ENTREPRENEURSHIP

DEVELOPMENT

E. Gordon
M.Com., M.Phil.,
Former Professor and Head,
Dept. of Commerce,
A.N.J.A. College, Sivakasi.

Dr. K. Natarajan
M.Com., M.Phil., Ph.D.,
Former Principal,
S.V.N. College, Madurai.
Former Principal/Director,
Sri Kaliswari Institute of Management and Technology, Sivakasi.

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© Authors
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First Edition : 2003

Reprint : 2005
Second Revised Edition : 2007
Third Revised Edition : 2009
Fourth Revised Edition : 2012
Reprint : 2013
Fifth Revised Edition : 2014
Edition : 2015
Reprint : 2016
Sixth Revised Edition : 2017

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Preface to the Sixth Revised Edition

The ecosystem, at present, is favourable in India for entrepreneurial

development. The initiatives taken by the Government of India and State
Governments, the growing number of funding agencies such as angel investors,
venture capitalists, NBFCs, Fintech start-ups, etc., the rise in number of accelerators
and incubators, and the attitude of family and community have created a conducive
ecosystem for the growth of sustainable business ventures. Knowledge about the
changes in the ecosystem, opportunities and challenges in the globalised business
becomes imperative for youth and students who wish to pursue entrepreneurship
as their career. The present edition provides comprehensive knowledge about
entrepreneurship, various aspects of starting a new industrial units and make
them viable and sustainable.
This present edition includes a new chapter on “Start-ups”.
This book is organised into 19 chapters and incorporates current trends and
statistics. We hope that this revised edition will be an invaluable guide to students,
teachers and those who want to become entrepreneurs.
Critical comments and constructive suggestions for the improvement of this
book are most welcome.

E. Gordon
K. Natarajan
 Preface to the First Edition

Entrepreneurs have to play a prominent role with the advent of the industrial
revolution and the consequent technological developments in the developing
countries where the process of economic liberalisation is in full swing. In India,
the Government is determined to achieve 8% economic growth rate in the Tenth
Plan which is in the offing. Unfortunately, the growth rate in recent years has
been hampered by the ever increasing problems of unemployment, poverty and
regional imbalances. These economic ills can be cured to a large extent only
when the educated young come forward to opt for entrepreneurship profession.
Having felt the need to create and develop qualities of leadership and stimulate
the hidden talents of entrepreneurship embedded in the minds of youth, almost
all universities have incorporated a component relating to entrepreneurship in
their undergraduate as well as postgraduate programmes.
No doubt, entrepreneurs are specially talented persons capable of identifying
projects, marshalling resources, innovating ideas, assuming risks and establishing
ventures. In these days of highly uncertain business environment and highly
sophisticated information technology, prospective entrepreneurs have to be inspired
and motivated to take up some self-employment ventures and thereby, create
employment opportunities for many people. In addition, the changing policies
are so demanding that they make a prospective entrepreneur’s task more difficult
than that of a man, who, over the years, has got quite accustomed to the
innumerable problems and pitfalls of running a business or industry.
The main objective of the present work entitled “ENTREPRENEURSHIP
DEVELOPMENT” is to serve as an invaluable guide to all those who want to
enter into the entrepreneurial arena. It is also designed as a textbook to all those
who pursue higher education with a course on ‘Entrepreneurship Development.’
The salient features of this book are:
z Presentation of various aspects of entrepreneurship in a simple language
and lucid style.
z Logical arrangement of chapters in an adequate manner.
z Exhaustive coverage of project report and its appraisal comprehensively
and critically.
z Critical analysis of problems faced by small-scale as well as women
entrepreneurs.
 z Provision of concise information on technical know-how to start a
new enterprise.
z Inclusion of both objective and descriptive type questions at the
end of each chapter.
We express our sincere thanks to Shri S. Kumaravelkani, B.Com., ACA and
Mr. T. Dhanasekaran, MBA, B.L., Regional Manager, TIIC for their valuable
guidance in preparing this book. Our publishers deserve special thanks for their
wholehearted support and cooperation in bringing out this edition elegantly and
in time.
Critical comments and constructive suggestions for the improvement of this
book are most welcome and will be greatly appreciated.
We wish to express our thanks to Mr. K. Sivadasan, Area Manager and
members of Himalaya Publishing House Pvt. Ltd. for their active support and
wholehearted cooperation.
E. Gordon
K. Natarajan
 Contents

