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Entrepreneurship

BBA, Third Year, Sixth


Semester
By: Jyoti Dahal

Objective of this course


Provide fundamental concepts of
Entrepreneurship.
Deals with issues related to the
establishment, development and
management of a small enterprise.
It provides students with real world
examples and practical hands on
exercises, and provides practical
guidelines for developing a business plan
to lunch and run a successful business.

Course Contents
Overview of Entrepreneurship (nature,
definition, role,.)
Entrepreneurial and Entrepreneurial Mind
(Entrepreneurial Process, Entrepreneurial
decision making, Climate)
Environment for Entrepreneurship)
Creativity and Business Idea
Business development plan for a new
venture
Managing Early Growth and challenges

Books
Text Books
As per the syllabus
References Books
Thaneshwor Gautam and Bal Ram
Bhattarai: Entrepreneurship and
small business management (buddha
publication)

Course contents of Unit 1


(7 Teaching Hours)
Development of Entrepreneurship
Definition of
Entrepreneurship/Entrepreneur/intrapreneur
Nature of Entrepreneurship
Role in Economic development of Entrepreneurship
Family Business and succession Strategies
Sources of Business Idea
Entrepreneurial decision process
Types of start-ups
Fundamental issues of entrepreneurship

Development of Entrepreneurship

Development of Entrepreneurship
Early period:
An early example of the earliest definition of an
entrepreneur as go between is Macro Polo would sign a
contract with a money person to sell his goods .
Middle age:
In the middle ages, the term entrepreneur was used to
describe both 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.

Development of Entrepreneurship
17th century;
The reemerging connection of risks 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.
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. One reason for this differentiation was
the industrialization occurring throughout the world.

Development of Entrepreneurship
19th and 20th century:
In that century entrepreneurs were frequently not
distinguished from managers and were viewed mostly
from an economic perspective. Briefly stated, the
entrepreneur organizes and operates and enterprise for
personal gain. He pays current prices for the materials
consumed in the business for the use of the land for
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 chanced of loss
and gain consequent to unforeseen and uncountable
circumstances.

Development of Entrepreneurship

In the middle of 20th century, the notion of an


entrepreneur as and 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.
USA was discovered by entrepreneurs, nourished by
entrepreneurs and became a world economic power
through entrepreneurial activity. Entrepreneurship
constitutes the driving force of the American dream.

Entrepreneurship

Meaning of Entrepreneurship
Entrepreneurship is the process of creating
something different with value by devoting
the necessary time and effort, assuming the
accompanying risks and receiving the
resulting rewards. creates employment
opportunity for others.
It is the process of creating new ventures.
It begins with an innovative idea.
It identifies opportunities.
It requires assumption of risks and rewards.
It brings together resources.

Entrepreneurship

According
to
Peter
Drucker
"Entrepreneurship is gathering and
using resources to produce result and
it
is
allocating
resources
to
opportunities
rather
than
to
problems.

Entrepreneur:
Entrepreneur:
It is originated by French word
enterprendrewhich
means
to
undertake responsibility. It refers to
corporate entrepreneur. It is a person
within the large organization who
handles new ventures based on
innovation. Entrepreneurs perform
the functions of entrepreneurship

Definitions of Entrepreneur
An entrepreneur is the agent who
buys means of production at certain
prices in order to combine them into
a product that he is going to sell at
prices that are uncertain at the
moment at which he commits himself
to his costs.- Cantillon
The entrepreneur is the economic agent
who unites all means of production.the
labor force of the one and the capital or
the land of the others and who finds in the
value of products his results from their
employment reconstitution of the entire

An entrepreneur as an individual
who bears the risk of operating a
business in the face of uncertainty
about the future conditions. The
New Encyclopedia Britannica
Entrepreneurs innovate. Innovation
is the specific instrument of
entrepreneurship. It is the act that
endows resources with a new
capacity to create wealth. Innovation,
indeed creates a resource- Peter F.
Drucker

Entrepreneurial
Characteristics
1. Change Agent:
. An entrepreneur is expected to work as a change
agent.
. The entrepreneur is a catalyst for change.
. He should be alert to the signs that change is needed.
. Both external and internal forces can act on the
entrepreneurial organization, just as they do on other
organizations.
. The complex and uncertain environment can create
the need to change.
. Entrepreneur is the person who recognizes the need
for change and directs it. Whenever a particular need
to change is recognized the entrepreneur becomes
the key person to initiate that change.

