Entrepreneurship

Unit 1
Introduction
• The term Entrepreneurship comes from a French word ‘Entrependre’
meaning to undertake i.e. those who took a risk of a new enterprise.
• Entrepreneurship is a dynamic activity which helps the entrepreneur
to bring the changes in the process of production, innovation in
production, new usage of materials, creator of market, etc.
• An entrepreneur is an economic change agent with knowledge, skills,
initiative, drive and spirit of innovation to achieve goals. He is a risk
bearer, an organizer and an innovator.
• According to Economist, “An entrepreneur is the one who brings
resources, labour, material and other assets into the combination to
prduce a socially viable product and also one who introduces
changes, innovation and new order”.
• According to Management, “A person with a vision and action plan to
achieve it” is an entrepreneur.
THE EVOLUTION OF ENTREPRENEURSHIP
THEORY 
•  Adam Smith (1776) - An entrepreneur is a person who acts as agent
in transforming demand into supply.
• Jean Babtiste Say (1803) - An entrepreneur is a person who shifts
resources from an area of low productivity to high productivity.
• John Stuart Mill (1848) - An entrepreneur is a prime mover in the
private enterprise. The entrepreneur is the fourth factor of
production after land ,labor and capital.
• Carl Menger (1871) - The entrepreneur acts as an economic agent
who transforms resources into products and services. The
entrepreneur transforms and gives added value.
• Alfred Marshall (1936) - The process of entrepreneurship or business
development is incremental or evolutionary . It evolves from sole
proprietorship to a public company.
• Ibnu Khaldun (Abdul Rahman Mohamed Khaldun) - The
entrepreneur is seen as a knowledgeable individual and is
instrumental in the development of a city-state.
• David McClelland - The entrepreneur is a person with a high need for
achievement. This need for achievement is directly related to the
process of entrepreneurship.
Functions of an Entrepreneur
• Identification of opportunities
• Introduction of a new product
• Gathering resources or introducing new methods of production
• Developing new markets
Characteristics of an Entrepreneur
• Vision: He is able to visualise market demand, socio-economic
environment and the future of business venture
• Knowledge: He has sound conceptual knowledge about all the
technicalities of his business
• Desire to Succeed: He has multiple goals and seeks opportunities to be
productive
• Independence: He is independent in work and decision making
• Optimism: He knows how to exploit opportunities
• Value Addition: He does not follow the conventional rule of thumb, they
have a desire to create, innovate and add value
Characteristics of an Entrepreneur
• Initiative: He takes the initiative to make an action plan from limited
resources
• Goal Setting: He sets realistic goals
• Problem Solver: He is creative in problem solving
• Good Human Relations: He is a good leader, motivator and team
builder
• Communication Skills: He has the ability to persuade others.
Types of Entrepreneur (According to
Clarence Banhof)
• Innovative Entrepreneur: Innovative Entrepreneur are innovative in
their approach to business and introduce new products, new
production methods, or discover new markets or new forms of
organization in their enterprise.
• Imitative or Adoptive Entrepreneurs: Entrepreneurs belonging to this
category imitate products, production methods and new forms of
organization in their enterprise. This category of entrepreneurs can be
found especially in developed and underdeveloped countries, partly
due to a lack of investment in research and development.
• Fabian Entrepreneur: Fabian entrepreneurs are not proactive in
nature and do not respond very much to changes in the environment.
Instead, they change only when there is a threat to the existence of
their enterprise
• Drone Entrepreneur: Drone Entrepreneurs are conservative and
complacent in nature and like to maintain the status quo. These
entrepreneurs may incur losses and have to close down their
enterprise.
According to Authur H. Cole
• Empirical Entrepreneur: An Entrepreneur who does not innovate and
follows the rule of thumb.
• Rational Entrepreneur: One who keeps himself updated with his
business, the market and economic conditions and introduces
revolutionary ideas
• Cognitive Entrepreneur: An Entrepreneur that seeks advice and
services of experts to make changes which are revolutionary and
reflect a complete shift from its existing structure.
According to Ownership
• Public Entrepreneurship: These are individuals who partner with the
government to create enterprises which serve the public in innovative
ways.
• Private Entrepreneurship: These entrepreneurs are profit oriented
and do not enter market which have low monetary rewards
associated with it.
Definition of Entrepreneurship
• Entrepreneurship involves not only the process that leads to the
setting up of a business entity but also the expansion and
development of an on going concern. The study of entrepreneurship
is concerned with the entrepreneurial behavior, the dynamics of
business set up and expansion and development.
Nature of Entrepreneurship
• Creation of an enterprise: It involves creation and operation of an enterprise
• Organising Function: It brings together various factors of production for
economic use
• Innovation: It is an automatic, spontaneous and creative response to
changes in the environment
• Risk bearing capacity: It assumes uncertainty of future
• Managerial and leadership function: It is responsible for controlling and
coordinating the human resource and giving direction to an enterprise
• Gap Filling: It fills the gap between human needs and available products and
services
Process of Entrepreneurship
Identifying an Opportunity

