UNIT-1

Entrepreneurship and Small Business

SYLLABUS:-Entrepreneurship:
Entrepreneurship: Concept; Functions; Elements; Quality of a
Successful Entrepreneur; Theories of Entrepreneurship; Role of Entrepreneur
in Economic Development.

ENTREPRENEURSHIP

MEANING AND DEFINITIONS OF ENTREPRENEURSHIP

Entrepreneurship refers to a process of action which an entrepreneur

undertakes to establish an enterprise. It can be defined as the propensity
of mind to take calculated risks with confidence to achieve a
predetermined business or industrial objective
objective.
It creates wealth by bringing together resources in new ways to start and
operate an enterprise.
It is the process of planning, organizing, operating and assuming the risk
of a business venture. It is the ability to take risk independently to make
more earnings in the market oriented economy.
Entrepreneurship multi-dimensional
dimensional task and hence this term has been defined
differently by different experts as follows :
According. to H. W. Johnson
Johnson,
“Entrepreneurship is a composite of three basic elements—invention,
invention,
innovation and adaptation. ”
According to A.H. Cole,
“Entrepreneurship is the purposeful activity of an individual or a group of
associated individuals, under- taken to initiate, maintain and enhance profit
by production or distribution of economic goods and services. “
This definition states that entrepreneurship is a goal-oriented process involving
production or distribution of products or services. It may be undertaken by one
person or by a group of persons.

According to V.R. Gaikwad,

“Entrepreneurship connotes innovativeness, an urge to take risk in face of
uncertainties and an intuition, i.e., a capacity of seeing things in a way
which afterwards proves to be true.’’

In the words of Higgins,

“Entrepreneurship is meant for the function of seeking investment and
production opportunity, organising an enterprise to undertake a new production
process, raising capital, hiring labour, arranging the supply of raw
materials, finding site, introducing a new technique, discovering new sources
of raw materials and selecting top managers for day-to-day operations of
the enterprise, ‘’
This definition highlights risk-taking, innovating and resource organising aspects
of entrepreneurship.

According to Schumpeter,
“Entrepreneurship is an innovative function. It is leadership rather than an
ownership.’’

Conclusion : It can be concluded from the above definitions that

entrepreneurship is a dynamic process in which a person or group or persons
establish a new economic business enterprise and develop it.
It is the capacity to take risk, ability to organise and desire to diversify and make
innovations in the enterprise.
 NATURE AND CHARACTERISTICS OF ENTREPRENEURSHIP

Main characteristics of entrepreneurship can be summarized as follows :

(1) An Economic Activity : Entrepreneurship is primarily an economic function

because it involves the creation and operation of an enterprise. It is basically
concerned with the production and distribution of goods and services.

(2) Creative Activity : Entrepreneurship is essentially a creative activity. It

consists in doing such things which are not generally done in the ordinary course
of business.

Entrepreneurship involves exploring new opportunities. It creates new jobs, new

tasks and new ventures in the society. It creates new economic values, wealth and
capital in the country.

(3) Business Oriented Tendency : It reflects the business and enterprising

nature of person. It encourages people to start business, to imagine new
ventures and to set up units of production. It promotes business and industries
in the society.

(4) Organising Activity : It is the ability to bring together productive resources

of society. Entrepreneur harnesses land, labour, capital, technology, knowledge
and managerial talents for the benefit of mankind.

(5) Risk Bearing Activity : Risk is an inherent and in- separable element of
entrepreneurship. An entrepreneur guarantees rent to the land-lord, wages to
employees and interest to investors in the hope of earning möre than the
expenses. He assumes the uncertainty of future. In the pursuit of profits,
there is possibility of loss also.

(6) A Dynamic Process : Entrepreneurship is a dynamic function. Entrepreneurs

thrive on changes in the environment, which bring useful opportunities for
business.
(7) Innovative Activity : Entrepreneurship is an innovative function as it involves
doing things in a better way. Innovations may be in the form of a new product or
a new source of raw material or a new market or a new method of production
not yet applied in a particular branch of manufacturing, etc.

(8) Purposeful Activity : The entrepreneur who creates and operates an

enterprise seeks to earn profits through satisfaction of needs of customers.
Hence, entrepreneurship is a goal-oriented activity.

(9) A Function of High Achievement : People differ not only in their ability to do
but also in their will to do, or motivation. The motivation, in turn, depends on the
strength of their motives sometimes defined as needs, wants, drives or impulses
within the individuals. Thus, people having high need for achievement and power
are more likely to succeed as entrepreneurs and this is a very critical factor that
leads one towards entrepreneurship.

