Unit – One

Entrepreneurship,
Entrepreneur
and Corporate
Entrepreneurship
nd
MBM 2
SEM.
OJHA MANISH- FARWESTERN UNIVERSITY
• What is Entrepreneurship?

❑
Entrepreneurship is the process
of creating something new of value by
devoting (giving) the necessary time and effort.

❑
By accepting and acknowledging the
necessary financial, psychological, and social risks, and
❑
Finally receiving the resulting
rewards be it monetary and personal
satisfaction and freedom to do what you want.
❑ Definition
➢
“
Entrepreneurship is the Process of creating something
different with value by devoting the necessary time and effort,
assuming the accompanying risk, and receiving the resulting
rewards.” Hisrich and Peters

➢
“Entrepreneurship is a process of innovation that reallocates resources to new
opportunities…..through unusual combinations of resources and the skills of
risk-taking”. David H. Holt

➢
“Entrepreneurship is the gathering and using resources to produce
results….it is allocating resources to opportunities rather than to
problems.” Peter Drucker
➢
He or she is an individual who
actively form or lead their own business and
nurture them for growth and prosperity.

➢
A person who creates and
manages change by the recognition
of opportunities (needs, wants, opportunities, problems,
and challenges) and develops people and manages
resources to take advantage of the resources to take the
opportunity and creates a venture (profitable business).

➢ Entrepreneurship is the act of being an entrepreneur, who

starts any economic activity for being self-employed.
• Entrepreneurship is the “process of
the entrepreneur”. It is an attempt to
create value through recognition of
business opportunity. It is basically
communicative and management
functions to mobilize financial and
material resources.
The entrepreneurial process
consists of as follows;
Creation of New Devotion of
Venture Time & Effort

Entrepreneurship

Reaping of Assumption of
Rewards Risks
 Creation of New Venture
Entrepreneurship is concerned with creation of
new ventures with new ideas.

Invention Creation of Some thing

Results in New
New Knowledge

Transformation of New
Innovation Knowledge into Results in New
Application Products or processes
 Devotion of Time & Effort
Entrepreneurship requires devotion of
energy, time and efforts. Hard work
with enthusiasm is needed to make
new ideas operational. A business
plan is developed.
 Assumption of Risk
Entrepreneurship requires taking of risks. Risk
implies awareness about available alternatives but
ignorance about their consequences. Profitability
estimates of the risk are made. Entrepreneurship
involves assumption of risk. The risk of
entrepreneurship can be;
➢ Financial Risk

➢ Psychological Risk

➢ Career Risk

➢ Social Risk
 Reaping of Rewards
Entrepreneurship provides rewards. They
can be monetary benefits in terms of profit.
They can be non-monetary in terms of
personal satisfaction, self-development,
fame, reputation, and independence in
work. It fulfills the personal needs of the
entrepreneur to be one’s own boss. It is the
symbol of achievement. It also provides
opportunities for social recognition.
 Governing forces
• Socio-economic,
• Psychological,
• Cultural and Other Factors,
• Caste/Religion,
• Family Background,
• Level of Education,
• Level of Perception,
 Governing forces
• Occupational background,
• Migratory character,
• Entry into entrepreneurship,
• Nature of enterprise,
• Investment capacity and
• Ambition/moderation.
 Economic Theories Behind
Entrepreneurship
➢
Richard Cantillon
➢
Adam Smith
➢
Jean Baptiste Say
➢
John Stuart Mill
➢
Carl Menger
OJHA MANISH- FARWESTERN UNIVERSITY
Richard Cantillon (Risk taking Theory)

Richard Cantillon, a French economist of Irich

descent, is credited with giving the concept of
entrepreneurship a central role in economics. In his
“Essai sur la nature du commerce en general”
published in 1755, Cantillon described an
entrepreneur as a person who pays a certain price for
a product to resell it at an uncertain price, thereby
making decisions about obtaining and using
resources while consequently assuming the risk of
enterprise.
OJHA MANISH- FARWESTERN UNIVERSITY
 Profit or
Investment Transformation Loss

