ADIKAVI NANNAYA UNIVERSITY, RAJAHMUNDRY

M. Com III SEMESTER

Sub: ENTREPRENEURSHIP
Unit-I
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INTRODUCTION

The capacity and willingness to develop, organize and manage a business venture along
with any of its risks in order to make a profit. The most obvious example of entrepreneurship is
the starting of new businesses.

Entrepreneurial spirit is characterized by innovation and risk-taking, and is an essential

part of a nation's ability to succeed in an ever changing and increasingly competitive global
marketplace.

DEFINITIONS

The concept of entrepreneurship has a wide range of meanings. On the one extreme an
entrepreneur is a person of very high aptitude who pioneers change, possessing characteristics
found in only a very small fraction of the population. On the other extreme of definitions, anyone
who wants to work for himself or herself is considered to be an entrepreneur.

The word entrepreneur originates from the French word, entreprendre, which means "to
undertake." In a business context, it means to start a business. The Merriam-Webster Dictionary
presents the definition of an entrepreneur as one who organizes, manages, and assumes the risks
of a business or enterprise.

Schumpeter's View of Entrepreneurship

Austrian economist Joseph Schumpeter 's definition of entrepreneurship placed an emphasis on

innovation, such as:

 new products

 new production methods

  new markets

 new forms of organization

Wealth is created when such innovation results in new demand. From this viewpoint, one can
define the function of the entrepreneur as one of combining various input factors in an innovative
manner to generate value to the customer with the hope that this value will exceed the cost of the
input factors, thus generating superior returns that result in the creation of wealth.

Entrepreneurship vs. Small Business

Many people use the terms "entrepreneur" and "small business owner" synonymously. While
they may have much in common, there are significant differences between the entrepreneurial
venture and the small business. Entrepreneurial ventures differ from small businesses in these
ways:

1. Amount of wealth creation - rather than simply generating an income stream that
replaces traditional employment, a successful entrepreneurial venture creates substantial
wealth, typically in excess of several million dollars of profit.

2. Speed of wealth creation - while a successful small business can generate several
million dollars of profit over a lifetime, entrepreneurial wealth creation often is rapid; for
example, within 5 years.

3. Risk - the risk of an entrepreneurial venture must be high; otherwise, with the incentive
of sure profits many entrepreneurs would be pursuing the idea and the opportunity no
longer would exist.

4. Innovation - entrepreneurship often involves substantial innovation beyond what a small

business might exhibit. This innovation gives the venture the competitive advantage that
results in wealth creation. The innovation may be in the product or service itself, or in the
business processes used to deliver it.
Characteristics of Entrepreneurship:

Entrepreneurship is characterized by the following features:

1. Economic and dynamic activity: Entrepreneurship is an economic activity because it

involves the creation and operation of an enterprise with a view to creating value or wealth by
ensuring optimum utilization of scarce resources. Since this value creation activity is performed
continuously in the midst of uncertain business environment, therefore, entrepreneurship is
regarded as a dynamic force.

2. Related to innovation: Entrepreneurship involves a continuous search for new ideas.

Entrepreneurship compels an individual to continuously evaluate the existing modes of business
operations so that more efficient and effective systems can be evolved and adopted. In other
words, entrepreneurship is a continuous effort for synergy (optimization of performance) in
organizations.

3. Profit potential: “Profit potential is the likely level of return or compensation to the
entrepreneur for taking on the risk of developing an idea into an actual business venture.”
Without profit potential, the efforts of entrepreneurs would remain only an abstract and a
theoretical leisure activity.

4. Risk bearing: The essence of entrepreneurship is the ‘willingness to assume risk’ arising out
of the creation and implementation of new ideas. New ideas are always tentative and their results
may not be instantaneous and positive. An entrepreneur has to have patience to see his efforts
bear fruit. In the intervening period (time gap between the conception and implementation of an
idea and its results), an entrepreneur has to assume risk. If an entrepreneur does not have the
willingness to assume risk, entrepreneurship would never succeed.