(10) Professional Activity : Today in competitive age, entrepreneurship is

adopted as a profession like engineering or law. Entrepreneurial qualities, like
managerial abilities, are also being developed by experts. They provide training to
the persons of enterprising nature and risk-bearing attitude.

(11) Not a Personality Trait, but a Behaviour : Entrepreneurship is not a born

personality trait, but it emerges out of risk-bearing decisions and enterprising
behavior of a person.

(12) Knowledge-based Practice: Drucker writes, “Entrepreneurship is neither a

science nor an art.” It is practice. It has a knowledge base. The enterprising
quality is generated after a long practice of risk-bearing behavior.

(13) A managerial Skill and Leadership Function : Managerial skills and

leadership are the most important facets of entrepreneurship. An entrepreneur
must have the ability to lead and manage.

(14) Based on Principles, not on Intuition : Entrepreneurship is not based on

inner feeling or intuition. Rather, it is developed through certain principles. It is
improved with the knowledge Of economics, sociology, psychology, and various
other subjects.
 CONCEPTS OF ENTREPRENEURSHIP

With the pace of economic development, concept of entrepreneurship have also

changed.

Different authors have define the concepts of entrepreneurship in the

different ways. Some important concepts of entrepreneurship are as follows :

(1) Concept as to Risk-bearing Capacity : Risk taking is an important concept of

entrepreneurship. An entrepreneur is always ready to face uncertainties and risk
which occur due to unforeseen contingencies of future.

Starting a new venture always involves a lot of risks. Similarly trying for doing
something new or different is also risky. Thus, the environment of
entrepreneurship is uncertain and therefore full Of risks. These risks take a
variety of forms, depending on the field Of effort of the entrepreneur.

Business is a game of skill wherein risks and rewards both are of great
importance. However, successful entrepreneur are neither high risk takers nor
gambler. They prefer to take moderate and calculated risks where the chances of
winning are neither so small nor so large to be a sure thing.

According to Nelson and Neck, “Entrepreneurs are calculated risk takers. They
enjoy the excitement of a challenge, but they don’t gamble. Entrepreneurs avoid
low-risk situations because there is the lack of challenge and they avoid high-risk
situations because they want to succeed. They like achievable challenges.”
Economists like Cantillon, J.B. Say and others stressed risk taking as the
specific function of the entrepreneur.

This entrepreneurial concept is a most important concept, since it has significant

implications for the ways decisions are made, and thus, for the success or failure
öf business.

(2) Concept as to Innovation : Schumpeter expressed the theory of

entrepreneurship in the new perspective and he adds the notion of innovation. In
the view of them an entrepreneur is an innovator and creates untried technique.
Its purpose is to generate wealth or resources.
In the view of J. Schumpeter an entrepreneur acts as an innovator. He
creates new thing. He also works as a ‘change agent’. An entrepreneur persuades
the consumers to change their demands in favor of new innovations.

Entrepreneurship is a creative function. It includes such things which are

generally not done in the ordinary course of business routine. Thus
entrepreneurship includes introducing something new.

According to Joseph A. Schumpeter an entrepreneur in an advanced economy is

an individual who introduces something new in the economy, a method of
production not yet tested by experience in the branch of manufacture
concerned a product with which consumer are not yet familiar, a new source of
material, or of new markets and the like.

Drucker elaborates : “Innovation….is the means by which the entrepreneur either

creates new wealth-producing resources or endows existing resources with
enhanced potential for creating wealth. ” In essence, innovation is creating
something new of value. The creation has valuable to the entrepreneur as well as
to the consumers for whom it is developed.

(3) Concept as to Organisation Building Capacity : J.B. Say describes

entrepreneurship as an organising activity whereby the entrepreneur brings
together various factors of production , ensures the continuing management and
renders risk-bearing function as well. According to J. B. Say, an entrepreneur is
one who combines the land of one, the labour of another, and capital of yet
another, and thus produces a product. By selling the product in the market, he
pays interest on capital, rent on land, wages to laborers and what remains is his
profit. Thus, J.B. Say clearly distinguishes between the role of a capitalist as a
financer and the entrepreneur as an organiser. Marshall also advocated the
significance of organisation among the services of special class of business
undertakes.

(4) Concept as to Managerial and Leadership Skill : J.S. Mill, B.F. Hoselitz
and Alfred Marshall etc. have supported the concept of entrepreneurship as to
managerial and leadership skills.
B.F. Hoselitz express entrepreneurship as a managerial skill of direction.

