or business venture is more important.
Business
Entrepreneurship - I 157
Entrepreneurs generate new and newer ideas. They find ways to make Creativity, Innovation and
them work to solve a problem or to fill a need in a unique manner. They address Entrepreneurship
the problems and needs of the society in a manner no one ever imagined or thought.
They do it so skillfully and successfully that they develop a competitive edge over
their rivals and prove that nothing succeeds like success. This is the power of NOTES
creativity and innovation of small entrepreneurial businesses. Creative thinking
and originality is their hallmark. Innovation is their core competency. Without
innovation, enterprises and their products/services become ineffective and outdated.
Sometimes innovation involves generating something from nothing. It may
result from elaborating on the present, from putting old things together in new
ways, or from taking something away to create something simpler or better. Creative
ideas may spring up from the most unexpected places. In some cases, creative
ideas arise when entrepreneurs look at something old and think of something new
or different. In several cases, entrepreneurs observe problems. They create
innovations to solve the problems faced by them. Innovation is the key to success
in entrepreneurship.

Fiona Fitzpatrick identified the following elements of innovation:


Challenge: What we are trying to change or accomplish -the pull
Customer focus: Creating value for your customers the push
Creativity: Generating and sharing the idea(s) the brain
Communication: The flow of information and ideas the life blood
Collaboration: People coming together to work together on the idea(s)
the heart
Completion: Implementing the new idea muscle
Contemplation: Learning and sharing lessons lead to higher competency
the ladder
Culture: The playing field of innovation includes:
Leadership (sees the possibilities and positions the team for action the
role model)
People (diverse groups of radically empowered people innovate the
source of innovation)
Basic values (trust and respect define and distinguish an innovative
organization the backbone)
Innovation values (certain values stoke the fires that make the impossible
possible the Spark)
Context: Innovation is shaped by interactions with the world
Entrepreneurs deal with creativity, innovation in a systematic manner as
per the needs, requirements, demand and opportunities prevailing in the market.
With application of their creative ideas, customer needs are satisfied, their problems
are resolved.
People become more creative in the areas of work in which they are Business
interested. The desire to do something unique, the drive to solve a difficult problem, Entrepreneurship - I 158
Creativity, Innovation and the challenging tasks, the passion, satisfaction etc drive them towards creativity.
Entrepreneurship Their expertise in a particular subject domain also motivates them for being more
creative. Their level of motivation decides the extent of their creativity. It also
depends upon creative thinking skills. People become creative not by external
pressures but by their inner desire to do something distinctive which
NOTES has never
been done by anyone until yet, a drive to find a solution to a difficult problem.
Entrepreneurial creativity has been defined by Teresa Amabile as the
generation and implementation of novel, appropriate ideas to establish a new
venture. Entrepreneurial creativity, however, exists before, during and after the
lifetime of a particular business. Being a critical core success factor for
organizations, creativity is an important aspect of study for facilitating creativity in
employees, understanding of attitudes towards creativity and promotion of creative
thinking. To deal with unpredictable environment, there is need of creative
leadership. Conventional managerial methods may not be appropriate.
Amabile has provided a simple and comprehensive framework consisting
of three components:
Knowledge: All the relevant understanding an individual brings to bear
on a creative effort. Howard Gardner explains two types of knowledge
that may be required for creativity. On one hand, in-depth experience
and long-term focus in one specific area allows people to build the
technical expertise that can serve as a foundation, or playground for
creativity within a domain. At the other side, creativity rests on the ability
to combine previously desperate elements in new ways, which implies a
need for a broader focus and varied interests. There is a need to strike
a balance between depth and breadth in order to maximize the creative
potential. To improve breadth, it is suggested to team up with people
with different knowledge bases, interdisciplinary study etc.
Creative thinking: Thinking is a key aspect of the creative process. It
relates to how people approach problems, how flexibly and imaginatively
people approach problems and depends on personality and thinking/
working style.
Motivation: Motivation is generally accepted as key to creative production,
and the most important motivators are intrinsic passion and interest in the
work itself. Intrinsic is more effective than extrinsic. Intrinsically motivated
person explores various pathways and alternatives and enjoys the process
along the way resulting into novel, appropriate and successful solutions.
Creative people put different ideas together in a new way. The combination
of ideas and the approach towards problems as well as solutions varies from
person to person.
Business environment is constantly changing. With creative spirit and
innovative ability, organizations can successfully manage change inherent in the
business environment.
In this fiercely competitive global business environment, in absence of
continuing innovation, growth and development cannot be sustained. Through
various acts of innovation, entrepreneurs achieve their competitive advantage.
Entrepreneurs by their basic nature avoid established and traditional ways of thinking
and adopt a different style of thinking, launch novel ideas and creative ways to
create customer satisfaction. They differ significantly from traditional businessmen
Business
Entrepreneurship - I 159
in that they have creative ideas and a fantastic skill for successful execution of Creativity, Innovation and
those ideas. Entrepreneurship

Creativity and innovation is the essence of entrepreneurship. It means


entrepreneurs strive to perform the activities in a different, far better manner than
NOTES
the others. They are always in search of opportunities to do new things, to improve
exiting things and to be distinct. It delivers value to the society.
Whiting identified independence, the drive to achieve, curiosity, self- Check Your
confidence and deep immersion in a task as the five main characteristics of the Progress
relatively more creative individual while self-confidence, perseverance, high energy
levels, calculated risk taking and the need to achieve are seen as the top five 3.
characteristics of the relatively more entrepreneurial individual. Other relevant is thinking new things,
factors include using ones initiative and being flexible. Although there may be and
differences between the meanings of being creative and being entrepreneurial, is doing new things.
there are certainly a number of overlaps.

Fig.9.1 Significance of Creativity and Innovation for an Entrepreneur

Knowledge and Skills of Business

Low High

Inventor Entrepreneur
High

Creativity
and
Innovation

Low Promoter Manager

Creativity and entrepreneurship play a key role in the process of


entrepreneurship. From the above matrix, the relationship between creativity and
innovation; business knowledge and skills and entrepreneurship is depicted.
Individuals who possess a high level of innovation and creativity as well as business
knowledge and skills are entrepreneurs. Inventors have high level of creativity
and innovation. They may not possess high level of business knowledge. Managers
must have a high level of business knowledge and skills. They may score low
regarding innovation and creativity.

9.4 Creative Thinking


Creativity represents a balance between knowledge and freeing oneself
of that knowledge Robert J. Sternberg
Successful businesses are, no doubt, based on creative ideas. Their success
can definitely be attributed to the way in which problems, needs of the society are
being addressed by the enterprises. However, in the world of cut-throat competition,
entrepreneurs need to apply their creativity constantly. Otherwise, their survival
also can be threatened in this fast-paced global economy. To maintain leadership Business
Entrepreneurship - I 160
Creativity, Innovation and position in this rapidly growing economy, there is a need of creativity, innovation
Entrepreneurship and entrepreneurship.
To quote Joyce Wycoff, Every person can be taught techniques and
behaviors that help them generate more ideas. Research has proved that anyone
NOTES
can learn to be creative. Some people are not creative and the only problem with
their creativity is they never felt an urge to be creative; no one expected them to
be creative. The environment around them was not conducive for creativity. They
never tapped their innate creativity. They were restricted by their traditional, rigid,
orthodox, stereotyped thinking patterns. Entrepreneurs have to draw on their own
talent to stimulate creativity in their organizations. They must learn creative thinking.
Creative thinking is the art of generating solution to problems with the
help of imagination and reasoning. In this dynamic era of global environment,
people have to face emerging challenges. So as to face various forms and types
of such challenges; a deep creative thinking is essential. The resourceful, vibrant
and dynamic people who engage their minds in creatively generating new ideas,
approaches and solutions get success. Such enterprising people look at problems
as opportunities. They continue their search for making things better. They focus
on questions such as what can be done to make things better, what can be done to
make better things.
Research into the operation of the human brain shows that each
hemisphere of the brain processes information differently and that one side of the
brain tends to dominate the other.The human brain develops asymmetrically and
each hemisphere tends to specialize in certain functions. The left brain handles
language, logic, and symbols; the right brain takes care of the bodys emotional,
intuitive, and spatial functions. The left brain processes information in a step-by-
step fashion, but the right-brain processes it intuitively all at once, relying heavily
on images.
Left-brained, vertical thinking is narrowly focused and systematic,
proceeding in highly logical fashion from one point to the next. Right-brained,
lateral thinking is somewhat unconventional, unsystematic, and unstructured. Right-
brain driven lateral thinking lies at the heart of the creative process. Those who
have learned to develop their right-brained thinking skills tend to find out a better
way always. They challenge custom, routine and tradition. They are prolific
thinkers. They generate a number of ideas hoping for some highly creative ideas.
They look at the problems from different perspectives. They possess the ability to
view at an issue from broader perspective. They try to relate apparently unrelated
ideas with an eye on innovativeness.
Successful entrepreneurship requires both left-and right-brained thinking.
Right-brained thinking draws on the power of divergent reasoning, which is the
ability to create a multitude of original, diverse ideas. Left-brain thinking counts on
convergent reasoning, the ability to evaluate multiple ideas and choose the best
solution to a given problem. Entrepreneurs need to rely on right-brain thinking to
generate innovative product, service or business ideas. Then, they must use left-
brain thinking to judge the market potential of the ideas they generate.

9.5 Generation of Business Ideas


Born entrepreneurs are very clear about the kind of activity they would
undertake. But it is not the case with other types of entrepreneurs. Several times
Business
Entrepreneurship - I 161
individuals decide to enter into the career path of entrepreneurship either due to Creativity, Innovation and
motivation training, awareness campaign, counselling, advice or any other motive. Entrepreneurship
It is somewhat difficult for them to decide about the type of enterprise they would
be engaged in. No readymade choices and decisions about feasible and attractive
business activity to be pursued are available. Entrepreneurs have to look for NOTES
opportunities and generate business ideas on their own.
Schumpeter, Kirzner, Liebenstein and many others talked about role of
creativity in entrepreneurship. Business opportunities arise from creative behavior
i.e. from creative entrepreneurial activities. The process of generation of new
business involves a creative component. Business opportunities can be considered
as expression of creativity. Identification of business opportunities is a complex
and multidimensional process. It is difficult to explore and investigate. It involves
information processing. The outcome is original and unpredictable.
Innovation starts with a new, promising and profitable idea. Business ideas
originate from various opportunities prevailing in the market and society. Business
idea relates to any need or want or problem that is sensed by the entrepreneur.
The business idea should be relevant to the entrepreneur. It should be based on
the skills, previous expertise and background of the entrepreneur. If the entrepreneur
possesses some special skills such as related with marketing, or technical skills;
knowledge about some techniques of manufacturing/marketing; then chances of
success would be increased. The business ideas, related with some current
problems or needs faced by the market would be more appealing to the
entrepreneurs. Further, business ideas should be related with products/services
which have good market potential. There has to be sufficient demand in the market.
The business idea should enable the use of locally available raw materials which
would be easily accessible as per the need.
The first step in launching a venture is to generate ideas for businesses or
products/services. More the number of ideas generated from various sources,
more the probability of making the right choice and getting success. Entrepreneurs
should tap as many sources of business ideas as possible for them. They should
consult concerned experts, specialists, professionals. They should go through books,
magazines, journals, directories, reports etc. They should attend trade shows,
exhibitions. They should visit shops, markets. They should refer the relevant material
from research institutes. There are different approaches available for exploring
different sources of business ideas as discussed in the section 9.8 below.
Hobbies can be converted into business very gainfully. Some skills like
cooking, fashion designing, tailoring, photography, interior designing, knitting, catering
etc can be developed as business ventures.
Some promising business idea may be related with educational background,
family background, previous experience, expertise etc.
An existing product can be improved with the help of improved methods
or new technology or with the help of trained workforce.
A new business idea may arise from any of the need(s) or problem(s) you
experience.
Recycling of waste and creating useful environment friendly products is a
good business idea.

Business
Entrepreneurship - I 162
Creativity, Innovation and Figure 9.2. Creativity, Innovation and Product Development
Entrepreneurship

NOTES

9.6 Project Identification


Entrepreneurship is about sensing an opportunity where others see chaos,
contradiction and confusion Timmons
The process of entrepreneurship is concerned with different steps such
as identification of opportunities, generation of business ideas and setting up of
entrepreneurial venture by completing all the formalities required. The environment
is dynamic, uncertain and in a state of abrupt and rapid changes. Identifying
opportunities in such kind of turbulent environment is a challenging task.
Project identification deals with finding out right business opportunity. It
involves product/service selection, choice of location, and decisions about financial
commitment, technology to be used and machineries/equipments to be purchased.
There is a need of exploration, collection, compilation and analysis of data from
various sources.
Entrepreneur is an innovator, a creative problem solver. His/her mind is
focused on idea generation. Idea lies within the entrepreneur. It is a thought.
Success of an entrepreneur depends upon his/her ability to come up with thoughts.
Opportunity lies outside the entrepreneur i.e. in the external environment.
Business idea is a viable business opportunity which an entrepreneur selects
from several opportunities on the basis of his/her capabilities. A sound business
opportunity is generated after an assessment of societal needs, entrepreneurial
capability and availability of resources in the environment. Entrepreneurs and their
business opportunities do not arise automatically and easily from the environment.
Entrepreneurs search them in a systematic and rational manner. They arise out of
entrepreneurs own creativity and their organizational environment.

9.7 Creative Enterprises


Entrepreneurs deal with creativity and innovation in various ways.
Individually there are a number of approaches in which they stimulate their creative
potential. But it is not enough. They need to develop an appropriate team. They
have to structure and support a creative work environment which values creativity.
Using teams is far more beneficial for stimulating creative activities. A team
Business
consisting of non-specialists fetches more creative solutions. It helps a lot
Entrepreneurship - I when
163
the team consists of diverse talent drawn from various divisions and sections Creativity, Innovation and
belonging to different levels of hierarchy. Entrepreneurs have to promote a work Entrepreneurship
culture in which individuals would like to exercise autonomy, goal setting, open
exchange of diverse ideas, generate, select and retain ideas. Creativity has to be
imbibed as a cultural value. NOTES
In this fiercely competitive market, turbulent and risky environment and
global economy, enterprises are constantly required to innovate new products/
services, processes and practices. Along with individuals, enterprises are also
required to be creative and innovative. With growing literacy and affluence, the
number of well informed, demanding and sophisticated customers is increasing.
Sometimes ambitious management wants to deliver unique offers to the market.
They prefer to pioneer, go for original mission, take calculated risks, deal with
administrative innovations, choose novel technologies, adopt experimentation,
develop unusual activities, tasks, products, services and show their preference for
innovativeness.
The enterprise that does not innovate inevitably ages and declines. In a
period of rapid change, the decline will be fast.
It is not easy for organizations to be creative. For being productive and
efficient, organizations adopt standardized procedures, hierarchy, rules and
techniques. Creativity implies challenging the routine, the obvious, and the traditional.
It deals with experimentation. It discards established rules, procedures and
techniques. Such kind of creative organizations get success.
The creative organizations have hierarchy, structure; but they focus on
flexibility and innovation. They disregard standardization. Entrepreneurial leaders
in such creative enterprises are characterized by innovation, openness, result
orientation and a spirit of healthy interaction as well as creative conflict. They see
to it that their capacity for innovation being converted into practical reality through
efficient implementation of select innovations.
Creative enterprises pioneer new products, services, activities at local
level, not necessarily always at a global level. An enterprise may invent a product
and be a pioneer. It may adapt or license a foreign developed product for first time
production and marketing in any developing country. Sometimes innovation may
be in the form of creative imitation which consists in taking someone elses invention
and then adapting it to uses not originally anticipated. In big corporations,
intrapreneurs innovate. The external environment as well as internal environment
provides rich sources of innovation. The organization can unleash many opportunities
from the external environment with reference to demographic changes, competition,
technological changes, cultural changes etc. The world is full of opportunities for
innovation.
Successful innovation depends upon an appropriate organization structure.
Freedom, initiative, and flexibility are essential requirements for invention.
Decentralization helps innovation. It offers initiative and sense of responsibility to
the employees. It relieves the top managers of routine decisions and enables them
to focus on divergent thinking. Autonomy encourages people to give their best.
Decentralized organisation structure allows more creativity among the employees.
General controls and flexible job definitions and responsibility structure allows
freedom which is favourable for creativity. Professional management is required
for effective coordination and proper implementation of innovations. A flat
organization has been suggested for innovative thinking. Few hierarchical levels
facilitate free interaction and communication in the organization. Team management Business
Entrepreneurship - I 164
Creativity, Innovation and is supposed to facilitate innovation. Teams are cohesive, self-contained and flexible.
Entrepreneurship The participative spirit encourages experimentation and innovation. Further, flexible
organization structure is suggested for innovation. Functions like research,
development, strategic management, organization development are critical for
innovation. The organization structure must ensure that the critical functions are
NOTES
performed. Divisional and matrix type of organization structure facilitates diversified
portfolio of products, activities which is required for a creative organization.
Creative individuals make enterprises creative with their creative ideas.
Entrepreneurs should encourage creativity and recognize the efforts made by the
employees. There is a need to encourage and appreciate the individuals who initiate
creative endeavors, bring out creativity through their tasks. There is a need to
build up a culture of innovation, experimentation and effective execution of
innovations. Dissemination of information about mission, purpose, goals,
opportunities, threats and performance is a must for promotion of an innovative
culture. Those who show good performance by means of innovation should be
rewarded.
Money, position, perquisites motivate people to be creative. Challenging
people to be innovative, giving them freedom, a sense of responsibility, a chance to
achieve something unique and significant, an opportunity to contribute something
to organization, society etc promote creative spirit among individuals. Brainstorming
sessions, suggestion systems play an effective role to promote creativity in an
enterprise. Open and flexible communication channels facilitate creative spirit.
Flexible organisation structure, freedom to discuss ideas and autonomy to execute
those as is required for promoting creativity.

