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ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT

UNIT I

Definition

 Entrepreneur/ship, just like management, has no single definition.


 An entrepreneur is a person who is action oriented, highly motivated, takes risks to
achieve goals
 An entrepreneur is a person who establishes his own business with the intention of
making profits
 An entrepreneur is a person who only provides capital without taking active part in
the leading role in an enterprise.
 An entrepreneur is a one who innovates, raise money, assemble input, choose
managers and set the organization growing.

key elements of entrepreneurs

 Vision (identifying emerging opportunities)


 Innovation (creating new business or new ways of doing something)
 Risk bearing (taking risk and facing uncertainty)
 Organizing (collection and coordination of the necessary resources)

Entrepreneur & Entrepreneurship

 Entrepreneurship, like an entrepreneur, has no single definition.


 Entrepreneur is a person while entrepreneurship is a process.
 Entrepreneurship is a process under taken by an entrepreneur to create incremental
value and wealth by discovering investment opportunities, organizing enterprises,
undertaking risks and economic uncertainty and there by contributing to economic
growth

Historical Perspective
 During the ancient period the word entrepreneur was used to refer to a person
managing large commercial projects through the resources provided to him.
 In the 17thCentury a person who has signed a contractual agreement with the
government to provide stipulated products or to perform service was considered as
entrepreneur.

 In the 18thCentury the first theory of entrepreneur has been developed by Richard
Cantillon. He said that an entrepreneur is a risk taker. If we consider the merchant,
farmers and /or the professionals they all operate at risk. For example, the merchants
buy products at a known price and sell it at unknown price and this shows that they
are operating at risk.

 The other development during the 18thCentury is the differentiation of the


entrepreneurial role from capital providing role. The later role is the base for today’s
venture capitalist.

 In the late 19thand early 20thCentury an entrepreneur was viewed from economic
perspectives. The entrepreneur organizes and operates an enterprise for personal gain.

 In the middle of the 20thand early 21thCentury the notion of an entrepreneur as an


inventor was established.

Role of entrepreneurs within the economy


 Capital formulations: Entrepreneurs mobilize the idle saving of the public through
the issue of industrial securities.
 Improvement in per capita income
 Generation of employment
 Improvement of the living standard
 Economic independence
 Balances regional development
 Innovation: the commercial application of invention
 Imitating role

Entrepreneurs, Invention and innovation

 Entrepreneurs
 Invention
 Innovation
Areas of Innovation
 New product
 New Services
 New Production Techniques
 New Way of Delivering the Product or Service to the Customer
 New Operating Practices
 New Means of Informing the Customer about the Product
 New Means of Managing Relationship within the Organization
 New Ways of Managing Relationships between Organizations

Small Businesses
 Small business is a business which is independently owned and operated, not
dominated in its field of operation and meets certain standard of number of employee
and capital.
 In general there are two approaches to define a small business; measures of the size
and economic/ control criteria
Small business failure factors

 Management incompetence
 Poor financial control
 Lack of adequate capital
 Over investment in fixed asset
 Failure to plan current as well as future operation
 Failure to adopt proper inventory control system
 Improper Attitude (The entrepreneur may not respect time, employees and may have
lazy lifestyle and dictatorial style of work)
 Inadequate marketing plan
 Incorrect market identification
 Poor distribution channel
 Weak marketing communication or promotion

How to avoid the pitfalls/difficulties of a small business

 Know your business in depth:


 Have a Good Relation with Stake Holders
 Prepare business plan
 Managing financial resources
 Understanding financial statement
 Learn to manage people effectively
 Keep in tune with yourself
 Take up short professional courses in management (entrepreneurship):
 Be sensitive to your customers

Setting up a small business


 The first and for most step in starting a small business is to find out a suitable
business idea and give a practical shape to the idea.
 To think of a goal for the business in the long run rather than to look for the
immediate tomorrow is called Basic Business Idea.
 The basic business idea is to meet the broadest needs of the customers and has a long
life perhaps from 5-50years.
 The basic business idea facilitates choice of product under an overall plan.

 The product line consists of different families of products.


