Professional Documents
Culture Documents
Entrepreneurship Development
Concept of Entrepreneurship
The word “entrepreneur” is derived from the French verb entreprendre, which means ‘to
undertake’. This refers to those who “undertook” the risk of new enterprises. In the earlier part
of the 16th century, the French men who organized and led military expeditions were referred to
as entrepreneurs. French tradition regarded an entrepreneur as a person translating a profitable
idea into a productive activity.
During the year 1700, the architects and contractors of public works were called entrepreneurs.
Quensnay recognized a rich farmer as an entrepreneur who manages and makes his business
profitable by his intelligence and wealth.
In economics and commerce, an entrepreneur is an economic leader who possesses the ability to
recognize opportunities for the successful introduction of new commodities, new techniques and
new sources of supply and to assemble the necessary plant and equipment, management and
labor force and organize them into a running concern. Whatever the economic and political setup
of a country, entrepreneurship is essential for economic development. Entrepreneurship can be
defined as a process of action an entrepreneur undertakes to establish his enterprise.
According to D.C. McClelland, entrepreneurship is doing things in a new and better way and
decision-making under the condition of uncertainty.
Benjamin Higgins has defined entrepreneurship as the function of foreseeing investment and
production opportunity, organizing an enterprise to undertake a new production process, raising
capital, hiring labor, arranging for the supply of raw materials and selecting to managers for the
day-to-day operation of the enterprise.
According to Peter F. Drucker, entrepreneurship is neither a science nor an art. It has a
knowledge base. Knowledge in entrepreneurship is a means to an end. Indeed, the ends largely
define what contributes knowledge in practice.
-J.B. Say
-Adam Smith
“Entrepreneurs are innovators who use the process of shattering the status quo of the existing
products and services to set new products, new services. He describes entrepreneurs as
innovators.”
-Joseph Schumpeter
“Entrepreneur is one who is involved in gathering and using resources to make use of
opportunities to produce results.”
-Peter F. Drucker
Process of Entrepreneurship
• Self Discovery
➢ Learning what they enjoy doing; examining their strengths and weaknesses.
Examining work experience and relating it to potential opportunities.
• Identifying Opportunities
➢ Looking for needs, wants, problems and challenges that are not yet being met, or
dealt effectively.
➢ Using creativity and past experience-devise new and innovative ways to solve a
problem or meet a need and then narrowing the field to one best idea.
• Planning
• Start-up
• Harvest
For example, Sabeer Bhatia, a co-founder of Hotmail, is also known for his other
business ventures and associations. After he sold Hotmail to Microsoft for $400 million,
he started a venture called Arzoo Inc-one of the first E-Commerce companies of the
world. He also founded a free messaging service called JaxtrSMS.
Earliest Period
An early example of the earliest definition of an entrepreneur as go-between is Marco Polo, who
attempted to establish trade routes to the Far East. As a go-between, Marco Polo would sign a
contract with a money person (forerunner of today’s venture capitalist) to sell his goods. A
common contract during this time provided a loan to the merchant-adventurer at a 22.5 percent
rate, including insurance. While the capitalist was a passive risk bearer, the merchant-adventurer
took the active role in trading, bearing all the physical and emotional risks. When the merchant-
adventurer successfully sold the goods and completed the trip, the profits were divided with the
capitalist taking most of them (up to 75 percent), while the merchant-adventurer settled for the
remaining 25 percent.
Middle Ages
In the Middle Ages, the term entrepreneur was used to describe both an actor and a person who
managed large production projects. In such large production projects, this individual did not take
any risks, but merely managed the project using the resources provided, usually by the
government of the country. A typical entrepreneur in the Middle Ages was the cleric-the person
in charge of great architectural works, such as castles and fortifications, public buildings, abbeys
and cathedrals.
17th Century
The re-emergent connection of risk with entrepreneurship developed in the 17th century, with an
entrepreneur being a person who entered into a contractual arrangement with the government to
perform a service or to supply stipulated products. Since the contract price was fixed, any
resulting profits or losses were the entrepreneur’s. One entrepreneur in this period was John Law,
a Frenchman, who was allowed to establish a royal bank. The bank eventually evolved into an
exclusive franchise to form a trading company in the New World- the Mississippi Company.