Entrepreneur buys Entrepreneur Entrepreneur

farm repacks and sells food
Product at certain transports farm product in city at
prices product to market uncertain prices

Cantillon’s Early View of Entrepreneurial Behavior

OJHA MANISH- FARWESTERN UNIVERSITY

Adam Smith

Adam Smith spoke of the ‘enterpriser’ in his 1776

“Wealth of Nations” as an individual who undertook
the formation of an organization for commercial
purposes. He thereby ascribed to the entrepreneur
the role of industrialists, but he also viewed the
entrepreneur as a person with unusual foresight
who could recognize potential demand for goods
and services. In Smith’s view, entrepreneurs
reacted to economic change, thereby becoming the
economic agents who transformed demand into
supply.
OJHA MANISH- FARWESTERN UNIVERSITY
Jean Baptiste Say
French economist Jean Baptiste Say, in his 1803
“A treatise on Political Economy” described an
entrepreneur as one who possessed certain arts and
skills of creating new economic enterprises, yet a
person who had exceptional insight into society’s
needs and was able to fulfill. Say , therefore,
combined the “economic risk taker” of cantillon
and the “industrial manager” of Smith into an
unusual character.

OJHA MANISH- FARWESTERN UNIVERSITY

John Stuart Mill

In 1848, British economist John Stuart Mill

elaborated on the necessity of entrepreneurship in
private enterprise. The term entrepreneur
subsequently became common as a description of
business founders, and the “fourth factor” of
economic endeavor was entrenched in economic
literature as encompassing the ultimate ownership
of a commercial enterprise. Mills work, however ,
was among the last of the early economic studies
in Britain or France that recognized
entrepreneurship as central to economic theory.
OJHA MANISH- FARWESTERN UNIVERSITY
Carl Menger ( Value Adding Theory )
There was an important movement in Austria that
th
subsequently influenced our 20 – century
concept of entrepreneurship. Carl Menger (1840-
1921) established the “subjectivist perspective of
economics” in his 1871 ‘principles of Economics’. In
Menger’s view economic change does not arise from
circumstances but from an individual’s awareness
and understanding of those circumstances. The
entrepreneur becomes, therefore, the
who transforms resources into useful goods
and services, often creating the circumstances that
lead to industrial growth.
OJHA MANISH- FARWESTERN UNIVERSITY
SCHUMPETERIAN
MODEL OF
ECONOMIC
GROWTH
OJHA MANISH- FARWESTERN UNIVERSITY
JOSEPH.ALOIS. SCHUMPETER

Joseph Alois Schumpeter

(8 February 1883 – 8 January
1950) was an Austrian American
economist and political scientist.
He briefly served as Finance
Minister of Austria in 1919. One
of the most influential
economists of the 20th century,
Schumpeter popularized the
term "creative destruction" in
economics.
OJHA MANISH- FARWESTERN UNIVERSITY
 ECONOMIC DEVELOPMENT
• Economic development is the development of
economic wealth of countries or regions for the
well-being of their inhabitants.

• Economic Growth & development are two

different terms used in economics. Generally
speaking economic development refers to the
problems of underdeveloped countries and
economic growth to those of developed countries.

OJHA MANISH- FARWESTERN UNIVERSITY

 SCHUMPETER’S MODEL OF ECONOMIC DEVELOPMENT
• Schumpeter assumes a perfectly competitive economy which is in
stationary equilibrium. In such a stationary state ,there is perfect
competitive equilibrium. no profits, no interest rates, no savings,
no investments and no involuntary unemployment. This
equilibrium is characterized by the term “circular flow”, continues
to repeat itself every year. In the circular flow, the same
products are produced every year in same manner.

• According to him economic development “is spontaneous and

discontinuous change in the channels of the circular flow,
disturbance of equilibrium, which forever alters and displaces
the equilibrium state previously existing”

• Development consists in the carrying out of new combinations for

which possibilities exist in the stationary state. New combinations
come about in the form of INNOVATIONS. OJHA MANISH- FARWESTERN UNIVERSITY
Diagram of Schumpeter's model of Economic Development

OJHA MANISH- FARWESTERN UNIVERSITY

 Innovation
An innovations may consist of:

1.The introduction of a new product

2.The introduction of new method of production
3.The opening up of a new market
4.The conquest of a new source of raw materials
5.The carrying out of a new organization of any industry like
the creation of monopoly.

