Entrepreneurship Development (BUS-304)

Lecture – 1

Chapter – 1
Introduction
 1.1 Origin and Development of the term Entrepreneur:

• The term “Entrepreneur” is derived from the French word “Entreprendre” which
literally meant “enterprise” or “to undertake”. It appears that the term
‘entrepreneur’ has been used for over 200 years. The origin of term can, however,
be traced from the writings of ‘Fritz Redlich’, a 20 th century German scholar. Redlich
(1949) traced that the term was one of the first time appeared in Savary’s
Dictionary in 1723 where notes can be found on the words like ‘entreprendre’ and
‘entrepreneur’.
 
• However, Redlich mentioned that by 1725 the word first assumed the role of
technical term in the work of Richard Cantilon. The next economist using the word
‘entrepreneur’ in a technical sense was Jean Baptiste Say in 1803.
 
• Redlich also traced words like ‘undertaker’ or ‘adventurer’ in Malachy
Postlethwayst’s Dictionary published in English in London in 1751-1755 where the
word was used to refer to a person who has built a house and may sell or rent.
 1.2 Definition of the term Entrepreneur and Entrepreneurship:

It is of course, not the intention here to catalogue each and every definition of entrepreneur and
entrepreneurship, even though, it is tempting to explore the abundant literature on this
subject, yet it is essential to mention some of them in order to have sufficient understanding
about the subject.

Economist’s definition of Entrepreneurship:

• ‘Cantillon’ (1755) defined the entrepreneur as “one who buys things at a certain price and
sells at an uncertain price.” Examples: farmers, craftsmen, wholesalers, retailers, tavern
(saloon) keepers etc. It appears that Cantillon stressed ‘risk taking’ as an important feature of
entrepreneurship.
 
• ‘Jean Baptiste Say’ defined the term in his work which first appeared in French in 1815 and in
English in 1816, has made further modifications to the term. To Say, “the capitalist and the
entrepreneur is not the same person” and according to him “the entrepreneur is one who
hires the labor, capital & land of others and combines these means of productions for profits.”
‘Schumpeter’ defined the term entrepreneur as “the carrying out of
new combinations we call ‘enterprise‘, the individuals whose
function is to carry it out we call ‘entrepreneurs’.

Schumpeter’s innovative entrepreneurship is not limited to only

independent ownership of business but also extends up to
employees of a company like manager, members of board of
directors, and so forth. Therefore, he described the entrepreneur
as the ‘agent of change’ and the ‘innovator’.

Schumpeter was the first economists to emphasize the “non-

economic” motivations behind the emergence of the entrepreneur.
It appears that he did not consider profit making to be the
significant motivation for persons’ becoming entrepreneur.
Behavioralists & Social Scientists Definition of Entrepreneurship:
 
• The renowned sociologist Max Webber defined the term Entrepreneur as “the ideal
type of capitalistic Entrepreneur… avoids ostentation (display/ showingness) and
unnecessary expenditure, as well as conscious enjoyment of his power, and is
embarrassed by the outward signs of social recognition which he receives. His manner
of life… distinguished by a certain ascetic (Frugal/ economical) tendency… He gets
nothing out of his wealth for himself, except the irrational sense of having done his job
well.”
 
• According to Psychologist McClelland “an Entrepreneur is someone who exercises some
control over the means of production and produces more than he can consume in order
to sell (or exchange) it for individual ( or household) income.” McClelland defines the
Entrepreneur as one who organizes a firm and increases its productive capacity.
 
• Hisrich (1985) defined Entrepreneurship as “the process of creating something different
with value by devoting the necessary time and effort; assuming the accompanying
financial, psychological and social risks; and receiving the resulting rewards of monetary
and personal satisfaction.”
Sociologist and Anthropologist’s Definition of Entrepreneurship:
 
• It is to note that sociologists and anthropologists also came forward to fill this gap and
have tried to explain the phenomena by social and cultural factors. The word profit has
been interpreted in a different manner by anthropologists, as saying that the profit of an
entrepreneur should not be limited to only pecuniary gains and an entrepreneur is
described as an ‘agent of cultural change.’ The psychologists perhaps ultimately touched
the nerve of the problem and tried to see an entrepreneur as a human being with
motives and attitudes. They really initiated for doing what Schumpeter and others
emphasized for.
 
• From the definition or descriptions given by economists, sociologists and
anthropologists as well as by psychologists it can be observed that there is much more
consensus among the writers on some points such as risk taking, organizing and
managing the factors of production and distribution & making ultimate decision of
business.