1. Entrepreneur 1 – 21

2. Entrepreneurship 22 – 38

3. International Entrepreneurship 39 – 44

4. Entrepreneurship Development in India 45 – 56

5. Women Entrepreneurs 57 – 67

6. Micro, Small and Medium Enterprises — An Overview 68 – 80

7. Starting a Micro, Small and Medium Industry 81 – 91

8. Project Identification 92 – 104

9. Project Report 105 – 133

10. Start-ups 134 – 146

11. Project Appraisal 147 – 158

12. Forms of Ownership 159 – 170

13. Institutional Support to Entrepreneurs 171 – 189

14. Institutional Finance to Entrepreneurs 190 – 197

15. Incentives for MSME Units 198 – 208

16. Cluster Development Programme 209 – 216

17. SME Credit Rating Service 217 – 219

18. Franchising and the Entrepreneur 220 – 225

19. Sickness in Micro, Small and Medium Enterprises 226 – 235

CHAPTER
ENTREPRENEUR
1
CONTENTS
™ Definitions
™ Characteristics of an Entrepreneur
™ Functions of an Entrepreneur
™ Entrepreneur vs. Manager
™ Intrapreneur/Corporate Entrepreneur
™ Types of Entrepreneurs
™ Motivating Factors to Become Entrepreneur
™ Entrepreneurial Competencies
™ What Makes a Successful Entrepreneur?
™ Entrepreneur and Economic Development

All over the globe, the dream of growing number of people is to own and operate their own
businesses. The study conducted by the Global Entrepreneur Motor Monitor found that, in USA,
11.3% of the adult population, roughly, one in nine people is working to start a business. The surge in
entrepreneurial activity is found in all countries and India is no exception.
The entrepreneurial spirit is the most significant one in the recent business history. The new
entrepreneurs are reshaping the business environment. Their businesses have introduced innovative
products and services, created new jobs and opened new markets. The rate of entrepreneurial activity
determines the growth of a nation.

Who are the Entrepreneurs?

The word ‘Entrepreneur’ is derived from the French word ‘Entreprendre’ meaning to undertake.
In fact, in the 16th century, the Frenchmen who undertook military expeditions were referred to as
‘Entrepreneurs.’ Later on, in the 18th century, this term got associated with persons who started their
own enterprises. Richard Cantillon, an Irish man living in France, was the first economist who introduced
the term ‘entrepreneur’ referring to the risk-taking function of establishing a new venture.
–1–
2 Entrepreneurship Development

Definitions
Various experts have defined the term entrepreneur in different words. Some of the definitions are
as follows:
According to Collins Cobuild English Language Dictionary, 1987, “An entrepreneur is a person
who sets up business deals in order to make a profit.”
According to J.B. Say, “An entrepreneur is the economic agent who unites all means of
production”...
Richard Cantillon says, “All persons engaged in economic activity are entrepreneurs.”
In the words of Quesnay, “A rich farmer is an entrepreneur who manages and makes his business
profitable by his intelligence and wealth.”
J.A. Schumpeter is of the view that, “A person who introduces innovative changes is an
entrepreneur and he is an integral part of economic growth.”
According to Webster, “Entrepreneur is one who assumes risk and management of business.”
In the words of Walker, “True entrepreneur is one who is endowed with more than average
capacities in the risk of organising and co-ordinating various factors of production.”
Peter Drucker says, “Entrepreneur is one who always searches for change, responds to it and
exploits it as an opportunity. Innovation is a specific tool of entrepreneurs, the means by which they
exploit change as an opportunity for different business or service.”
Dewing has rightly put it as follows: “The function of entrepreneur is one that promotes ideas into
business.”
Thus, an entrepreneur is always action-oriented. He has the ability to visualise the necessary steps
involved from idea generation to its actualisation. He is both a thinker and doer; planner and worker. He
accepts risk and manages it. All the above definitions portray an entrepreneur as an initiator of action,
stimulator of social economic change and a harnesser of resources.

Characteristics of an Entrepreneur
Anybody can become an entrepreneur provided he has got a certain set of behavioural traits and
mental aptitude. His success depends more on hard work than good luck. He must be a DOER and not
a DREAMER. The success of an entrepreneur largely depends on his intelligence, imagination, capacity
to innovate and his ability to turn visions into realities. It is not necessary that he should possess a
professor’s intelligence, a prophet’s foreseeing capacity, a salesman’s persuasiveness, a banker’s financial
talent, a politician’s power, a filmstar’s magnetic personality and so on. The only capacity, very essential
to become an entrepreneur is the willingness to work hard. There are certain characteristic features
which make an entrepreneur successful in his venture. They have been briefly discussed hereunder:
1. Hard Work: A successful entrepreneur is one who is willing to work hard from the very
beginning of his enterprise. An entrepreneur with his tenacity and hard work and pervasive perseverance
can revive his business even from the verge of collapse.
Entrepreneur 3