Unfortunately, this monopoly on French trade led to Law’s downfall when he attempted to push
the company’s stock price higher than the value of its assets, leading to the collapse of the
company.
Richard Cantillon, a noted economist and author in the 1700s, understood Law’s mistake.
Cantillon developed one of the early theories of the entrepreneur and is regarded by some as the
founder of the term. He viewed the entrepreneur as a risk taker, observing that merchants,
farmers, craftsmen and other sole proprietors “buy at a certain price and sell at an uncertain
price, therefore operating at a risk.”
18th Century
In the 18th century, the person with capital was differentiated from the one who needed capital.
In other words, the entrepreneur was distinguished from the capital provider (the present-day
venture capitalist). One reason for this differentiation was the industrialization occurring
throughout the world. Many of the inventions developed during this time were reactions to the
changing world, as was the case with the inventions of Eli Whitney and Thomas Edison. Both
Whitney and Edison were developing new technologies and were unable to finance their
inventions themselves. Whereas Whitney financed his cotton gin with expropriated British crown
property, Edison raised capital from private sources to develop and experiment in the fields of
electricity and chemistry. Both Edison and Whitney were capital users (entrepreneurs), not
providers (venture capitalists). A venture capitalist is a professional money manager who makes
risk investments from a pool of equity capital to obtain a high rate of return on the investments.
In the late 19th and early 20th centuries, entrepreneurs were frequently not distinguished from
managers and were viewed mostly from an economic perspective:
Briefly stated, the entrepreneur organizes and operates an enterprise for personal gain. He pays current
prices for the materials consumed in the business, for the use of the land, for the personal services he
employs, and for the capital he requires. He contributes his own initiative, skill and ingenuity in planning,
organizing and administering the enterprise. He also assumes the chance of loss and gain consequent to
unforeseen and uncontrollable circumstances. The net residue of the annual receipts of the enterprise after
all costs have been paid, he retains for himself.
In the middle of the 20th century, the notion of an entrepreneur as an innovator was established:
The function of the entrepreneur is to reform or revolutionize the pattern of production by exploiting an
invention or more generally, an untried technological method of producing a new commodity or
producing an old one in a new way, opening a new source of supply of materials or a new outlet for
products, by organizing a new industry.
The concept of innovation and newness is an integral part of entrepreneurship in this definition.
Indeed, innovation, the act of introducing something new, is one of the most difficult tasks for
the entrepreneur. It takes not only the ability to create and conceptualize but also the ability to
understand all the forces at work in the environment. The newness can consist of anything from a
new product to a new distribution system to a method for developing a new organizational
structure.
This ability to innovate can be observed throughout history, from the Egyptians who designed
and built great pyramids out of stone blocks weighing many tons each, to the Apollo lunar
module, to laser surgery, to wireless communication. Although the tools have changed with
advances in science and technology, the ability to innovate has been present in every civilization.
Theories of Entrepreneurship
Max Weber contended that entrepreneurial growth is dependent upon ethical value system of
the society concerned. The central figure of the Weber’s theory of social change consists in his
treatment of the protestant ethic and the spirit of capitalism. This theory also provides an analysis
of religion and its impact on entrepreneurial culture.
• According to Weber, the spirit of rapid industrial growth depends upon rational use of
technology, acquisition of money and its rational use for productivity and multiplication
of money.
These elements of industrial growth depend upon the individuals’ tendency of acquisition
and rational attitude towards action which are generated by ethical values.
• Weber analyzed his theoretical formulation by the relationship that he found between
protestant ethic and the spirit of capitalism. He found his thesis true about other
communities also.
He held that protestants progressed fast in bringing capitalism because their ethical value
system provided them with rational economic attitude, while the Jews and Jains failed to
develop industrial capitalism because of their value of ‘Paritha’ (the restriction on having
any contact with other communities).”