J. S. Mill says, “It is the ability of superintendence, direction and control. It is

the ability to implement and manage a project to make profits from the successful
management of the enterprise. It is the ability to use resources in a creative and
productive way. It is the ability to build teamwork and work as a team.”

Leadership is also an important concept of entrepreneurship. Leadership is the

process of influencing the activities of an individual or a group for goal
achievement in a given situation. In this sense, entrepreneur is a leader who
guides the activities of his staff to achieve the desired goal or objective.

As a leader, entrepreneur motivates his employees for high performance and

creates necessary confidence on account of which the desired objectives are
achieved within the specified time,

(5) High Achievement Capacity Concept : According to McClelland, the

entrepreneurship is the ability to a something high. Individuals with high
achievement motive tend to take keen interest in situations of high risk, desire
for responsibility and a desire for a concrete measure of task performance.

He identified three features of entrepreneurs that were related to their need

for
(I) desire to accept responsibility for solving problems, setting goals and reaching
the goals;
(2) a willingness to accept moderate risks;
(3) a desire to know the Outcomes of their decisions.

(6) Result oriented concept : This is a new concept Of entrepreneurship. This

concept emphasis on results, achievements and targets achieved. According to
this concept it is not important what are you doing for achieving a goal, what
amount you are spending on the project and how much you laboured for the
success but the important is what is the results of your activities and the goal is
achieved or not. If the goal is achieved, it is entrepreneurship otherwise it is
considered as wastage of time and money.
(7) Professional Concept : Now-a-days entrepreneurship is accepted as a
professional concept. Like other professions, entrepreneurship is also a
professional activity which can be developed with the help of education and
training. Due to this, many entrepreneurship development programmes are
conducted by the government and private institutions to develop the
entrepreneurship skills. Experts provide training to the persons of enterprising
nature and risk-bearing attitude.

Q. “Entrepreneurship is a risk-bearing, innovative ability as well as strategic

advantage ability.” Explain and discuss the need and importance of
entrepreneurship.
or
“Without vision, the people perish, without entrepreneurship the economy and
business stagnate.” Explain.
Basically the entrepreneurial task is a combination of perceiving opportunity,
risk-taking, innovating marshalling (assemble or arrange) of resources and
providing leadership. The main task of the entrepreneur is to recognize and
exploit the opportunities carrying from various sources. As we know the
entrepreneur is both doer and dreamer. As a doer, he has the ability to attend
the details and as dreamer, he has the capacity of seeing opportunities coming in
his way.

Thompson and Strickland define entrepreneurship as a strategic ability.

Entrepreneur select the appropriate strategy keeping in view of his
organizational strength and weaknesses to gain the strategic advantages. Thus
entrepreneurship is a risk-bearing and innovative ability as well as strategic
advantage ability.
 IMPORTANCE/SIGNIFICANCE/ADVANTAGES/ROLE/NEED OF
ENTREPRENEURSHIP

Entrepreneurship plays an important role in promoting development of an

economy. It fosters economic growth, increases productivity, create new
technologies, products and services. Entrepreneurs serve as a catalysts in the
process of industrialization and economic growth.
The significance of entrepreneurship explained under the following headings :

(1) Establishment of Viable Units : Entrepreneurship is important as it starts

new ventures in the economy. This activity makes the business units more
profitable and efficient. In fact, entrepreneurs identify opportunities and
possible competitive advantages.

(2) Increase in Employment Opportunities : Entrepreneurship activity increase

the employment opportunity in the country. By setting up large and small scale
business units they offer jobs to millions. They create capital and resources as
well which are the basis of job creation.

(3) Optimum Utilisation of Resources : Entrepreneurship is the ability to produce

more goods and services with less inputs. It promotes innovative technologies and
production techniques.
Entrepreneur also focus on costs and efficiency. Thus it help to make the optimum
utilisation of resources.

(4) Balanced Growth : Entrepreneurship proves helpful to remove the

development gaps and economic backwardness found in the different regions.
Entrepreneurs set up industries in backward areas to avail of the various
concessions and subsidies offered by the government.