• Undoubtedly, an entrepreneur is risk taker as he invests money and/or is involved in

making decisions, the success of which bring rewards, and the failure of which can lead
to the loss of the rewards as well as even the loss of the principal i.e. invested money.
Therefore, it is very logical to place risk taking at the centre of entrepreneurship.
 Common themes found in the definition of
Entrepreneurship:
• The entrepreneur plays important role in the societies
economic and other spheres of life.
• Entrepreneurship involves with innovation.
• The third common theme seems to be organization creation.
• Entrepreneurship is the process of creating value.
• Entrepreneurship can be there in both profit and non-profit
environment.
• It is considered as the point of growth.
• The last but not the least is the recognition that the
Entrepreneurship is a process.
 Pros and Cons of Entrepreneurship
(advantages and disadvantages/ challenges):

To everything in life there are advantages and

disadvantages; entrepreneurship is no exception. As a
matter of fact, entrepreneurship involves a lot of risk
taking. Yet, it can pay off very nicely as well, with
rewards such as profits and the opportunity to be your
own boss and make your own decisions.

Here are some pros and cons to consider:

 Pros / advantages:

• Excitement: Due to its high capacity for risk, there is a lot of adventure.

• Rules and regulations: Work in a current job is difficult to do because of

all the "red tape" and consistent administration approval needed.

• Originality: Some people feel that they can offer a new service/product
that no one else has offered before.

• Competition: Employees feel they can offer their current company's

product/service at a lesser expense to the public.

• Independence: Some people wish to be their own boss and make all the
important decisions him/herself.
• Salary potential: Generally, people want to be paid for the amount
of work they do in full; they do not want to be "short-changed."

• Flexibility: Entrepreneurs can schedule their work hours to spend

quality time with family or any other reason.

• Rational salary: They are not being paid what they're worth and
would rather work on their own and earn the money they should be
earning for their efforts.

• Freedom: Entrepreneurs can work whenever they want, wherever

they want, and however they want.
 Cons / disadvantages/ challenges
 

• Salary: Starting your own business means that you must be willing to give up the
security of a regular paycheck.

• Benefits: There will undoubtedly be fewer benefits, especially when considering that
your business will be just starting off.

• Work schedule: The work schedule of an entrepreneur is never predictable; an

emergency can come up in a matter of a second and late hours will have to be put in.

• Administration: All the decisions of the business must be made on your own; there is
no one ranked higher than you on the chain of command in YOUR business.

• Incompetent staff: Often times, you will find yourself working with an employee who
"doesn't know the ropes" as well as you do due to lack of experience.

• Procedures: Many times during your entrepreneurial life, you will find that many
policies do not make sense, nor will they ever make sense.
 Common Myths about Entrepreneurs

Myth 1: Entrepreneurs Are Born Not Made.

– This myth is based on the mistaken belief that some
people are genetically predisposed to be
entrepreneurs.
– The consensus of many studies is that no one is
“born” to be an entrepreneur; everyone has the
potential to become one.
– Whether someone does or doesn’t become an
entrepreneur, is a function of the environment, life
experiences, and personal choices.
Although no one is “born” to be an
entrepreneur, there are common traits and
characteristics of successful entrepreneurs:
•Achievement motivated •Self-confident
•Optimistic disposition •Has a strong work ethic
•Alert to opportunities •Self-starter
•Persuasive •Is a moderate risk taker
•Creative •Tenacious
•Promoter •Is a networker
•Decisive •Tolerant of ambiguity
•Resource assembler/leverager •Lengthy attention span
•Energetic •Visionary
 Myth 2: Entrepreneurs Are
Gamblers.
Most entrepreneurs are moderate risk takers.
The idea that entrepreneurs are gamblers
originates from two sources:
– Entrepreneurs typically have jobs that are less
structured, and so they face a more uncertain set
of possibilities than people in traditional jobs.
– Many entrepreneurs have a strong need to
achieve and set challenging goals, a behavior that
is often equated with risk taking.
 Myth 3: Entrepreneurs Are
Motivated Only by Money.
– While it is naive to think that entrepreneurs don’t
seek financial rewards, money is rarely the reason
entrepreneurs start new firms.
– In fact, some entrepreneurs warn that the pursuit
of money can be distracting.
Myth 4: Entrepreneurs Should Be Young and
Energetic.
– The most active age for business ownership is 35 to
45 years old.
– While it is important to be energetic, investors often
cite the strength of the entrepreneur as their most
important criteria in making investment decisions.
• What make an entrepreneur “strong” in the eyes of an
investor are experience, maturity, a solid reputation, and
a track record of success.
• These criteria favor older rather than younger
entrepreneurs.
 Importance of Entrepreneurship in
Developing Country

• Employment Generation
• Promotes Capital Formation
• Small Business Plan Dynamism
• Balanced Economic Development
• Innovations in Enterprises
• Better standards of living
• Self-Reliance
 (cond...)
• Backward and Forward Industries Linkage
• Growth of Infrastructure
• Mobilization of Local Resources
• Increase of Per Capita Income
• Growth of Capital Market
• Facilitates Overall Development
• Promotes Country’s Export Trade