Establishing a Vision

Persuading Others

Gathering new resources

Create new venture

Changing/ Adopting with time

Process of Entrepreneurship
• Identifying an Opportunity: An entrepreneur senses opportunities and visualises
a market since they are creative and open to new ideas and seek challenges.
They look for needs, wants, problems and challenges that are not met or dealt
effectively. Since their ideas are innovative they gain first movers advantage
which provides product identification and higher credibility in the market.
• Establishing a Vision: It involves generation of ideas using past experience and
creativity to develop new and innovative ways to solve a problem or satisfy a
need. Out of many ideas the most feasible and profitable are chosen and
narrowed to one best idea. He evaluates different business opportunities and
the business environment to assess the (i) real and perceived value of the
product/ service (ii) risk and rewards associated with the project (iii) differential
advantage in its competitive environment.
Process of Entrepreneurship
• Persuading Others: He forms a foundation team which consists of a
group of individuals who work together to turn his vision into reality.
They may be partners, financiers, family members, etc.
• Gathering new resources: It involves using a business plan to attract
investors, venture capitalists, partners, financial institutions,
promoters, etc. Their main tasks is to research and identify resources
that are needed to turn the idea into a viable venture. Resources can
be categorized into-
• Financial Resources: personal savings, retained capital, banks, government
institutions, family friends, partnership, etc.
• Operating Resources: They can be tangible or intangible.
• Tangible: Machine, raw materials, land and building, office equipment
• Intangible: Company’s image, operating procedures, transportation, management
• Human Resources: temporary/permanent employees, amount if manpower needed,
recruitment, selection, training of staff, compensation, organization culture.
• Information Resources: An efficient management information system is needed in
order to have timely information about customers, markets, competitors and external
environment. All the data is networked on real time basis to speed up actions based
on information
• Create new venture: When all the resources have been arranged, the
next step is creation and establishment of a new venture and running
the business venture successfully. It requires a lot of enthusiasm and
persuasion to gather optimum resources and it requires a lot of
perseverance and passion to believe in self.
• Changing/ Adopting with time: It is necessary to monitor and upgrade
the organization with changing market conditions. It requires
availability of funds to make changes and the adaptability of human
resource towards changed environment.
Advantages of Being an Entrepreneur
• An entrepreneur is an independent person who makes his/her own decisions
and acts on them
• An entrepreneur has enough scope for innovation
• An entrepreneur often has the opportunity of realizing dreams and achieving
excellence while simultaneously contributing to the welfare of society
• An entrepreneur usually has immense job satisfaction
• An entrepreneur can bring about the socioeconomic transformation of a
region by generating employment for others and creating wealth
• An entrepreneur can make a significant contribution to the development of
the country
Problems faced by Entrepreneurs
Intrapreneurship
• Intrapreneurship or corporate entrepreneurship is the process by
which teams within an established company conceive, foster, launch
and manage a new business that is distinct from the parent company
but leverages the parent’s assets , capabilities, market position and
other resources
Entrepreneur vs. Intrapreneur
Criteria Entrepreneur Intrapreneur
Dependency Independent in his operations Dependent on the
entrepreneur/owner
Fund Raising Raises funds required for the Funds are not raised
enterprise
Risk Taking Fully bears the risks involved in the Does not fully bear the risks
business involved in the business
Operation Operates from outside Operates within the organization
Primary Motive Goal oriented, self reliant and self Access to corporate resources and
motivated also responds to corporate rewards
and recognition
Entrepreneur vs. Professional Managers
Basis Entrepreneur Manager
Meaning Entrepreneur refers to a person who Manager is an individual who takes the
creates an enterprise by taking financial responsibility of controlling and
risks in order to get profit administering the organization
Focus Business start up On going operations
Primary motivation Achievement Power
Approach to tasks Informal Formal
Status Owner Employee