 The product range on the other hand includes different sizes of the product within the
product line.
 In order to establish a business venture with an entrepreneurial system an entrepreneur
needs to take the following steps
1. Search for business idea
2. Process the idea
3. Select the best idea

Characteristics of Entrepreneurship
 Ability to take risks
 Innovation
 Visionary
 Leadership
 Open minded
 Confident and well informed
 Profit maker
 Challenge taker
 Is an Agent (Eco. And Change agent)

Qualities of Entrepreneur
 Self Confidence
 Tasks (or) Result oriented
 Risk taker
 Leadership
 Future Oriented

Type of Entrepreneurship
 Based on type of Business
o Trading Entrepreneur (only buying and selling)
o Manufacturing Entrepreneur
o Agricultural Entrepreneur
 Based on use of Technology
o Technical Entrepreneur (science and technology venture is undertaken)
 Non-Technical Entrepreneur
 Based on ownership
o Private Entrepreneur (sole owner)
o State entrepreneur (trading is undertaken by the state or the government)
o Joint Entrepreneur ( Pvt. and Govt. Jointly run business)
 Based on Gender
o Men entrepreneur
o Women entrepreneur
 Based on Enterprise
o Small scale entrepreneur (Investment made upto 1 crore)
o Medium scale entrepreneur (1 crore to 5 crore)
o Large scale entrepreneur ( Above 5 crore)

Function of entrepreneur

 Innovation
 Assumption of Risk
 Research
 Development of Management skill
 Overcome resistance to change
 Catalyst of economic development

Factors to be considered before starting a business

 Knowledge/Expertise
 Market/Demand
 Total project cost
 Finance / Capital
 Competition
 Location
 Laws, rules and regulations

Merits and demerits of family entrepreneur


Merits
 Common values
 Strong commitment
 Loyalty
 Stability
 Decreased cost
Demerits
 Lack of skill & entrepreneur
 Family conflict
 Favouritism
 Succession planning

Role of entrepreneurship in economic development


1. Employment opportunities
Entrepreneurs employ labour for managing their business activities and provides employment
opportunities to a large number of people. They remove unemployment problem.
2. Balanced Regional Development
Government promotes decentralized development of industries as most of the incentives are
granted for establishing industries in backward and rural areas. Thus, the entrepreneurs to
avail the benefits establish industries in backward and rural areas.

They remove regional disparities and bring balanced regional development. They also help to
reduce the problems of congestion, slums, sanitation and pollution in cities by providing
employment and income to people living in rural areas. They help in improving the standard
of living of the people residing in suburban and rural areas.

3. Mobilization Of Local Resources


Entrepreneurs help to mobilize and utilize local resources like small savings and talents of
relatives and friends, which might otherwise remain idle and unutilized. Thus they help in
effective utilization of resources.

4. Optimization Of Capital
Entrepreneurs aim to get quick return on investment. They act as a stabilizing force by
providing high output capital ratio as well as high employment capital ratio.

5. Promotion of Exports
Entrepreneurs reduce the pressure on the country’s balance of payments by exporting their
goods they earn valuable foreign exchange through exports.
6. Consumer Demands
Entrepreneurs produce a wide range of products required by consumers. They meet the
demand of the consumers without creating a shortage for goods.

7. Social Advantage
Entrepreneurs help in the development of the society by providing employment to people and
paves for independent living They encourage democracy and self-governance. They are adept
in distributing national income in more efficient and equitable manner among the various
participants of the society.
8. Increase per capita income
Entrepreneurs help to increase the per capita income of the country in various ways and
facilitate development of backward areas and weaker sections of the society.

9. Capital formation
A country can attain economic development only when there is more amount of investment
and production. Entrepreneurs help in channelizing their savings and savings of the public to
productive resources by establishing enterprises. They promote capital formation by
channelizing the savings of public to productive resources.

10. Growth of capital market


Entrepreneurs raises money for running their business through shares and debentures.
Trading of shares and debentures by the public with the help of financial services sector leads
to capital market growth.
11. Growth of infrastructure
The infrastructure development of any country determines the economic development of a
country, Entrepreneurs by establishing their enterprises in rural and backward areas influence
the government to develop the infrastructure of those areas.
12. Development of Trader
Entrepreneurs play an important role in the promotion of domestic trade and foreign trade.
They avail assistance from various financial institutions in the form of cash credit, trade
credit, overdraft, short term loans, secured loans and unsecured loans and lead to the
development of the trade in the country.
13. Economic Integration
Entrepreneur reduces the concentration of power in a few hands by creating employment
opportunities and through equitable distribution of income. Entrepreneurs promote economic
integration in the country by adopting certain economic policies and laws framed by the
government. They help in removing the disparity between the rich and the poor by adopting
the rules and regulation framed by the government for the effective functioning of business in
the country.
14. Inflow of Foreign Capital
Entrepreneurs help to attract funds from individuals and institutions residing in foreign
countries for their businesses.

UNIT II

FACTORS AFFECTING ENTREPRENEURIAL GROWTH

1.ECONOMIC FACTORS

a)Lack of adequate overhead facilities:


Profitable innovations require basic facilities like transportation,communication power
supply etc. They reduce cost of production andincrease profit.
b)Non availability of capital
Inventions are capital oriented. In less developed countries most capitalequipmenthave to be
imported which involves foreign exchange which acts as adifficult problem.
c)Great risk
Risk is high in case of less developed countries as there is lack of reliableinformation,
markets for good and services is small etc.
d)Non availability of labor and skills
Though there is abundant labor supply there is generally scarcity of skills atall levels.’