2. Business Acumen and Sincerity: Business acumen stands for shrewdness and ability. Again,
the success of an enterprise depends upon the sincerity of the people behind the enterprise. If a person
is sincere about his venture, he will move heaven and earth to make it a success.
3. Prudence: A successful entrepreneur must be prudent in all his dealings. He should have the
ability to work out the details of the venture from all angles, assess the favourable factors and pitfalls
and take suitable measures to overcome the pitfalls.
4. Achievement Motivation: The achievement motivation is the most important characteristic of
an entrepreneur since all other characteristics emanate from this motivation. He must have a strong
desire to achieve high goals in business. In fact, this achievement motivation helps him to surmount the
obstacles, suppress anxieties, repair misfortunes and devise plans for success.
5. Self-reliance and Independence: A successful entrepreneur wants to follow his own routine
policies and procedures and he does not like to be guided by others. He is found to be self-reliant by
acting as his own master and making him responsible for all his decisions. He does not like to work for
others.
6. Highly Optimistic: Successful entrepreneur is always optimistic about his future and he is
never disturbed by the present problems. He always expects a favourable situation for his business and
hence, he is able to run his business successfully in the midst of temporary hurdles. He does not allow
the past to obsess him.
7. Keen Foresight: An entrepreneur must have keen foresight to predict the future business
environment. He has the capacity to visualise the likely changes to take place in the market, customer’s
attitude, technological developments, Government’s policy, etc., and take timely actions accordingly.
8. Planning and Organising Ability: An entrepreneur is a firm believer in planning and systematic
work. Above all, he must have the ability to bring together all scattered resources required for starting
a new venture.
9. Innovativeness: When all is said and done, innovation becomes a different task. One should
be always innovative to satisfy the varying demands of customers. For this purpose, the entrepreneur
should initiate research and innovative activities to produce new goods and services. It is a never
ending process.
10. Risk Taking: An entrepreneur is not a gambler and hence, he should not assume high risk.
However, he must love a moderate risk situation, high enough to be exciting, but with a fairly reasonable
chance to win.
11. High Level of Energy: Entrepreneurs are more energetic than the average person. That
energy may be a critical factor, given the incredible effort required to start a company. Long hours and
hardwork are the rule rather than the exception.
12. Maintenance of Public Relations: The extent of maintenance of public relations or human
relations has a vital role to play on the success or failure of an entrepreneur. A successful entrepreneur
must have cordial relations with his customers to gain their continued patronage and support. He must
also maintain good relations with his employees with a view to motivating them to higher levels of
4 Entrepreneurship Development

efficiency. Similarly, he must maintain good relations with his suppliers, creditors and the community
at large so that he may succeed in his venture.
13. Communication Skill: Communication skill is the secret of the success of most entrepreneurs.
Good communication skill enables them to put their points across effectively and with clarity and
thereby, helps them to win customers.

Functions of an Entrepreneur
An entrepreneur is an agent who buys various factors of production with a view to combining
them into a finished product which can be sold in the market. While doing so, he has to perform the
following basic functions:
1. Risk Assumption Function
2. Business Decision Making Function
3. Managerial Function
4. Function of Innovation
1. Risk Assumption Function: An entrepreneur has to necessarily act as a ‘risk-bearing’ agent
of production since he has to bear a greater amount of uncertainties in business. The term uncertainty
refers to more than an ordinary risk. Ordinary risk can be measured and insured whereas, risk due to
uncertainty cannot be insured and it is incalculable also. For instance, risks due to the possibility of
changes in the taste of customers, change in fashion and technique of production, new inventions,
etc., cannot be ensured. But, an entrepreneur has to undertake and face such uncertainties. The
entrepreneur assumes this risk and tries to reduce these uncertainties by his initiative, skill and admirable
ability.
2. Decision Making Function: From the very inception of the business till its development, an
entrepreneur has to take decisions at various stages. He has to decide the nature and type of goods to be
produced, the size of the business, its location, technique of production, etc. A successful entrepreneur
is one who takes sound decisions at the appropriate time so that his business may succeed.
3. Managerial Function: An entrepreneur has to perform the managerial functions also. Managerial
functions are nothing but functions of coordination, organisation and supervision. An entrepreneur is
one who combines the land of one, the labour of another and the capital of yet another, and thus,
produces a product. While undertaking an enterprise, he has to perform all managerial functions starting
with planning and ending with controlling.
4. Function of Innovation: Innovation is an important function of an entrepreneur. In this context,
one should know the distinction between an investor and an innovator. The person who discovers new
methods, new materials and machines is called an inventor. But, the person who utilises these inventions
so as to make new combinations of products is called an innovator. Innovation is a never-ending
process and in fact it is an ongoing function. Thus, an entrepreneur has to be always on the lookout to
introduce a new product or a new production technology or open a new market hitherto untapped or
discover a new source of supply of new material. Innovators are always successful in their ventures.
Entrepreneur 5