Importance of Entrepreneurship:

Entrepreneurship offers the following benefits:

1. Development of managerial capabilities: The biggest significance of entrepreneurship lies in

the fact that it helps in identifying and developing managerial capabilities of entrepreneurs. An
entrepreneur studies a problem, identifies its alternatives, compares the alternatives in terms of
cost and benefits implications, and finally chooses the best alternative. This exercise helps in
sharpening the decision making skills of an entrepreneur. Besides, these managerial capabilities
are used by entrepreneurs in creating new technologies and products in place of older
technologies and products resulting in higher performance.

2. Creation of organizations: Entrepreneurship results into creation of organizations when

entrepreneurs assemble and coordinate physical, human and financial resources and direct them
towards achievement of objectives through managerial skills.

3. Improving standards of living: By creating productive organizations, entrepreneurship helps

in making a wide variety of goods and services available to the society which results into higher
standards of living for the people. Possession of luxury cars, computers, mobile phones, rapid
growth of shopping malls, etc. are pointers to the rising living standards of people, and all this is
due to the efforts of entrepreneurs.

4. Means of economic development: Entrepreneurship involves creation and use of innovative

ideas, maximization of output from given resources, development of managerial skills, etc., and
all these factors are so essential for the economic development of a country.

Factors affecting Entrepreneurship:

Entrepreneurship is a complex phenomenon influenced by the interplay of a wide variety of

factors.

1. Personality Factors:

Personal factors, becoming core competencies of entrepreneurs, include:

(a) Initiative (does things before being asked for)

(b) Proactive (identification and utilisation of opportunities)

(c) Perseverance (working against all odds to overcome obstacles and never complacent with
success)
(d) Problem-solver (conceives new ideas and achieves innovative solutions)

(e) Persuasion (to customers and financiers for patronisation of his business and develops &
maintains relationships)

(f) Self-confidence (takes and sticks to his decisions)

(g) Self-critical (learning from his mistakes and experiences of others)

(h) A Planner (collects information, prepares a plan, and monitors performance)

(i) Risk-taker (the basic quality).

2. Environmental factors:

These factors relate to the conditions in which an entrepreneur has to work.

Environmental factors such as political climate, legal system, economic and social conditions,
market situations, etc. contribute significantly towards the growth of entrepreneurship. For
example, political stability in a country is absolutely essential for smooth economic activity.

Frequent political protests, bandhs, strikes, etc. hinder economic activity and
entrepreneurship. Unfair trade practices, irrational monetary and fiscal policies, etc. are a
roadblock to the growth of entrepreneurship. Higher income levels of people, desire for new
products and sophisticated technology, need for faster means of transport and communication,
etc. are the factors that stimulate entrepreneurship. Thus, it is a combination of both personal and
environmental factors that influence entrepreneurship and brings in desired results for the
individual, the organization and the society.

TYPES OF ENTREPRENEURS:

Depending upon the level of willingness to create innovative ideas, there can be the following
types of entrepreneurs:

1. Innovative entrepreneurs:
 These entrepreneurs have the ability to think newer, better and more economical ideas of
business organization and management. They are the business leaders and contributors to the
economic development of a country.

Inventions like the introduction of a small car ‘Nano’ by Ratan Tata, organised retailing
by Kishore Biyani, making mobile phones available to the common may by Anil Ambani are the
works of innovative entrepreneurs

2. Imitating entrepreneurs:

These entrepreneurs are people who follow the path shown by innovative entrepreneurs.
They imitate innovative entrepreneurs because the environment in which they operate is such
that it does not permit them to have creative and innovative ideas on their own. Such
entrepreneurs are found in countries and situations marked with weak industrial and institutional
base which creates difficulties in initiating innovative ideas. In our country also, a large number
of such entrepreneurs are found in every field of business activity and they fulfill their need for
achievement by imitating the ideas introduced by innovative entrepreneurs. Development of
small shopping complexes is the work of imitating entrepreneurs. All the small car manufacturers
now are the imitating entrepreneurs.