Weber’s theory suited the colonial rulers who wanted to encourage Entrepreneurship in India.
But it has been criticized by subsequent researchers on the ground that it was based on the
following assumptions which are invalid:
a) There is a single system of Hindu values,
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 Indians are not
averse to the spirit of capitalism. Hinduism has contributed a lot to the development of
entrepreneurs in India.
According to F.A. Walker, an entrepreneur is one who is endowed with more than average
capacities in the task of organizing and coordinating the factors of production i.e. land, labor,
capital and enterprise. Hence, profit, the entrepreneur gets depends on his efficiency and superior
talents.
• The trait theory holds that entrepreneurship developed because the individuals called
entrepreneur possessed certain specific traits or characteristics or competencies which
made them capable of generating new ideas and creating a new venture.
• The major traits responsible for the emergence of entrepreneurs include: creative and
innovative skills, propensity to take risks, ability of building an organization,
perseverance and foreseeability.
• Different studies emphasized different traits. The critics of the trait approach ask a logical
question as to whether those among us who do not choose to be entrepreneur, have
similar traits.
Economic Theory of Entrepreneurship
Some economic growth will take place in those cases particularly where economic conditions are
favorable. The chief advocates of this theory are G.F. Papanek (1962) and J.R. Haris (1970).
They hold the view that the economic incentives are the main drive for the entrepreneurial
activities.
In some cases, inner drives of the individual have been associated with economic gains.
Therefore, these incentives and gains are regarded as sufficient conditions for the emergence of
industrial entrepreneurship.
Joseph Schumpeter, an eminent economist, described entrepreneur as “one who seeks to reform
or revolutionize the pattern of production by exploiting an innovation or more generally, an
untried technological possibility for producing a new commodity or producing an old one in a
new way, by opening up a new source of supply of material or a new outlet of products.”
Thus, Schumpeter’s theory proposed that an entrepreneur sees the potential profitable
opportunities and exploits them. He was of the view that an entrepreneur does not only desire to
raise his consumption standard by earning handsome profits but aspires to find a private dynasty
also.
Therefore, according to Schumpeter, an entrepreneur is one who innovates, raises money,
collects inputs, organizes talent, provides leadership and sets the organization.
Schumpeter assigned an important role of innovation to the entrepreneur. He did not equate
entrepreneur with an inventor.
An inventor creates a new product while Schumpeter’s entrepreneur exists if the factors of
production are combined for the first time. A distinction between an inventor and innovator has
also been made by Schumpeter.
➢ According to him, an inventor discovers new methods and new materials whereas an
innovator utilizes inventions and discoveries in order to make new combinations and
thus produces better goods which give him more profits and satisfaction than before.
• Introduction of new goods, that is one with which consumers are not yet familiar or new
quality of goods;
• Introduction of a new method of production;
• Opening of a new market;
• Finding a new source of raw materials;
• Reorganization of process or enterprise.
Considering the above assumptions, it can be inferred that Schumpeter’s theory is applicable
more in developed economies and it may not be suitable for the underdeveloped economies. It is
because in underdeveloped economies, the path of innovation is blocked by scarcity of capital
and other obstacles. The other limitations of Schumpeter theory are as follows:
i. A person is an entrepreneur when he innovates but he ceases to be so when he settles
down and runs the established business.
ii. Schumpeter’s theory ignores risk-taking and organizing aspects of entrepreneurship.
iii. Schumpeter’s entrepreneur is a large scale businessman who creates something new. An
entrepreneur cannot have large scale operation from the very beginning.
According to the advocates of this theory, entrepreneurship is most likely to emerge when a
society has sufficient supply of individuals possessing particular psychological characteristics.
David McClelland developed his theory to explain the psychological roots of entrepreneurship.
He argued that certain needs are learnt and socially acquired as the individual interacts with the
environment. Such acquired needs or basic human motives drive individuals towards
entrepreneurial activities. He identified the following types of needs:
• Some people have a compelling drive to succeed and they strive personal achievement
rather than the rewards of success that accompany it.