2. Self Confidence:
Entrepreneurs should have confidence in their
abilities to make both strategic and day-today decisions regarding technical matters,
marketing and overall business strategy.
They should also feel capable of overcoming
any future unanticipated problem.
Since entrepreneur is to work as cheerleader
and coach while implementing change, he
requires capability to overcome any resistance
to change.
Actually overcoming any resistance to change
requires intense interpersonal efforts and
support.

3. Energy Level:
To be successful, a new venture
requires hard work and dedication.
In practice, success of an
entrepreneur needs the ability to
work for long hours in completing the
task before him.
Entrepreneurs need an unusually
high energy level in order to meet
the demands of launching and
running a business.

4. Level of Risk:
The entrepreneur assumes risk.
Entrepreneurs shift resources from areas of low
productivity and yield to areas of higher
productivity and yield.
Of course, there is a risk they may not succeed.
But if they are even moderately successful, the
returns should be more than adequate to offset
whatever risk there might be.
Thus, entrepreneurs are typically characterized
as risk takers. Successful entrepreneurs
actually tend to take moderate risk rather than
little risk or excessive risk.

5. Need for Achievement:


Entrepreneurs exhibit a high need for
achievement which accounts for their
seemingly endless drive.
Studies show that people with high need
achievement like to take risks but only
reasonable ones and such risks stimulate
them to greater effort.
Thus, high achievers set ambitious shortterm and long-term goals that challenge
them and that provide great personal
satisfaction when achieved.

6. Tolerance for Ambiguity:


Imperfection in information is always possible
and manager is required to take decisions with
incomplete or unclear information.
But entrepreneurs even face more ambiguity
since they may be doing certain things for the
first time and they are risking their livelihood.
Thus, entrepreneurs should be comfortable and
capable of making decisions based on
incomplete or little information.
Practically, it is a critical trait for entrepreneurs
who face a great deal of uncertainty at the time
of starting new enterprise.

Functions of An
Entrepreneur

1. Innovation:
. Innovation means doing the new things or
doing of things that are already being
done in a new way.
. Innovation is the process of doing new
things.
. However, there is distinction between
creativity and innovation. Creativity is the ability
to bring something new into existence.

. Innovation is the

transformation of creative ideas

but creativity is a
prerequisite to innovation.
into useful applications

2. Risk-Taking:
The risk is the condition of not knowing the outcome of
an activity or decision.
Risk is capable of being evaluated for
relative probabilities.
Risk bearing means provision for capital in order
to enable the entrepreneur to establish and
operate the business.
Economists like Cantillon, J.B.Say and others
stressed risk taking as the specific function of an
entrepreneur.
Entrepreneur is required to reduce uncertainty in
his investment strategies by initiating expansion
and diversification programs in the enterprise.

3. Organization and Management:


The process of organization and management
includes planning of an enterprise coordination,
control and supervision.
Prof. Alfred Marshal recognized this function as an
important function of an entrepreneur.
Entrepreneurs often fall into the trap of thinking
that just because their business is small, they do
not really need a comprehensive system of
organization and management.
They may rationalize that by designing an effective
organizational and management control system.
They cannot improve their capabilities because of
their limited knowledge about possible methods of
effective control.

4. Business Decision:
Arther H. Cole described an entrepreneur as a decision
maker.
The decisions with regard to what to produce, how to
produce and for whom to produce are to be taken by
the entrepreneur himself.
Prof. Cole described the functions of an entrepreneur
as:
The determination of those objectives of the enterprise
and the change of those objectives as conditions
required or made advantageous.
The development of an organization including efficient
relations with subordinates and all employees.
The securing of adequate financial resources, the
relations with existing and potential investors.