3. Fabian entrepreneurs:

The dictionary meaning of the term ‘fabian’ is ‘a person seeking victory by delay rather
than by a decisive battle’. Fabian entrepreneurs are those individuals who do not show initiative
in visualizing and implementing new ideas and innovations wait for some development which
would motivate them to initiate unless there is an imminent threat to their very existence.

4. Drone entrepreneurs:

The dictionary meaning of the term ‘drone’ is ‘a person who lives on the labor of others’.
Drone entrepreneurs are those individuals who are satisfied with the existing mode and speed of
business activity and show no inclination in gaining market leadership. In other words, drone
entrepreneurs are die-hard conservatives and even ready to suffer the loss of business.
5. Social Entrepreneur:

Social entrepreneurs drive social innovation and transformation in various fields

including education, health, human rights, workers’ rights, environment and enterprise
development. They undertake poverty alleviation objectives with the zeal of an entrepreneur,
business practices and dare to overcome traditional practices and to innovate. Dr Mohammed
Yunus of Bangladesh who started Gramin Bank is a case of social entrepreneur.

Functions of an Entrepreneur:

The important functions performed by an entrepreneur are listed below:

1. Innovation:

An entrepreneur is basically an innovator who tries to develop new technology, products,

markets, etc. Innovation may involve doing new things or doing existing things differently. An
entrepreneur uses his creative faculties to do new things and exploit opportunities in the market.
He does not believe in status quo and is always in search of change.

2. Assumption of Risk:

An entrepreneur, by definition, is risk taker and not risk shirker. He is always prepared
for assuming losses that may arise on account of new ideas and projects undertaken by him. This
willingness to take risks allows an entrepreneur to take initiatives in doing new things and
marching ahead in his efforts.

3. Research:

An entrepreneur is a practical dreamer and does a lot of ground-work before taking a leap
in his ventures. In other words, an entrepreneur finalizes an idea only after considering a variety
of options, analyzing their strengths and weaknesses by applying analytical techniques, testing
their applicability, supplementing them with empirical findings, and then choosing the best
alternative. It is then that he applies his ideas in practice. The selection of an idea, thus, involves
the application of research methodology by an entrepreneur.
4. Development of Management Skills:

The work of an entrepreneur involves the use of managerial skills which he develops
while planning, organizing, staffing, directing, controlling and coordinating the activities of
business. His managerial skills get further strengthened when he engages himself in establishing
equilibrium between his organization and its environment. However, when the size of business
grows considerably, an entrepreneur can employ professional managers for the effective
management of business operations.

5. Overcoming Resistance to Change:

New innovations are generally opposed by people because it makes them change their
existing behavior patterns. An entrepreneur always first tries new ideas at his level. It is only
after the successful implementation of these ideas that an entrepreneur makes these ideas
available to others for their benefit. In this manner, an entrepreneur paves the way for the
acceptance of his ideas by others. This is a reflection of his will power, enthusiasm and energy
which helps him in overcoming the society’s resistance to change.

6. Catalyst of Economic Development:

An entrepreneur plays an important role in accelerating the pace of economic development of a

country by discovering new uses of available resources and maximizing their utilization. To
better appreciate the concept of an entrepreneur, it is desirable to distinguish him from an
entrepreneur and promoter. The table outlines the distinction between an entrepreneur and
intrapreneurs.

Table: Distinction between Entrepreneur and Intrapreneur:

Base Entrepreneur Intrapreneur

• Capacity — Owner — A manager

• Status — Own boss — Salaried employee

• Decisions — Takes own decisions — Executes decisions with

the concurrence of owner
• Reward — Uncertain and
 unlimited — Fixed rewards and
salary

The Role of an Entrepreneur

The entrepreneur who is a business leader looks for ideas and puts them into effect in fostering
economic growth and development. Entrepreneurship is one of the most important input in the
economic development of a country. The entrepreneur acts as a trigger head to give spark to
economic activities by his entrepreneurial decisions. He plays a pivotal role not only in the
development of industrial sector of a country but also in the development of farm and service
sector. The major roles played by an entrepreneur in the economic development of an economy
are discussed in a systematic and orderly manner as follows.