2.SOCIAL FACTORS
A society that is rational in decision making would be favorable for decisionmaking.
Education, research and training is given less importance in lessdeveloped countries therefore
there is very little vertical mobility of labor.

3. CULTURAL FACTORS
Religious, social and cultural factors also influence the individual taking up on
entrepreneurial career, in some countries there is religious and cultural b e l i e f
that high profit is unethical. This t ype of belief inhibits growth
o f entrepreneurship.

4.PERSONALITY FACTORS

In less developed countries the entrepreneur is looked upon with suspicion.Publicopinion in


the less developed nations sees in the entrepreneur only a profitmaker and exploited.

5.MOTIVATION
Motivation is the act of stimulating someone or oneself to get a desiredcourse of action, to
push the right button to get the desired results.
MOTIVATING FACTORS
1. Education
2 . Occupational experience
3. Family background
4. Desire to work independently in manufacturing line
5. Assistance from financial institution
6. Availability of technology
7. Otherfactors

FACTORS INFLUENCING ENTERPRENURESHIP


The emergence of entrepreneurs in a society depends up
o n c l o s e l y interlinked social, religiou s, cultural, ps yc hological, and
p o l i t i c a l a n d economic factors.

FAMILY TRADITION:
Individuals who for some reason, initiate, establish maintain and
expand new enterprises generate entrepreneurship in s o c i e t y .
I t i s o b s e r v e d t h a t e n t r e p r e n e u r s g r o w i n t h e t r a d i t i o n o f t h e i r families
and society and accept certain values and norms from these sources.

RELIGIOUS, SOCIAL AND CULTURAL FACTORS:


Religious, socialand cultural factors also influence the individual taking up an entrepreneurial
career, in some countries there is religious and cultural belief that high profit is unethical.
This type of belief inhibits growth of entrepreneurship.

PSYCHOLOGICAL FACTORS:
The psychological factors like high needfor achievement, determination of unique
accomplishment, self confidence, creativity, vision, leadership etc, promote entrepreneurship
among individuals. On the other hand psychological factors like security, conformity and
compliance, need for affiliation etc restrict promotion of entrepreneurship.

POLITICAL FACTORS:
The political and also the political stability
of c o u n t r y i n f l u e n c e t h e g r o w t h o f e n t r e p r e n e u r s h i p . T h e p o l i t i c a l s y s
t e m , which promotes free market, individual freedom and private enterprise, will promote
entrepreneurship.

ECONOMIC POLICIES:
The economic policies of the government andother financial inst itutions and the
opportunities available in a society as a r e s u l t o f s u c h p o l i c i e s p l a y a
c r u c i a l r o l e i n e x e r t i n g d i r e c t i n f l u e n c e o n entrepreneurship.In view of
the haphazard development of economic zones, Government isencouraging the entrepreneurs
to establish their business in backward andtribal areas. This is primarily to arrest the
migration of people from thevillages to cities and to create employment opportunities
locally.Government is promoting such development by giving incentives like taxholidays
(both sales and income), subsidized power tariff, raw materials,transportation cost etc

Causes of slow growth of entrepreneurship in India


Entrepreneurship developed only in the beginning of the 19th century and
though the base for industrialization had been laid a century
ago. The following be the main reasons, which could be
r e s p o n s i b l e f o r l a c k o f initiative and entrepreneurial spirit among the Indians.
1.Caste System: -
These decided occupations for members from each caste.
The altitudes were r e s t r i c t i v e a n d t h e r e f o r e t h e r e w e r e n o c h a n g e
o f accumulating wealth and promoting production.
2.Agriculture: -
A g r i c u l t u r e w a s t h e m a i n o c c u p a t i o n . F a r m e r s a n d cultivators were
always in the clutches of the money lenders. The zamindars,nawabs and rajahs exploited
the laborers. They spent money on enjoymentand luxury and never risked
money in industry. Banking and commercial s y s t e m w a s a l s o a b s e n t s o e v e n
i f t h e r e w e r e s a v i n g s , t h e y c o u l d n o t b e utilized for productive use.

3.Educational System:
Talented young men were prepared to take
whitec o l l a r e d j o b s o r j o i n g o v e r n m e n t o r p r o f e s s i o n a l s e r v i c e s .
M a n y w e r e attracted towards politics. The result was that very few
young men got attracted towards becoming efficient, industrialists,
technicians, managers etc.

4. Colonial Rules:
The British rulers adopted discriminatory policy Rich Indian
businessman had special connections with foreign rulers and both satisfied their
self interests. Even the few insurance and banking services catered to the needs of
some rich Indian businessman, Britishers in India did also not encourage Industrialization.