The requisition of efficient


technological equipment and the
revision of it as new machinery
approach.
The development of a market for
products and the devising of a new
product to meet or anticipate
consumers demand.
The maintenance of a good relations
with public authorities and with
society at large.

Types of Entrepreneurs
1.
2.
3.
4.

Innovative Entrepreneurs
Imitating Entrepreneurs
Fabian Entrepreneurs
Drone Entrepreneurs
Innovative Entrepreneurs:
. They are characterized by effective assemblage of
information and the analysis of results originated
from different set of combinations.
. According to Schumpeter, innovative entrepreneurs
are those who may raise money to launch an
enterprise, assemble the various factors, select top
executives and set the organization operational.

They also identify the opportunity for introducing a


new technique or a new commodity or a new market.
These entrepreneurs are quite aggressive in
experimentation and putting attractive or viable
possibilities into practice.
Thus, innovative entrepreneurs are one who believe
in introducing new goods, adopt new method of
production, develop new market and restructure the
organization under their command.
Innovative entrepreneurs are the product of
developed nations and they are in position to adopt
and implement innovative process in action.
But underdeveloped nations are unable to have this
type of entrepreneurs as they lack resources and
expertise to invest in innovation process.

Imitating Entrepreneurs:
These entrepreneurs are those entrepreneurs
who are unable to innovate the changes
themselves but they are capable enough to
imitate the techniques and technology innovated
by innovating entrepreneurs.
These entrepreneurs are always ready to adopt
successful innovation executed by innovating
entrepreneurs as there is little involvement of
huge capital expenditure in this process.
Developing economies or underdeveloped
economies need this type of entrepreneurs.
Prospective entrepreneur of these nations prefer
to imitate the technology, knowledge and skill
developed by innovating entrepreneurs.

Fabian Entrepreneurs:
These entrepreneurs are shy and lazy in their working.
Their dealings are guided by the customs, religion,
tradition and past practices.
Actually, Fabian entrepreneurs are always conscious
in their dealings and believe in initiating any change.
They do not have any will power to initiate new
changes as well as lack desire to adopt new methods
innovated by innovating entrepreneurs.
They always believe in tested routes of production
and not interested in taking risk.
Actually they are habitual of following the paths
directed by earlier entrepreneurs.
They avoid in taking challenges in production system
and that is why they are unable to maximize the
fruits of entrepreneurial actions.

Drone Entrepreneurs:
These entrepreneurs are those who are not inclined
to bring changes in their production system as
demanded by the change in consumer preferences,
technological innovation, economic and social
behavior of the prospective customers.
Market always provides opportunities to the
entrepreneurs but this type of entrepreneurs
generally fail to use these opportunities in profitable
way. Due to this reason they fail to earn profit or
even suffer loss.
They are traditional in their approaches and do not
make changes in production methods.
They generally risk their identity as their product
loses marketability and at the end uneconomic or
unviable operation pushes them out of the market.

Entrepreneur

Entrepreneurship

1. Refers to an individual.

1. Refers to a process.

2. It is a creator.

2. It is creation.

3. It is a visionary.

3. It is vision

4. It is an innovator.

4. It is innovation.

5. It is a risk-bearer.

5. It is process of risk-bearing.

6. It is a motivator.

6. It is motivation.

7. It is an organizer.

7. It is organization.

8. It is a leader.

8. It is leadership.

9. It is an imitator.

9. It is imitation.

Intrapreneur
Intrapreneur:

A person within a large corporation


who takes direct responsibility for
turning an idea into a profitable
finished product through assertive
risk-taking and innovation.