(1) Promotes Capital Formation:

Entrepreneurs promote capital formation by mobilizing the idle savings of public. They employ
their own as well as borrowed resources for setting up their enterprises. Such type of
entrepreneurial activities leads to value addition and creation of wealth, which is very essential
for the industrial and economic development of the country.

(2) Creates Large-Scale Employment Opportunities:

Entrepreneurs provide immediate large-scale employment to the unemployed which is a chronic

problem of underdeveloped nations. With the setting up of more and more units by
entrepreneurs, both on small and large-scale numerous job opportunities are created for others.
As time passes, these enterprises grow, providing direct and indirect employment opportunities
to many more. In this way, entrepreneurs play an effective role in reducing the problem of
unemployment in the country which in turn clears the path towards economic development of the
nation.

(3) Promotes Balanced Regional Development:

Entrepreneurs help to remove regional disparities through setting up of industries in less
developed and backward areas. The growth of industries and business in these areas lead to a
large number of public benefits like road transport, health, education, entertainment, etc. Setting
up of more industries leads to more development of backward regions and thereby promotes
balanced regional development.

(4) Reduces Concentration of Economic Power:

Economic power is the natural outcome of industrial and business activity. Industrial
development normally leads to concentration of economic power in the hands of a few
individuals which results in the growth of monopolies. In order to redress this problem a large
number of entrepreneurs need to be developed, which will help reduce the concentration of
economic power amongst the population.

(5) Wealth Creation and Distribution:

It stimulates equitable redistribution of wealth and income in the interest of the country to more
people and geographic areas, thus giving benefit to larger sections of the society. Entrepreneurial
activities also generate more activities and give a multiplier effect in the economy.

(6) Increasing Gross National Product and Per Capita Income:

Entrepreneurs are always on the lookout for opportunities. They explore and exploit
opportunities, encourage effective resource mobilization of capital and skill, bring in new
products and services and develops markets for growth of the economy. In this way, they help
increasing gross national product as well as per capita income of the people in a country.
Increase in gross national product and per capita income of the people in a country, is a sign of
economic growth.

(6) Improvement in the Standard of Living:

Increase in the standard of living of the people is a characteristic feature of economic

development of the country. Entrepreneurs play a key role in increasing the standard of living of
the people by adopting latest innovations in the production of wide variety of goods and services
in large scale that too at a lower cost. This enables the people to avail better quality goods at
lower prices which results in the improvement of their standard of living.
(7) Promotes Country's Export Trade:

Entrepreneurs help in promoting a country's export-trade, which is an important ingredient of

economic development. They produce goods and services in large scale for the purpose of
earning huge amount of foreign exchange from export in order to combat the import dues
requirement. Hence import substitution and export promotion ensure economic independence
and development.

(8) Induces Backward and Forward Linkages:

Entrepreneurs like to work in an environment of change and try to maximize profits by

innovation. When an enterprise is established in accordance with the changing technology, it
induces backward and forward linkages which stimulate the process of economic development in
the country.

(9) Facilitates Overall Development:

Entrepreneurs act as catalytic agent for change which results in chain reaction. Once an
enterprise is established, the process of industrialization is set in motion. This unit will generate
demand for various types of units required by it and there will be so many other units which
require the output of this unit. This leads to overall development of an area due to increase in
demand and setting up of more and more units. In this way, the entrepreneurs multiply their
entrepreneurial activities, thus creating an environment of enthusiasm and conveying an impetus
for overall development of the area.

Ethics and Social Responsibilities of Entrepreneurs

An enterprise must earn profits for its own survival, for expansion, for bearing the risks and
finally for the prestige of its management. But profit cannot be the sole objective of the
entrepreneur. It is a means and not an end. No enterprise can last long unless along with earning
profits, it continues to fulfill its obligations to the society. The ultimate objective of every
enterprise has to be the good of the people. Business must be run by the people through the
people and for the people. An entrepreneur must take risks with his or her own capital in order to
sell and deliver products and services while expending greater energy than the average
businessperson in order to innovate. An entrepreneur is very much linked with society. Since any
venture owes its existence to society, it has to function under the overall control and discipline of
the society. Any business, which is injurious to any segment of the society, can neither be
tolerated nor allowed to continue.