According to Schumpeter ,it is the introduction of new product and the

continual improvements in the existing ones that lead to development.

OJHA MANISH- FARWESTERN UNIVERSITY

 ROLE OF INNOVATOR
• Schumpeter assigns the role of an innovator not to the capitalist but to the
entrepreneur. The entrepreneur is not a man of ordinary managerial ability, but
one who introduces something entirely new. The entrepreneur is motivated by:
a)The desire to find a private commercial kingdom
b)The will to conquer an prove his superiority
c)The joy of creating ,of getting things done ,or simply of exercising
one’s energy and ingenuity.

To perform his economic condition ,the entrepreneur requires two

thing : first ,the existence of technical knowledge in order to produce
new ; second, the power of disposal over the factors of production in the
form of credit.

OJHA MANISH- FARWESTERN UNIVERSITY

 ROLE OF PROFITS

• An entrepreneur innovates to earn profits.

• Profits are conceived “as a surplus over costs :a difference between the total
receipts and outlay –as a function of innovation

• According to Schumpeter ,under competitive equilibrium the price of each

product just equals its cost of production and there are no profits. Profits arise
due to dynamic changes resulting from an innovation. They continue to exist
till the innovation becomes general.

OJHA MANISH- FARWESTERN UNIVERSITY

 BREAKING THE CIRCULAR FLOW
• Schumpeter’s model starts with the breaking up of the circular flow with an
innovation in the form of a new product by an entrepreneur for the purpose
of earning profit.

• In order to break the circular flow ,the innovating entrepreneurs are financed
by bank-credit expansion.

• Investment in innovation is risky, they must pay interest on it. Once the new
innovation becomes successful and profitable, other entrepreneurs follow it.

• Innovations in one field may induce other innovations in related fields.

The emergence of motor car industry may in, in turn ,stimulate a wave of
new investments in the construction of highways , rubber tyre etc.

OJHA MANISH- FARWESTERN UNIVERSITY

 Criticisms of theory
• 1. The entire process of Schumpeter's theory is based on the innovator
whom he regards as an ideal person.

• 2. Economic development is the result of the cyclical process.

• 3. Cyclical changes due to innovation is not correct.

• 4. Schumpeter regards innovation as the main cause of economic

development.

• 5. Too much importance to bank –credit.

OJHA MANISH- FARWESTERN UNIVERSITY

Explaining entrepreneur
Entrepreneur perform the functions of
entrepreneurship. They lunch new ventures. They
are creative individuals. They have vision and
inspiration to create new ventures. They identify
new business opportunity and take advantage of it.
They take risk.
Richard cantillon “An entrepreneur is a risk
bearing agent of production”
David H. Holt “An entrepreneur is a person who
starts a new venture, taking the initiative and risk
associated with it, and does so by creating something
new to provide value to customers.” OJHA MANISH- FARWESTERN UNIVERSITY
 Characteristics of Successful Entrepreneurs
✓
Self-confident and optimistic (आशावादी)
✓
Able to take calculated risk
✓
Respond positively to challenges
✓
Flexible and able to adapt
✓
Knowledgeable of markets
✓
Able to get along well with others
✓
Independent minded
✓
Versatile knowledge
✓
Energetic and diligent (मेहनती)
✓
Creative, need to achieve
OJHA MANISH- FARWESTERN UNIVERSITY
Contd……….
✓ Dynamic leader

✓ Responsive to suggestions

✓ Take initiatives

✓ Resourceful and preseving

✓ Perceptive with foresight

✓ Responsive to criticism
OJHA MANISH- FARWESTERN UNIVERSITY
 Role of an Entrepreneur
Successful entrepreneurs are usually modeled as
combinations of innovators (with creative and innovative
flair) and managers (with strong general management skills,
business know-how, and sufficient contacts). Over the years,
economists have, however, described more roles of
entrepreneurs. The following is a summary of the
economists' interesting discourse that, aspiring
entrepreneurs may, hopefully, find useful.
➢ Entrepreneur as risk-taker