Reward Profit Salary
Decision making Intuitive Calculative
Driving Force Creativity and Innovation Preserving status quo
Risk orientation Risk taker Risk averse
Drawbacks of Entrepreneurship
• Risk of Loss — Business failure can ruin an entrepreneur financially, and yes, the failure rate of small business is relatively high when
compared to established businesses. Entrepreneurs should ask themselves if they are prepared to cope psychologically with the failures
associated with entrepreneurship.
• Uncertainty of Income — Starting and running an enterprise provides no guarantee of earning money. Many small businesses barely
earn enough to give the owner adequate income. During the initial days of a start-up, a business often cannot provide an attractive
salary for its owner and meet all its financial obligations. If you are willing to live on your savings, then entrepreneurship is for you.
• Lower Quality of Life in Initial Stage — Long hours and hard work are needed to launch a business but this can take their toll on the life
of the entrepreneur. Entrepreneurs often find their personal roles diverging and taking a backseat. Owning a business requires to make a
lot of sacrifices. As a result, personal life suffers.
• High Levels of Responsibility — Entrepreneurs often have to take decisions beyond the domain of their knowledge as many of them have
difficulty finding advisers. When there is no one to ask, the pressure can build quickly. The realisation of making the right decisions can
have an effect on some people.
• High Stress Levels — Starting and managing a business on one hand may seem highly rewarding but on the other, it can be extremely
stressful as well. Apart from significant investments and leaving a secure monthly income, entrepreneurs constantly thrive under the
stress of failure leading to financial ruin. In addition, the turbulences in the personal lives also add to the stress levels.
• Long Working Hours — Start-ups often demand long working. In many start-ups, the demands of owning a business make achieving a
balance between work and life difficult for entrepreneurs. It becomes a full-time commitment where there are always some things that
need to be done.
Role of Entrepreneurs in Indian Economy
• Capital Formation: Entrepreneurs mobilize the idle savings of the public through the issues of industrial
securities. 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.
• Improvement in Per Capita Income: Entrepreneurs locate and exploit opportunities. They convert the latent
and idle resources like land, labour and capital into national income and wealth in the form of goods and
services. They help to increase net national product and per capita income in the country, which are
important yardsticks for measuring economic growth.
• Generation of Employment: Entrepreneurs generate employment both directly and indirectly. Directly, self-
employment as an entrepreneur offers the best way for independent and honorable life. Indirectly, by setting
up large and small scale business units they offer jobs to millions. Thus, entrepreneurship helps to reduce the
unemployment problem in the country.
• Balanced Regional Development: Entrepreneurs in the public and private sectors help to remove regional
disparities in economic development. They set up industries in backward areas to avail various concessions
and subsidies offered by the central and state governments. Public sector steel plants and private sector
industries by Modis, Tatas, Birlas and others have put the hitherto unknown places on the international map.
• Improvement in Living Standards: Entrepreneurs set up industries which remove scarcity of
essential commodities and introduce new products. Production of goods on mass scale and
manufacture of handicrafts, etc., in the small scale sector help to improve the standards of life
of a common man. These offer goods at lower costs and increase variety in consumption.
• Economic Independence: Entrepreneurship is essential for national self-reliance. Industrialists
help to manufacture indigenous substitutes of hitherto imported products thereby reducing
dependence on foreign countries. Businessmen also export goods and services on a large
scale and thereby earn the scarce foreign exchange for the country. Such import substitution
and export promotion help to ensure the economic independence of the country without
which political independence has little meaning.
• Backward and Forward Linkages: An entrepreneur initiates change which has a chain reaction.
Setting up of an enterprise has several backward and forward linkages. For example- the
establishment of a steel plant generates several ancillary units and expands the demand for
iron ore, coal, etc.
Social Entrepreneurs
