Chapter One

General Introduction

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What is Entrepreneurship?

• Entrepreneurship is an elusive concept.

• Entrepreneurship is the process of creating something
new of value by devoting (giving) the necessary time
and effort.
• By accepting and acknowledging the necessary
financial, psychological, and social risks, and

• Finally receiving the resulting rewards be it monetary

and personal satisfaction and freedom to do what you
want.
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Simple Definition
• Process of creating something new and assuming the
risks and rewards.

3
The Role of Entrepreneurship in Economic Growth

• Economic development essentially means a process

of upward change whereby the real per capita
income of a country increases for a long period of
time.

• For achieving the goal of economic development, it

is necessary to increase the entrepreneurship both
qualitatively and quantitatively in the country.

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The Role of Entrepreneurship in Economic Growth
• Increasing the per capita output and income of the
people of the country.
• Growth and increased output arises, thus to enable
more wealth to be divided among the various
participants ( stakeholders).
• For creation of new product and service also
modification on existing product to better suit
market and customers’ needs.
• Creation of self employment and to cut back the
dependency of potential employment.
• It promotes country’s export trade.
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 Concept of Entrepreneur
• The word ‘entrepreneur’ is derived from French word
‘Entreprendre’ which was used to designate an
organizer of musical or other entertainments.
• Later in 16th century it was used for army leaders. It
was extended to cover civil engineering activities such
as construction in 17th century.
• Richard Cantillon, an Irishman living in France who
first used the term entrepreneur to refers to “a person
who buys factor resources at certain prices with a
view to selling its product at certain prices”.
• An individual who actively create or lead their own
business and make it for growth and prosperity.
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 Characteristics of Entrepreneur
A common stereotype of the entrepreneur emphasizes
such characteristics as

• High need for achievement,

• Willingness to take moderate risks,
• A strong self-confidence and
• Innovation.

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High need for achievement
• Psychologists recognize that people differ in their need
for achievement. Individuals with a low need for
achievement are those who seem to be contented with
their present status. On the other hand, individuals with
a high need for achievement like to compete with some
standard of excellence and prefer to be personally
responsible for their own assigned tasks.
• David C. McClelland, a Harvard Psychologist
discovered a positive correlation between the need for
achievement and entrepreneurial activity. Those who
become entrepreneurs have, on the average, a higher
need for achievement than do members of the general
population.
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Willingness to take moderate risks
The risks that entrepreneurs take in starting and/or
operating their own business are varied.
• Financial risk
• If they leave their current secured jobs, they risk
their careers.
• Time risk
• Psychological risk as they face the possibility of
business failure.
• Individuals with a high need for achievement also have
moderate risk-taking tendencies.
• This means that they prefer risky situations in which
they can exert some effort on the outcome, in contrast
to gambling situations in which the outcome depends
on pure luck. 9
Self-confidence
Individuals who possess self-confidence feel they can
meet the challenges that confront them.
Successful entrepreneurs are convinced that they can
control their own destinies.
• Who believe that their success depends upon their own
efforts have an internal locus of control.
• In contrast, those who feel that their lives are
controlled to a greater extent by luck or chance or fate
have an external locus of control.

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Innovation
Innovative behavior is a key to the entrepreneurial
personality.
• The entrepreneurial manager is constantly looking for
innovations through an organized and continuous
search for new ideas.

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 Motivation for Starting a Business
The reason for small firm formation can be divided
between “pull” and “push” influences.
1. “Pull” Influences:…….. positive motives
Pull motives include:
A. Desire for independence ….. Need for autonomy.
B. Desire to Exploit an opportunity
C. Turning a hobby or previous experience into a business
D. Financial incentive … promise of long term financial
independence.
2. “Push” Influences:
A. unemployment
B. Disagreement with previous employer

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 Success Factors for Entrepreneurs
1. The entrepreneurial Team
Entrepreneurs do not start business by themselves; they have
teams, partners, close associates, or extensive networks of
advisers.
2. Venture Product or Services
Products and services tend to display a distinctive competency in
their industries. This is important because very few entrepreneurs
start businesses in already competitive situations.
3. Market and Timing
4. Business ideology
Defined as a system of beliefs about how one conducts an
enterprise.

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 Functions of Entrepreneur

An Entrepreneur has to perform a number of functions

right from the generation of idea up to the establishment of
an enterprise.

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 Functions of Entrepreneur
1. Idea generation: The most important function of an
Entrepreneur is idea generation. Idea generation implies
product selection and project identification.
2. Determination of business objectives : The
Entrepreneur must be clear about the nature and type of
business, i.e. whether manufacturing concern or service
oriented unit or a trading business.
3. Raising of funds: An Entrepreneur can raise the fund
from internal source as well as external source.
4.Procurement of machines and materials: Entrepreneur
has to identify cheap and regular sources of raw materials
which will help him to reduce the cost of production.
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 Functions of Entrepreneur
5. Market research: Market research is the systematic
collection of data regarding the product which the Entrepreneur
wants to manufacture.
6. Determining form of enterprise: sole proprietorship,
partnership, Joint Stock Company, co-operative society etc.
7. Recruitment of manpower: Estimating man power
requirement for short term and long term.
8. Implementation of project: action stage.