BOX 9.1

Ten Secrets For Leading Creativity


Leaders at innovative companies know that their roles in stimulating
creativity and establishing a culture that embraces ad encourages creativity
are vital. Katherine Catlin, founder of a consulting firm specializing in leadership
and innovation, has identified the following characteristics exhibited by leaders
of innovation.
1. They think. These leaders invest time in thinking because they
recognize the power of their own creativity and the ideas it generates.
2. They are visionaries. These people are totally focused on the values,
vision and mission of their companies and express them through their
companies products and services as well as through its culture. They
are able to communicate to others exactly what they want to
accomplish.
3. They listen to customers. They recognize that customers or potential
customers can be a valuable source of new ideas for product or service
development and improvement, sales techniques, and market
positioning.
4. They understand how to manage ideas. As they search for new ideas
and creative solutions, these managers look to a variety of sources
customers, employees, the board of directors and even their own
dreams.
5. They are people-centered. These leaders hire people for their creative
Business
abilities and tem place them in a setting that enables that creativity to
Entrepreneurship - I 165
blossom. They see their employees and their employees ideas as an Creativity, Innovation and
important part of their companies competitive edge. Entrepreneurship

6. They maintain a culture of change. These leaders do not simply manage


change; they embrace it. They seek out change, recognizing that there
NOTES
is a constant need to improve.
7. They maximize team synergy, balance, and focus. Realizing that
teamwork fosters creativity and innovation; these leaders bring together
people from diverse backgrounds into teams to maximize their companies
creative output.
8. They hold themselves and others accountable for extremely high
standards of performance. These leaders demand results of the highest
quality from themselves and their employees and are unwilling to settle
for anything less.
9. They prefer to take no for an answer. These leaders persist in the
face of adversity even when others say it cannot be done.
10. They love what they do and have fun doing it. These leaders passion
for their work is contagious, empowering everyone on the organization
to accomplish everything they possibly can.
Source: Katherine Catlin, 10 Secrets to Leading Innovation,
Entrepreneur. September 2002, p.72

9.8 Enhancing Creativity


What separates the average person from Edison, Picasso, or even
Shakespeare isnt creative capacity its the ability to tap that capacity by
encouraging creative impulses and then acting upon them. - Robert Epstein
People may not be born very creative. But creativity can certainly be
enhanced with proper environment and application of techniques meant for
enhancing creativity. Conducive corporate culture can encourage people to develop
and nurture new creative ideas. They should be given freedom and incentives for
fostering creative spirit. They should be provided with needed resources and tools.
Their creative efforts should be recognized by financial as well as non-financial
incentives such as money, increments, pay hike, promotion, praise, appreciation,
recognition, pat on the back, celebration etc.
Everyone is born creative. For developing the capacity to be creative,
there is a need of training. Reading books, attending seminars and workshops,
interacting with professionals, talking with customers are various ways to unleash
the creative potential.
Entrepreneurs can establish a corporate culture which is advantageous
for creativity and innovation. An innovative culture should be visible right from the
mission, objectives, philosophy and corporate policies. Entrepreneurs should clearly
communicate about their expectation of creativity from the employees. Their efforts
should be recognized. If unfortunately they make some mistakes or fail in their
attempts; they should not be punished. Entrepreneurs should be considerate about
their errors, mistakes and failures. There is a need to improve their self-confidence,
remove their fear of failure. Their curiosity should be encouraged. There is a need
to view at problems as challenges and opportunities for innovation. Business
Entrepreneurship - I 166
Creativity, Innovation and Diverse workforce fosters a culture of creativity. Employees from diverse
Entrepreneurship background, experience, skills, talent, interests, hobbies etc offer favourable base
for spread of creativity. Individuals come up with ideas, problem solving solutions,
suggestions on the basis of their experiences and background.
NOTES
Entrepreneurs should promote an environment of creativity in their own
enterprises. They have to enhance their own creativity by applying various
techniques.
To begin with, one has to believe in his/her creativity. One has to believe
the assumption that anyone can learn the technique of creative thinking. Begin to
talk with yourself at leisure. It is always advisable to keep a pen and a writing pad
ready to note the thoughts and promising ideas.
To be creative, relaxation is vital. Mind needs stimulation. Listen to music.
Go for a nature walk. Listen to people. Play with children. Observe others.
In addition to these guidelines, a number of techniques are widely used to
stimulate creative thinking. The most widely used technique is brainstorming
developed by Alex Osborn. It is a group technique but it can also be used by
individuals. It is based on the principle that quantity of ideas brings quality and to
get many ideas it is necessary to suspend evaluation of ideas during the idea
generation phase. Brainstorming generates a large number of ideas since in
brainstorming sessions the major principle is - quantity is important and not quality.
The ideas generated through the brainstorming sessions are not judged or evaluated.
There is no need to look into the relevance of the ideas or their suitability.
Attribute analysis, developed by Crawford, is a technique that combines
the convergent thinking principle of forming categories with the brainstorming
principle of generating many alternative solutions. An attempt is made to generate
alternative ways of satisfying the major characteristics a product or activity must
possess.
Synectics, a group technique, specializes in using a variety of analogies in
problem-solving. There are four chief ones. The first one involves discussing an
analogy of the problem situation from a very different field. The second, called
personal analogy, requires the problem solver to project him/her into a situation
and report what he/she experiences. The third analogy is fantasy analogy in which
the person is asked to release his/her imagination from real-life constraints and in
effect daydream. The fourth analogy is called book title and requires the members
to furnish pithy but poetic or paradoxical phrases for a situation.
Another technique that can be combined with any of the above three
techniques described above is the one of checklist of questions. The checklist of
questions is designed to refine a solution.

9.9 Summary
Creativity, innovation and entrepreneurship play an instrumental role in
contributing to economic growth. Entrepreneurship is an untrodden path. To travel
on this is not without challenges, risks, uncertainties and pressures. The
entrepreneur has to think, act and behave differently, innovatively in a creative
manner. He/she has to make smart guesses and informed predictions about
environmental happenings, market demand and customer response.
Creativity has been viewed as construction of ideas or products which
are new and potentially useful. Entrepreneurial creativityBusiness
is necessarily associated
Entrepreneurship - I 167
with innovation, monetary incentives and social objectives. Creativity enables Creativity, Innovation and
entrepreneurs to sense and exploit opportunities which result due to changes in Entrepreneurship
the environment. Business ideas can be located internally or externally.
Entrepreneurs are inclined to search and select potential solutions based in part by
internal competencies. NOTES
Peter Druckers entrepreneur always searches for change, responds to it
and exploits it as an opportunity. He/she accepts change in the normal routine
working and exploits it as an opportunity. Drucker views entrepreneurship as a
creative and innovative response to the environment.
Creativity and innovation is crucial for each and every phase of
entrepreneurship. Especially for idea generation and project identification phase,
creative thinking is of immense use.
Creative individuals make enterprises creative with their creative ideas.
Along with individuals, enterprises are also required to be creative and innovative.
Creativity can certainly be enhanced with proper environment and
application of techniques meant for enhancing creativity.

9.10 Key Terms


Creative thinking: A way of looking at problems or situations from a
fresh perspective that suggests unorthodox solutions (which may look
unsettling at first); creative thinking involves students in earning to
generate and apply new ideas in specific contexts, seeing existing
situations in a new way, identifying alternative explanations, and seeing
or making new links that generate a positive outcome.

9.11 Questions and Exercises


Questions
1. Discuss the relationship between creativity, innovation and
entrepreneurship.
2. How would you select a business idea?
3. Explain the differences among creativity, innovation and
entrepreneurship.
4. Describe the importance of creativity and innovation for the survival
and success of a business.
5. Can creativity be taught? Is it an inherent trait? Explain.
6. What can entrepreneurs do to enhance their own creativity and to
encourage it among the employees?
7. What is meant by creative thinking?
8. What is the role of creativity and innovation in project identification?
9. What is meant by a creative enterprise? Discuss.
10. Write in detail about the theory of entrepreneurship and innovation Business
propounded by Peter Drucker. Entrepreneurship - I 168
Creativity, Innovation and Exercise
Entrepreneurship
1. Select a few business ideas which are suitable for you.

Multiple Choice Questions NOTES


1. Successful entrepreneurship requires
i. Right brain thinking
ii. Left brain thinking
iii. Both left-and right-brained thinking
iv. None of the above
2. There is a need of for promoting
creativity.
i. Open communication channels
ii. Flexible organization structure
iii. Freedom to discuss ideas
iv. All the above
3. Which of the following alternatives is wrong?
i. Diverse workforce fosters a culture of creativity.
ii. One has to believe in his/her creativity
iii. Anyone can learn the technique of creativity
iv. Rich people are more creative
4. Which of the following is needed for fostering creativity in organizations?
i. Freedom to discuss ideas
ii. Autonomy to execute ideas
iii. Both i and ii
iv. None of the above
5. Which of the following alternatives is not true?
i. People become creative by external pressure
ii. People become creative when they feel motivated by interest
iii. Creativity can be attributed to a persons desire to do something unique
iv. A drive to crack a problem that no one is able to solve drives a
person to become creative

Business
Entrepreneurship - I 169
Answers Creativity, Innovation and
Entrepreneurship
Check Your Progress

1. Innovation and Entrepreneurship


NOTES
3. Creativity, innovation

Multiple Choice Questions


1. iii
2. iv
3. iv
4. iii
5. i

9.12 Further Reading


Hisrich Robert D., Peters Michael P., Shepherd Dean A., Entrepreneurship,
Tata McGraw Hill Education Pvt. Ltd., New Delhi, 2010
Khandwalla Pradip N., Fourth Eye Excellence through Creativity, Wheeler
Publishing, New Delhi, 1988
Taneja Satish, Entrepreneurship Development, Himalaya Publishing House,
Mumbai, 2010
Trott Paul, Innovation Management and New Product Development,
Pearson, New Delhi, 2011
Zimmerer Thomas W., Scarborough Normon M., Wilson Dough, Essentials
of Entrepreneurship and Small Business Management, PHI Learning, New Delhi,
2011

Business
Entrepreneurship - I 170
Motivation Theories
UNIT 10 : MOTIVATION THEORIES

NOTES

Structure

10.0 Introduction
10.1 Unit Objectives
10.2 Motivation
10.3 Motivation Theories
10.3.1 Abraham Maslows Need Hierarchy Theory
10.3.2 Douglas McGregors X & Y theory
10.3.3 Frederick Herzbergs Motivation-Hygiene Theory
10.3.4 McClellands Achievement Motivation Theory
10.3.5 Clayton Alderfers Existence, Relatedness and Growth Theory
(ERG)
10.3.6 Victor Vrooms Expectancy Theory
10.3.7 Porter and Lawler Model of Motivation
10.4 Summary
10.5 Key Terms
10.6 Questions and Exercises
10.7 Further Reading

10.0 Introduction
No organization can succeed without highly motivated and committed team
of employees. Motivation is a widely talked-about topic. It is the most powerful
tool for getting things done through people. The performance of a team depends
upon ability, motivation and the environment both at the workplace and at home-
of the team members. There is an enormous impact of motivation on the behavior
and performance level of the employees. A lot of research has been done on
motivation and many theories have been developed. Some of these theories are
discussed in this unit.

10.1 Unit Objectives


After studying this unit, you will be able to
Learn meaning of motivation
Understand the process of motivation
Discuss various theories of motivation
Business
Entrepreneurship - I 171
Motivation Theories
10.2 Motivation
The term motivation has been derived from the word motive which
means any idea/ need/ emotion/force which puts an individual into a specific action.
It is an inner state of mind that directs our behavior towards goals. The stimulus NOTES
for action or behavior depends on the motive. No movement takes place in a
person until his/her motivation forces him/her to do so. A person remains in a state
of inertia until he/she is motivated to do an act.
Whatever may be the behaviour of the individual, there is some stimulus
behind it. Stimulus is dependent upon the motive of the person concerned. Motive
can be known by studying his/her needs and desires. Different motives operate at
different times among different persons and lead to different types of behaviour.
There is no universally accepted theory which can explain the factors influencing
motives controlling their behavior. The process of motivation analyses the motives
of individuals which cause different types of behaviour.
Motivation may be defined as the process that directs a person into action
and induces him/her to continue a course of action for achievement of goals.
According to Dalton E. McFarland, Motivation refers to the way in which urges,
drives, desires, striving, and aspirations or needs direct, control or explain the
behavior of human beings. Motivation is something that moves a person to action
and keeps him/her in the course of action already initiated. People who are
motivated exert a great deal of efforts to perform in an excellent manner than
those who are not motivated.
Motivation represents an inner drive within an individual which directs
him/her to behave in a specific way. Motivation plays a crucial role in determining
the level of performance. A person is considered to be motivated if his/her
performance exceeds expectations. Only highly motivated employees can achieve
goals of an organisation. Without motivation, employees may not put their best
efforts. Allen said, Poorly motivated people can nullify the soundest organisation.
Higher the level of motivation, greater is the degree of goal accomplishment. By
satisfying human needs, motivation helps in increasing productivity. Effective
motivation creates job satisfaction which results in cordial relations between
employees and management. Effective motivation helps to overcome resistance
to change and negative attitude. Satisfied employees always welcome change.
They take interest new changes in the organisation.
Need is the starting point of motivation. An unsatisfied need creates tension
in individuals which drives the individual to behave in a particular way which can
satisfy his/her needs. Performance if leads to rewards which can satisfy the needs
and reduce tension; otherwise, if the needs are not satisfied or partially satisfied
then search for a different behavior may continue. It is an ongoing process since
human needs, goals are never completely satisfied.
Need can be defined as a condition requiring supply or relief, the lack
of anything requisite, desired or useful. A need, a feeling that something is required,
creates tension in mind and transforms itself into want depending upon environment.
This tension is released when this particular need is satisfied by certain behaviour
again in the environment, that is, incentives exist to satisfy the needs. Behavior
ends the moment tension is released. However, satisfaction of one need leads to
feeling another either of different need or the same need after some time. This
process is continuing one. However, if the need is not satisfied because of some
reasons the person may feel frustration i.e. accumulation of tension due to non- Business
Entrepreneurship - I 172
Motivation Theories fulfillment of needs. Now the person will try to eliminate the factors responsible
for non-fulfillment of needs and accordingly modify his/her behaviour. However,
some of the factors responsible for non-fulfillment of his/her needs may be beyond
his/her control. He/she may not be able to eliminate frustration through need
satisfaction. But he/she will try to bring him/her back by alternative
NOTESbehaviour
because frustration is not an ideal position for him/her.
In this manner the person would try to eliminate factors responsible for
non-fulfillment of his/her need by modifying his/her behaviour. The factors which
come in the way of goal achievement may be beyond his/her control. In that case
he/she fails to control these factors and frustration remains. There will be variations
in the behavior which can be generalised.
As seen from the figure 10.2, the following types of reactions to non-
satisfaction of needs are seen:

Fig. 10.1: Motivation Process


Environment
Opportunity

Check Your
Progress Needs and
drives Tension Effort Rewards

1. Define entrepre-
neurship. How is it dif- Goals and Ability
ferent from the word Incentives

entrepreneur?
Needs and
Satisfaction

Figure 10.2: Reactions to non-satisfaction of needs

If needs are not satisfied, the probable reactions to non-satisfaction of


needs are as described below:
Flight i.e. to leave the field or withdraw from the scene. One of the ways
to avoid frustration is to withdraw from or avoid situation which will prove frustrating.
The withdrawal may be physical i.e. leaving the scene but more likely it will be
expressed as apathy.
Apathy i.e. showing indifference. Employees whose jobs provide little
need satisfaction may withdraw which will be reflected by excessive absence,
turnover etc.
Aggression i.e. an act against someone or something. In some cases
Business
aggression may take the form of a direct attack on the source of the frustration
Entrepreneurship - I 173
Unfortunately aggression is often directed towards another object or party unrelated Motivation Theories
to the cause of frustration.

10.3 Motivation Theories NOTES

Human beings always endeavor to understand the process of motivation.


In spite of several research studies and continuing work on human motivation,
commonly agreed, acceptable and satisfactory answer is not found yet.
Generalization in the form of universally applicable theory is not possible due to
complex nature of human beings. The findings of various research studies and
theories are found to vary depending upon time, situational conditions and country.
Researchers are interested to know what motivates people. They have
been adopting different approaches and developing a number of motivation theories.
Theories of motivation explain human motivation through analysis of human needs,
human nature and human behavour.
Motivation in general is an important determinant of entrepreneurial
development and growth in the society. With reference to entrepreneurial behavior,
the most relevant theories are discussed below which highlight what enhances
willingness to work:
To understand motivation, some of the early theories of motivation i. e
.Abraham Maslows Need Hierarchy Theory, Douglas McGregors X & Y theory,
and Frederick Herzbergs Motivation-Hygiene Theory etc need to be learnt. These
theories are old, but they provide a solid foundation on which contemporary theories
have been developed.

10.3.1 Maslows Need Hierarchy Theory


The behavior of an individual is determined by his/her need at that time.
According to psychologists, needs have a certain priority. As the basic needs are
satisfied, an individual seeks to satisfy the higher needs.
Abraham H. Maslow, an eminent American psychologist and a famous
social scientist, propounded a general theory of motivation named Need Hierarchy
theory. According to Maslow, motivation of an individual depends upon his/her
individual needs. These needs operate along a hierarchy and once a lower level
need is satisfied, individuals would like to satisfy next higher level need in the
hierarchy. An unsatisfied need is the starting point in the motivation process. He
identified five needs as discussed below:
Physiological needs: The needs that are taken as the starting point for
motivation theory are the physiological needs. These needs relate to the survival
and maintenance of human life. These needs include food, clothing, shelter, air,
water and other necessities of life. These needs are basic to human life, they
influence human behavior. These needs have the highest strength until they are
reasonably satisfied. Until these needs are reasonably satisfied, majority of an
individuals activities will be directed for satisfaction of these physiological needs
and other need levels will provide him/her with little motivation. Being a human
an entrepreneur tries to meet the basic physiological needs for survival. He/she is
motivated to work in an enterprise for the sake of money to meet these basic
needs. These needs must be satisfied repeatedly on priority basis.