• They have a desire to do something better or more efficiently than it has been done
before. This drive is the achievement need. From research into the achievement need,
McClelland found that high achievers differentiate themselves from others by their desire
to do things better.
• They seek situations where they can assume personal responsibility for finding solutions
to problems, where they can receive rapid feedback on their performance so that they can
set moderately challenging goals.
• High achievers are not gamblers; they dislike succeeding by chance. They prefer the
challenge of working at a problem and accepting the personal responsibility for success
or failure, rather than leaving the outcome to chance or the actions of others.
People with achievement motivation are enterprising in nature as is obvious from the following
traits:
• They take calculated risks in achieving such targets for which they have to apply their
imagination and stretch their limbs.
• They give single minded attention to accomplishment of their tasks.
• High achievers find goal achievement intrinsically satisfying and they do not necessarily
crave for material rewards.
• The need for power is a drive to have impact, to be influential and to control others.
• Individuals high in need for power enjoy being “in charge”, strive for influence over
others, prefer to be placed into competitive and status-oriented situations and tend to be
more concerned with gaining influence over others and prestige than with effective
performance.
• Power-motivated people wish to create an impact on their organizations and are willing
to take risks to do so.
• The need for affiliation can be viewed as the desire to be liked and accepted by others.
• It is the need for human companionship.
• Individuals with a high affiliation motive strive for friendship, prefer cooperative
situations rather than competitive ones and desire relationships involving a high degree of
mutual understanding.
People possess the above needs in varying degrees. McClelland found that the combination of a
moderate to high need for power and a lower need for affiliation enables people to be effective
entrepreneurs- they can use power to influence and control others’ behavior and can make
difficult decisions without undue worry of being disliked. According to him, entrepreneurs are
actuated by a high need for achievement. They like to take risk, though only a reasonable one.
They are highly motivated by challenging and competitive work situations.
According to Kunkel, individuals perform various activities of which some are accepted by the
society while others are not. The accepted ones are rewarded. The rewards act as reinforcing
stimulus increasing the probability of repeating that behavioral pattern. This pattern of social
behavior is entrepreneurial behavior.
The supply of entrepreneurship depends upon four structures found in a society. These are as
follows:
i. Limitation structure
The society limits specific activities and this limitation structure affects all the members
(including entrepreneurs) of a society.
ii. Demand structure
Material rewards are necessary to lay the foundation for future social gains. Moreover,
behavior of people can be made entrepreneurial by manipulating certain selected
components of the demand structure.
iii. Opportunity structure
It consists of the availability of capital, management and technological skills,
information concerning production methods, labor and markets. This structure is
required to increase the probability of entrepreneurial activity.
iv. Labor structure
It is concerned with the supply of competent and willing labor. The supply of labor is
governed by several factors such as available alternative means of livelihood,
traditionalism, expectations of life, etc.
X-Efficiency Theory
Many firms face the problem of inefficient utilization of various inputs or resources. Innovative
entrepreneurs come forward to check inefficiencies in the utilization of various resources through
novel ways.
According to Liebenstein, the most significant feature of entrepreneurship is gap filling. It is the
job of the entrepreneur to fill the gap or make up for the deficiencies which always exist in the
knowledge about the production function i.e. utilization of various resources.
The gaps or deficiencies in the production function arise because all the inputs in the production
function cannot be marketed. Some inputs like motivation and leadership are vague and their
output is indeterminate. An entrepreneur has to marshal all the inputs to achieve efficiency and
economy. Thus, entrepreneurship is a function of input completing and gap filling.
Types of Entrepreneurs
1. The Improver
• Focused on using their business as a means to improve the world.
• Such entrepreneurs run morally correct businesses working for a noble
cause.
• Improvers have an unwavering ability to run their business with high
integrity and ethics.
• Personality Alert: Improvers have to be aware of their tendency to be a
perfectionist and over-critical of employees and customers.
• Entrepreneur example: Dr. Mahesh Gupta, Founder of Kent RO - Water
Purifier
Anita Roddick, Founder of The Body Shop
Mahima Mehra, who started Hathi Chaap
2. The advisor
• Advisors will provide an extremely high level of assistance and advice to
customers.