Business Ethics:

Ethics refers to the “study of whatever is right and good for humans, business ethics concerns
itself with the investigation of business practices in light of human values. Ethics is the broad
field of study exploring the general nature of morals and the specific moral choices to be made
by the individual in his relationship with others. Ethics is not only a general topic for
conversation but a deep concern of business people.

Business ethics (also corporate ethics) is a form of applied ethics or professional ethics that
examines ethical principles and moral or ethical problems that arise in a business environment. It
applies to all aspects of business conduct and is relevant to the conduct of individuals and entire
organizations.

Business ethics can be defined as written and unwritten codes of principles and values that
govern decisions and actions within a company. In the business world, the organization’s culture
sets standards for determining the difference between good and bad decision making and
behavior.

Social responsibility: A Brief Note

Social responsibility is an ethical ideology or theory that an entity, be it an organization or

individual, has an obligation to act to benefit society at large. Social responsibility is a duty every
individual or organization has to perform so as to maintain a balance between the economy and
the ecosystem. Social responsibility means sustaining the equilibrium between the two. It
pertains not only to business organizations but also to anyone whose action impacts the
environment.

Companies can demonstrate social responsibility in a myriad of ways. They can donate funds to
education, arts and culture, underprivileged children, animal welfare, or they can make
commitments to reduce their environmental footprint, implement fair hiring practices, sponsor
events, and work only with suppliers with similar values.
Social responsibility in business is also known as corporate social responsibility, corporate
responsibility, corporate citizenship, responsible business, sustainable responsible business, or
corporate social performance. This term refers to a form of self-regulation that is integrated into
different disciplines, such as business, politics, economy, media, and communications studies.

Obligations of the Entrepreneur to the Different Segments of the Society Possible organizational
stake holders are illustrated. Balancing the demands of these various stakeholders is, as you can
well imagine, a difficult process because they often have a wide range of needs and conflicting
expectations. The most important social obligation of an entrepreneur is to reconcile and balance
the various conflicting interests in the best possible manner. The various stakeholders are:

1. Employees: Employees need security of job, higher wages, full employment, better conditions
of work and opportunities for self-development and promotion. They also desire their work itself
to be rewarding and to contribute something good to the society in general. Management, as a
part of its social responsibilities, is expected to provide for their social security, welfare,
grievances settlement machinery and sharing of excess profits.

2. Stockholders: An entrepreneur must provide safe, fair adequate and stable long-run rate of
return and steady capital appreciation to the shareholders for their investments. It must also
provide regular, accurate and adequate information about the working of the company.

3. Suppliers: Dealings with the suppliers should be based on integrity, impartiality and courtesy.
Terms and conditions regarding delivery of goods and payment of prices must be reasonably fair.
Producers may make available to the suppliers the benefits of their information and research so
as to promote indigenous growth or for the improvement of the quality of their products.

4. Customers: In the words of Henry Ford, an entrepreneur must provide, “those goods and
services which the society needs at a price which the society can afford to pay.” Entrepreneurial
ventures must meet the requirements of the customers of different classes, tastes and with
different purchasing power at the right time, place, and price and in right quality. He must handle
the complaints of the customers carefully and efficiently and cooperate to the maximum extent
with the consumers associations. A customer must also be protected against the ill effects of
monopolistic and restrictive business practices.
5. Government: Entrepreneurs must abide by the laws of the country in their true spirit. The
must conduct their affairs as may cause the minimum possible social damage such as air or water
pollution. They must help in the proper implementation of all social improvement policies
adopted by the Government. They must pay taxes honestly and promptly.