Business
Entrepreneurship - I 174
Motivation Theories Safety and Security needs: After satisfying the lowest level physiological
needs to a reasonable level, next need category is safety needs. These comprise
of economic security and protection from physical dangers, and emotional harm
or self-preservation. After satisfying physiological needs partially full satisfaction
of these needs is not necessary and degree of satisfaction is subjective
NOTES-, people
want assurance of maintaining a given economic level.
For meeting these needs, an entrepreneur is motivated to work more in
his/her enterprise. These needs are finite. Like physiological needs, these needs
become inactive once they are satisfied.
Social needs: These refer to belongingness, affection, acceptance and
friendship. Human beings want to be recognized, loved and accepted by others.
As a social being, an individual has a need to belong and be accepted by various
groups. After the first two needs are satisfied, social needs become important in
the need hierarchy. The individual will strive for meaningful relations with others.
An entrepreneur is motivated to interact with other entrepreneurs and
other societal members. He/she takes pleasure in membership of various
associations.
Ego/Esteem Needs: These refer to self-esteem, self-respect, self-
confidence, achievement, competence, knowledge, autonomy and independence.
He/she desires to gain attention, respect, reputation, status, recognition and
appreciation from others. Esteem needs are concerned with a feeling of being
unique, feeling of personal worth. Satisfaction of esteem needs creates self-
confidence, power, control and prestige. Satisfaction off esteem needs is not always
through mature or adaptive behavior. Sometimes it is generated by irresponsible
and disruptive behavior. Some of the social problems are due to frustration of
esteem needs.
An entrepreneur through his/her enterprise satisfies his/her esteem needs
by means of status, respect, reputation and independence.
Self-Actualization need: This refers to the need to maximise ones potential,
whatever it may be. It is a desire to become what one is capable of becoming.
This refers to self-fulfillment. The term self-actualization was coined by Kurt
Goldstein. It means to become actualized in what one is potentially good at. A
person with high need for achievement will be restless unless and until he/she
seek situations that can utilize his/her potential.
An entrepreneur may achieve self-actualization in being a successful
entrepreneur. He/she creates enterprise for the sake of self-fulfillment.
Maslows need hierarchy consists of five types of needs arranged in
hierarchy from lowest to highest category. The satisfaction of physiological needs
which are the most fundamental, results in the safety need becoming more
powerful and felt by the individual. Once these are satisfied, the need for belonging
becomes uppermost and consequently, the needs for esteem and self-
actualization come into play. In this manner, after reasonable satisfaction of lower
order needs, the next higher level needs emerge. If one need is partially satisfied,
another need emerges. Once a need is satisfied it ceases to be a motivating factor.
A satisfied need is not a motivator of behavior. For entrepreneurs it is mainly
social, esteem and self-actualization needs which motivate them to work more
and more for their satisfaction.
Business
Entrepreneurship - I 175
Maslow further suggests that these levels are independent and overlapping. Motivation Theories
Each higher level need emerges before the lower needs have been completely
satisfied. One need does not disappear when another emerge, all needs tend to be
partially satisfied in each area. When the peak of a need is passed, that need
ceases to be primary motivator. The next level need then begins to dominate. NOTES
Even though a need is satisfied, it still influences behaviour since the needs are
interdependent and overlapping. In our society, most people tend to be partially
satisfied in each need area and partially unsatisfied, and have higher satisfaction
at lower-need level than at higher-need levels.

Fig. 10.3 Maslows Need Hierarchy

Check Your
Progress

1. Distinguish between
esteem needs and self-
actualization needs.

2. Social needs are also
called ____________
3._______________
There are some problems in need hierarchy theory. It may not apply at all comprise the highest
times in all places. The need hierarchy may not follow the sequence postulated by level needs in Maslows
Maslow. Some people may be deprived of their lower order needs but still may try Need Hierarchy Theory.
for self-actualization needs. Even if safety need is not satisfied, social need may
emerge. For some people, need for self-esteem is more prominent than that of
love. For creative people, the drive for creativeness seems to be more important.
Another cause of reversal of need hierarchy is that when a need has been satisfied
for a long time, it may be under-evaluated.
Assumption that one need is satisfied at one time is of doubtful validity.
The phenomenon of multiple motivations is important in understanding human
behavior. Human behaviour at any time is mostly guided by multiplicity of motives.
One or two motives in any situation may be strong while others may be less
powerful. Moreover, at different levels of needs, the motivation will be different.
A person tries for his/her higher level need when his lower order needs
are reasonably satisfied. What is this reasonable level is a question of subjective
matter. The level of satisfaction for particular need may differ from person to
person. Needs and their satisfaction are mental feelings. Sometimes even the
person concerned may not be aware about his/her own needs. It is difficult to
know about the needs of others.

10.3.2 Douglas McGregors X & Y Theory


Douglas McGregor in his book Human Side of the Enterprise proposed
two distinct views and assumptions about human behaviour.
Theory X is the traditional theory of human behavior. In this theory,
McGregor has certain assumptions about human behavior. These assumptions are: Business
Entrepreneurship - I 176
Motivation Theories 1. The average human being has an inherent dislike of work and will
avoid it if he can.
2. Because of this human characteristic of dislike of work, most people
must be directed and threatened with punishment to get them, to put
NOTES
forth adequate efforts towards the achievement of organizational
objectives.
3. The average human being prefers to be directed, wishes to avoid
responsibility, has relatively little ambition, and wants security above all.
According to McGregor, this is a traditional theory regarding workers
nature and with these assumptions the managerial role is to coerce and control
employees. But McGregor himself says, The conventional approach of theory X
is based on mistaken notions of what cause is and what is effect. The assumptions
contained in theory X do not reveal the true nature of human beings. He thinks
that assumptions included in theory Y are more valid percepts of human nature.
These assumptions are:
1. The expenditure of physical and mental effort in work is as natural as
play or rest. The average human being does not inherently dislike work.
Depending upon controllable conditions, work may be a source of
satisfaction or a source of punishment.
2. External control and threat of punishment are not the only means for
bringing about efforts towards organization objectives. Man will exercise
self-direction and self-control in the services of objectives to which he is
committed.
3. Commitment to objectives is a function of the reward associated with
their achievement.
4. The average human being learns, under proper conditions, not only to
accept but to seek responsibility. Avoidance of responsibility, lack of
ambition and emphasis on security are generally the consequences of
experience, not inherent in human characteristics.
5. The capacity to exercise a relatively high degree of imagination, ingenuity,
and creativity in the solution of organizational problems is widely, not narrowly,
distributed in the population.
With these assumptions, the managerial role is to develop the potential in
employees and to help them in releasing that potential towards common objectives.
McGregor himself believed that theory Y assumptions are more valid than
theory X. Accordingly he proposed various ideas like participation in decision
making, responsible and challenging jobs, and good group relations as approaches
that would maximize an employees job motivation while theory X places exclusive
reliance on external control of human behaviour.
Some people respond better to theory X pattern of motivation than to
theory Y pattern, and that in a particular situation either theory X or theory Y
assumptions both may prove appropriate in motivating people.

10.3.3 Frederick Herzbergs Motivation-Hygiene Theory


Frederick Herzberg of Case-Western Reserve University and his
associates conducted a research study regarding attitudesBusiness
of people towards their
Entrepreneurship - I 177
work. The idea of the research was to test the concept that man had two sets of Motivation Theories
needs which can be described as human needs and animal needs. His needs as
an animal were to avoid physical pain and deprivation while his need as a human
being was to grow psychologically. Herzberg conducted interviews of 200 engineers
and accountants in Pittsburgh, U.S. They were asked regarding events in their NOTES
work career which had either resulted in a marked improvement or a significant
reduction in job satisfaction. They were asked to recall specific incidents in their
experience which made them feel either particularly good or particularly bad about
their jobs. They were also asked to rate the degree to which their feelings were
influenced for better or worse- by each experience which they described. The
results of the study indicated that there were two distinct sets of factors which
Herzberg termed as hygiene factors and motivators. For the respondents, the real
motivators were opportunities to become more expert and to handle more demanding
assignments. Hygienic factors prevent loss of money and efficiency. Hygienic factors
provide no motivation but the absence of these factors serves as dissatisfied.
Some job conditions operate primarily to dissatisfy employees when the
conditions are absent, but their presence does not motivate employees in a big
way. Many of these factors are perceived by management as motivators, but they
are really stronger as dissatisfiers. These potent dissatisfiers are called maintenance
factors in jobs. They are necessary to maintain a reasonable level of satisfaction
among employees. They are also known as dissatisfiers or hygiene factors or
maintenance factors because they support employees mental health.
Motivational factors are those job conditions which operate primarily to
build strong motivation and high job satisfaction, but their absence rarely proves
strongly dissatisfying. The motivators or factors which strongly determine job
satisfaction were achievement, recognition, responsibility, advancement, possibility
of growth and work itself. Most of these are related with job contents. An increase
in these factors will satisfy employees; however, any decrease will not affect their
level of satisfaction. These factors are capable of having a positive effect on job
satisfaction often resulting in an increase in ones total output. These increase
level of satisfaction in employees; these can be used in motivating them for higher
output.
The hygiene factors were company policy and administration, technical
supervision, salary, interpersonal relationship with peers, interpersonal relationships
with supervisors, interpersonal relationship with subordinates, job security, personal
life, status, and working conditions. These are not intrinsic parts of a job, but they
are related to conditions under which a job is performed. These maintenance
factors are necessary to maintain a reasonable level of satisfaction in employees.
The motivational factors or the motivators were the satisfier factors, as
they appeared very infrequently while the respondents were describing events
causing job satisfaction feelings. The hygiene factors were dissatisfiers which
served to bring about job dissatisfaction and rarely involved events which led to
positive job attitudes. Unlike satisfiers, improvement in such factors resulted in
short-term changes in job attitudes. Both the hygiene factors and the motivators
are important in a work situation, motivators are more important in improving
behavior which would result in superior performance. Herzbergs theory is referred
to as Motivation-Hygiene theory or Two Factor Theory.
No early theory of motivation could be supported by recent research. And
there is emergence of various contemporary theories which are reasonably
supported by research findings. Some of the widely accepted contemporary theories
Business
are David McClellands Achievement Motivation Theory, Clayton Alderfers Entrepreneurship - I 178
Motivation Theories Existence, Relatedness and Growth Theory (ERG), Victor Vrooms Expectancy
Theory. These theories explain motivation in the current scenario.

10.3.4 David McClellands Achievement Motivation Theory


The acquired-needs theory developed by David McClelland NOTES
is outlined in
his 1961 publication. This theory, also called as McClellands theory of needs or
three needs theory or learned needs theory, proposed that an individuals needs
are acquired over time and are shaped by ones early life experience. According
to David McClelland, most of human needs and /or motives can be classified as
achievement, affiliation and power. A person acquires three types of needs as a
result of ones life experience. These basic motivating needs are need for affiliation
(N-Aff), need for power (N-Pow), and need for achievement (N-Ach). He found
that a persons motivation and effectiveness in certain job functions are influenced
by these three needs. The importance of a particular need depends upon the
position.
Later on, McClelland added a fourth need-avoidance. The avoidance
motive comprises of fear of failure, fear of rejection, fear of success. People, due
to high avoidance need, tend to avoid situations and people with which they have,
or expect to have, unpleasant experiences.
Need for Affiliation (N-Aff): Human beings like to interact and be with
others in situations where they feel they belong and are accepted. Need for
affiliation refers to establish and maintain friendly and warm relations with others.
It reflects a desire to interact socially with people, enjoying a sense of intimacy
and understanding. Sometimes affiliation is equated with social motive. However,
affiliation is not so broad. Some behavioural scientists believe that it is an unlearned
motive. Persons with high N-Aff take pleasure in warm interpersonal relationships.
They maintain social relationships. They love others and wish to be loved by others.
They want to be liked and feel accepted by other people. They tend to avoid the
pain of being rejected. They enjoy being part of a group. They tend to conform to
the norms of the group. They enjoy supporting others and helping them in trouble.
They prefer cooperation over competition.
People with high N-Aff prefer work that offers substantial personal
interaction and depends on successful relationships with others. They are concerned
with whether people like them or not than whether they are performing well or
not.
McClelland regarded a strong need for affiliation as undermining the
objectivity and decision making ability needed in management.
Need for Power (N-Pow): Power is the ability to induce or influence
behavior. Alfred Adler advocated the power motive: - it refers to ones desire to
dominate and influence others. The need for power (N-Pow) is a desire for
authority, to be in charge. It takes two forms personal and institutional. Those
who desire personal power want to direct others. This need often is perceived as
undesirable. Those interested in institutional power, also known as social power,
want to organize the efforts of others to further larger goals. Managers with a
high need for personal power may become dysfunctional as their focus is on
directing others rather than on companys goal achievement. Persons with a high
need for institutional power tend to be more effective than those with a high need
for personal power. They fulfill their need by fulfilling institutional goals.

Business
Entrepreneurship - I 179
A person, with high N- Pow believes in positions of authority, and strives Motivation Theories
to acquire and exercise power and authority. He/she is interested in influencing
others and winning arguments. Such persons seek leadership in politics and enjoy
working with a large number of followers. They are dynamic, powerful, influential
and outspoken. NOTES
Need for Achievement (N-Ach): The need for achievement refers to
ones desire to accomplish something with own efforts, ones will to excel in his/
her efforts, the urge to improve. It is the extent to which and individual desires to
perform difficult and challenging tasks successfully. It is an intense desire to achieve,
to do well. It is an inner spirit that activates an entrepreneur to strive for success.
It motivates people to take risk. It stimulates behaviour of person to be an
entrepreneur.
People with a high need for achievement desire success and positive
feedback that is related to their performance on tasks. They seek to excel and
thus tend to avoid both low-risk and high-risk situations. They avoid low-risk
situations because for them easily attained success is not genuine achievement;
they attribute it to the ease of the task not their own effort. Similarly, they avoid
high-risk situations regarding success as the result of their chance not their
competence. They like to work alone or with other high achievers. McClelland
suggested that high achievers make good leaders, although they tend to expect
others also result driven like them and anticipate too much from others. Their
aggressive realism makes them successful.
McClelland noted that people generally have all three needs. However,
one need tends to be dominant which depends upon their personality characteristics
and situational experiences.
McClelland suggests that these three needs may simultaneously act on an
individual. For an entrepreneur, the need for achievement is the most prominent
and dominating one. In his words, Need for achievement is the desire to do well
not so much for the sake of social recognition or prestige but for the sake of an
inner feeling of personal accomplishment. In his view, people with high need for
achievement are characterized by the following:
1. They set moderate, realistic and attainable goals for them. Moderate
risk taking is the most descriptive characteristic of high achievers.
2. They prefer situations in which they can find solutions for solving personal
responsibility.
3. They need concrete feedback on their performance. Persons with high
achievement need desire activities which provide immediate and precise
feedback information about progress towards a goal.
4. They have need for achievement for attaining personal accomplishment.
They take intrinsic pleasure in accomplishing a task. They do not expect
or necessarily want accompanying material rewards
5. They look for challenging tasks. They are characterised by fully dedicated
commitment. They will not be satisfied unless they put their maximum
efforts in completing the task. Once a high achiever selects a goal, he/
she tend to be totally committed to the task until it is successfully
completed.
According to the research conducted by McClelland and other, managers
show high on achievement and power and low on affiliation. The research findings
Business
also indicate that chief executives of smaller companies show higher achievement Entrepreneurship - I 180
Motivation Theories motive as compared to those of large companies. Middle level managers have
higher N-ach as compared to the chief executive. This seems to be contradictory
but McClelland feels that it is quite understandable because chief executives have
already arrived, and those below them are striving to advance.
NOTES
People with high achievement motives like to take calculated risks and
want to win. They are not gamblers. They are not afraid to take risk. Rather, they
Check Your calculate the degree of risk and select moderate risk options. High achievers strive
Progress for personal achievement rather than rewards of success. They want to do
something better and more efficient. People with high need for achievement behave
4.Distinguish between in an entrepreneurial way.
need for power and
10.3.5 Clayton Alderfers Existence, Relatedness and
need for achievement.
Growth Theory (ERG)
5. What do you know ERG theory is based on human needs. It is a modification of Maslows
about need for theory. Clayton Alderfer came out with a revised need hierarchy. He propounded
affiliation? three basic groups of core needs i.e. existence, relatedness and growth and labelled
the theory as ERG theory.
Existence needs: Physiological and safety needs explained by Maslow
are considered here as needs for existence. Human beings have basic material
requirements for existence such as food for hunger, water for thirst, sufficient rest
for sleep, house for shelter etc. The existence group of needs is concerned with
providing basic existence requirements.
Relatedness needs: Social and ego or esteem needs of Maslow are
considered as relatedness i. e the desire to maintain interpersonal relationships by
an individual in the society. Every human being is interested in healthy and
meaningful interaction with others. The relatedness needs are concerned with the
desire for maintaining important interpersonal relationships.
Growth needs: Human beings have an intrinsic desire for personal development.
These include the characteristics included by Maslow in esteem needs and self-
actualization needs.

According to ERG theory, there are three levels of needs; more than one
need may be operative at the same time. If the individuals higher level need is
impeded, then he/she thinks of increasing the lower level need. If social needs
remained unsatisfied then his/her desire for more money and better working
conditions may increase. Non-satisfaction of higher level needs may lead the
individual to increase lower level needs. Thwarting of need is known as frustration.
The ERG theory contains frustration, regression dimension. The frustration at
higher level needs can lead regression to lower level needs.

