Unit-1

Entrepreneurship
Introduction
Entrepreneurship is one of the four mainstream economic factors: land, labour, capital and
entrepreneurship. The word which is derived from 17 th century French entreprendre, refers to
individuals who were “undertakers”, meaning those who “undertook” the risk of new enterprise.
They were “contractors” who bore the risk of profit or loss, and many early entrepreneurs were
soldiers of fortune, adventurers, builders, merchants etc. Earlier references to the entrepreneur in
the 14th century spoke about tax contractors- individuals who paid a fixed sum of money to a
government for the license to collect taxes in their region.
Economics and Entrepreneurship
Richard Cantillon, a French economist in his book “Essai sur la nature du commerce en general”
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.
Adam Smith spoke of the “enterpriser” in “Wealth of Nations” in 1776 as an individual who
undertook the formation of an organization for commercial purposes. He viewed the entrepreneur
as a person with unusual foresight who could recognize potential demand for goods and services.
French economist Jean Baptiste Say, in his “A treatise on Political Economy”, 1803 described an
entrepreneur as one who possessed certain arts and skills of creating new economic enterprises.
Say’s entrepreneur influenced society by creating new enterprises and was influenced by society
to recognize needs and fulfill them through management of resources.
In 1848, British economist John Stuart Mill elaborated on the necessity of entrepreneurship in
private enterprise. The term entrepreneur became common as a description of business founders,
and the ‘fourth factor’ of economic endeavor.

According to Carl Menger’s view (Principles of Economics, 1871) economic change arises from
an individual’s awareness and understanding of circumstances. The entrepreneur becomes the
change agent who transforms resources into useful goods and services, often creating the
circumstances that lead to industrial growth.
Joseph Schumpeter (1934) described entrepreneurship as a force of “creative destruction”
whereby established ways of doing things are destroyed by the creation of new and better ways to
get things done. He described entrepreneurship as a process and entrepreneurs are innovators who
use the process to shatter the status quo through new considerations of resources and new
methods of commerce.
Definitions
“Entrepreneurship is the dynamic process of creating incremental wealth. This wealth is created
by individuals who assume the major risk in terms of equity, time, and/ or career commitment of
providing value for some product or service. The product or service may or may not be new or
unique but value must somehow be infused by the entrepreneur by securing and allocating the
necessary skills and resources”. Robert Ronstadt
In the words of A.H.Cole, entrepreneurship is the purposeful activity of an individual or group of
associated individuals, undertaken to initiate, maintain, or organize a profit-oriented business unit
for the production or distribution of economic goods and services.
Higgins defines the term as “Entrepreneurship is meant the function of seeing investment and
production opportunity, organizing an enterprise to undertake a new production process, raising

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capital, hiring labour, arranging for the supply of raw materials and selecting top managers for the
day-to-day operation of the enterprise”.
According to Peter Drucker, “Entrepreneurship is a process of gathering and using resources that
must be allocated to opportunities rather than to problems”.
“Entrepreneurship essentially consists in doing things that are not generally done in the ordinary
course of business routine”. Schumpeter
“Entrepreneurship involves doing things in a new and better way. Entrepreneurial role calls for
decision making under uncertainty”. Mc Clelland
The New Encyclopedia Britannica considers an entrepreneur as an “individual who bears the risk
of operating a business in the face of uncertainty about the future conditions”.
In other words, entrepreneurship means the function of creating something new, organizing and
coordinating and undertaking risk and handling economic uncertainty.

Entrepreneur or owner manager

Entrepreneurs take existing resources and redeploy them, often in a creative way, to give them
greater economic value. They are agents of change, innovators of new products, methods, or
markets. They are more involved in looking for and exploiting new opportunities. They are less
concerned with managing what exists in the most efficient manner. Owner managers may or may
not be entrepreneurs. They own and manage a small enterprise.

Similarities
1. Both managers and entrepreneur are answerable for producing results
2. Both have to produce results through people working with them though they deal with different
sets of people.
3. Both are decision makers but the decisions are different as their tasks vary.
4. Both have to operate under constraints.

Differences
Managers
Short term and medium term results
Usually handle people oriented to day-to-
day management
Operational and administrative decisions
The constraints are usually organizational,
i.e. those within the organization.
The principles are more oriented towards
internal administration and control like
delegation, accountability, responsibility,
planning etc.
Entrepreneurs
Long term and very long term results
Deal with people who can conceptualize
with aggregate perspectives- strategists.
Mostly strategic decisions
Constraints are usually environmental
which lie outside an organization.
The principles are with reference to macro
social aspects like social responsibility,
equal opportunity employment, ethical
advertising practices etc.

Entrepreneurial traits
A successful entrepreneur must be a person with the following traits:
1. Mental ability
Mental ability consists of intelligence and creative thinking. An entrepreneur must be
reasonably intelligent and should have creative thinking and must be able to engage in the
analysis of various problems and situations in order to deal with them.