➢ Entrepreneur as business manager

➢ Entrepreneur as exceptional leader

➢ Entrepreneur as perceiver/restorer

➢ Entrepreneur as innovator
OJHA MANISH- FARWESTERN UNIVERSITY
 Entrepreneur as risk-taker
Richard Cantillon (1680-1734) suggested that an entrepreneur is
someone who has the foresight and willingness to assume risk and
take the requisite action to make a profit (or loss). Cantillon’s
entrepreneur is forward-looking, risk-taking, alert though need not
be innovative in the strict sense.

Two different kinds of risk were distinguished by Frank Knight

(1885-1972): one is capable of being measured (i.e., objective
probability that an event will happen) and shifted from the
entrepreneur to another party by insurance; the other is un-measurable
(i.e., no objective measure of probability of gain or loss), e.g., the
inability to predict consumer demand. According to Knight, the
entrepreneur takes the latter risk: “true” uncertainty found in
situations, which do not repeat themselves with sufficient conformity
to make possible a computation of probability (what we nowadays
term as "unknown and unknowable").
OJHA MANISH- FARWESTERN UNIVERSITY
 Entrepreneur as business manager
Frank Knight established a boundary between management and
entrepreneurship. He sees entrepreneurs in the strict sense as producers;
while the great mass of population furnish them with productive
services, placing their persons and property at the disposal of
entrepreneurs who guarantee to them a fixed remuneration.
Entrepreneurial profit depends on whether an entrepreneur can make
productive services yield more than the price fixed upon them by those
who furnish productive services think they can make them yield.
Therefore, its magnitude is based on a margin of error in calculation by
entrepreneurs and non-entrepreneurs who do not force the entrepreneurs
to pay as much for productive services as they could be forced to pay. It
is this margin of error in judgment that constitutes true uncertainty that
is borne by the true entrepreneur and which results in
his profit. In Knight’s view, the function of manager thus does
not itself imply entrepreneurship.
OJHA MANISH- FARWESTERN UNIVERSITY
 Entrepreneur as exceptional leader
Hans Karl Emil von Mangoldt (1824-1868) developed the notion that entrepreneurial profit
is the rent of ability. He divided entrepreneurial income into three parts: (1) a premium on
uninsured risks; (2) entrepreneur interest and wages, including only payments for special
forms of capital or productive effort that did not admit of exploitation by anyone other than
the owner; and (3) entrepreneurial rents or payments for differential abilities or assets not
held by anyone else. The first part is a return on risk taking; the second part from capital use
and production effort, and the third part from ability or asset specificity. Alfred Marshall
(1842-1924) carried forward Mangoldt’s notion of rent-of-ability by adding the element of
leadership to “entrepreneurial” responsibilities. Marshall’s entrepreneurs “must be a
natural leader of men who can choose assistants wisely but also exercise a general control
over everything and preserve order and unity in the main plan of business. In fulfilling this
organizational function, the entrepreneur must always be “on the lookout for methods that
promise to be more effective in proportion to their cost than methods currently in use”.
Marshall noted that not everyone had the innate ability to perform this entrepreneurial role
as these abilities are so great that very few persons can exhibit all of them in a very high
degree. Accordingly, he termed the entrepreneurial rents specifically as a “quasi-rent”,
which is a return for exceptional natural abilities, which are not made by human effort, and
enable the entrepreneur to obtain a surplus income over what ordinary persons could
expect for similar exertions following similar investments of capital and labor in their
education and start in life.