• Social entrepreneurs are individuals with innovative solutions to
society’s most pressing and daunting social problems.
• They are ambitious and persistent, tackling major social issues and
offering new ideas for wide scale change.
• Social entrepreneurs act as the change agents for society, seizing
opportunities, improving systems, inventing new approaches and
creating solutions to change society for the better
• A social entrepreneur comes up with new solutions to social problems
and then implements them on a large scale for the benefit of
humanity
According to Dees (2001)- The social entrepreneur plays the role of a
change agent in society by
• Adopting a mission to create and sustain social value
• Searching for and pursuing new opportunities to serve that mission
• Continually innovating, adapting and learning in pursuit of the mission
• Acting boldly without consideration of resources current in hand, and
• Being accountable for outcomes of activities
Theories of Entrepreneurship
• Innovation Theory
• Theory of Need of Achievement
• Theory of Recover The Withdrawal of Status
• Behaviour Theory
• Entrepreneurial Group Theory
• Social Change Theory
• Cultural Theory
• Cultural Value Theory
• Socio-Cultural Value Theory
• Economic Theory
• Entrepreneurial Disposition Theory
• Process of Stage Theory
Innovation Theory
• Joseph A. Schumpeter is the propounder of innovation theory. The
assumptions are:
1.The entrepreneur is born with the desire to establish his own industry,
also
2.He desires to do something new.
3.Takes pleasure of creativity and earning experiences of skills for doing
various tasks.
• However, the main objective behind the arms is to earn profits, by way
of search of new raw materials, new sources, new machinery,
production of new products, new methods of production, new workers
and providing consumer satisfaction.
Theory of Need of Achievement
• The need for achievement theory was propounded by McClelland. His assumption
is that the Desire of high achievements obtaining specific achievements, making
the best performance, touching the heights of excellence, developed
Entrepreneurial tendencies in the individuals.
• But, for that, the entrepreneur should have adequate capacity of imaginations,
thinking and developing new combinations.
• For that, the feelings for achievements are inculcated in him, from the very
beginning and thereafter it is especially attempted that he may become a
successful entrepreneur.
• McClelland has recognized the desire to achieve the major factor in
entrepreneurship development.
• He has suggested conducting motivational training programmes for development of
the entrepreneurs.
Theory of Recover The Withdrawal of Status
• This theory was propounded by Everet Hegen. His assumption
is that creativity of any suffering minority group in the society is
the main source of entrepreneurship.
• In this regard, he is of the opinion that if any community has to
lose its reputation, due to some reasons, that group becomes
quite active and strong to regain it.
• As a result, many entrepreneurs are born. Hence it may be
said that withdrawal of status of any social group is the root
cause of its personality development and Entrepreneurial
development also.
• According to Hagen, withdrawal of status or reputation is
caused by the following conditions:
1.When a reputed group is forcefully displaced by another group.
2.When a better group changes its views about its subordinate
group.
3.When a group starts living in some new society. The persons or
the group tend to do creativity behavior to regain the status and
reputation, after withdrawal of status, etc. Which will result in
entrepreneurship development?
Behaviour Theory
• This theory was propounded by John Kunkel. He assumes that
the entrepreneurial development of any society depends upon
its past and existing economic social aspirations.
He feels that following four types of compositions are essential for
entrepreneurial development:
• The behavior of the individuals may be made entrepreneurial by influencing the
major factors of demand composition.
• The behavior of the individual may be made Entrepreneurial by influencing the 
major factors of demand composition.
• Opportunity competition is decided by various factors, like labour and labour
market, production methods, training opportunities, skills, etc.
• Labour composition is operated by various factors, like sources of livelihood,
traditional approach, and aspirations of life, etc.
Entrepreneurial Group Theory
• This theory was propounded by Frank W. Young. The theory is based on the assumption
that expansion of entrepreneurial activities is possible only by entrepreneurial groups.
• Because they have specialties is in the groups, and capacity to react.