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Types of Entrepreneur
Today various types of Entrepreneurs are found engaged in different
types of activities.
Entrepreneurs are classified in a number of ways:
Danhof’s Classifications:
1. Innovative entrepreneur: This category of Entrepreneur is
characterized by smell of innovativeness. This type of
Entrepreneur, sense the opportunities for introduction of new
ideas, new technology, discovering of new markets and creating
new organizations.
2. Adoptive or imitative entrepreneur: …imitate the existing
entrepreneur and set their enterprise in the same manner.
3. Fabian entrepreneurs: They imitate only when it becomes
perfectly clear that failure to do so would result in a loss of the
relative position in the enterprises.
4. Drone entrepreneurs: Such entrepreneurs are conservative in
outlook. They always feel comfortable with their old fashioned
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technology of production even though technologies have
 An entrepreneur is a person who: create the job not a job-
seeker; has a dream, has a vision; willing to take the risk
and makes something out of nothing.
Types of Entrepreneurs
Entrepreneurship can take three different forms. They are:
1. The individual entrepreneur: An individual entrepreneur
is someone who started; acquired or franchised his/her own
independent organization.
 Cont..
2. Intrapreneur: An Intrapreneur is a person who does
entrepreneurial work within large organization.
o The process by which an intrapreneur affects change is

called Intrapreneurship.
3. The Entrepreneurial Organization: The entrepreneurial
function need not be embodied in a physical person.
 Who Benefits from the entrepreneur’s Wealth?
 No entrepreneur works in a vacuum.
 The venture they create touches the lives of

many other people.

 Peoples who have a part to play in the
entrepreneurial venture generally are called
stakeholder.
1. Employees: They contribute physical and mental labor
to the business.
 Success of the entrepreneurial venture depends on their

effort and motivation.

Therefore, they are rewarded with:
 Money – their wage or salary
 The possibility of owning a part of the firm through share
schemes.
 A stage of which they can develop social relationships.
 The possibility of personal development.
2. Investors: These are the peoples who provide
the entrepreneur with the necessary money to start
the venture and keep it running.
There are two main sorts of investors: stockholders
and lenders.
Stockholders are those who buy the stock of the
company and are true owners of the firm.
Lenders, on the other hand, are people who offer
money to the venture on the basis of it being a
loan.
3)Supplier: They are the individuals and
organizations who provide the business with the
materials, productive assets and information it
needs to produce its output.
 They are paid for providing these inputs.

4)Customers: Customers may need to make an

investment in using a particular supplier.
 Changing supplier may involve switching costs

and supplier, risk of quality and expenses

incurred in changing over to new inputs.
5. The local community: Business has physical locations.
 The way they operate may affect the people who live and

other businesses which operate nearby.

 A business has a number of responsibilities, which may

be defined or not in national laws, to this local

community.
Such as:
 Not polluting their shared environment
 Contributing and sponsoring local development activities
 Contribution for political and cultural stabilities and

economic improvements
 Acting in an ethical way.
6. Government: The responsibility of government is to
ensure that businesses can operate in an environment
which has political and economic stability.
 In addition, it provides central services such as

education and health-care.

 Entrepreneurship and Environment
 Business environment refers to the factors
external to a business enterprise which influence
its operations and determine its effectiveness.
 Business environ­ment may be healthy or

unhealthy.
 1.6.2.1 Phases of Business Environment
Business environment may be classified into two
broad categories; namely external; and internal
environment
A. External Environment
 It is the environment which is external to the

business and hardly to influence independently.

 The following are the components of external

environment:
 1. Economic Environment
 Economic environment is of multidimensional

nature.
 It consists of the structure of the economy, the

industrial, agricultural, trade and transport

policies of the country, the growth and pattern of
national income and its distribution, the
conditions prevailing in industrial, agricultural
and other sectors, the position relating to balance
of trade and balance of payments, and other
miscellaneous conditions of the economy.
 2. Legal Environment
 Business must function within the framework of

legal structure.
 Therefore, an adequate knowledge of laws and

rules is necessary for efficient managerial

performance.
 When new laws are made and controls exercised

through legal enactments, the first reaction of the

business community is to oppose them and
disobey them.
 3. Political Environment
In a democratic country, politics cannot be ignored.
Managers and entrepreneurs should understand the
working of the political system.
Such understanding and concern for national problems will
help them in the long run in discharging their
responsibilities to the satisfaction of the public.
 4. Socio-Cultural Environment
 It consist the social and cultural norms of a

society in a given period of time.

 The variables that are appraised are values,

beliefs, norms, fashions and fads of a particular

society.
 It can help in understanding the level of

rigidity/flexibility of a given society towards a

new product/service/concept
 5. Demographic Environment

o It assesses the overall population pattern of a

given geographical region.
o It includes variables like age profile,
distribution, sex, education profile, income
distribution etc.
o The demographic appraisal can help in
identifying the size of target customers.
 B. Internal Environment
 Internal environment is the environment which is
under the control of a given organization.
 Following are the components of internal
environment of a business:
1. Raw Material: It assesses the availability of raw
material now and in the near future.
If the availability of raw material is less now or
would be less in future then the entrepreneur should
give a serious thought to establishing a venture as
the entire system can come to a standstill due to
shortage of raw material.
2. Production/Operation: It assesses the availability
of various machineries, equipment, tools and
techniques that would be required for
production/operation.
3. Finance: It assesses the total requirements of
finance in terms start-up expenses, fixed
expenses and running expenses.
It also indicates the sources of finance that can
be approached for funding.
4. Human Resource: It assesses the kind of human
resources required and its demand and supply in the
market.
This further helps in estimating the cost and level of
competition in hiring and retaining the human
resources.