6. Trade Associations and Competitors: An entrepreneur should develop healthy inter-business

relationships with fellow-entrepreneurs. He must adopt fair trade practices regarding prices,
quality, terms and conditions of sale and after-sales service. The policy of under-cutting or
restricted trade practices should be avoided. An entrepreneur must patronise business
associations to ensure development of healthy business practices.

7. Community: The entrepreneurs should manage their business with such competence and skill
that it inspires confidence and pride in the mind of the people. They must encourage democratic
institutions and assist national integration. Enterprise, on the whole, should act on the ideas of
social justice without discrimination of any kind. Business must set high standards of morality
and put in all efforts to minimize social damage. It must help in bringing about a cultural, social
and economic revolution in the society and lead to the economic growth of the backward regions
of the world.

Entrepreneurship v/s Ethics and social responsibility

Ethics and social responsibility are very important values in entrepreneurship ventures. This is
particularly essential in decision making process. Ethical conscience reminds entrepreneurs to
make trustworthy and profitable entrepreneurship decisions. Likewise, the social responsibility
component sought entrepreneurs to make entrepreneurial decisions that can enhance benefits and
repelling harms to the stakeholders.

The entrepreneur must establish a balance between ethical exigencies, economic expediency, and
social responsibility. A managers attitudes concerning corporate responsibility tend to be
supportive of laws and professional codes of ethics. Entrepreneurs have few reference persons,
role models, and developed internal ethics codes. Entrepreneurs are sensitive to peers pressure
and social norms in the community as well as pressures from their companies.
Ethics and social responsibilities of an entrepreneur is certainly an important issue considering
the role of social responsibility in society and ethics in business. Social responsibility is
beneficial for business community and at the same time for global community. Social
responsibility is significant owing to the realism of globalization. The people of the universe are
becoming interconnected more owing to the advancement of technology, transportation and
communication. The world market economy is affecting not only services and goods but values
and ideas as well. Expansion on the global front, enhancing regulatory omission and the factors
which is responsible for creating awareness regarding the significance of making for sectored,
macro and operational hazards to both an organization’s and entrepreneur’s competitive position
and reputation. As small business owners and entrepreneurs, activities which harm the people
and the planet, will spoil the scope for your profits. For this reason there is great significance for
“triple bottom line” which is profits, planet and people.

The world economy requires innovators and entrepreneurs to both advance and sustain global
community. While ethics and social responsibilities of an entrepreneur and businesses undertake
the plan and consider social responsibility a vital event in their activities, everybody benefits.
The effect could be noticed within local communities and ultimate profit making from their
business. With the extension of cooperation for businesses, governments and NGOs, they
encourage in the matter of corporate social responsibility and entrepreneurship and take steps to
improve the mechanism for its potential growth. Therefore, in regards ethics and social
responsibilities, an entrepreneur has to become aware about his role and strive to obey them in
perfect manner which would be beneficial to him as well as the community as a whole

An entrepreneur is actually running his own business and being a businessman he has some
obligation of a business to meet his economic and legal responsibilities. Social responsibility is
basically a business intention, beyond its legal and economic obligation to do the right things and
act in ways that are good for society.

While we are talking about the business ethics, there are three things that need consideration:

(1) Avoid breaking criminal law in one’s work related activity

(2) Avoid action that may result in civil law suits against the company
(3) Avoid actions that are bad for the company image.

For example, an entrepreneur made a chemical that looks like a pesticide and he started selling it
like a pesticide in the market and earns the profit, this act is against the law.

Link between Ethics and Social Responsibility

The two concepts are closely linked:

· A socially responsible firm should be an ethical firm

· An ethical firm should be socially responsible

However there is also a distinction between the two:

· CSR is about responsibility to all stakeholders and not just shareholders

· Ethics is about morally correct behavior

How do businesses ensure that its directors, managers and employees act ethically?

A common approach is to implement a code of practice. Ethical codes are increasingly popular –
particularly with larger businesses and cover areas such as:

* Corporate social responsibility

* Dealings with customers and supply chain

* Environmental policy & actions

* Rules for personal and corporate integrity