5.Managing Agents:
- T h e r e w e r e j u s t a h a n d f u l o f p e o p l e w h o w e r e known to be having
managerial skills. On common basis, these agents would lend their skills to some top
industries. Industrialists could not manage their own units. They were always at the mercy of
the managing agents who filled t h e i r pockets with big chunks of
t h e c o m p a n i e s ’ p r o f i t s a n d t o o k f u l l advantage of Indian industrialists till
the managing agency system was abolished in 1970.
6.Joint Family System:
- Younger members of the family always depended on the Head who never gave any kind of
independence or encouraged units other than family business ones. A number of young men
were discouraged f r o m d i v e r s i f y i n g from family business and
d o i n g s o m e t h i n g n e w a n d different.

7.Religious attitude:
- Indians were very religious minded. They gave more time to religion than
to earning material wealth. Religion got priority over business.
S o m e r e l i g i o n s e v e n c o n d e m n e d e x c e s s e a r n i n g s a n d indulgence I in
comforts. Industrial activity was, therefore, given secondary consideration by the religious
Indians.

8.Mindset:
The mindset of the average Indian was never entrepreneurial. Our religious
literature and epics told us to have patience and to keep on working without
expecting the fruits of labor. This also killed the drive and desire to get into entrepreneurial
activities.

9.Recognition by the society:


- In earlier days, the heroes India were the social reformers and the politicians.
Now it is the era of sportsmen, models and film stars. It is sad that successful
or the struggling entrepreneurs h ave never been recognized as heroes.
Entrepreneurial activity did not get due importance in the India society.

10. Family Background:


Empirical studies have shown that a good number of entrepreneur
come from families with industrial backgrounds. U n f o r t u n a t e l y , o n l y a
few entrepreneurial communities in India made entrepreneurial
contribution.These communities could also n o t m a k e head way in the
entrepreneurial field on account of the colonial rule, lack of infrastructure and other facilities.
Entrepreneurship development could only take place after independence in India.
Entrepreneurship Development Programmes: Meaning, Need and Objectives of EDP
Meaning:
As the term itself denotes, EDP is a programme meant to develop entrepreneurial abilities
among the people. In other words, it refers to inculcation, development, and polishing of
entrepreneurial skills into a person needed to establish and successfully run his / her
enterprise. Thus, the concept of entrepreneurship development programme involves
equipping a person with the required skills and knowledge needed for starting and running
the enterprise.
Small Industries Extension and Training Institute (SIET 1974), now National Institute of
Small Industry Extension Training (NISIET), Hyderabad defined EDP as “an attempt to
develop a person as entrepreneur through structural training.
The main purpose of such entrepreneurship development programme is to widen the base of
entrepreneurship by development achievement motivation and entrepreneurial skills among
the less privileged sections of the society.”
According to N. P. Singh (1985), “Entrepreneurship Development Programme is designed to
help an individual in strengthening his entrepreneurial motive and in acquiring skills and
capabilities necessary for playing his entrepreneurial role effectively. It is necessary to
promote this understanding of motives and their impact on entrepreneurial values and
behaviour for this purpose.” Now, we can easily define EDP as a planned effort to identify,
inculcate, develop, and polish the capabilities and skills as the prerequisites of a person to
become and behave as an entrepreneur.

Need for EDPs:


 Entrepreneurs are the persons with a vision, with the urge to achieve and with the
abilities and competencies to bear the risks and achievements.
 EDPs play a vital role so that the entrepreneurs are motivated and develop
entrepreneurial skills to achieve the set goals.
 EDPs are essential for the country’s development in which the entrepreneurs use the
factors of production and generate employment opportunities.
 EDPs play a critical role in solving the problem of unemployment and involed in
proverty alleviation of the citizens of a country.
Objectives of EDP:
The major objectives of the Entrepreneurship Development Programmes (EDPs) are to:
a. Develop and strengthen the entrepreneurial quality, i.e. motivation or need for
achievement.
b. Analyse environmental set up relating to small industry and small business.
c. Select the product.
d. Formulate proposal for the product.
e. Understand the process and procedure involved in setting up a small enterprise.
f. Know the sources of help and support available for starting a small scale industry.
g. Acquire the necessary managerial skills required to run a small-scale industry.
h. Know the pros and cons in becoming an entrepreneur.
i. Appreciate the needed entrepreneurial discipline.
j. Besides, some of the other important objectives of the EDPs are to:
k. Let the entrepreneur himself set or reset objectives for his enterprise and strive for their
realization.
l. Prepare him / her to accept the uncertainty in running a business.
m. Enable him / her to take decisions.
n. Enable to communicate clearly and effectively.
o. Develop a broad vision about the business.
p. Make him subscribe to the industrial democracy.
q. Develop passion for integrity and honesty.
r. Make him learn compliance with law.