• The advisor’s motto is: the customer is right and we must do everything to
please them. Companies built by advisors become customer focused.
• Personality Alert: Advisors can become totally focused on the needs of
their business and customers that they may ignore their own needs and
ultimately burn out.
• Entrepreneur example: John W. Nordstrom, Founder Nordstrom.
3. The Superstar
• The business is centered on the charisma and high energy of the superstar
CEO.
• Such entrepreneurs often will build their business around their own
personal brand.
• Personality Alert: Superstars can be too competitive and workaholics.
• Entrepreneur example: Donald Trump, CEO of Trump Hotels and
Casino Resorts
Steve Jobs, cofounder of Apple Computer, Inc. (now Apple Inc.) and
a charismatic pioneer of the personal computer era.
4. The Artist
• This business personality is the reserved but a highly creative type.
• Often found in businesses demanding creativity such as web design and ad
agencies. As an artist type they will tend to build their business around the
unique talents and creativities that they have.
• Personality Alert: Artists may be overly sensitive to their customer’s
responses even if the feedback is constructive. Let go the negative self-
image.
• Entrepreneur example: Scott Adams, Creator of Dilbert.
5. The Visionary
• A business built by a Visionary will often be based on the future vision
and thoughts of the founder.
• They will have a high degree of curiosity to understand the world around
them and will set-up plan to avoid the landmines.
• Personality Alert: Visionaries can be too focused on the dream with little
focus on reality. Action must precede vision.
• Entrepreneurial example: Bill Gates, Founder of Microsoft Inc.
6. The Analyst
• Focused on fixing problems in a systematic way.
• Often the basis for science, engineering or computer firms, Analyst
companies excel at problem solving.
• Personality Alert: Be aware of analysis paralysis (a situation wherein over
analysis leads to no action being taken). Work on trusting others.
• Entrepreneurial example: Intel Founder, Gordon Moore.
7. The Fireball
• A business owned and operated by a Fireball is full of life, energy and
optimism.
• Such a business is life energizing and makes customers feel the company
has a get it done attitude in a fun playful manner.
• Personality Alert: You may over commit your teams and act impulsively.
Balance your impulsiveness with business planning.
• Entrepreneurial example: Malcolm Forbes, Publisher of Forbes
Magazine
8. The Hero
• Such entrepreneurs have an incredible will and ability to lead the world
and their business through any challenge.
• They are the essence of entrepreneurship and can assemble great
companies.
• Personality Alert: Over promising and using forceful tactics to get your
way will not work long term. To be successful, trust your leadership skills
to help others find their way.
• Entrepreneurial example: Jack Welch, CEO of GE.
9. The Healer
• Healer entrepreneurs provide nurturing and harmony to their business.
• They have an uncanny ability to survive and persist with an inner calm.
• Personality Alert: Because of their caring, healing attitude towards their
business, they may avoid outside realities and use wishful thinking. Use
scenario planning to prepare for turmoil.
• Entrepreneurial example: Ben Cohen, Co-Founder of Ben & Jerry’s Ice
Cream.
Traits/Characteristics/Competencies of an Entrepreneur
1. Initiative
• It is an inner urge in an individual to do or initiate something. It is the
entrepreneur who takes the first move towards setting up of an enterprise.
• Does things before asked for or forced by events and acts to extend the business
to new areas, products or services.
2. Perceiving opportunities
• An entrepreneur is always searching for opportunity and is ready to exploit it in
the best interests of his enterprise.
• Identifies business opportunities and mobilizes necessary resources to make good
an opportunity.
3. Persistence
• An entrepreneur is never disheartened by failures. He tries again and again for
overcoming the obstacles that come in the way of achieving goals.
4. Innovation
• The most important function of an entrepreneur, according to Joseph
Schumpeter, is innovation. It is the core attribute of an entrepreneur.
• Innovative spirit is fed by information, knowledge or even by intuition. Using
information and skill, the idea of a novel project could be conceptualized. For an
innovator, the market is never too saturated.