(5) Establishing Self-sufficient Society : Entrepreneurship is essential for

national self-reliance. Industrialists help to manufacture indigenous substitutes
of the imported products, thereby reducing dependence on foreign countries and
saving precious foreign exchange. Businessmen also export goods and services on a
large scale and thereby earn the scarce foreign exchange for the country.
(6) Promotes Capital Formation : Entrepreneurs mobilize the idle savings of the
public through the issues of corporate securities and public deposits. Investment
of public savings in industry results in productive utilization of national
resources. Rate of capital formation increases, which is essential for rapid
economic growth. Thus, an entrepreneur is the creator of wealth.

(7) Rapid Economic Growth : Entrepreneurship constitutes an important input in

the process of economic development. It channelizes resources, capital and men
for economic growth. It is the best alternate to over the problem of
unemployment and poverty. It provides businessman with a realistic basis to
identify, analyse and exploit a business opportunity. It takes most challenging
decisions to help towards the building of a rapid growth and financially sound
enterprise.

(8) Promote Innovations : Innovation is a key aspect of entrepreneurial activity.

It brings technological changes and provide something new and different.
Entrepreneurship firms act as ‘agents of chance’. The innovations of new product
may imply the employment of productive means in a modified form.

(9) Promotes Service Economy : Entrepreneurs are also entering in service

sector which produces 92 percent of the jobs and 85 percent of the gross
domestic product in advanced countries. It is a sharp rise from just a decade ago.
Service economy is a fastest-growing segment due to entrepreneurial efforts.

(10) Search and Development of New Markets: Entrepreneurship plays an

important role in searching and development of new markets. Entrepreneurs
conduct market research and collect data to search the new markets. The shift to
a global economy has also opened the door to tremendous business opportunities
for entrepreneurs willing to reach across the globe.
 MEANING AND DEFINITION OF ENTREPRENEUR

An entrepreneur is a person who conceives an idea of establishing a new business

enterprise undertakes risks and brings together the land, labor, equipment,
materials and then finds some way of raising capital to form a business to produce
the product or Service. Although, risk taking is the primary function of an
entrepreneur but in modern age he is required to perform many other functions
also such as, planning, leadership, control, innovation and other related
functions.
An entrepreneur in a developing economy is one who starts his own new and small
business, under take risk, bear uncertainties and also perform the managerial
functions of decision making and co- ordination. Entrepreneur may be an in dealer
group of individuals.
Different authors have given different definitions of entrepreneur. Some of
the main definitions are as follows:

According to Schumpeter, The entrepreneur in an advanced economy, is an

individual who introduces something new in the economy-o production of method
not yet tested by experience in the branch of manufacture concerned, a product
with which consumers are not yet familiar, a new soure of raw material or of new
markets and the like”

According to Marshall, “Entrepreneur is an individual who adventures or

underrates risks, who brings together the capital and labor required for he work,
who arranges its general plan and who superintends its minor details.”

Conclusion: From the study of above definitions, we conclude that entrepreneurs

are people who have the ability to see and evaluate business opportunities, to
gather the necessary resources to take advantages of them and to take
appropriate action to ensure success. He bears the risk of changes and
uncertainties, always searches for change, introduces innovations and exploits
changes as an opportunity.
 CHARACTERISTICS OP AN ENTREPRENEUR

The main characteristics of an entrepreneur are as follows:

(1) Risk takers : 11) Desire for
(2) Innovators : Independence:
(3) Provider of Resources: (12) Organizing capacity:
(4) High Achievers: (13) Prefers Achievement
(5) Motivator: over Money:
(6) Opportunist: (14) Different from
(7) Individual organization or Capitalist and Investors:
Groups: (15) Human relations
(8) Dynamic Agent: ability:
(9) More than a manager: (16) Decision makers:
(10) High Level Energy: (17) Self-confidence:

NECESSARY QUALITIES OF AN ENTREPRENEUR

An entrepreneur possesses the following characteristics
(A) Physical Qualities: (1) Good Health, (2) Effective personality,(3) Agreeable
Looking,(4) Hard Worker.

(B) Mental Qualities: (1) Sharp mind, (2) Alertness, (3) Sharp Memory, (4)
Imaginative, (5) Foresightedness, (6) Self-Confidence, (7) Optimism, (8) Maturity,
(9) Dynamic Philosophy.

(c) Social Qualities: (1) Sociability, (2) Helpful Behavior, (3) Likeable
Dispositive, (4) Respectful.