Nature of Entrepreneurship / Features


Key
Creation of new venture /Dynamic process
Assumption of risks or risk bearing / decision making /
accepting challenges
Assumption of reward
Achievement oriented / skillful management
Desire for responsibility
Optimistic
Independence
Foresight
Innovation
Flexibility
Good manager and leader

Difference between entrepreneur and Intrapreneur, and


salaried employee
Points
Entrepreneur
Intrapreneur
1. Dependency
Independency
Dependency
2. Fund Raising
Himself raised funds
Corporation provide funds
3. Risk
Takes risk fully
moderate risks
4. Motive
Monetary reward
salary
5. Operation
Operates from outside the existing
Operates from inside
organization
6. Time
5 to 10 years for growth of business
corporate timetable
Points
salaried employee
7. Motive and reward
monetary
8. Work place
existing org
9. Status
10.Risks

Takes
Fixed

Entrepreneur
Uncertain / independency
creates new venture
Owner
Bear all risks

fixed salary or
works in the
Servant
Does not bear

Importance of Entrepreneurship

Capital Formation
Employment Creation
Creating Innovation
Fuelling Economic Growth
Identifying Ownership Opportunities
Enhancing Welfare Amenities
Increased Productivity
Balanced Development
Equitable Distribution
Industrialization
Opportunities for Entrepreneur

Role of entrepreneurship in Economic


Development
Entrepreneurship is the driving force for economic development. It
guides increase in quality life, Per capita income, education, health and
environmental protection etc. It plays a critical role in economic
development.
Capital Formation:
Capital is an important element in economic development.
Formation means addition made to the stock of physical and human
capital. Entrepreneurs help to raise the investment interest in new
ventures to mobilize idle savings of public.
Employment opportunities:
New ventures are an important source of employment.
Entrepreneurship helps to increase the employment situation in the
country which guides to promote economic development in the country
through establishing new Ventures.
Increased productivity:
Entrepreneurs make effective utilization of available resource in the
country through industrialization and this leads to productivity and
production. It reinvests profits to expand existing venture or start new
ventures.

Role of entrepreneurship in Economic


Development
Balanced Development:
Entrepreneurs start new ventures all over the country
and different types of facilities and grant are provided
by the government to them for expansion and
rehabilitation of existing ventures. This type of activities
promote
balanced
regional
development where
Probability to utilize of local resources.
Trade promotion:
Imports and exports trade is developing through skill
entrepreneurs and they develop new products and ideas
or services to cater to the needs of foreign markets.
They guide to balance of payment of the country which
helps to import and export of goods and services.

Role of entrepreneurship in Economic


Development
Industrialization:
It is the prime source of industrialization
because they are responsible for industrial
revolution. Such types of activities provide
employment
opportunities
and
economic
development as well as increase export capacity
of the country. It has emerged throughout the
entire world. People learn new skills and earn
more income, products become cheaper and of
good quality.
Others: Technological transfer and innovation
etc.

Family Business and Succession


Strategy
A family business is a business in which one or more
members of one or more families have a significant
ownership interest and significant commitments toward
the business overall well-being.
In some countries, many of the largest publicly listed
firms are family-owned.
A firm is said to be family-owned if a person is the
controlling shareholder; that is, a person (rather than a
state, corporation, management trust, or mutual fund)
can garner enough shares to assure at least 20% of the
voting rights and the highest percentage of voting rights
in
comparison
to
other
shareholders.

Characteristics of Family Business


High percentage of share capital owned by a
family either jointly or individually;
Family members employed in the highest
decision-making post;
Expression of intention to maintain family
involvement in future;
A number of generations of the same family
involved in management or ownership;
Management or ownership control by direct
descendants of the founders.

Advantages of Family Business


There is a long-term orientation as the
continuity of the firm is of great concern to the
older generations.
The family culture is a source of great pride for
family and non-family employees alike.
A family firm functions in a less bureaucratic
manner and is not impersonal in dealing with
employees and customers.
A family firm shows greater willingness to
weather the bad times by plugging back profits.
It is structured to impart training to younger
members of the family.

Disadvantages of Family Business

A family firm may have a confusing structure


where the role of many family members is
not clearly defined.
The style of functioning may be autocratic or
patriarchal.
Many family members of the younger
generation may not be worthy of their
position and role in the organization.
There can be very strenuous succession
battle.
Sometimes, family members can selfishly
drain the finances from the company.