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2. Clear objectives
An entrepreneur should have a clear objective as to the exact nature of the business, the
nature of the goods to be produced and subsidiary activities to be undertaken.
3. Business secrecy
An entrepreneur must be able to guard business secrets. Leakage of business secrets to
trade competitions is a serious matter which should be carefully guarded against by an
entrepreneur.
4. Human relation ability
An entrepreneur must establish good relation with his customers to establish relations
that will encourage them to continue on patronize his business. He must also maintain good
relations with his employees if he is to motivate them to perform their jobs at a high level of
efficiency. An entrepreneur who maintains good human relations with customers, employees,
suppliers, creditors and the community is more likely to succeed in business.
5. Communication ability
It is the ability to communicate effectively. Good communication also means that both
the sender and the receiver understand each other and are being understood.
6. Technical knowledge
An entrepreneur must have a reasonable level of technical knowledge. It is one ability
that most people are able to acquire if they try hard enough.
Robert D. Hisrich has identified a few more capabilities or personal characteristics that an
entrepreneur should possess. According to him, the entrepreneur must have an adequate
commitment, motivation and skills to start and build a business. Some key characteristics of
successful entrepreneur are;
1. Motivator: An entrepreneur must build a team, keep it motivated, and provide an
environment for industrial growth and career development.
2. Self confidence: Entrepreneurs must have belief in themselves and the ability to achieve
their goals
3. Long term commitment: An entrepreneur must be committed to the project with a time
horizon of five to seven years.
4. High energy level: Success of an entrepreneur demands the ability to work long hours for
sustained periods of time.
5. Persistent problem-solver: An entrepreneur must have an intense desire to complete a
task or solve a problem. Creativity is an essential ingredient.
6. Initiative: An entrepreneur must have initiative accepting personal responsibility for
actions, and make good use of resources.
7. Goal setter: An entrepreneur must be able to set challenging but realistic goals.
8. Moderate risk taker: An entrepreneur must be a moderate risk taker and learn from many
failures.

Motivation for starting a business

The reason for small firm formation can be divided between “pull” and “push” influences.
Pull influences
Some individuals are attracted towards small business ownership by positive motives
such as specific idea which they are convinced with work.
1. Desire for independence
This features in several research studies as the key motivator. The Bolton report singled
out the need to gain and keep independence as a distinguishing feature of small business owner-

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managers. A study of female entrepreneurs in Britain found that women were motivated
particularly by the need for autonomy.

2. Desire to exploit an opportunity

Opportunities according to Drucker are of three kinds: additive, complementary, and
breakthrough. Additive opportunities are those opportunities which enable the decision maker to
better utilize the existing resources without in any way involving a change in the character of
business. Complementary opportunities involve the introduction of new ideas and as such lead to
a certain amount of change in the existing structure. Breakthrough opportunities involve
fundamental changes in both the structure and character of business.

3. Turning previous work experience into business

Many new entrepreneurs seek fulfillment by spending more time involved in a hobby, or
part of their work that they particularly enjoy.
4. Financial incentive
The rewards of starting a business can be high, and are well-publicized by those selling
‘how to’ information to entrepreneurs. The promise of long term financial independence can be
clearly be a motive in starting a new firm.

Push influences
These factors include;
1. Community attitude
This has proved a considerable push into entrepreneurship particularly when
accompanied by acceptance in a locality where other employment possibilities are low.
2. Unemployment
Job insecurity and employment varies in significance by region, and by prevailing
economic climate. A study reported that 25% of business founders in the late 1970s were pushed
in this way, while later research showed a figure of 50% when unemployment nationally was
much higher.
3. Disagreement with the previous employer
Uncomfortable relations at work have also pushed new entrants into small business.
Many people considering an opportunity or having a desire for independence still need some
form of push to help them make their decision.

P.N Sharma has identified two sets of motivating factors for entrepreneurs;
1. Internal factors
2. External factors
1. Internal factors include:

a) Educational background
b) Occupational experience
c) Desire to work independently
d) Desire to branch out to manufacturing
e) Family background
These factors generate an inclination to adopt entrepreneurial activity.
2. The external factors include:

a) Assistance from government

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b) Assistance from financial institutions
c) Availability of raw materials/technology
d) Other factors- demand for the particular product, utilization of excess money earned from
contractual business, started manufacturing to facilitate trading etc.
Among the external motivating factors assistance from financial institutions and assistance from
government emerged as the most significant factors. These factors are not the prime motivators
but play the role of contributing factors in the implementation of entrepreneurial idea.