OJHA MANISH- FARWESTERN UNIVERSITY

 Entrepreneur as perceiver/restorer
John Bates Clark (1847-1938) noted that as static conditions change over
time: population grow, wants change, and improved production
technologies are discovered and implemented, the mobility of capital and
labour is necessary to restore new equilibrium. He sees the entrepreneur as
the human agent responsible for the coordination that restores the
economy to an equilibrium position. For Israel Kirzner (1930- ),
knowledge is never complete or perfect in a dynamic economy; markets
are constantly in states of disequilibrium and it is disequilibrium that bars
the return to equilibrium. Kirzner focused on the “discovery process” by
which entrepreneurs discover error and new profitable opportunities, and
thus move the market toward equilibrium. Therefore, the role of the
entrepreneur is to achieve the kind of adjustment necessary to move
economic markets toward the equilibrium state. According to Kirzner, the
essence of entrepreneurship consists of the alertness to profit
opportunities. By stressing alertness, Kirzner emphasizes the quality of
perception, perceiving an opportunity that is a sure thing.
OJHA MANISH- FARWESTERN UNIVERSITY
 Entrepreneur as innovator
Joseph Schumpeter (1883-1950), Austrian-born professor, is famous for focusing
on the entrepreneur as the central figure in advancing the wealth of nations and
creating dynamic disequilibrium in the global economy. In the process of “creative
destruction” (of the market system), entrepreneurs plays a central role by constantly
assimilating knowledge not yet in current use and setting up new production forms
and functions to produce and market new products. He pointed out that knowledge
underlying the innovation need not be newly discovered and may be existing
knowledge that has never been utilized in production. Therefore, the entrepreneur
need not be an inventor and vice versa. He is the one who turns an invention into
commercial exploitation. For Schumpeter, successful innovation requires an act of
will, not of intellect. It therefore depends on economic leadership and not mere
intelligence. He felt that such a hazardous activity would not be undertaken by
ordinary economic agents but only by entrepreneurs with the vision, drive and
commitment to survive the uncertainty and turbulence involved. When he succeeds,
the entrepreneur will realize exceptional (be it temporary monopoly) profits and he
may be able to fundamentally change existing or introduce new market and industry
structures. Therefore, Schumpeter’s theory of “creative destruction” has
sometimes also been known as “heroic entrepreneurship”.

OJHA MANISH- FARWESTERN UNIVERSITY

While Schumpeter emphasizes technological innovation and
improvement, Ludwig von Mises (1881-1973) declared that changes
in consumer demand may require adjustments, which have no
reference at all to technological innovations and improvements. He
thought that the business of the entrepreneur is not merely to
experiment with new technological methods, but to select those,
which are best, fit to supply the public in the cheapest way with the
things they are asking for most urgently. Whether a new technological
procedure is or is not fit for this purpose is provisionally decided by
the entrepreneur and finally decided by the conduct of the buying
public. For Mises, the activities of the entrepreneur consist in making
decisions and while decisions regarding innovation and technological
improvement come under his purview, such decisions alone do not
constitute an exhaustive set. This echoed the viewpoint of American
economist, F.W.Taussig (1859-1940) that although innovation is one
of the activities performed by the entrepreneur, it is not the only one,
and perhaps not even the most important one.
OJHA MANISH- FARWESTERN UNIVERSITY
Peter Drucker (1909-2005) notes that entrepreneurship can be defined
as changing the yield of resources (seen in supply or production
terms) or as changing the value and satisfaction obtained from
resources by the consumer (defined in demand terms) and innovation
to be the specific instrument of entrepreneurship. Like Taussig and
Mises, Drucker asserts that innovation does not have to be technical
and are often social as well. He argued that management
(as ‘a useful knowledge’) is an innovation of the 20th century as it
has made possible the emergence of the entrepreneurial economy in
America and converted modern society into something brand new: a
society of organizations. He therefore prescribed a systematic form of
entrepreneurship management, based on systematic innovation:
“Systematic innovation consists in the purposeful and organized
search for changes and in the systematic analysis of the opportunities
such changes might offer for economic or social innovations”.