Roles and Responsibilities of Family


Business

Starting the business


Providing guidance and direction to
employees and family members
Building the organization
Planning for succession
Constructively involving family
members in the busienss

Family Business and Succession


Strategy

In a family business, one or more members within the


management team are drawn from the owning family.
Family businesses can have owners who are not family
members.
Family businesses may also be managed by individuals
who are not members of the family.
However, family members are often involved in the
operations of their family business in some capacity and,
in smaller companies, usually one or more family
members are the senior officers and managers. Many
businesses that are now public companies were family
businesses.
Family participation as managers and/or owners of a
business can strengthen the company because family
members are often loyal and dedicated to the family
enterprise.

Family Business and Succession Strategy


When the family business is basically owned and operated by
one person, that person usually does the necessary balancing
automatically.
For example, the founder may decide the business needs to
build a new plant and take less money out of the business for a
period so the business can accumulate cash needed to expand.
In making this decision, the founder is balancing his personal
interests (taking cash out) with the needs of the business
(expansion).
Most first generation owner/managers make the majority of the
decisions.
When the second generation (sibling partnership) is in control,
the decision making becomes more consultative.
When the larger third generation (cousin consortium)is in
control, the decision making becomes more consensual, the
family members often take a vote. In this manner, the decision
making throughout generations becomes more rational

Family Business and Succession Strategy


Succession Strategy:
Succession planning is a process for identifying and
developing internal people with the potential to fill key
leadership positions in the company.
Succession planning increases the availability of
experienced and capable employees that are prepared to
assume these roles as they become available.
Taken narrowly, "replacement planning" for key roles is
the heart of succession planning. Fundamental to the
succession-management process is an underlying
philosophy that argues that top talent in the corporation
must be managed for the greater good of the enterprise.
Research indicates that clear objectives are critical to
establishing effective succession planning. These
objectives tend to be core to many or most companies
that have well-established practices:

Objective of succession
planning
Identify those with the potential to assume greater responsibility
in the organization
Provide critical development experiences to those that can move
into key roles
Engage the leadership in supporting the development of highpotential leaders
Build a data base that can be used to make better staffing
decisions for key jobs
In other companies these additional objectives may be embedded
in the succession process:
Improve employee commitment and retention
Meet the career development expectations of existing employees
Counter the increasing difficulty and costs of recruiting
employees externally

Succession Strategy of Family Business


10 Succession Strategies of Family Business
Business Financial Analysis - Provides a thorough review of the
current financial and organizational health of your business. The
result is a written and comprehensive summary and
recommendation that brings together the relevant organizational,
financial, legal, and tax information in one easy to use reference
guide.
Family and Business Mission Statements - Clarify family and
business values. Align interests of all stakeholders and bring vision
and reality into congruence. Facilitate a family meeting to create
mission statements for the family and the business.
Business Strategic Plan - Review existing business plan and
determine viability of plan implementation for successors and
management team. Facilitate a meeting with key stakeholders for
analysis of strengths, weaknesses, opportunities and threats
(SWOT) facing the business.
Wealth Enhancement - Develop financial strategy to ensure
retirement security for owners and retain family wealth for future
generations. Provide written recommendations for investment,
retirement, and estate planning programs.

Succession Strategy of Family Business

Successor Analysis - Determine viability of an internal succession.