• Innovation need not merely be activities like replacing fruit juices or squashes
with soft drink concentrates. It may be a new method for reducing the cost of
production. It can be a totally new concept of commodity or an improvement in
the design and specifications of a product. Or, simply exploring a market, which
had not been thought of or tried out earlier.
5. Information gathering
• Consults experts for business and technical advice.
• Seeks information on client’s or supplier’s needs. Personally undertakes market
research and makes use of personal contacts or information network to obtain
useful information.
6. Concern for quality work
• Successful entrepreneurs do not believe in moderate or average performance.
They set high quality standards for themselves and then put in their best for
achieving these standards.
• They believe in excellence which is reflected in everything they do.
7. Commitment to contractual obligations
• Makes a personal sacrifice or expends extraordinary effort to complete a job.
Accepts full responsibility in completing a job contract on schedule.
• Shows utmost concern to satisfy customers.
8. Concern for Efficiency
• Top performers are always keen to devise new methods aimed at promoting
efficiency.
• They are keen to evolve and try new methods aimed at making working faster,
easier, simpler, better and economical.
9. Systematic Planning
• Successful entrepreneurs decide future course of action keeping in mind the goals
to be realized.
• They believe in developing relevant and realistic plans and ensure proper
execution of the same in their pursuit of attaining their goals.
10. Problem solving
• Conceives new ideas and finds innovative solutions.
• A successful entrepreneur takes each problem as a challenge and put in best for
finding out the most appropriate solution for the same. He will first of all
understand the problem and then decide appropriate strategy dealing with the
same.
11. Self-confidence
• Makes decisions on his own and sticks to them in spite of initial setbacks.
• Entrepreneurs have full faith on their knowledge, skill and competence and are
not worried about future uncertainties.
12. Expertise
• Possesses technical expertise in area of business, finance, marketing and so on.
13. Self-critical
• Aware of personal limitations but tries to improve upon them by learning from his
past mistakes or experiences of others and is never complacent with success.
14. Persuasiveness
• A successful entrepreneur through his sound arguments and logical reasoning is in
a position to convince others to do the work the way he wants them to do.
• It is not the physical but intellectual force he will use for convincing others.
15. Teambuilding
• An entrepreneur should have an ability to build a team. A team is a group of
individuals with a common purpose that is focused and aligned to achieve a
specific task or set of outcomes.
• A good team will be able to share knowledge, core competency and goals.
16. Effective Strategist
• A successful entrepreneur possesses the ability to make relevant strategy, aimed at
safeguarding or promoting organization’s interests.
• Strategy may be with respect to facing future uncertainties or challenges posed by
competitors.
17. Assertiveness
• An assertive person knows what to say, when to say, how to say and whom to say.
He believes in his abilities and ensures that others fall in line with his thinking,
aimed at promoting the interests of the organization.
• Instructs, reprimands or disciplines for failing to perform.
18. Effective Monitoring
• Develops a reporting system to ensure that work is completed and that it meets
quality norms.
19. Credibility
• Demonstrates honesty in dealing with employees, suppliers and customers even if
it means a loss of business.
20. Concern for employee welfare
• A successful entrepreneur tries to promote organization’s interests through
promotion of interests of the workers.
• Expresses concern for employees by responding promptly to their grievances.
21. Building product image
• Concerned about the image of his product among customers.
• Does everything possible to establish a niche for his product in the market.
It was Gifford Pinchot who coined the term intrapreneur. Intrapreneurship implies that
entrepreneurial activities are explicitly supported within the established organizations, provided
with organizational resources and accomplished by company employees.
Entrepreneur Vs Intrapreneur
Entrepreneurship is an essential requirement for the speedy economic growth of any economy as
stated below:
1. Increasing Production
It results in exploitation of economy’s resources such as labor, capital and technology to
the fullest extent for increasing national production. Entrepreneurs take up production of
goods and services for:
i. meeting the demand of consumers,
ii. import substitution, and
iii. exports to other countries
Entrepreneurship
Import substitution national income
Production Activity
Exports