(D) Ethical or Moral Qualities: (1) Honesty, (2) Character, (3) s Politeness, (4)
Loyal,

(E) Business Qualities : (1) Business Aptitude, (2) Entrepreneurially Ability, (3)
Risk-taking Capacity, (4) Innovation Ability, (5) Decision Capability, (6) Technical
Skill, (7) Alertness towards Opportunities, (8) Knowledge of market Conditions,
(9) Knowledge of different statutory laws, (10) Alertness of Social
Responsibilities, (11) Leadership Capability.
Q. “An entrepreneur is a catalytic agent in economic development.”Explain
this statement and discuss the role and importance of entrepreneur in
developing economy

ROLE AND IMPORTANCE OF ENTREPRENEUR

Entrepreneur plays a significant role in the economic and indoctrinal development

of a country. If we study the economic history of the presently developed
countries, such as America, Russia and Japan, we find that the economy is an
effect for which entrepreneur is the cause.

In the view of Schumpeter, “the entrepreneurs are the key figures in the
economic development on account of their role in introducing innovations.

It has also an important role in the context of a developing nation like India which
is confronted with major socio-economic problems. Entrepreneurs can play an
important role not only in the industrial sector of a country but in the farm and
agriculture sectors also. Entrepreneur is a catalytic agent of change. He creates
wealth opens up employment opportunities and fosters the other segments of
economic system.

The role and significance of an entrepreneur are illustrated under the

following headings.-

(1) Contribution in Economic Development: Economic development refers a press

of upward change, whereas the precipitate income of a country actually increases
after a long time. Entrepreneurs create jobs, wealth and capital in the country.
They promote investment, increase production and bring competitiveness in
business, reduce costs of products and raise the standard of Living in a society.
Entrepreneurs encourage effective resource mobilization of capital and skill which
might otherwise remain unutilized and idle. They establish new business
enterprises, make possible use of resources and increase the national income.
Thus they play significant role in the economic development of a country.

(2) Promotion of Innovation: Entrepreneur recognizes the need to change and

introduce something new in the existing economic field. Innovations may be in the
form of new product,
Instituting of new production technology, searching or opening of a new
market, discovery of new source of supply of a raw material and developing a
better form of industrial organization.

The innovations of new product may imply the employment of productive means in
a modified form.

(3) Increase in Employment Opportunities: Entrepreneurs promote the idle

savings of the public. They provide immediate large scale employment. They
integrate resources and technologies into profitable business ventures and help to
reduce the unemployment problem in the country.

(4) Pillar of Modern Production System: Entrepreneur has become ‘balancing

wheel ‘of modern global economy. Marshall called him as the ‘captain of industry’.
George Gilder in ‘The Spirit of Enterprise’ said that:”Entrepreneurs are
innovators who evoke demand. They are makers of markets, creators of capital,
and developers of opportunity and producers of new technology. They seek the
unique product, the marketing break through, the startling new feature of the
novel design.”

(5) Increase in Productivity: Entrepreneurs play an important role in raising the

productivity. They have the ability to produce more goods and services with fewer
inputs. They increase productivity with the help of research and development and
investment in new plant and machinery.

(6) Expansion of Existing Units: Entrepreneurs not only establish the new
enterprises but also make the expansion of the existing units.

(7) Encouragement to Research and Development: Entrepreneurs make the task

of innovation along with the promotion of a new enterprise. It encourages
research and Development and help to reform and revolutionize the pattern of
production by exploiting an invention and provide better goods to the consumers.

(8) Establishment of New industrial Organization: A business does not get

started by itself. It is the entrepreneur who takes the risks and is willing to face
devastating failure. He braves uncertainty, strikes out on his own, and through
native with, devotion to duty, and singleness of purpose, somehow creates
business and industrial activity where none existed before. His values and
activates have become integral to corporate culture.

(9) Catalytic Agent as Joseph Schumpeter says, entrepreneur’s task is “creative

destruction”. He destroys to create new things. He changes and transmutes
values. He searches change and responds to it. He is a change creator. Without
him there is no happening, no action, no growth.

(10) Change in Social Framework: Entrepreneurs bring creative changes in the

Social environment. They help to change the thoughts and vision of the people.
They bring optimism and courage in the society, with the help of their
revolutionary ideas.

(11) First Movers: Entrepreneurs are first movers. They move in various areas
first than their competitors. They have the ability to identify new segments in
markets. Established markets Entrepreneurs can see opportunities to rise and
move quickly to take advantage of them. They can create entire new industries.

(12) Visionary Leader: Entrepreneur is the key force in successfully moving the
idea from the laboratory to the market place. They conceive business visions and
term them into business realities. He is able to recognize potentially profitable
opportunities and to conceptualize the venture strategy.

SELF-NOTES
Theories of Entrepreneurship