OJHA MANISH- FARWESTERN UNIVERSITY

 The Success Factors of an Entrepreneur
Many business people would argue there is not one concrete recipe for
success, but many successful entrepreneurs have in common certain
characteristics that have contributed to the rise of their companies. With
the rapid advancement of technology and communication methods,
entrepreneurship has become a popular means for survival during the
past decade or so, according to research scholar. Certain
factors contribute to an entrepreneur’s success.
➢ Innovation
➢ Money Management
➢ Planning
➢ Adaptation ➢ Be passionate
➢ Work hard
➢ Enjoy the journey
➢ Rely on your team
➢ Give back
➢ Focus on execution
OJHA MANISH- FARWESTERN UNIVERSITY
 Myths And misconceptions About
Entrepreneurs
Our society looks up to entrepreneurs as remarkable
people with the drive, ambition and skill to make
their dreams come true and change the world. They
are admired for being the people who have the
power to succeed and the self-confidence to use it.
Despite the extensive research on the topic of
entrepreneurship that revealed many interesting facts
and characteristics over the years, there still are
some common myths and misconceptions left that
dominate people’s perceptions of entrepreneurs.
OJHA MANISH- FARWESTERN UNIVERSITY
 These are a few of the most common myths that
contradict what being an entrepreneur truly is
about:
1) Entrepreneurs are born and not made
2) Entrepreneurs are only motivated
by achieving wealth
3) Entrepreneurs are risk-takers
4) Entrepreneurs are sly and ruthless
5) Entrepreneurs are lonely and on their own

OJHA MANISH- FARWESTERN UNIVERSITY

 Entrepreneurs are born and not made
Though there are certain innate personalities traits
that predispose an individual to becoming an
entrepreneur, these traits aren’t static and tend to
change and evolve over time. Depending on the
environment an individual grows up in,
entrepreneurial traits can be hindered or maximized.
Learning and experience also play an essential role
in how these traits will pan out: with enough
perseverance and effort, anyone can become an
entrepreneur. There are more and more courses and
seminars appearing every year, teaching everyone
how to develop entrepreneurial skills.
OJHA MANISH- FARWESTERN UNIVERSITY
 Entrepreneurs are only motivated by
achieving wealth
For some entrepreneurs this might be the case;
however, most people’s motivations when
starting up a business are a lot more complex
and difficult to quantify. Most entrepreneurs
see money as a measure of their achievements,
but not as a goal in itself that has to be reached.
Instead, they pursue higher goals such as taking
a challenge, finding their true purpose in life,
creating something of great value for society,
achieving financial freedom etc. OJHA MANISH- FARWESTERN UNIVERSITY
 Entrepreneurs are risk-takers
Risk is an abstract concept that is hard to pin down
and define. However, research shows that
entrepreneurs are exceptionally good at appreciating,
managing and reducing risks, when they pursue a
certain outcome of their actions. Though many of
their endeavors may appear risky to outsiders, in
fact, a good entrepreneur will have everything
calculated and under control. The impression that
entrepreneurs take very high risks is a wrong belief
stemming from others’ lack of understanding of what
truly goes on in their mind.
OJHA MANISH- FARWESTERN UNIVERSITY
 Entrepreneurs are sly and ruthless
Contrary to popular belief, lying to others and
eliminating anyone that gets in your way won’t take
anyone too far in business. Being a diplomat,
knowing how to negotiate and steering clear of
conflict is a much better attitude towards business
that will help entrepreneurs build fruitful business
relationships with suppliers, clients or associates.
Maintaining a good reputation and image is any
entrepreneur’s aspiration and a way of gaining more
recognition in business.

OJHA MANISH- FARWESTERN UNIVERSITY

Entrepreneurs are lonely and on their own
Successful entrepreneurs are surrounded by
competent, capable people that can support
them and help them achieve their goals
through providing their expertise and advice.
They rely on other people’s ideas and
experience to make the best decisions possible.
Because no entrepreneur can succeed alone,
good communication skills and an ability to
motivate others are also very valuable in
business.
OJHA MANISH- FARWESTERN UNIVERSITY
Knowing the true facts about
entrepreneurship means that you can
have more insight about your own
abilities, learn from others’ experience,
improve your business mentality and
engage in entrepreneurial activities with
no prejudice or misconceptions by taking
a confident step in the right direction.

OJHA MANISH- FARWESTERN UNIVERSITY