Success factors for entrepreneurs

Several success factors are apparent from research on innovation and entrepreneurship.
1. The entrepreneurial team:
An entrepreneurial team is headed by an individual who provides the critical profile of
success. This focal entrepreneur typically has an above average education, with about 35% of
technical entrepreneurs holding graduate degrees. Most entrepreneurs started their business when
they were in their 30s, and they had solid job experience. Nearly two-thirds of those studied in the
United States had attempted a new venture before, and fewer Canadians had made an earlier
attempt.
Most technical entrepreneurs tend to start businesses closely related to what they did in
previous career positions. Those in non-technical areas often leverage their experience in
marketing, merchandising, or a professional area such as insurance or finance. They will also
have well-developed social and business relationships, and therefore have a strong formulation
for building a team or support network.
2. Venture products or services
Incremental expansion of products and services also tends to stay within the bounds of
positive cash flow. Products tend to have strong profit potential with high initial margins rather
than small margins that require a substantial volume of sales to meet profit objectives. Service
businesses retain good margins by effective cost controls and well monitored overheads.
Entrepreneurs must assure themselves of a niche for their services. Successful entrepreneurs
should “stick to the knitting” by concentrating initially on one product or services, making it
successful before diversifying.
3. Markets and timings
Successful entrepreneurs tend to have a clear vision of both existing and potential
customers. A crucial aspect of planning is to have a well documented forecast of sales based on
sensible projections at each of incremental growth. An entrepreneur will not convince investors
that a venture is viable without valid market research.
Market potential is influenced by timings of new products or services. Timing pertains to
when products or services are introduced, how they are priced, how they are distributed, and how
they are promoted.
4. Business ideology
A business ideology is defined as a system of beliefs about how one conducts an
enterprise. These beliefs include a commitment to providing customers with value, the ability to
take calculated risks, the determination to grow and to control the fate of the business, the
propensity to elicit cooperation among team members, and the perspective of creating wealth
realistically.
Kinds of entrepreneurship
The entrepreneurs in business are broadly classified according to;
1. The types of business
2. Use of professional skill
3. Motivation

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4. Growth and
5. Stages of development
1. According to type of business
Entrepreneurs are found in various types of business occupations of varying size. We
may broadly classify them as follows;
a) Business entrepreneurs:
Business entrepreneurs are individuals who conceive an idea for a new product or service
and then create a business to materialize their idea into reality. They tap both production and
marketing resources in their search to develop a new business opportunity. They may set up a big
establishment or a small business unit. They are called small business entrepreneurs when found
in small business units such as printing press, textile processing house, advertising agency,
readymade garments, or confectionary.
b) Trading entrepreneur:
Trading entrepreneur is one who undertakes trading activities and is not concerned with
the manufacturing work. He identifies potential markets, stimulates demand for his product line
and creates a desire and interest among buyers to go in for his product. He is engaged in both
domestic and overseas trade.
c) Industrial entrepreneur:
Industrial entrepreneur is essentially a manufacturer who identifies the potential needs of
customers and tailors product or service to meet the marketing needs. He is product oriented man
who starts in an industrial unit because of the possibility of making some new product. The
entrepreneur has the ability to convert economic resources and technology into a considerably
profitable venture.
d) Corporate entrepreneur:
Corporate entrepreneur is a person who demonstrates his innovative skill in organizing
and managing a corporate undertaking. A corporate undertaking is a form of business
organization which is registered under some statute or act which gives it a separate legal entity.
e) Agricultural entrepreneur:
Agricultural entrepreneurs are those entrepreneurs who undertake such agricultural
activities as raising and marketing of crops, fertilizers, and other inputs of agriculture.
2. According to the use of technology
The application of new technology in various sectors of the national economy is essential
for the future growth of business.
a) Technical entrepreneur:
A technical entrepreneur is essentially an entrepreneur of “craftsman type”. He develops
new and improved quality of goods because of his craftsmanship. He concentrates more on
production than marketing. He demonstrates his innovative capabilities in production of goods
and rendering services.
b) Non-technical entrepreneur:
Non-technical entrepreneurs are those who are not concerned with the technical aspects
of the product in which they deal. They are concerned only with developing alternative marketing
and distribution strategies to promote their business.
c) Professional entrepreneur:
Professional entrepreneur is a person who is interested in establishing a business but does
not have interest in managing or operating it once it is established. A professional entrepreneur
sells out the running business and starts another venture with the sales proceeds.
3. According to motivation
Motivation is the force that influences the efforts of the entrepreneur to achieve his objectives. An
entrepreneur is motivated to achieve or prove his excellence in job performance.