ERG theory is concerned with the same needs as Maslows. It views the
needs as operating in different ways. The ERG needs are not rigidly hierarchic.
Maslow realises that once a need is satisfied, it no longer motivates the individual.
According to Alderfer if for some reason people continually become frustrated in
trying to satisfy their needs at one level, their next lower level of needs will emerge
and peoples desire to satisfy a lower level need will increase. He also suggests
that more than one need may be activated at the same time and may be operating
simultaneously.

Business
Entrepreneurship - I 181
Motivation Theories
Figure 10.4 : ERG Model

NOTES

Check Your
Progress

6. ERG stands for ----

10.3.6 Vrooms Valence Expectancy Theory


Vroom offered an expectancy approach to understanding of motivation.
Expectancy theory essentially emphasizes that motivation is increased if the
individual perceives that his effort will result in successful performance and
successful performance leads to desired rewards. According to him, people will
be motivated to do things to achieve some goals to the extent that they expect
certain actions on their part will help them to achieve the goal. Vrooms model is
built around the concepts of value, expectancy and force. A persons motivation
towards an action at any time would be determined by his/her anticipated values
of all the outcomes of the action multiplied by the strength of that persons
expectancy that the outcome would yield the desired goal. Vrooms concept of
force is basically equivalent to motivation which is a product of the anticipated
worth to a person of an action and the perceived probability that the persons
goals would be achieved. The theory may be expressed by the following formula:
Motivation (force) = Valence x Expectancy
Force is the strength of a persons motivation. Valence is the strength of an
individuals preference for an outcome. Expectancy is the probability that a
particular action will lead to a desired outcome.
Valence means the strength of an individuals preference to a particular
outcome. Other terms used in various theories off motivation are incentive, attitude,
and expected utility. In order for the valence to be positive for individual, he/she
must prefer attending the outcome to not attending it; a valence of zero occurs
when the individual is indifferent toward the outcome; and the valence is negative
when the individual prefers not attaining the outcome to attaining it.
Expectancy is the probability that a particular action will lead to the
outcome. The strength of motivation to perform a certain act will depend upon the
sum of the products of the values for the outcomes times the expectations.
Vrooms theory recognizes individual differences in work motivation. It
suggests that motivation is a complex process as compared to Maslows or
Business
Entrepreneurship - I 182
Motivation Theories Herzbergs simplistic models. It also clarifies the relationship between individual
and organisational goals.
Vrooms model explains how the goals of individuals influence their efforts
and that their efforts and that the behavior individuals select depends upon their
NOTES
assessment of the probability that the behavior will successfully lead to the goal.
Like Maslows and Herzbergs models, Vrooms model reveals that behaviour is
goal oriented.

10.3.7 Porter and Lawler Model of Motivation


Porter and Lawler proposed a complete model of motivation and applied
it to managers. The multivariate model explains the complex relationship between
job attitudes and job performance.
Vrooms expectancy model was further developed by Lyman W. Porter
and Edward E. Lawler. According to Porter and Lawler, performance leads to
satisfaction, rather than satisfaction leading to performance. They consider
motivation (effort), performance (accomplishment) and satisfaction as separate
variables. People used to believe that motivation leads to performance (task
accomplishment) which in turn leads to satisfaction. But according to them, these
relationships are not as simple and direct as they are thought to be.
Fig 10.5 Porter and Lawler Model of Motivation

Porter and Lawler start with the premise that motivation (effort or force)
does not equal satisfaction and/or performance. They point out that effort does
not directly lead to performance. It is mediated by abilities/traits and role perceptions.
The rewards that follow after performance and how these are perceived will
determine satisfaction. According to them satisfaction is a consequence of work
rather than cause of work.
The figure 10.5 shows that whether the individual will make an effort
depends on interaction between the value of reward and perceived probability
that effort would lead to the expected reward. Effort is the same as motivation. In
the form of equation, it may be written as
Business
Effort = value of reward x perceived effort reward probability
Entrepreneurship - I 183
Another feature of the theory is that performance is not a direct Motivation Theories
consequence of effort. It is a product of effort, individuals traits and his/her role
perception.
The various elements of this model are as follows:
NOTES
Effort refers to the amount of energy exerted by an employee on a given
task. Perceived-reward probability refers to the individuals perception of the
probability that differential rewards depend upon differential amounts of effort.
Efforts lead to performance but both of these may not be equal; rather,
performance is determined by the amount of effort and the ability and role
perception of the individual.
Performance is seen as leading to intrinsic as well as extrinsic rewards.
Intrinsic rewards are more likely to produce attitudes about satisfaction that are
related to performance. The perceived equitable rewards vitally affect the
performance-satisfaction relationship.
If actual rewards meet or exceed perceived equitable rewards, the
individual will feel satisfied; if these are less than equitable rewards, he/she will be
dissatisfied. Satisfaction is derived from the extent to which actual rewards fall
short, meet or exceed perceived level of equitable rewards.

10.4 Summary
Maslows theory is based on human needs. He classified all human needs
into five need-clusters. These need clusters in sequential priority from lower to
higher can be listed as physiological needs, safety and security needs, social needs,
esteem and status needs and at the highest level self-actualization needs. According
to Maslow, once the lower order needs are substantially satisfied, an individual
moves up the hierarchy and the next order of needs becomes prominent.
McGregor set forth two pairs of assumptions about human beings contained
in theory X and theory Y. These sets of assumptions were not based on any
research. They are, according to McGregor, intuitive deductions. Theory X is the
traditional theory of human behaviour. It insists that employees dislike work, they
are lazy, they dislike responsibility, and they must be coerced to perform. The
assumptions of theory Y suggest a new approach in management. It emphasizes
that employees like work, they are creative, they seek responsibility, and that they
can exercise self-direction.
Herzbergs motivation-hygiene theory examines the motives which seem
to have the strongest influence on behavior at work. According to Herzberg,
success or failure of an individual largely depends upon the persons attitudes
towards work/job. Hygienic factors or dissatisfiers include wages, fringe benefits,
physical conditions and overall company policy and administration. Their presence
at a satisfactory level prevents job dissatisfaction but they do not provide motivation
to employees. Motivational factors also known as satisfiers are essential for
increasing productivity of employees and include factors as recognition, feeling of
accomplishment and achievement, opportunity for advancement and potential for
further growth, challenging work etc.
David McClelland highlighted the importance of three basic needs to
understand motivation. They are achievement needs, affiliation needs, and power
needs. Achievement motivated people seek competitive situations in which they
can achieve results through their own efforts and which allow them to obtain Business
Entrepreneurship - I 184
Motivation Theories immediate feedback on their performance. They have an intense desire for success.
High achievers are characterised by restlessness and willingness to work for long
hours. Need for affiliation refers to the desire to maintain warm friendly relationship
with others. Affiliation motivated people maintain friendly interaction with others.
They strive to maintain pleasant social relationships. The need forNOTES
power refers to
the desire to be influential. Power motivated individuals assert themselves when
a decision needs to be made.
Clayton Alderfer propended three basic groups of poor needs i.e. existence,
relatedness and growth and labelled the theory as ERG theory. According to
ERG theory an individual can start working on growth needs even though his/her
existence or relatedness needs are unsatisfied; rather when an individual fails to
fulfil higher order needs, his/her desire to work upon a lower level need increases.
According to Victor Vroom, the tendency of a person to act in a certain
way depends upon the expectation of the likely outcome that act will generate and
on the attractiveness of that outcome to the individual. There is no universal
principal for explaining everyones motivations. There is a need to understand
goals of an individual, the linkage between efforts put in by the individual and
performers, between performance and rewards and the importance of rewards in
terms of goal satisfaction.
Porter and Lawler concluded that an individuals motivation to complete a
task is affected by the reward they expect to receive for completing the task.
They categorised reward as intrinsic and extrinsic. Intrinsic rewards are the positive
feelings that the individual experiences from completing the task. Extrinsic rewards
are rewards emanating from outside the individual.

10.5 Key Terms


Motivation: A reason or reasons for acting or behaving in a particular
way; motivation in management describes ways in which managers
promote productivity in their employees.

10.6 Questions and Exercises


Questions
1. Critically examine the Maslows theory of hierarchy of needs.
2. Explain the need achievement theory and its applicability to
entrepreneurship development.
3. Explain Porter and Lawlers Model in your own words. How
entrepreneurs can benefit from understanding this model?
4. What practical suggestions would you offer to an entrepreneur to motivate
his/her employees?
5. Explain Maslows hierarchy of need theory and relate it to Alderfers
ERG model? What are the similarities and differences?
6. Discuss McGregors theory X and Theory Y? What are their implications
for motivational practices?
7. Define motivation. Describe the motivation process and explain its
mechanism.
Business
8. Discuss Herzbergs Motivators-Hygiene Theory.
Entrepreneurship - I 185
9. Do you think this theory has made a contribution to better understanding Motivation Theories
of work motivation?
10. Write in detailed about McClellands Three Needs Theory.

Exercise NOTES

1. Meet an entrepreneur at his/her place of work and ask about his/her


approach of motivating the employees.

Multiple Choice Questions


1. Which of the following is not true about Hygiene Factor?
i. When present, help in preventing dissatisfaction but do not
increase satisfaction or motivation
ii. When absent increase dissatisfaction with the job
iii. Both i and ii are true
iv. Both i and ii are false
2. Select the wrong statement about motivators
i. When present lead to satisfaction and motivation
ii. When absent prevent motivation
iii. When absent increase dissatisfaction with the job
iv. When absent prevent satisfaction
3. Which of the following is not a motivator according to Herzberg?
i. Achievement
ii. Recognition
iii. Responsibility
iv. Interpersonal relations
4. are an individuals need to realize his/her full potential
through continuous growth and self-development.
i. Physiological needs
ii. Social needs
iii. Self-actualization needs
iv. Esteem needs
5. Which of the following is not an assumption of Theory Y?
i. The expenditure of physical and mental efforts in work is as natural
as play or rest
ii. The average human being has an inherent dislike of work and will
avoid it if he/she can
iii. The average human being learns, under proper conditions, not only
Business
to accept but to seek responsibility. Entrepreneurship - I 186
Motivation Theories iv. Commitment to objectives is a function of the reward associated
with their achievement.
6. is proposed by Clayton Alderfer.
i. Theory X, NOTES

ii. Theory Y
iii. ERG Theory
iv. Theory Z
7. need does not belong to the Three Needs Theory
of McClelland.
i. Security
ii. Achievement.
iii. Power
iv. Affiliation
8. The Expectancy Theory is propounded by
i. Maslow
ii. Vroom
iii. Alderfer
iv. Drucker
9. Theory X and Theory Y are associated with
i. Maslow
ii. McGregor
iii. Herzberg
iv. McClelland
10. Which of the following is not a social need?
i. Hunger
ii. Love and affection
iii. Friendship
iv. Sense of belonging

Answers
Check Your Progress
2. belongingness needs
3. Self-actualization needs
4. Existence, Relatedness, Growth Business
Entrepreneurship - I 187
Multiple Choice Questions Motivation Theories

1. iv
2. iii
3. iv NOTES

4. iii
5. ii
6. iii
7. i

8. ii

9. ii

10. i

10. Furthers Readings


Prasad L.M., Principles and Practices of Management, Sultan Chand &
Sons, New Delhi
Mehrotra Vivek, Why My Horse Doesnt Drink, Viva Books, New Delhi
Dr. Ghanekar Anjali, Organizational Behaviour, Concepts and Cases,
Everest Publishing House, Pune.
Singh Nirmal, Motivation Theories and Practical Applications, Deep
and Deep Publications Pvt. Ltd., New Delhi

Business
Entrepreneurship - I 188
Entrepreneurial
Motivation UNIT 11: ENTREPRENEURIAL
MOTIVATION
NOTES

Structure

11.0 Introduction
11.1 Unit Objectives
11.2 Entrepreneurial Motivating Factors
11.3 Achievement Motivation
11.4 Kakinada Experiment
11.5 Summary
11.6 Key Words
11.7 Questions and Exercises
11.8 Further Reading

11.0 Introduction
There are two things that motivate a person to succeed: inspiration and
desperation Anthony Robbins
After realizing the importance of entrepreneurs in socio-economic
development of a country, the subject of entrepreneurship development is attracting
the attention of everyone in the society. Economists, sociologists, anthropologists,
psychologists, administrators, policy makers, academicians are trying their best to
understand and boost up the process of entrepreneurship development and to find
out answers to several questions: How to attract more and more people towards
entrepreneurship? What motivates people to go into business? Why do people go
in for business and become entrepreneurs? This unit attempts to answer these
questions by discussing various perspectives of entrepreneurial motivation.

11.1 Unit Objectives


After studying this unit, you will be able to
List out the factors which motivate people to go into business
Know about the Kakinada experiment
Explain how to develop the need for achievement
Appreciate the characteristics of high achievers

11.2 Entrepreneurial Motivating Factors


Business
Several researchers have tried to identify the factors that motivate -people
Entrepreneurship I to
189
start business enterprises. Following are the findings of some of these empirical studies: Entrepreneurial
Motivation
P. N. Sharma identified motivating factors as follows:
1. Educational background
NOTES
2. Occupational experience
3. Desire to work independently in manufacturing line
4. Desire to branch out to manufacturing
5. Family background
6. Assistance from government
7. Assistance from financial institutions
8. Availability of technology/raw material
9. Other factors demand of the particular product, utilization of excess
money earned from contractual estate business, started manufacturing
to facilitate trading/distribution business since the product was in short
supply, unstable policy of the foreign government for non-residents, and
no chance for further promotion.
The above nine factors were grouped into two major categories-internal
and external. First five motivating factors were termed as internal and the last
four factors as externals. The internal motivating factors like education, occupational
experience, family background, the desire to do something independently together
make the personality of the entrepreneur. These factors generate an inclination to
adopt entrepreneurial activity. In absence of the internal factors, entrepreneurial
activity may not emerge. The emergence of entrepreneurial activity demands a
support in the form of favorable environment such as financial assistance,
technology, raw material, infrastructural facilities and so on.
R.A. Sharma classified the factors which prompted new entrepreneurs to
enter industry as follows:
I. Factors internal to entrepreneurs
i. Strong desire to do something independent in life
ii. Technical knowledge and/or manufacturing experience
iii. Business experience in the same or related line
II. Factors external to the entrepreneur
i. Financial assistance from institutional sources
ii. Accommodation in industrial estates
iii. Machinery on hire purchase
iv. Attitude of the government to help new units
v. Financial assistance from non-government sources
vi. Encouragement from big business
vii. Heavy demand Business
Entrepreneurship - I 190
Entrepreneurial viii. Profit margin
Motivation
ix. Unsound units available at a cheap price
A vast majority of entrepreneurs entered industry because of three factors:
NOTES
first, they had a strong desire to do something independent in life; second, they
possessed technical knowledge on trading or manufacturing experience in the
same or related line and third, governmental and institutional assistance became
available to those who would have, perhaps, otherwise not taken to entrepreneurial
activity. Most of the entrepreneurs in Sharmas study had successful record in
their previous occupation.
BEVVN Murthy, M. Chadra Sekhar Reddy, and M. Gangadhara Rao
worked on entrepreneurial motivation and classified the factors behind
entrepreneurial growth into three categories as follows:
I. Entrepreneurial ambitions
i. To make money
ii. To continue family business
iii. To secure self-employment/independent living
iv. To fulfill desire of self/wife/parents
v. To gain social status
vi. Other ambitions-making of a decent living, self-employment of
children, desire to do something creative, provide employment to
others, circumvent Land Ceiling Act, etc.
II. Compelling reasons
i. Unemployment
ii. dissatisfaction with the job so far held or occupation pursued
iii. make use of idle funds
iv. make use of technical/professional skills
v. Others-maintenance of large families, revival of sick units started
by father etc
III. Facilitating factors
i. Success stories of entrepreneurs
ii. previous associations (experience in the same or other line of activity)
iii. previous employment in the same or other line of activity
iv. property inherited/self-acquired/wifes
v. advice/influence (encouragement) of family members/relatives/
friends
vi. others- association as apprentices and sleeping partners
Many times it is the compulsion rather than the ambitions that leads one to
success. Sometimes the initial ambition and opportunities many clash with each
Business
other, sometimes compulsion drives people to entrepreneurship.
Entrepreneurship - I 191
S. S. Khanka, conducted a study of small scale entrepreneurs in Kumaun Entrepreneurial
division of Uttar Pradesh and observed two categories of factors which prompted Motivation
the entrepreneurs to enter entrepreneurship. The first category of factors intrinsic to
entrepreneurs comprised of previous experience in the same or related line, enterprising
attitude and training/education in such kind of production. The list of factors extrinsic NOTES
to entrepreneurs included shortage of demand for product, government and institutional
assistance, advice of business friends, profit earned by friends in similar concern contact
with others, and unsound units available at cheap price.
Findings of a study of women entrepreneurship in Marathwada for doctoral
research by the author in respect of motivational aspects are presented below:
For women entrepreneurs, there were varied motives for establishing an
enterprise. The most dominant motive was to pursue own interest followed by
to be independent, to achieve excellence, to gain social status, to earn money,
leisure time activity, to provide employment, and unemployment. Majority of
them created the enterprise because of interest, followed by imitation of friends
and relatives etc, inherited business, no other alternative, and advice of friends,
relatives etc. The reasons for the choice of their present enterprise were good
demand, use of knowledge and skills, easy to run, easy to start, interest,
and low investments. Majority of women entrepreneurs started their enterprises
on their own initiative. self-motivation was the major contributory factor for the
promotion of enterprise followed by husband, in-laws, parents as motivators.
V. Lakshamana Rao in his book Industrial Entrepreneurship in India
tabulated various sources of supply and motivation of entrepreneurship as follows:

Table 11.1 Sourced of Entrepreneurial Supply and Motivation

Author/ Entrepreneurial Sources of Entrepre- Motive Force or


Expert Phenomenon neurial Supply Triggering Factor
Schumpeter Individual Extraordinary individuals Innate urge to achieve
Weber Status Groups Extraordinary individuals success
McClelland Religious and Individuals with high Religious beliefs
Social groups need for achievement, Child rearing practices
creative and climate
Hagen Subordinated Individuals in the society Status withdrawal and
groups driven by a duty to relative social blockage
achieve
Cochran Individual Societys model, Social acceptance of
personality determined entrepreneurial role
by its cultural values
Young Homogeneous Relative sub-groups, Deviant view of the
occupational groups or world strengthened by
politically oriented group solidarity
functions
Kunkel Group Operant conditioning Re-enforcing stimuli and
procedures in a society average stimuli
Hoselitz Group Culturally marginal Gaining social
groups recognition

Source: V. Lakshamana Rao, Industrial Entrepreneurship in India, Chugh


Business
Publications, Allahabad Entrepreneurship - I 192
Entrepreneurial
Motivation 11.3 The Achievement Motivation
Motivation is the basic drive for all our actions. It is the driving force
behind the behavior. Individuals needs and desires influence the behavior.
NOTES
Motivation refers the dynamics of our behavior which comprise of our needs,
desires as well as ambitions in life. In general motivation is defined as a force that
generates energy to drive a person to do or accomplish something. There are
three aspects of motivation: stimulation of behavior (what triggers a person), course
of behavior (what directs the person towards the goal), determination of behavior
(how behavior is being continued).
There are different forms of motivation including extrinsic, intrinsic, and
achievement motivation.
Implicit motives are spontaneous impulses to act. They are stimulated
through incentives inherent to the tasks. Implicit motives are also known as task
performances.
Explicit motives are expressed through deliberate choices and mostly
stimulated for extrinsic reasons.
Achievement behavior is an interaction between situational variables and
the individual motivation to achieve. Both the motives, implicit and explicit, are
directly involved in the prediction of behavior. Individuals with strong explicit needs
set higher internal standards to achieve goals whereas others tend to adhere to the
societal norms. These two motives often work together to give rise to a particular
kind of behavior.
Explicit and implicit motivation has a compelling impact on behavior. Task
behaviors are accelerated when faced with challenge through implicit motivation.
The primary goal is performing a task in the most effective manner. A persons
faith in a strong implicit drive will achieve pleasure from achieving a goal in the
most efficient way. The person will increase the efforts and overcome the challenge
by mastering the tasks. However the explicit motives are built around a person
self-image. This type of motivation influences a persons behavior depending
upon their own self views. It can influence their choices and responses from
outside cues.
Achievement motivation is something that causes a person to make an
effort to become successful and goal oriented. Achievement motivation has been
conceptualized in many different ways. Achievement motive includes the need
for achievement and the fear of failure. These are the most predominant motives
that direct our behavior towards positive and negative works. Achievement goals
are viewed as more solid cognitive representation pointing individual towards a
specific end. There are three types of these achievement goals: A performance
approach goal, a performance avoidance goal and a mastery goal. A performance
approach goal is focused on attaining competence relative to others, a performance
avoidance goal is focused on avoiding incompetence relative to others and a mastery
goal focused on the development of competence itself and off task mastery.
Theorists have proposed that peoples achievement goals affect their
achievement related attitudes and behaviors. Two different types of achievement
related attitude include task involvement and ego involvement. Task involvement
is a motivational stage in which a persons main goal is to acquire a goal and
understanding and where as the main goal in ego involvement is to demonstrate
superior abilities. Business
Entrepreneurship - I 193
A task involvement activity often results in challenging attributions and Entrepreneurial
increasing efforts than in ego involvement activity. Intrinsic motivation, i.e. the Motivation
striving to engage in activity because of self-satisfaction is more prevalent, when
a person is engaged in task involved activities. When people are more ego involved,
they tend to take on a different conception of their activity where differences in NOTES
ability limit the effectiveness of efforts. Ego involved individuals are driven to
succeed by outperforming others. Their feeling of success depends on maintaining
self-worth and avoiding failure. Task involved individual tend to adopt their
conception of ability as learning through applied efforts. Therefore less able individual
will feel more successful as long as they can satisfy an effort to learn and improve.
David McClelland noted three types of motivational needs achievement
motivation, authority / power motivation, affiliation motivation. These needs are
found in varying degrees in all the individuals. The N Ach person is achievement
motivated and seeks advancement, attainment of realistic and challenging goals
and advancement in career. There is a strong need for feedback as to achievement
and progress and a need for a sense of accomplishment. The N Pow person
is authority motivated. There is need to be influential, effective and to make an
impact. There is a need to lead and for their ideas to prevail. There is motivation
to increase personal status and prestige. The N- Affil person is affiliation motivated
with a need for friendly relationship, with a motivation for interaction with others.
These people are team players. They have a need to be liked and be popular.

Characteristics of High Achievers:


The achievement motivation has been intensively studied by David C.
McClelland and his associates. The achievement motive (N-Ach) is defined as a
desire to succeed in competitive situations based on a standard of excellence
determined by others or ones own preceding standards.
Behavioral scientists have observed that some people have an intense
need to achieve while others, perhaps the majority, do not seem to be as concerned
about achievement. This phenomenon has fascinated David McClelland.
McClelland and his associates at Harvard University studied this urge to achieve.
McClellands research led him to believe that the need for achievement is a distinct
human motive which can be distinguished from other motives. The achievement
needs can be isolated and assessed in any group.
McClelland illustrates some of these characteristics in describing a
laboratory experiment. Participants were asked to throw rings over a peg from
any distance they choose. Most people tended to throw at random now close,
now far away; but individuals with a high need for achievements seemed carefully
to measure where they were most likely to get a sense of mastery not too close
to make the task ridiculously easy or too far away to make it impossible. They set
moderately difficult but potentially achievable goals.
Achievement motivated peoples are not gamblers. They prefer to work
on a problem rather than leave the outcome to chance. Many people tend to be
extreme in their attitude towards risk either favoring wide speculative gambling or
minimizing exposure to losses. Gamblers seem to choose the big risks. The outcome
is beyond their power and therefore they can easily rationalize away their personal
responsibility if they lose. The conservative individuals choose tiny risks where
gain is small but secure. There is little danger of anything going wrong for which
the person might be blamed.
Achievement motivated people prefer the mid-way. They prefer moderate Business
degree of risk because they believe that their efforts and abilities influence the Entrepreneurship - I 194
Entrepreneurial outcome. This aggressive realism is the mark of successful entrepreneur.
Motivation Achievement motivated people seem to be more concerned with personal
achievement than with the rewards of success. They do not reject rewards, but
the rewards are not as essential as the accomplishment itself. They take pleasure
in winning and solving a difficult problem. They are not much interested
NOTESin money
or praise. Money is valuable to achievement motivated people as a measure of
their performance. They generally seek money for status or economic security.
Money provides them a means of assessing their progress and comparing their
achievements with others.
High achievers desire to seek situations in which they get concrete feedback
on how well they are doing. They have a deep concern for personal
accomplishment. Along with concrete feedback, the nature of feedback is important
to achievement motivated people. They respond favorably to information about
their work. They are least interested in comments about their personal
characteristics. They want job relevant feedback whereas affiliation motivated
people might be interested in social attitudinal feedback.
McClelland found that wherever people start to think in achievement terms,
things begin to happen. Achievement motivated people habitually spend time in
thinking about doing things better. Constantly they try to think better ways of
doing things. Because of high achievers organizations grow faster and earn more
and more. Presence of achievement motivated individuals contributes to national
economic growth. High achievers get far ahead of others and very effectively
they get the things done.
Achievement motivated individuals may be less effective as managers
when their success depends not only on their own contribution but on their ability
of getting the work done through others. They are highly task oriented and give
their hundred percent to the work. They tend to expect the same from others.
They expect a high level of commitment and complete dedication from the others.
They sometimes lack the human skills and patience necessary for being effective
managers. Their team members are competent but they have a higher need of
affiliation. In such a situation, the team members get frustrated due to the over
emphasis on results and outcome. They may not be able to give their best to the
organization. Achievement motivated people do a lot for their organisations.
However they do not always make the best managers. For being an effective
manager, they have to develop their human skills.
McClelland found that achievement motivated people are more likely to
develop in families in which parents hold different expectations for their children.
These parents expect their children to show independence from an early stage of
their life. They want them to make decisions, make choices and doing things without
help right from early childhood.
McClelland concept of achievement motivation is related to Herzbergs
motivation hygiene theory. People with high achievement motivation are found to
be interested in the motivators i.e. the job itself. They want feedback. They want
to know how well they are doing their job. People with low achievement are more
concerned about the environment. They want to know how people feel about
them, rather than how well they are doing.
According to McClelland research, achievement motivated people tend
to possess certain characteristics in common including the capacity to set high
personal but achievable goals, the concern for personal achievement rather than
the rewards of success and the desire for job relevant feedback
Business (How well am I
Entrepreneurship
doing ?) rather than for attitudinal feedback (How well do you like me?)- I 195
Motivated people are active. Achievement motivated people often set Entrepreneurial
fairly difficult but realistic targets which ensure attainment of those targets. Motivation
Achievement motivated persons typically do not set goals that are so easy. They
look forward to challenges. They take pleasure in meeting the challenges. They
do not aim too difficult goals. Typically they want to ensure that they perform task NOTES
that they can honestly handle.
Achievement motivated individuals work on a specific problem rather than
just wait for results. They are very optimistic. With the positive outlook they
tackle difficult situations and reach their goals. For them accomplishment itself is
the reward. They are more interested in their actual accomplishment and not in
the incentive they may get for their success.
Achievement motivated people have a far higher probability progression
in their work in comparison with the others. Highly motivated individuals are
successful in their work life as well as in their personal life. They contribute
significantly to organizational goals. Obviously organizations are interested in seeking
achievement motivated people. Through training programs, they help their people
become achievement motivated. Achievement motivation training programs
comprise of awareness about achievement motivation. The training enables the
participants realize their individual goals in life with the help of activities like role
plays etc. Participants associate themselves with achievement related activities.
They are made to practice achievement related activities in games, in business
and in real life. Participants are encouraged to relate an achievement motivation
behavior model with their own goals and attitude towards their targets. Participants
are required to come up with a personal action plan on how to achieve success.
From time to time participants receive feedback regarding their journey towards
accomplishment of their personal goals and objectives. An achievement motive is
an impulse to meet challenges and reach high standard of excellence. Achievement
motivation is influenced by personality as well as situational factors.
Researchers often use Thematic Apperception Test (TAT) to measure
peoples need for achievement. The TAT consists of a set of ambiguous pictures.
Trainers ask participants to make up stories about these pictures. If the stories
consistently contain themes related to achievement, trainers consider these
participants to have a high need for achievement.
High achievement motivation tends to lead to peculiar personality features.
These include persistence, ability to delay gratification and competitiveness. High
achievers tend to be very persistent. They set goals for themselves and work hard
to achieve those goals. They tend to have greater ability to delay gratifying their
impulses in order to reach long term goals. High achievers tend to select career to
give them opportunities to compete with other people. Expectations can result in
self-fulfilling prophecies. If an individual expects to fulfill a dream, he or she will
work hard and the work will be more likely to fulfill the dream.
Some situational factors affect achievement motivation in significant
manner. They include expectation of success, incentives, control and opportunities.
Individuals are more likely to have a high expectation of success if they have a
feeling of self efficacy or confidence in their own ability to meet challenges
effectively. People can acquire self-efficacy by dealing their difficulties and
learning from mistakes having good role model, getting constrictive feedback and
encouragement help to build self-efficacy. Incentives rewards people for their
competence and motivate them to achieve. However incentives can also decrease
peoples intrinsic motivation if people focus on getting incentives rather than doing
Business
tasks for their own sake. People tend to be more motivated to achieve if they feel Entrepreneurship - I 196
Entrepreneurial they have control over some aspects of their work. People are motivated to
Motivation achieve when they have opportunity to achieve.
High achievers prefer moderately difficult tasks. Such tasks allow them
to succeed and to see themselves as competent for having succeeded. Very
NOTES
difficult tasks dont allow them to feel competent when they succeeded. Goals
are most likely to increase motivation to achieve, if they are specific, challenging
Check Your
but achievable and positive. The more specific the goal the more effective they
Progress
are as motivators. Goals have to be difficult enough to be challenging but easy
enough to be reachable. Goals should be positive. It is better for people to frame
1. Define motivation in goals in terms of what they will do rather than in terms of what they will not do.
your own words.
Psychologist David McClelland studied workplace motivation and
2. David McClelland concluded that workers as well as their superiors have needs that influence at
noted three types of their work. One of these needs is achievement motivation which can be viewed
motivational needs as an individuals need to meet realistic goals, receive feedback, an experience a
sense of accomplishment. Achievement motivated employees perform very well
3. The N-Ach person when they receive regular performance evaluation. They feel enthusiastic and
is motivated happy with their jobs, because goals are set. They are given feedback on their
past performance and got some rewards when they perform well.
4. The N-Pow person
is motivated For achievement oriented people achievement is more important than
material and financial reward. They constantly seek improvement and ways doing
5. The N-Affil person
things better. Financial reward is regarded as a measurement of success and not
is motivated
an end in itself. Feedback is essential for them because it enable measurement of
6. How will you define success, and not for the reasons of praise or recognition. Feedback must be
the achievement reliable, factual and certifiable. They are not interested in security and status.
motive?
Individuals with high N-Ach exhibit specific characteristics. High N-Ach
individuals like to work on jobs which are fairly challenging. Too little challenge
will bore them since their urge to achieve will not be satisfied. Too much challenge
may induce a fear of failure and the feeling that the job is difficult. They will not
try to work on jobs that are so challenging that it might be doubtful to accomplish
them successfully.