However, this reactiveness is possible, when three conditions prevail simultaneously in

society.
• When the group feels of low status.
• When the group is not successful in reaching to important social machinery.
• When the group has better institutional resources as compared to other groups.

Thus, it is evident that when any subgroup in a big society realizes low status and position,
then its capacity to react gives birth to Entrepreneurial behavior.
Social Change Theory
• This theory of entrepreneurship development has been propounded by Max Weber.
• For the first time, he stated that the emergence and development of the entrepreneurs
depend upon ethical values system of society.
• He is of the view that religion in which a person survives and the religious values and
faiths which he accepts, substantially affect his business life, occupation, Entrepreneurial
enthusiasm, and energy.
• He had linked entrepreneurship development with protein (that sect of Christianity who
does not accept the total authority of pope) and with various religious communities.
• His observes that those religious communities which lay emphasis on capitalism,
materialism, and currency rationalization have been successful in the 
emergence of entrepreneurs, wealth, technology, capital formation, and 
economic development.
• It is evident that the Protestant society has been able to achieve rapid economic progress.
Cultural Theory
• This theory of entrepreneurial development was propounded by B.F. Hauslin.
• He is of view that industrial entrepreneurial development is possible only that
society, where social procedures are unstable, alternatives of employment to
persons are widely available and the society which encourages personality
development of enterprising persons.
• He explained that the culturally marginal groups have special importance in
encouraging economic development of any Nation, the reason being that the
marginal individuals are more capable of Creative adjustments of the
conditions of the circumstances and during the process of this adjustment
they make efforts to bring about real innovation social behavior.
• In addition, he also laid the stress of developing individual qualities for
entrepreneurial development.
Cultural Value Theory
• Cultural value theory has developed by Kroken. He emphasized cultural
values, expected rules, and social approvals have specific importance in
entrepreneur development.
• So, the Entrepreneur is an ideal personality for The society.
• In addition, Kroken also explained that the success of the entrepreneur and
his performance are influenced by the following 3 factors:
1.Entrepreneurs own inclination towards his work and profession.
2.Expectations of acceptance groups regarding the role of the entrepreneur.
3.Functional requirements of the work.
• Thus, it may be said the Entrepreneurial development is significantly linked
with the environment.
Spcio-Cultural Value Theory
• This theory of entrepreneurship development was propounded
by Stokes.
• He is of the view that during the period of economic transition,
socio-cultural values play a very important role.
• The physiological factors encourage economic development by
stimulating entrepreneurship.
• According to him, ‘Mental thinking’ do create the directions of
entrepreneurial development, but group generated value Matrix
has significant contribution in attracting the entrepreneurship.
Economic Theory
• This theory has been propounded by Pepuek and Hassis.
• Their assumption is that physiological motivation for economic gains or increase
in real income exists in every society.
• In addition, he has also stated that economic motivations are sufficient conditions
for individual industrial entrepreneurship.
• But, if in spite of that, entrepreneurial response lacks in the individuals, it is the
result of various types of market imperfections and propositions of policy
determination.
• This theory is based on the assumption that entrepreneurial development is the
result of various economic motivations.
• Hence, the individuals enter into the industrial field with the aim of maximum
utilization of economic opportunities available within the economy and the market.
Entrepreneurial Disposition Theory
• Entrepreneurial disposition theory of entrepreneurship development
has been propounded by T.V.S. Rao.
• His assumption is courageous Entrepreneurial disposition is
very important for entrepreneurial development.
• Besides, for entrepreneurial establishments, individual, physical, and
orienting factors are also essential.
• According to Rao, Entrepreneurial disposition includes factors like
dynamic motivation, individual, social and physical sources and political
system.
• These factors influence the Entrepreneurial development and also
promote industrial activities.
Process of Stage Theory
• Within accepted theory, process or stage theory has been developed by Venkat
Rao.
• His assumption is that entrepreneurship development a process of five following
stages:

(1). Simulation
• In this stage, the environment is built for development of entrepreneurs, by way of
providing them various simulation.
• Various policy announcements are made in the country, specific plans are
prepared for development, wide publicity is done, support institutions are
established, entrepreneurial development programmes are organized.
• All these help in stimulating entrepreneurship.
(2). Identification of Entrepreneurial Abilities and Capacities in the Society
• At this stage identification of entrepreneur is carried out and advanced systems are
adopted.
• The entrepreneurs are directed toward constructive activities.
• The prospective Entrepreneur in various fields is identified.

(3). Development and Expansion of Entrepreneurs

• At this stage, various programmes are organized for the development of
entrepreneurs, which include vocational guidance programmes, management
Training, and Technical training.
• In addition, various policies and programmes are organized for the expansion of
industrial activities.
(4). Promotion
• At this stage, various support organizations, like Central labour organizations, state-
level organizations, and Research, testing and Standards organizations, etc. are
established for the expansion of economic activities and entrepreneurial promotion.
• These organizations provide various types of motivation, assistance, facilities, and
services to entrepreneurs.

(5). Follow Up
• At the last stage, follow-up of government programmes and policies formulated for
entrepreneurial development is undertaken.
• The system of feedback is introduced for entrepreneurial expansion and
development.