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a) Pure entrepreneur:
A pure entrepreneur is an individual who is motivated by psychological or economic
rewards. He undertakes an entrepreneurial activity for his personal satisfaction in work, ego or
status.
b) Induced entrepreneur:
Induced entrepreneur is one who is induced to take up an entrepreneurial task due to the
policy measure of the government that provides assistance, incentives, concessions, and
necessary overhead facilities to start a venture.
c) Motivated entrepreneur:
New entrepreneurs are motivated by the desire for self-fulfillment. They come into being
because of the possibility of making and marketing some new product for the use of consumers.
d) Spontaneous entrepreneur:
These entrepreneurs start their business out of their natural talents. They are persons with
initiative, boldness and confidence in their ability which motivate them to undertake
entrepreneurial activity.

4. According to growth
The development of a new venture has greater chances of success. The entrepreneur
enters a new and open field of business. The customer approval to the new product gives them
psychological satisfaction and enormous profit.
a) Growth entrepreneur:
Growth entrepreneurs are those who necessarily take up a high growth industry. These
entrepreneurs choose an industry which has sustained growth prospects.
b) Super growth entrepreneur:
Super growth entrepreneurs are those who have shown enormous growth of performance
in their venture. The growth performance is identified by the liquidity of funds, profitability and
gearing.
5. According to the stages of development
a) First generation entrepreneur:
A first generation entrepreneur is one who starts an industrial unit by means of an
innovative skill. He is essentially an innovator, combining different techniques to produce a
marketable product or service.
b) Modern entrepreneur:
A modern entrepreneur is one who undertakes those ventures which go well along with
the changing demand in the market. They undertake those ventures which suit the current
marketing needs.
c) Classical entrepreneur:
A classical entrepreneur is one who is concerned with the customers and marketing needs
through the development of self supporting ventures.
In a study of American agriculture, Danhof has classified entrepreneurs in the following
categories:
1. Innovative entrepreneurs:
Innovative entrepreneurship is characterized by aggressive assemblage of information
and the analysis of results derived from sound combination of factors.
2. Adaptive or imitative entrepreneurs:

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 These kinds of entrepreneurs are ready to adopt successful innovations created by
innovative entrepreneurs. Instead of innovating the changes themselves, they just imitate the
technology and techniques innovated by others.
3. Fabian entrepreneurs:
Entrepreneurs of this type are very cautious and skeptical while practicing any change.
They have neither the will to introduce new changes nor the desire to adopt new methods
innovated by the most enterprising entrepreneurs.these are different from the risk takers because
they are afraid of taking risks or bringing innovation in entrepreneurship ventures.these are kinds
of entrepreneurs are mostly the ones who have owned the business directly from their ancestors
and have not done much to make the business stand on firms grounds.
4. Drone entrepreneurs:
Drone entrepreneurship is characterized by a refusal to adopt and use opportunities to
make changes in production (They don’t like change). Such entrepreneur may even suffer losses
but they do not make changes in production methods. They considered as ‘old school’.such
people attach pride and tradition to even outdated methods of doing business.
Women enterprises
The number of women enterprises in USA, has risen dramatically during the last two
decades. Newspapers and business magazines frequently feature women as successful
entrepreneurs. Between 1982 and 1987, the number of women-owned businesses increased by
57.4%, with receipts of these businesses rising by 81.2%. A study by economist David Birch,
released in 1992, reported that women owned 28 percent of the business in U.S. and that they
owned 10% of the country’s workers. Women’s business ownership has been expanding much
more rapidly than men’s business ownership, but women are expanding from a smaller base of
ownership.

Functions of an entrepreneur
Peter Kilby identified thirteen functions of an entrepreneur, which included some of the
managerial functions also. Kilby has classified the functions into four groups;
1. Exchange relationship
a) Perceiving market opportunities
b) Gaining command over scarce resources
c) Purchasing inputs
d) Marketing of the products and responding to competition.
2. Political administration
e) Dealing with the public bureaucracy (concessions, licenses, taxes)
f) Managing human relations within the firm
g) Managing customer and supplier relations.
3. Management control
h) Managing finance
i) Managing production (control of written records, supervision, coordinating input flows with
orders, maintenance)
4. Technology
j) Acquiring and overseeing assembly of the factory
k) Industrial engineering (minimising inputs with a given production process)
l) Upgrading process and product quality, and
m) Introducing new production techniques and products.

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 Kilby has suggested that in the strict sense entrepreneur will perform only first two
functions listed above and for other remaining eleven functions, he will employ experts in the
related lines. Kilby also suggested that these functions may vary according to the size, type and
setting of an enterprise and could be augmented through training and education.

Arthur H. Cole has described the following functions of an entrepreneur:

1. The determination of those objectives of the enterprise and the change of those objectives
as conditions required.
2. The development of an organization including efficient relations with the subordinates
and all employees.
3. Securing adequate financial resource, the relations with existing and potential investors.
4. The requisition of efficient technological equipment and the revision of it.
5. The development of a market for the products and the devising of new products to meet
or anticipate consumers demand.
6. The maintenance of good relations with public authorities and with society at large.

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