11.4 Kakinada Experiment


Rapid economic growth has often been explained in terms of external
factors like favourable opportunities for trade and availability of natural resources.
But economic opportunities alone are not sufficient for emergence of
entrepreneurship. Motivation is an important factor. The theory of achievement
motivation holds that it is precisely those with high need for achievements who
are sensitive to changes in the economic environment and exploit economic
opportunities. Realizing the significance of achievement motivation in accelerating
economic growth and the conviction that it could be developed or increased; it
was decided to conduct a study to trace effects of changes in the need achievement
levels of individuals over time throughout the social and economic life of a
community belonging to an economically backward country.
According to McClelland, the logic behind achievement, as an index
reflecting habits, thoughts or actions imperative for economic growth, is that need
for achievement has been shown to have increased on several occasions prior to
rapid economic growth in a country, and to have declined prior to a slackening in
the rate of growth.
Business
Entrepreneurship - I 197
A training conference was held in the US, financed by the US Agency for Entrepreneurial
International Development (AID) which was finding new methods to improve the Motivation
effectiveness of its worldwide programme to help poor countries develop their
economies. The conference was attended by representatives from ten countries
India, Egypt, Colombia, Tunisia, Algeria, Spain, Chile, Italy, Mexico and Thailand, NOTES
which were selected for the developmental project. It was decided to carry out
feasibility studies only in India, Southern Italy and Tunisia.
India was chosen because it presented opportunities for studying the effects
of need achievement training on two types of communities at different levels of
complexity. At the simple level, it was proposed to study the effects of training on
productivity of firms. There were many textile mills in India. It was considered
possible to interest executives in some of these mills to attend seminars on motivation
development. With careful comparable records of all the mills, it was possible to
promptly assess whether the motivational training had any effects on the output of
these textile mills. At a more complex level, it was proposed to train a significant
proportion of leaders in a small city dominating a district in India to see if this had
any significant effect on the economic growth of that particular district. Such an
effort was made feasible by the possibility of collaboration with the Small Industry
Extension Training Institute (SIET) training at Hyderabad. However, the research
project was only carried out at the district level in India in collaboration with the
SIET institute.
At a more complex level, it was proposed to train a significant proportion
of leaders in a small city dominating a district in India to see if this had any significant
effect on the economic growth of that particular district. Such as effort was made
feasible by the possibility of collaboration with the Small Industry Extension Training
Institute, Hyderabad.
It was proposed to study the impact of achievement motivation training,
given to a few selected significant businessmen of a town or community, on their
own career as well as on the growth of the community.
The initial plans of conducting the research project at district level in India
called for selecting three pairs of small cities matched on a number of variables
such as size (set at about 1, 00,000 inhabitants), per cent of literacy and growth in
literacy over the past decade; total number of firms employing twenty or more
people and the growth rate in electricity consumed, transportation and
communication facilities, and the patterns of agricultural, industrial and commercial
employment. The selection was limited to cities of about 1,00,000 population
because they were considered large enough to provide infrastructure necessary
for rapid economic growth, but small enough not to be affected by major changes
introduced by the government. On the basis of the above criteria a preliminary
investigation of 1961 Census even comparable small cities were selected in three
different cities as sites for the project.
In Andhra Pradesh, Kakinada and Rajahmundry in East Godavari district
seemed well matched. They were located in more or less the same ecological
area are only some forty five miles apart and inhabited by very much the same
kind of people. In Tamil Nadu, three cities were chosen because no two cities
matched on size and other variables. Two cities were chosen in Maharashtra,
Akola and Amravati, but no work was done there.
With the objective of finding the effects of the training inputs on the activity
level of individual businessmen and changes in the rates of growth of their firms;
three comparable groups of businessmen who started their activity two years Business
Entrepreneurship - I 198
Entrepreneurial before the research project was scheduled (1964) were selected. Group A from
Motivation Kakinada consisted of businessmen who had received need achievement training,
Group B consisted of comparable businessmen from the same town who had not
received need achievement training, and Group C consisted of comparable
businessmen from Rajahmundry who had not received any training. The rationale
NOTES
reported for such a research design was based on the supposition that increasing
the entrepreneurial spirit in a significant portion of the business leadership of a
particular community would perhaps create a go ahead atmosphere for the other
businessmen in the city. It as hypothesized that even Group B the untrained
group from Kakinada would also show a higher level of activity than Group C
the untrained group from Rajahmundry.
Four training programmes were held at SIET Institute for the selected
prominent businessmen of Kakinada. Fifty two men representing 49 different
Kakinada firms attended the programme.
The objective of the course was to increase entrepreneurial spirit and
improve interpersonal competence among the participants with emphasis on
motivation, planning and cooperative effort rather than technical skills. The course
was basically one of self-development. The roots of values, attitudes and motives
were examined through the familiar and natural effects on the individuals image
of himself and his world. Each individual was guided in examining his characteristic
modes of behavior as perceived by those around him. Each individual was guided
in examining his fantasies and his aspirations in relation to his actual behavior. An
important aspect of the course was that participants initiate and control change by
setting reasonable goals for change in themselves, in their firms and in their area.
Participants were given an opportunity to analyze their own spontaneous
thinking or imagination and to score this material for motivation content according
to well-defined scoring procedures. The purpose was to help them recognize
achievement thinking in its various aspects so that they can reproduce it in their
thoughts and therefore in their actions. Participants were encouraged to use the
understanding of their own motivation and thinking to evaluate their approach to
their work and to set realistic challenging goals for themselves. Participants practiced
achievement training by learning to perceive job situations, problems and
possibilities in achievement terms. They engaged in achievement related activities
in a simulated business situation. The objective was to make them aware of the
relationship between achievement thinking and entrepreneurial action. Throughout
the course, participants were given an opportunity to experience and internalize
the characteristics of successful entrepreneurship. The individual was encouraged
to write an autobiography, to make plans for his future, to take practical steps and
make the commitments necessary to fulfill the personal goals he has set for himself.
Personal counseling sessions were arranged for the participants to obtain better
self-knowledge more realistic appraisal of goals and more creative ways of attaining
them. Throughout the course, participants were encouraged to examine their
relationship with others in the group. They were given opportunities to understand
the needs of others and to help them in solving their problems. Participants were
given practice in aiding and supporting one another in group activities. This was
designed to increase cooperation upon their return to their area, and to increase
the probability of mutual reinforcement in the future.
Contacts were maintained with the participants through intensive follow-
up interviews at regular intervals for a couple of years to check on the progress
they were making towards accomplishing their objectives. Finally, an evaluation
Business
Entrepreneurship - I 199
programme was made to find out impact of the programme on economic Entrepreneurial
development of a given area compared with a similar area where such a programme Motivation
was not presented. Changes in individuals who have undergone the course were
observed in comparison with a similar group who had not undergone the course.
NOTES
Assuming that N-Ach plays a vital role in promoting economic growth,
McClelland has tried to induce achievement motivation in the participants and
provide them with an urge to improve and to achieve. It was proposed to study the
impact of achievement motivation training, given to a few selected significant
businessmen of a town or community, on their own career as well as on the growth
of the community.
The initial plans of conducting the research project at district level in India
called for selecting three pairs of small cities matched on a number of variables
such as size (set at about 1, 00,000 inhabitants), per cent of literacy, growth in
literacy over the past decade, total number of firms employing twenty or more
people, growth rate in electricity consumed, transportation and communication
facilities, and the patterns of agricultural, industrial and commercial employment.
The selection was limited to cities of about 1, 00,000 population because they
were considered large enough to provide infrastructure necessary for rapid
economic growth, but small enough not to be affected by major changes introduced
by the government. In Andhra Pradesh, Kakinada and Rajahmundry, in East
Godavari district seemed well matched. They were located more or less on the
same ecological area only forty five miles apart and inhabited by very much the
same kind of people.
Four training programmes were held at SIET institute for the selected
prominent businessmen of Kakinada. Fifty two men representing 49 different
Kakinada firms attended the programme. The objectives of the course, summarised
by Danzing and Nadkarni, were: to increase entrepreneurial spirit and improve
interpersonal competence among the participants with emphasis on motivation,
planning, and cooperative effort rather than technical skills.
The course was basically of self-development. The three approaches to
greater self-knowledge and understanding of motives were:
The roots of values, attitudes and motives were examined through the
familiar and natural effects on the individuals image of himself and his world
Each individual was guided in examining his characteristic modes of
behavior as perceived by those around him
Each individual was guided in examining his fantasies and his aspirations
in relation to his actual behavior
An important aspect of the course was that participants initiate and control
change by setting reasonable goals for change in themselves, in their firms, and in
their area.
Participants were given an opportunity to analyze their own spontaneous
thinking or imagination and to score this material for motivation content according
to well-defined scoring procedures. The purpose was to help them recognize
achievement thinking in its various aspects so that they can reproduce it in their
thoughts and therefore, in their actions.
Participants were encouraged to use the understanding of their own
motivation and thinking to evaluate their approach to their work and to set realistic Business
challenging goals for themselves. Entrepreneurship - I 200
Entrepreneurial Participants practiced achievement training by learning to perceive job
Motivation situations, possibilities in achievement terms. They engaged in achievement-related
activities in a simulated business situation. The objective was to make them aware
of the relationship between achievement thinking and entrepreneurial action.
NOTES
Cases of successful entrepreneurs were presented to the group sometimes
in person, to enable the participants to see the relationship between successful
business functioning and achievement thinking, and also to understand the origins
of entrepreneurial behavior.
Throughout the course, participants were given an opportunity to
experience and internalise the characteristics of successful entrepreneurship.
The individual was encouraged to write an autobiography, to make plans
for his future, to take practical steps and make the commitments necessary to
fulfill the personal goals he has set for himself. Personal counseling sessions were
arranged for the participants to obtain better self-knowledge, more realistic
appraisal of goals and more creative ways of attaining them.
Throughout the course, participants were encouraged to examine their
relationships with others in the group. They were given opportunities to understand
the needs of others and to help them in solving their problems.
Participants were given practice in aiding and supporting one another in
group activities. This was designed to increase cooperation upon their return to
their area, and to increase the probability of mutual reinforcement in the future.
Contacts were maintained with the participants through intensive follow-
up interviews at regular intervals for a couple of years to check on the progress
they were making towards accomplishing their objectives.
Finally, an evaluation programme was made to find out the impact of the
programme on the economic development of a given area compared with a similar
area where such a programme was not presented. Changes in individuals who
have undergone the course were observed in comparison with a similar group
who had not undergone the course. Each individual was given an activity level
score for the period of two years before the course and for two years after the
course. The activity level scores were combined as follows: For instance, if the
individual had plans, then it is scored +1, no change was scored 0, and less activity
is scored -1. A score of active was +2 indicating specific activity involving the
expenditure or investment of money. The study reports the activity level score as
a precise psychological measure, not influenced by economic conditions such as
price rise, raw material shortages etc. It equated big changes such as starting a
factory with relatively small changes such as expanding a shop.
Results of these activity level scores as reported in the study are as follows:
Starting off at more or less the same level before the course, the participants from
Kakinada Group A showed a significant increase. That is during the two years
after the course; more than 50% scored active. However, Group B from Kakinada
remained at the same level activity contrary to the assumption that an untrained
group from the same vicinity would also be affected by the increased entrepreneurial
spirit of the trained group. Again, it was found that Group C of Rajahmundry also
did not show a significant increase in the level of activity.
Measures of individual behavior showed that the participants in achievement
motivation courses improved significantly in many aspects of entrepreneurial
performance before and after the course, and as compared with the other control
Business
Entrepreneurship - I 201
groups. Course participants showed increased sense of efficiency and business Entrepreneurial
activity, that is, they worked longer hours and made more definite attempts to start Motivation
new business ventures. Measures of economic effects as reported indicate that
participants increased their investments and employed more workers.
NOTES
The study concludes that in no sense has the course led to instant and
continued success for all, or for even a small proportion of men. Rather, it has led
to some improvement for man, an improvement that is made up of trial and error,
investigation, planning, some failure, overcoming of obstacles, change and orientation
and overall success in many cases.

11.5 Summary
What motivates people to inspire for entrepreneurship is an interesting
issue to explore and analyse. Motivation is a highly complex phenomenon that
affects and gets affected by a multitude of factors. The entrepreneurial activity at
any time is dependent upon a complex and varying combination of socio-economic,
psychological and other factors. The environmental factors exercise a strong
influence on the personality or personal background of the entrepreneurs.
From the above discussion, it is revealed that majority of entrepreneurs
were motivated by previous experience in the same or related line. They possessed
technical knowledge. There was heavy demand for the particular product.
Government and institutional assistance available facilitated individuals to enter
industry. They possessed an achievement motive. They had enterprising attitude
and wanted to do something independent in their life.
The need for achievement plays an important role in entrepreneurial
success. The need for achievement is the desire to do well. It is the urge for
excellence. It is striving towards perfection. It is the inner spirit that stimulates an
entrepreneur for success. Several researches have also proved the hypothesis
that need for achievement contributes to entrepreneurial success. There is a need
to develop achievement motivation for spread of entrepreneurship in the economy.
David McClelland holds the view that achievement motivation can be developed
through training and experience. He conducted experiments with groups of
businessmen from three countries. He carried out a separate full-fledged training
programme in India to instill achievement motivation in the minds of entrepreneurs.
This successful experiment is popularly known as Kakinada Experiment.

11.6 Key Terms


Achievement motivation: The need for success or attainment of
excellence. It typically refers to the level of ones motivation to engage
in achievement behaviours, based on the interaction of such parameters
as need for achievement, expectancy of success and the incentive value
of success

11.7 Questions and Exercises


Questions
1. Discuss the factors which prompt people to become entrepreneurs.
2. What is achievement motivation? Is it an essential component of
entrepreneurship? How can it be developed? Business
Entrepreneurship - I 202
Entrepreneurial 3. Explain the Kakinada experiment in developing need for achievement
Motivation in entrepreneurs.
4. What do you mean by entrepreneurial motivation? Is it necessary for
a successful entrepreneur?
NOTES
5. Ambitions and compulsions may not be enough to make a person an
entrepreneur. What other factors are necessary so that people may
become entrepreneurs?
6. Many times it is compulsion rather than ambition that makes successful
entrepreneurs. Critically examine this statement.
7. Describe the motivational forces that cause entrepreneurial growth in a
developing country.
8. Discuss the characteristics of high achievers.

Exercises
1. Meet any five entrepreneurs from your city and know about their
motivations.
2. Read success stories of entrepreneurs and write a report on
entrepreneurial motivation.

Multiple Choice Questions


1. Pick up the wrong alternative.
i. Task involvement is a motivational stage in which a persons main goal
is to acquire a goal and understanding
ii. The main goal in ego involvement is to demonstrate superior abilities
iii. Both i and ii are true
iv. Both i and ii are false
2. Which of the following does not belong to entrepreneurial ambitions?
i. To make money
ii. To continue family business
iii. To secure self-employment/independent living
iv. unemployment
3. Which of the following is a compelling reason regarding entrepreneurial
motivation?
i. Dissatisfaction with the previous job
ii. To gain social status
iii. Self-employment of children
iv. Previous association
4. Which of the following is not a facilitating factor for entrepreneurial
motivation?
i. Success stories of entrepreneurs
ii. Unemployment
iii. Previous association Business
Entrepreneurship - I 203
iv. Advice of family members Entrepreneurial
Motivation
5. Tick the wrong alternative.
i. Achievement motivated person typically do not set goals that are so
easy NOTES
ii. Achievement motivated persons look forward to challenges
iii. Achievement motivated persons aim too difficult goals
iv. Achievement oriented persons are very optimistic
6. High achievers prefer tasks
i. Easy
ii. Too difficult
iii. Moderately difficult
iv. All the above

Answers
Check Your Progress

2.Achievement motivation, authority / power motivation, affiliation


motivation.
3. achievement
4. authority
5. affiliation

Multiple Choice Questions


1. iv
2. iv
3. i
4. ii
5. iii
6. iii

11.8 Further Study


Gupta C. B, Srinavasan N. P, Entrepreneurship Development in India,
Sultan Chand and Sons, New Delhi, 2005.
Masiuddin Tahera, Developing Achievement: the Kakinada Experiment,
Small Industry Extension Training Institute (SIET), Hyderabad

Business
Entrepreneurship - I 204
Entrepreneurship
Development Programmes UNIT 12 : ENTREPRENEURSHIP
DEVELOPMENT PROGRAMMES
(EDPs) NOTES

Structure
12.0 Introduction
12.1 Unit Objectives
12.2 EDPs - Meaning and Objectives
12.3 Need for EDPs
12.4 Role of EDP
12.5 Phases of EDPs
12.6 EDP Curriculum
12.7 Evaluation of EDPs
12.8 Strategy for Ensuring Success of EDP
12.9 Summary
12.10 Key Terms
12.11 Questions and Exercises
12.12 Further Reading

12.0 Introduction
Entrepreneurship development is an organized effort to inculcate
entrepreneurial qualities among people. It entails encouraging people to understand
entrepreneurship; make them realize the importance of entrepreneurship for their
own, for their community, for the society, for the economy as a whole.
Entrepreneurial development is now recognized widely as the key to
economic development and societal welfare. Experience of developed as well as
developing nations clearly exhibited that it is possible to develop entrepreneurs
through planned efforts. The myth that entrepreneurs are born and not made, no
longer holds good. In recent years, government and some non-government agencies
have been developing strategies and launching programmes for developing
entrepreneurial skills among society.

12.1 Unit Objectives


After going through this unit, you will be able to
Explain the meaning of Entrepreneurship Development Programme (EDP)
State the need for and objectives of EDPs
Business
Make evaluation of EDPs
Entrepreneurship - I 205
Discuss various phases of EDPs Entrepreneurship
Development Programmes
Describe course contents and curriculum of EDPs
Identify various institutions providing EDPs in India
NOTES

12.2 EDPs - Meaning and Objectives


Entrepreneurship development has become a matter of great concern in
all developed and developing countries all over the world, but the important issue
is how to develop entrepreneurship. Conducive environment has been created for
entrepreneurs and for entrepreneurship development. A number of government
and non-governmental agencies have started putting their vigorous efforts for
entrepreneurship development through various specially designed programmers
by inculcating entrepreneurial culture through training interventions.
Training programmes have a significant role for initiating and accelerating
the process of entrepreneurship development. They are directed at development
of entrepreneurs and development of an environment where entrepreneurial
activities flourish and grow. Development of entrepreneurs is concerned with
attitude, desire and motivation of individuals, his/her capability to perceive
environment changes and opportunities, his/her ability to solve problems which
they are likely to face.
The root of Entrepreneurship Development Programme (EDP) lies in the
pioneering initiative jointly taken by the Gujarat Industrial Investment Corporation
(GIIC) and other State agencies in Gujarat. A three-month training programme,
known as EDP, was evolved in 1970 to foster new entrepreneurs, who had latent
entrepreneurial potential. It laid emphasis on setting up a small venture, managing
it and making profits out of it. The initial programmes were oriented towards
business knowledge and skills. Later, behavioral inputs such as Achievement
Motivation Training (AMT) were added to the regular EDP training package. The
Kakinada experiment could be considered as a basis for the present-day inputs on
behavioral aspects.
As we have seen in section 10.3.2, David McClelland found that N-Ach
is the most important input for entrepreneurship development. The achievement
motivation was found to have a positive impact upon the activity level of the trainees.
Entrepreneurs are not just born; they can be developed and trained to
undertake ventures. However, everyone does not have the potential to become an
entrepreneur. The first essential requirement is selection of potential entrepreneurs,
training them with necessary skills, developing their mindset and giving them input.
It is facilitated by availability of material resources and policy formulation for their
development. Development of an entrepreneur means inculcating entrepreneurial
traits, imparting the necessary knowledge, developing managerial skills and building
entrepreneurial attitude. Entrepreneurship development is an organized and
systematic program for development of entrepreneurial spirit. It motivates a person
for entrepreneurial career and makes him/her capable of sensing and exploiting
business opportunities for his/her enterprise in a successful manner. The task of
developing entrepreneurs comprises of identifying and selecting those who can be
developed into entrepreneurs, developing their entrepreneurial capabilities, ensuring
that each potential entrepreneur has a viable project, equipping them with basic
managerial understanding and helping them to secure financial, infrastructural and
related assistance to expedite the launch of an industrial venture. In other words, Business
the important primary objectives of EDPs are: Entrepreneurship - I 206
Entrepreneurship 1. To identify and train potential entrepreneurs by developing entrepreneurial
Development Programmes qualities
2. To create awareness about entrepreneurship
3. To deliver the necessary knowledge about the procedureNOTES
and formalities
for initiating, promoting and managing a small enterprise
Check Your
Progress 4. To impart the managerial skills required to run a small enterprise
5. To know the sources of information and institutional assistance available
1. Enlist some institu- for budding entrepreneurs
tions which impart
EDPs. 6. To develop and strengthen their motivation/ need for achievement
2. Can you identify
some target groups for 7. To select and formulate product/ project.
EDPs? The objective of entrepreneurial training and development is to develop
3. The root of Entre- motivation and competencies required for successful launching, management and
preneurship Develop- growth of enterprise. It equips the aspirants with all the skills and knowledge
ment Programme needed for establishing and successfully managing their business ventures.
(EDP) lies in the pio-
neering initiative jointly EDPs also serve one or more of the following objectives:
taken by the
1. Accelerated industrial development by increasing the supply of
and other
entrepreneurs
State agencies in
Gujarat. 2. Industrial development of rural and less developed areas where local
4. David McClelland entrepreneurship is not readily available and entrepreneurs from nearby
found that cities and towns do not get easily attracted
is the most
important input for en- 3. Enlarging the small and medium enterprise sectors which offer better
trepreneurship devel- potential for employment generation and wider dispersal of industrial
opment. ownership
5. Everyone the po-
4. Providing productive self-employment to a number of educated and less
tential to become an
educated students of schools and colleges
entrepreneur. (does
not have/has) 5. Improving performance of small enterprises by enlarging supply of
carefully selected, trained entrepreneurs
6. Diversifying source of entrepreneurship and thereby promoting dispersal
of business ownership