Interview owners, family members (inside and outside of business),
non-family management, and key employees in order to identify
strengths, weaknesses, and leadership capabilities.
Successor Development - Assist with clarification of successor
criteria. Produce written guidelines for the consideration, training,
and choosing of successor candidates.
Advisor Coordination - Create follow up strategy with advisors and
stakeholders to obtain buy-in for family objectives. Develop
accountability goals and task timelines for all parties involved in
succession process.
Quarterbacking - Track and document progress of advisors and
stakeholders in completion of responsibilities. Provide a monthly
report recapping tasks, deadlines, and progress towards
implementation of succession strategies.
Board of Directors - Utilize the board to maintain perspective,
provide a "reality check" for management, guard against stagnation,
and ensure a steady flow of new ideas for the business. Facilitate the
creation and initial meeting of an outside board of directors.
Personal and Estate Profile (PEP)
Complete
a
comprehensive
information gathering and planning tool. Provides a written document that
summarizes key information and serves as a reference guide for your family

The Characterization of Effective


successions
1. Select managers for the next generation.
2. Put in place a comprehensive development
program for these managers.
3. Provide opportunities for next-generation
managers to fulfill their personal and career goals.
4. Develop plans for management succession,
strategies for the continued operation of the
business, retirement of the current managers and
transfer of assets before and through the estate.
5. Develop positive associations and good working
relations among the family members in all
generations in and out of the family business.

Sources of Business Idea


1. Examine your own skill set for business
2.

3.
4.
5.
6.

ideas.
Keep up with current events and be
ready to take advantage of business
opportunities.
Invent a new product or service.
Add value to an existing product.
Investigate other markets.
Improve an existing product or service.

Sources of Business Idea


New knowledge created by research and development.
Unexpected Events.
Rapid growth in technology.
Change in industry and market structure.
Change in business environment
Demographic Changes.
Innovation and redesign of old process.
Situation Survey ( Technological, Political\Legal Economic,
Social \Cultural )
Outside sources (consultants\ donor agencies\foreign
countries\suggestion from friends, family, \ Television,
Newspapers \channel members \ legal provisions etc.

The fundamental Issues in entrepreneurship

Political instability
Presence of inflation
Inadequacy of information
Capital
Inadequate of infrastructural facilities
Inadequate of Government support or motivation
Type of business to establish
Others:
Lack of time
unfamiliarity
lack of skills
Lack of openness
Family background
Education
Age
Family connection

Entrepreneurial decision process


Conduct opportunity Analysis:
It generates a new business idea. SWOT analysis is done.
Develop Business Plan:
A business plan is developed for the new ventures. It sets
goals and objectives. It states the process and
technology to be used. It identifies target market. It
determines product, price, promotion and distribution
aspects. A cash flow analysis is done.
Set-up the venture:
The new venture is established. The legal aspects of the
venture are determined. The legal form can be
proprietorship, partnership, company or cooperative.

Entrepreneurial decision process


Acquire financial Resources;
Various options available for financing the new venture are
examined. Early stage funding can be from self, family
friends and government sources. Growth stage funding can
be debt from financial institutions or public offer of shares.
Implement Business plan:
The venture is organized. Human resources are
acquired and developed. the entrepreneur builds a
management team. The value intellectual property
consisting of patents, trademark and copyright is
protected. An e-business strategy is developed. The new
venture becomes operational.

Types of Start-ups
(what types of business should you start?
(Build a better business)

Business Startup Step One: Product, Service,


or Both?
Business Startup Step Two: Independent or
Franchise?
Business Startup Step Three: Wholesale or
Retail?
Business Startup Step Four: Storefront or
Home-Based?
Business Startup Step Five: What Industry?
Business Startup Step six: Startup Process
Startup (Naming & Organization)
Records (Accounts, Licenses & Record Keeping)
Finances (Startup Costs, Loans & Projections)
Developing Your Business Plan (Outline & Sample

Types of Start-ups

Market Research
Business Name
Selecting a Business Structure
Business Plan
Marketing Plan
Applying for Licenses & Permits
Funding Your Business
Finding a Location
Minimizing Risk
Outsourcing and/or Hiring New Employees
Accounting - Maximizing Profit & Minimizing Tax

Any Questions?

Model Questions of Unit 1


Define
entrepreneurship.
How
is
an
entrepreneur different from a manager?
What is family business? Describe briefly the
succession strategies.
7
What are the roles played by entrepreneurship
in economic development.
Briefly explain about entrepreneurial decision
process.
Define creative process. Identify and briefly
describe the sources of business ideas.