Entrepreneurship development requires an environment in which an


entrepreneur can learn and discharge the functions. The objectives of EDPs differ
depending upon the motives of the target groups for which EDPs are designed.
The major target groups defined for EDPs are general, technology specific, science
and technology entrepreneur, scheduled caste, scheduled tribes, women
entrepreneurs, retired, retiring defense personal (Ex-servicemen entrepreneurs),
educated unemployed entrepreneurs, rural entrepreneurs including weaker sections,
artisan entrepreneurs, artists, tribal entrepreneurs, handicraft entrepreneurs.
Technical employees like turners, fitters, machine operators, foremen, repairmen
have a desire to be on their own. They enroll for EDP since they are frustrated in
their jobs/occupations. Economic compulsions make non-technical employees like
supervisors, managers, accountants, salesmen to search EDPs. Young generation
gets entrepreneurial motivation from the success of others. Artisans and craftsmen
for the sake of making a living look towards EDPs. Traders sense some market
Business
opportunities and to exploit those opportunities join EDPs.
Entrepreneurship - I 207
Entrepreneurship
12.3 Need For EDPs Development Programmes

During early sixties, small scale sector was considered as exclusively as


employment-generating sector. Gradually this sector began to be recognized as a
NOTES
tool for tapping latent entrepreneurial talent. Now in the post-liberalization period,
there seems to be ample opportunities for entrepreneurship and entrepreneurial
growth.
Entrepreneurs undertake business initiative, become self-employed and
generate employment opportunities for others in the society. The significance of
entrepreneurs as change agents, wealth creators and nation builders became
prominently visible to the society. With the twin problems of poverty and
unemployment, entrepreneurship is of fundamental importance to our country.
Government of India realized the importance of small enterprises and entrepreneurs
in accelerating socio-economic development of our country.Economists,
administrators, policy makers, planners, psychologists, political scientists have
appreciated the role of entrepreneurs with reference to employment generation,
economic stability and growth, balanced regional development, export promotion,
import substitution.
The Government envisaged promotional packages to facilitate setting up
of new small enterprises. To boost up growth of entrepreneurship, the policy makers
and financial institutions started thinking of spreading entrepreneurial culture through
training. In this manner, the EDPs emerged. The pioneering effort for EDPs was
taken by GIIC and other agencies who have organized a three-month EDP in late
sixties. The programme was conducted for a selective group of energetic and
potential entrepreneurs who had willingness and desire to achieve goals set by
them. The objectives laid down for this EDP were as follows: to set up small scale
ventures, to manage them effectively, to earn adequate profits from these ventures,
to undertake personal responsibility of the business.
The Kakinada experiment proved that the need for achievement i.e. N-
Ach factor which is the most important quality for entrepreneurship development,
could be induced successfully. In order to prove that, David McClelland conducted
an experiment in collaboration with the erstwhile Small Industries Extension and
Training Institute (SIET), Hyderabad. Young businessmen from Kakinada and
Rajahmundry were selected and put through vigorous training to imbibe achievement
orientation for three months. The training had a positive impact upon the performance
of participant businessmen. The Kakinada experiment could be treated as an important
basis for the present-day EDP inputs on behavioural aspects and achievement
motivation training became an integral part of EDP course curriculum. In fact, it is
due to Kakinada experiment, people realized the need and significance of
entrepreneurial training. Entrepreneurship training is now popularly known as EDP.
The first major step to identify and develop a new class of entrepreneurs
especially from non-conventional community background began in India in Gujarat
in 1970. Entrepreneurship Development Programmes (EDPs) originated and
developed from the encouraging results of two pioneering innovative schemes of
financing new entrepreneurs by the Gujarat Industrial Investment Corporation (GIIC)
Limited Technicians Scheme (TS) and New Entrepreneurs Scheme (NES).
These were among the first dedicated attempts to remove financial
constraints coming in the way of aspiring competent individuals who could not
secure loan assistance from banks due to their conservative approach and limited
resources for term lending. Loans up to 100 per cent of the project costs were Business
Entrepreneurship - I 208
Entrepreneurship offered without stringent collateral security or third party guarantees under these
Development Programmes two schemes. The unconventional financing schemes relied more upon the
competence of the persons involved and the viability of the project than on their
financial background or strength. A wide variety of technical and non-technical
employees, artisans, and craftsmen were financed under both theseNOTES
schemes during
the first three years. These schemes brought to fore the vast entrepreneurial
potential among the traditionally non-business communities particularly in the middle
and lower-income groups. The discovery of such a rich entrepreneurial resource
which has remained unknown and untapped for decades is the real contribution of
GIICs path-breaking schemes.
Between 1970 and 1979 that is almost for a decade EDPs were carried
out as an auxiliary activity in Gujarat under the aegis of GIIC which had set up a
separate wing for this purpose. In 1979, the Centre for Entrepreneurship
Development (CED) was set up by the Gujarat state government with the help of
four important state level financial and industrial promotion agencies. What was
earlier seen as an additional activity then became a primary, full-fledged, and
exclusive concern of a specialized institution manned by dedicated professional
staff. The real contribution is seen in terms of the vast qualitative changes brought
about in improvement in course content, training methodology, etc of the EDPs.
The success of GIIC financing schemes led to new efforts for locating
and identifying potential entrepreneurs from diverse backgrounds who may have
been hindered, thus far, by several constraints. Instead of a relatively passive
attempt to cater to entrepreneurs who approach a development bank, the EDPs
adopted a more pro-active approach to identify new entrepreneurs and provide
them all assistance to take up new ventures.
The new efforts were based on the presumptions that there may be many
more managers, supervisors, salesmen, skilled workers, artisans and others,
frustrated in their present careers or dissatisfied with their prospects, and, therefore,
wanted to prove themselves and establish their own identity with new ventures.
Another hypothesis assumed that some potential entrepreneurs get frustrated due
to lack of motivation to take risks, lack of awareness about good business
opportunity, lack of knowledge about setting up a new enterprise.
Some may know how to produce, repair, or service a product but may not
be aware about setting up and managing an enterprise, may not be well versed
with marketing and selling. They may lack self-confidence due to lack of personal
or family business experience. Some may be discouraged due to lengthy formalities
and tedious procedures of dealing with government mechanism.

12.4 Role of EDP


Entrepreneurship development is instrumental in economic development.
Basically it is in effect a meaningful strategy for human resource development. In
the words of A.N. Oza, EDP is an innovation in which those persons who possess
certain identifiable qualities of entrepreneurship are counseled, motivated and trained
to strengthen their self-confidence, seize a business opportunity, initiate an enterprise
and be the master of their destiny i.e. to become entrepreneurs instead of passively
waiting for suitable employment or continue suffering from frustration in their
current jobs. Under the above backdrop, the role of EDP can be discussed as the
most important instrument to tackle the problem of poverty and widespread chronic
unemployment through rapid growth of small scale industrial sector in India.
Business
Entrepreneurship - I 209
Dr. M.M.P. Akhouri, formerly Executive Director of NIESBUD, New Entrepreneurship
Delhi has stated that entrepreneurship development follows a cycle consisting of Development Programmes
stimulatory, support and sustaining activities. Entrepreneurship development cycle
depend on three important elements. These are stimulatory environment for
prospective and existing entrepreneurs, required support to entrepreneurs and NOTES
sustainable efforts. Each of these elements is shown below:
1. Stimulatory role: this role refers to all such efforts that stimulate
emergence of entrepreneurship in a society. These are shown below:
Entrepreneurial education, planned publicity for entrepreneurial
opportunities, identification of potential entrepreneurs through scientific
method, motivational training to new entrepreneurs, help and guidance
in selecting products and preparing project reports, making available
techno-economic information and product profiles, evolving locally suitable
new products and processes, availability of local agencies with trained
personnel for entrepreneurial counseling and promotions, creating
entrepreneurial forum, recognition of entrepreneurs
2. Support role: This role supports entrepreneurs in establishing and running
enterprises as shown below:
Registration of unit, arranging finance, providing land, shed, power, water
etc, guidance for selecting and obtaining machinery, supply of scarce
raw materials, getting licenses/import licenses, provide common facilities,
grant tax relief or other subsidy, offering management consultancy, help
in marketing product, provide information
3. Sustaining role: These activities help entrepreneurs in managing their
enterprises in a competitive environment on a sustained basis.
Help modernization, help diversification/expansion, additional financing
for full capacity utilization, deferring repayment/interest, diagnostic
industrial extension/consultancy source, production unit legislation/policy
change, product reservation/creating new avenues for marketing, quality
testing and improving services, need-based common facility centre
4. Socio-economic role: These activities promote enterprises as well as
socio-economic status of people which comprises of
Augmenting latent qualities of persons to become entrepreneurs in
thoughts and actions, utilizing the latent and unutilized resources like
hoarded wealth for enterprise building, helping dispersal of industries to
promote balanced regional development, creating immediate employment
opportunities in small enterprises and business sector, ensuring more
equitable distribution of national income and wealth.
To undertake entrepreneurship development and training on regular basis,
the Ministry of Micro, Small and Medium Enterprises (MSME) has set up three
national level Entrepreneurship Development Institutes (EDIs). These are the
National Institute for Micro, Small and Medium Enterprises (NI-MSME),
Hyderabad; the Indian Institute of Entrepreneurship (IIE), Guwahati; and the
National Institute for Entrepreneurship and Small Business Development
(NIESBUD), Noida. Further, the Ministry has been implementing (in addition to
the schemes of (MSME-DO) an important scheme, namely, Scheme for Assistance
for Strengthening of Training Infrastructure of existing and new Entrepreneurship
Development Institutes (EDIs). The main objectives of the scheme are: promoting Business
Entrepreneurship - I 210
Entrepreneurship entrepreneurship for creating self-employment through enterprise creation;
Development Programmes facilitating creation of training infrastructure; and supporting research on
entrepreneurship related issues.
The Office of DC (MSME) conducts a large number of vocational and
NOTES
entrepreneurship development programmes. While vocational training is
implemented by various Departments of the Government, the responsibility of
entrepreneurship development lies largely with the Office of DC (MSME). The
EDPs are conducted through MSME-DIs, with focus on entrepreneurial
development coupled with specific skills relating to trades like electronics, electrical,
food processing, etc which enables the trainees to start their own ventures. The
programmes covered include the following:
1. Industrial Motivation Campaigns (IMCs)
2. Entrepreneurship Development Programmes (EDPs)
3. Entrepreneurship Skill Development Programmes (ESDPs)
4. Management Development Programmes (MDPs)
These programmes are of short duration and the curriculum is designed
based on the needs of the industry and are customized, if required by the clients.
20% of the targeted EDP and ESDP of the duration of 2 weeks and 6 weeks
respectively, are conducted exclusively for the weaker sections of the society
(SC/ST/Women/Physically handicapped) for which no fee is charged.
The course contents of the EDPs are designed to provide useful information
on products/process design, manufacturing practices involved, testing and quality
control, selection and usage of appropriate machinery and equipments, project
profile preparation, marketing avenues/techniques, product/service pricing, export
opportunities, infrastructure facilities available, finance and financial institutions,
cash flow etc.
Courses conducted under ESDPs are in machine shop practice, heat
treatments, electroplating, sheet metal, welding, tool and die making, glass and
ceramics, industrial and art wares, herbal cosmetics, fashion garments, hosiery,
food and fruit processing industries, information technology, hardware maintenance,
soap and detergents, leather products/novelties, servicing of household electrical
appliances and electronic gadgets, gem cutting and polishing, engineering plastics,
tour operators, mobile repairing, beautician etc.
Courses conducted under MDPs are in industrial management, human
resource management, marketing management, export management and
documentation, materials management financial management, information
technology and exports, ISO 9000, WTO, IPR etc.
The applications are invited from the candidates through advertisement in
newspapers and websites of the Office of DC (MSME) as well as MSME-DIs.
The Scheme is implemented through MSMEDIs and branch MSMEDIs.
A large number of national level, state level institutions, NGOs, Institutes
of Entrepreneurship Development (IEDs)/Centres of Entrepreneurship
Development (CEDs), and educational institutes are involved in EDPs.

Business
Entrepreneurship - I 211
Entrepreneurship
12.5 Phases of EDPs Development Programmes

To begin with, organizers of EDPs select a suitable area for conduct of


EDP from existing government policy guidelines on the basis of socio-economic
NOTES
reports. Then techno-economic survey of the selected area is conducted in terms
of feasibility study. Then potential and existing entrepreneurs interested in starting
new business/expansion/diversification are identified. Training is imparted. The
last phase is follow up and consultancy services.
An EDP consists of the following three broad phases:
1. Initial or pre-training phase
2. Training or development phase
3. Post training phase or follow up phase.
These three phases are discussed in turn.

1. Pre training or Initial phase


Pre-training phase includes identification, selection and initial motivation
of potential entrepreneurs. It consists in creation of a proper atmosphere and
awareness among people through publicity and promotional efforts about
opportunities available. It includes preparation of distinct dossiers highlighting the
industrial potential. Also it deals with selection of trainee entrepreneurs on scientific
lines through a well-structured application blank and written/psychological tests
and personal interviews.
This preparatory phase includes the activities required to launch EDP.
This phase includes the following activities:
i. Environmental survey to identify viable business opportunities,
identification of operationally promising area, generally a district
ii. Selection of a course coordinator/project leader to coordinate the
programme
iii. Arrangement of infrastructural facilities for the programme
iv. Preparation of need-based inputs in training syllabus
v. Formation of selection committee for selecting trainees
vi. Establishing contacts with business personalities, NGOs, related agencies
and tie up of guest faculty for the program
vii. Contacting support agencies like DICs, SFCs, banks, NSIC etc to receive
support in implementing the programme
viii. Promotional campaign through publicity with the help of print/electronic
media, leaflets, posters etc for reaching out to potential trainees
ix. Preparation of application forms and making them available at various
places alongwith instructions
x. Preparation of budget, obtaining administrative sanctions
xi. Designing tools and techniques for selecting the trainees Business
Entrepreneurship - I 212
Entrepreneurship xii. Selection of entrepreneurs
Development Programmes
There are three important stages in this initial stage of entrepreneurship
development, viz. selection of potential entrepreneurs, target groups and validation
for selection.
NOTES
The entrepreneur identification and selection mechanism, which precedes
training, is based on the following assumptions:
Not everybody can become an entrepreneur, as an entrepreneur one must
have certain traits. Such traits are identifiable and measurable through some
psychological and behavioural tests supported by social indices. People assessing
these traits can demonstrate that these traits can be developed to acquire necessary
dimensions of entrepreneurship.
In this manner, selection of potential entrepreneurs will be based on creating
awareness about training programme, on identifiable entrepreneurial traits among
the prospective candidates, and finally through personal interviews.
Proper identification and selection of potential entrepreneurs is the most
important component of this phase. The minimum level of eligibility has to be
ensured in terms of psychological traits like achievement motivation, risk taking
propensity, independence, leadership, initiative, leadership. Socio personal
characteristics such as age, education, size and type of family, caste, family
background, work experience, financial resources, type of business; and motivation
factors such as sources of encouragement, credibility, endurance are taken into
consideration. In this manner, top 25 to 30 applicants are selected after screening
their applications on the basis of demographics and socio-cultural data, motivation
factors and psychological test results.
The potential entrepreneurs are heterogeneous in terms of their general
background like religion, castes, communities, education, traditional occupations,
etc. Some may possess technical knowledge. Some may possess general
knowledge because of their experience in various jobs. Due to diversity of talent,
expertise and specialties of various kinds, it is desirable to classify people into
different groups and then select particular group(s) suitable for training
programmes.
Potential entrepreneurs between 18 to 35 years of age are usually
considered for selection. Special consideration is given to the disadvantaged groups
like scheduled castes, scheduled tribes, women and minorities. Applicants are
called for a personal interview after screening the applications and administering
a written test to assess their entrepreneurial tendencies. Those possessing a
developable level of entrepreneurial traits are selected.
The selection process of potential entrepreneurs must be scientific in nature.
Those who show more potential for entrepreneurship should be distinctly identifiable
than those who are not suitable for entrepreneurship. Those who were unable to
show such potential should be rejected.
In all, pre-training stage involves selection of potential entrepreneur and
arrangement of facilities for imparting training to the participants in the best possible
manner.

2. Training or Development Phase


The second phase comprises actual training of Business
potential entrepreneurs.
Training potential entrepreneurs and providing them proper guidance for- Isetting
Entrepreneurship 213
up enterprise and preparing them for entrepreneurship constitute the foundation Entrepreneurship
of EDP. It is the crucial phase of the entire process of developing entrepreneurship. Development Programmes
Most of the ED institutes generally conduct training programmes of four to six
weeks duration on full time basis. Prospective entrepreneurs are identified and
scientifically and systematically selected for training. During this phase the training NOTES
program is implemented to develop need for achievement i.e. motivation and
skills among the participants. The main objective is to bring desirable changes in
behavior of participants. The key inputs include behavioural inputs, information
inputs, business opportunity identification and guidance, formulation of preliminary
business plan and market survey, business plan preparation, managerial inputs,
marketing skills, soft skill development, legal system related inputs and technical
orientation/training and skill development.
The various stages through which training in entrepreneurship development
is imparted are: behavioural inputs and business opportunity guidance; information
and technical inputs; and management inputs.
Achievement motivation training is imparted to prospective entrepreneurs
to develop entrepreneurial traits such as need to achieve, initiative, undertake
risks etc. Entrepreneurial traits are not found commonly in our society. There is a
need to intensify self-awareness, enhance self-esteem, improve self-confidence,
and help the prospective entrepreneurs to define their goals practically and work
towards their realization.
Then the next important phase is identification of promising business
opportunities. Guidance and counseling sessions are conducted for facilitating the
choice of appropriate business opportunity on the basis of experience, expertise,
family background, financial position, competence etc. through interaction with
successful industrialists, traders, bankers, merchants, consultants, professionals
etc. The training ultimately helps participants to complete project report which
helps to set up venture. In the process of preparing project report, the participant
is expected to conduct market surveys and prepare project plans. The participant
gets exposed to field experience and thought process with reference to different
aspects of project feasibility financial, economic, technical, human resource
point of view etc.
Small entrepreneur has to manage his/her enterprise. He/she needs to
look after various business decisions such as marketing, finance, purchase,
personnel etc. He/she cannot afford to appoint specialists. All round managerial
experience and understanding can be developed through training sessions.

Table 12.1 Training Phase of EDP


Focus Inputs Action plan
Entrepreneur Behavioral inputs Achievement motivation
training, Soft skill
development
Enterprise initiation Business opportunity Business plan
identification, Information preparation, Feasibility
inputs, Technical inputs study
Enterprise management Management inputs Plant visits, In-plant
training, Market survey
Business
Entrepreneurship - I 214
Entrepreneurship
Development Programmes
Figure 12.1 Phases of E.D.P.

NOTES

3. Post-training Follow up phase


Post-training phase refers to support for establishment of business
enterprise and provision of finance, infrastructure, raw materials, machinery etc.
After formal training, project implementation starts. The objective of EDP is not
only to strengthen entrepreneurial characteristics, but also to help trainees launch
their ventures. Adequate follow-up and counseling of participant entrepreneurs is
needed during implementation stage and when the enterprise starts commercial
production. During this phase, post-training support services are rendered to the
participants after successful completion of EDP. While implementing the action
plan for establishing enterprise, potential entrepreneur may confront a number of
problems. Post training phase help entrepreneur in sorting out the problems through
counseling support. Post-training support involves follow up on loan applications
for finance, facilitating infrastructure such as land and/or factory shed, power etc
and trouble-shooting. This phase also involves collection of data and monitoring
progress of the trainees. This phase usually stretches up to 6 to 8 months and in
some cases even up to one year. Usually, follow-up action meetings are organized
thrice a year after the completion of training and various methods are used for
follow-up such as postal questionnaire, telephonic follow-up, personal contact by
trainer, group meetings etc.
This phase involves assessment of the objectives of the program. This
phase reviews the pre training work, the process of training program and post
training approach. It is necessary to see the extent to which objectives of the
program have been achieved. There is need to assess how many participants
have actually started their own enterprises after completing the training.
Every EDP has to pass through these phases and each phase involves a
considerable amount of work, sometimes within the organization.
As shown above, the integrated model of EDP includes pre-training and
training modules consisting of selection, motivation, opportunity guidance, and
management inputs. Also it provides for post-training module comprising follow-
up inputs to assist trained entrepreneur to start a business enterprise.

12.6 EDP Curriculum


The ED institutes usually follow a uniform course curriculum for EDPs
conducted in the country. The duration of the training is generally four to six
weeks and the ideal intake in a group is 30-35. Objectives of EDP decide the
contents of EDP. The contents of EDP differ on the basis of the target group for
Business
Entrepreneurship - I 215
which the EDP is being designed. In all, potential entrepreneurs need to be Entrepreneurship
acquainted with the dynamics of entrepreneurship development and equipped with Development Programmes
managerial and technical skills. The potential entrepreneurs are required to gain
fundamental knowledge of entrepreneurship and enterprise during establishment
and its regular functioning. Training inputs, in general, are of the following types: NOTES
1. Awareness about entrepreneurship: The trainees are exposed to general
knowledge about entrepreneurship such as role of entrepreneurs and
small enterprises, small business sector, characteristics of economy, role
of entrepreneurs in economic development, history of entrepreneurship,
entrepreneurial career, charms of being an entrepreneur, entrepreneurial
personality and behavior, entrepreneurial qualities, facilities available for
starting small enterprises, identification and selection of business
opportunities etc.
2. Achievement Motivation Training (AMT): A crucial training input involves
inducing and increasing need for achievement, initiative, creativity, self-
confidence, positive attitude among the respondents with the help of
various methods of behavioural psychology. There is a need to create
self-awareness. Motivation training enables them to ventures. For
developing entrepreneurial competencies, inputs regarding entrepreneurial
traits and motivational inputs are included in the course curriculum. They
learn to take calculated risks, strive for excellence, and use feedback
for improvement.
3. Support systems and procedures: Training includes information about
support available from various institutions and promotional agencies for
setting up and managing small enterprises. It also includes procedural
formalities for approaching them, applying and getting support from them.
One of the objectives of EDP is to create awareness about government
policies and procedures, services, institutional set up for promotion of
small enterprises.
4. Essentials of Management: Running an enterprise requires managerial
skills. A small entrepreneur cannot afford to employ management
specialists; obviously basic knowledge about various functional areas of
management has to be imparted to the aspiring entrepreneurs. Potential
entrepreneurs need to be aware about the basics of functional areas of
management like marketing, finance, production and human resource
management.
5. Project feasibility study: Budding entrepreneurs are given information
and counseling about various business opportunities available. They are
trained on project report preparation for some products of their choice.
They are given guidelines on feasibility/viability analysis of some projects
with reference to marketing, financial, technical, organizational and social
aspects. They are imparted inputs on market analysis, project appraisal,
technical and commercial viability analysis.
6. Field visits and Market exposure: Plant visits, interaction with successful
entrepreneurs, market surveys are arranged to familiarize the trainees
with real life business environment. Successful entrepreneurs are invited
in EDPs to share their experiences with the participants as role models.
EDP curriculum is designed in such a manner that the trainee entrepreneurs
become well conversant with pros and cons of business dynamics and they get Business
Entrepreneurship - I 216
Entrepreneurship fully prepared to venture into entrepreneurship and face various challenges, and
Development Programmes adversities with reference to enterprise creation and management.

12.7 Evaluation Of EDP NOTES


EDP first began in 1970 in Gujarat. It has now become a national movement.
Hundreds of EDPs are conducted each year in our country by more than 650
organisations to impart entrepreneurial training to thousands of participants.
According to an evaluation study conducted by EDII, Ahmedabad, it has been
proved that the performance of EDPs across the states is not uniform. The actual
start-up rate as a result of EDP varies between 9 and 50 per cent leading to the
national start-up rate of about 26 per cent which is not at all impressive.

Criteria for Evaluation of EDPs


Developing as well as developed nations have understood the importance
of entrepreneurship development. Entrepreneurship development has gained
momentum in our country in recent years. EDPs play an effective role in developing
entrepreneurship. EDPs impart entrepreneurial training to the aspirants. It is
expected that EDP participants should start their own enterprises after completion
of the programme.
The criteria that are being used by behavioural scientists for evaluation of
EDPs are creation of new enterprises, creation of new job opportunities,
employment generation, increase in sales, turnover, profit, improvement in quality
of product/service, repayment of loans, enterprise expansion, diversification etc.
Qualitative evaluation of EDP involves assessing effectiveness of EDPs
in developing need for achievement among entrepreneurs. To assess the
effectiveness of EDPs in developing need for achievement, behavioural scientists
have used the criteria involving activity level of the respondents, new enterprises
established, total investments made, investments in fixed assets, number of people
employed, number of jobs created, increase in profit, increase in sales, quality of
product/service produced, and quicker repayment of loans. In some behavioural
experiments, impact of EDPs is measured with the help of indices relating to
entrepreneurial behavior. The entrepreneurial behavior is measured on four
dimensions like planning orientation, achievement orientation, expansion orientation
and management orientation.

Problems in EDP training


The output of EDPs is not found to be impressive. In general, there is lack
of entrepreneurial environment and culture. Several problems are found in organising
and conducting EDP training. There is a shortage of adequate number of specialized
ED organizations. Some training institutes are not serious about identification and
selection of potential entrepreneurs. Selection of wrong persons for training may
hamper training effectiveness. Improper identification of projects, identification
and selection of wrong projects may affect training output. Some of them are not
clear about the proper methods and procedures for identifying promising
entrepreneurs. They seem to have a casual approach regarding follow-up after
training. Some ED institutes lack in commitment and sincerity in conducting EDPs.
Some training institutes have limited manpower. They do not have sufficient number
of trainers to motivate people and to impart training. Trainer motivators may not
be competent. They may not be effective in motivating trainees to start their own
enterprises. They lack in networking with other support agencies.
Business Institutional
Entrepreneurship - I 217
commitment for supporting entrepreneurs seems to be rather low at local level. Entrepreneurship
Some ED organizations conduct EDPs as a means to generate income. Development Programmes
Unconcerned and indifferent attitude of support agencies, non-conducive
environment, poor follow-up or support back-up, inadequate counseling support
after training, lack of forward and backward linkages, non-availability of various NOTES
inputs such as power, water, raw material etc. and infrastructural support result in
poor performance of entrepreneurs.
It is seen that design and development of course contents and curriculum
of EDPsis as per the planned objectives. However, several problems and difficulties
are observed relating to implementation of EDPs.

Limitations of EDPs
EDPs are conducted by various organizations government organizations,
public financial institutions, nationalized banks etc as their primary or subsidiary Check Your
activities. Several thousand entrepreneurs have been trained and a few thousands Progress
are being trained each year. However, it is difficult to get reliable, regular, time
related data pertaining to the usefulness of EDPs in terms of developing all-round, 6. To undertake
competent and successful first generation entrepreneurs and generating viable entrepreneurship
opportunities for permanent self-employment. There is no provision of any kind of development and
procedure to regularly monitor and periodically evaluate the results of an EDP training on regular
conducted by an organization with funds from a public financial institution, basis, the Ministry of
government, or nationalized banks. There is no provision for any obligation to Micro, Small and
monitor progress and results of EDPs conducted even by funding agencies. There Medium Enterprises
is no organization which keeps an eye on conduct of EDPs with respect to the (MSME) has set up
effectiveness of EDPs conducted. There is complete lack of accountability to three national level
monitor and evaluate results in financing EDP activity in India. The average training Entrepreneurship
of six to twelve weeks provided through EDP is completely free for selected Development
potential entrepreneurs as the entire cost is borne by sponsoring financial institution. Institutes (EDIs).
Even for the EDP conducting organization, this activity is costless because its These are ------------
overheads and direct costs are paid for by the funding organization. No performance
criteria is fixed for the agency conducting EDP and nor for the participant
entrepreneurs in terms of use and results of training inputs. Potential entrepreneurs
are selected carefully on the basis of pre-determined criteria and care is taken to
select developable level of entrepreneurial talent. No fixed criteria of this kind is
found for ensuring whether carefully selected potential entrepreneurs become or
try to become entrepreneurs or not. No one keeps track for observing whether
trained potential entrepreneurs become entrepreneurs within a reasonable period
after completion of training or not.

12.8 Strategy for Ensuring Success of EDP


Not anybody or everybody can become a successful entrepreneur. Proper
identification and selection of potentially promising persons certainly enhances
success rate.
Needs and requirements of individuals and target groups must be kept in
view. No single, standard module will serve the purpose. A rigid and uniform syllabus
may not be desirable. Rather special needs of the target audience should be taken
into consideration. need based flexible approach in training will bring more effective
results.
Strengths, weaknesses of individuals should be recognized along with their
family background. There is a need of individual counseling. Family background, Business
work experience, formal educations etc are some other elements which require Entrepreneurship - I 218
Entrepreneurship special attention and focus in need-based training. There is a need of flexibility
Development Programmes and imagination in design and development of EDP training.
Proper selection and sound need-based training are important for
satisfactory results. EDP has to be designed and delivered in an integrated and
NOTES
comprehensive manner. All the phases and activities of EDP must be integrated
with each other and focused on objectives. Varied methodologies should be properly
adopted in the training programme. Formal classroom training, individual counseling,
What is more important is institutional support. Availability of adequate
and timely financing and release of needed organizational resources contributes
for effective results.

12.9 Summary
Entrepreneurship development is one of the priorities of our country. It is
a key element for promotion of micro, and small enterprises, particularly, the first
generation entrepreneurs. In the light of liberalization, privatization, globalization
and digitization; increasing need is being felt for spread of entrepreneurial culture
in our country. Government is making all round efforts for creating entrepreneurial
society through EDPs i.e. entrepreneurial training.
The main objectives of EDP are development of need for achievement
and enterprise creation. EDPs aim to strengthen entrepreneurial quality/motivation
of selected entrepreneurs, know the pros and cons of being an entrepreneur, analyse
environment related to small enterprises, select product/project, understand the
process and procedure of setting up of small enterprise, be aware about the support
system needed for launching enterprise, and acquire basic management skills.
EDPs include inputs like awareness about entrepreneurship, motivation,
business opportunities, project feasibility study, managerial skills, and support system.
This process involves three phases: pre-training phase, training phase, and post-
training phase. The duration of EDPs ranges from one week to six weeks.
EDPs are evaluated on the basis of development of achievement motivation
among the trainees which get reflected through entrepreneurial behavior. The
success of EDP is directly seen from the number of enterprises started by the
trainees after completion of the training programme.
EDPs are designed with an aim of encouraging self-employment. It imparts
training and motivates potential and existing entrepreneurs to start new business
or diversify and expand the existing one. It helps employment and wealth creation
among educated unemployed youth.
Some problems of EDPs are concerned with trainers, with trainees, ED
organizations, the support organizations, and the government.

12.10 Key Terms


Need for achievement: An individuals desire for significant
accomplishment, mastering of skills, control, or high standards; a
personality trait characterized by an enduring and consistent concern
with setting and meeting high standards of achievement

Business
Entrepreneurship - I 219
Entrepreneurship
12.11Questions and Exercises Development Programmes

Questions
1. Entrepreneurs are made, not born. Discuss. NOTES

2. Explain the need for and objectives of EDPs.


3. How will you evaluate EDP?
4. Express your views regarding the course contents and curriculum of
EDPs.
5. EDP is a process of grooming entrepreneurs. Comment.
6. What do you mean by entrepreneurship development? Bring out the
significance of EDP.
7. What are the objectives of entrepreneurial training?
8. Can you suggest some guidelines for improving the effectiveness of
EDPs?
9. Discuss the major problems in EDPs.

Exercise
1. Get information about an EDP at local level and attend it.

Multiple Choice Questions


1. Which of the following alternatives is wrong
i. The Kakinada experiment could be considered as a basis for the
present-day inputs on behavioural aspects.
ii. Entrepreneurs are born and cannot be developed
iii. Entrepreneurs can be developed and trained to undertake
ventures
iv. The achievement motivation was found to have a positive impact
upon the activity level of businessmen
2. Which of the following institute(s) conducts EDPs?
i. National Institute for Micro, Small and Medium Enterprises (NI-
MSME)
ii. Indian Institute of Entrepreneurship (IIE)
iii. National Institute for Entrepreneurship and Small Business
Development (NIESBUD)
iv. All the above
3. Which of the following is not an objective of EDP?
i. To create awareness about entrepreneurship
ii. To develop and strengthen their motivation Business
Entrepreneurship - I 220
Entrepreneurship iii. To provide solution for family problems
Development Programmes
iv. To impart managerial skills required to run a small enterprise
4. Choose false statement from the following
NOTES
i. Pre-training phase includes identification, selection and initial
motivation of potential entrepreneurs
ii. Proper identification and selection of potential entrepreneurs is
the ost important component of the preparatory phase
iii. Potential entrepreneurs between 18 to 35 years of age are usually
considered for selection
iv. Entrepreneur identification and selection mechanism is based on
the assumption that everybody can become an entrepreneur
5. Entrepreneur identification and selection mechanism is based on the
following assumption
i. Not everybody can become an entrepreneur
ii. As an entrepreneur one must have certain identifiable and
measurable traits
iii. None of the above
iv. Both i and ii
6. Preparatory phase of EDP includes the following activity
i. Environmental survey to identify viable business opportunities
ii. Arrangement of infrastructural facilities
iii. Both i and ii
iv. None of the above
7. Which of the following is an important initial stage of entrepreneurship
development
i. Selection of potential entrepreneurs
ii. Selection of target groups
iii. Validation for selection
iv. All the above
8. Select the correct alternative from the following alternatives
i. Post-training phase refers to support for establishment of business
enterprise and provision of finance, infrastructure, raw materials,
machinery etc.
ii. The objective of EDP is not only to strengthen entrepreneurial
characteristics, but also to help trainees launch their ventures.
iii. i and ii are true
iv. i and ii are false Business
Entrepreneurship - I 221
9. EDP curriculum comprises of Entrepreneurship
Development Programmes
i. Awareness about entrepreneurship
ii. Achievement motivation training
NOTES
iii. Support systems and procedures
iv. All i, ii, and iii
10. Project feasibility study is concerned with
i. Marketing and financial aspects
ii. Technical, organizational and social aspects
iii. Both i and ii
iv. None of the above

Answers
Check Your Progress

1. Gujarat Industrial Investment Corporation (GIIC)

2. Technocrats, retired defense personnel, woman entrepreneurs,


physically handicapped, ST & SC persons.

3. Need for achievement (N-Ach)

4. National Institute for Micro, Small and Medium Enterprises (NI-


MSME), Indian Institute of Entrepreneurship (IIE), and National
Institute for Entrepreneurship and Small Business Development
(NIESBUD)
5. Does not have

Multiple Choice Questions


1. ii
2. iv
3. iii
4. iv
5. iv
6. iii
7. iv
8. iii
9. iv
10. iii

Business
Entrepreneurship - I 222
Entrepreneurship
Development Programmes 12.12 Further Reading
Faculty Development Programme, Suggested Reading/Reference Material,
Entrepreneurship Development Institute of India, Ahmedabad
NOTES
Gupta C. B, Srinavasan N. P, Entrepreneurship Development in India,
Sultan Chand and Sons, New Delhi, 2005.
Reddy P. Narayana, Entrepreneurship Text and Cases, Cengage
Learning, Delhi, 2010
Sarwate Dilip M., Entrepreneurial Development Concepts and Practices,
Everest Publishing House, Pune, 1996

Business
Entrepreneurship - I 223
NOTES

Business
Entrepreneurship - I 224