Innovation involves introducing something new. It is not a simple imitation, but an addition however
slight it may be.

Four Types of Innovation

Incremental Innovation
This builds on an existing idea or model, product, process or service but innovates a bit on it. The
effect is to lower the cost and increase the supply or availability. Generic bulk drugs made in India
using a route different from the original is an example.

Evolutionary Innovation
Here, the innovator builds on what is known and creates significant new value. It is the next step
to incremental. The innovation driver is market leadership. Tata Nano exemplifies this well.

Breakthrough Innovation
This involves the creation of a radically new product, service, process or business model.
Breakthroughs or novel products that are derived from experimental innovation.
The electric car Reva exemplifies this. The innovation driver here is new technologies that arise
from existing information, methods and tools.

Experimental Innovation
It is close or identical to invention. The driver here is the next practice.
— Kiran Mazumdar of Biocon Ltd.
Frugal Innovation
The ability to generate more business and social value by significantly reducing the use of scare
resources is known as frugal innovation. Resource scarcity can be a catalyst for such innovation. At
the current rate of consumption, it is estimated that by 2030 we would require two planets to supply
the resources we need and absorb the wastage. Hence there is an urgent need for innovation to reduce
the use of scarce resources.
An entrepreneur not only conceives the business idea but also combines various factors of
production such as — men, money, machines, and methods so as to get finished products which can
be sold in the market. While doing so, he performs the following functions:
1. Idea Generation and Choosing the Right Time to Business: Idea generation implies product
selection and project identification. Ideas can be generated through various sources such as
project profiles, industries, potential surveys, new product development in research laboratories,
export statistics, probability studies of selected industries, trade fairs and exhibitions, etc. It is
the function of an entrepreneur to generate as many ideas as he can from various sources for
the purpose of selecting the right line of business which can be converted into a viable business
venture.
6 Entrepreneurship Development

2. Determination of Business Objectives: Determination of the objectives of the proposed

business is the next function. An entrepreneur should decide the nature and type of business
he proposes to start. This implies whether the enterprises belong to a manufacturing unit,
service-oriented one or trading. An entrepreneur must be very clear about the nature of business.
3. Market Research: The success of any business depends upon its ability to market its products/
services. Hence, an entrepreneur should undertake market research to estimate the demand
and supply for the products, size of customers, future changes in the volume and patterns of
supply and demand for the product, etc.
4. Determination of Form of Organisation: The entrepreneur has to decide the form of
ownership/organisation for its new enterprise. The main forms of organisation are sole
proprietorship, partnership and joint stock company. An entrepreneur has to decide the
organisation based on one’s capacity to take decisions and bear the risk, the nature of business,
volume of investment, quality of human resource, size and area of operation.
5. Promotional Formalities: Completion of promotional formalities such as obtaining registration
certificate, clearances, submitting application for term and working capital loan and the like
are the next functions of an entrepreneur.
6. Raising of Funds: Finance is the most important prerequisite to start a business. An entrepreneur
has to raise funds for purchase of fixed capital as well as working capital. He must be aware
of its various sources of funds, government schemes and type of assistance provided by
financial institutions.
7. Procurement of Machinery: Procurement of machinery constitutes an important function
of an entrepreneur. He should be careful in the selection and purchase of equipment and
machinery.
8. Procurement of Raw Materials: An entrepreneur has to ensure timely and adequate availability
of raw materials for continuous production. He must identify the cheap and regular source of
supply of raw materials.
9. Recruitment of Staff: Recruitment of persons of various cadres such as skilled and unskilled
workers, supervisors, etc., and giving necessary training are the other functions of an
entrepreneur.
10. Implementation of the Project: The project identified is to be implemented in a time-bound
manner by the entrepreneur. The function of the entrepreneur is to accomplish all activities
from conception stage to commissioning stage in accordance with the schedule successfully.

Entrepreneur vs. Manager

Many people are of the view that the terms entrepreneur and manager means the same. It is a
wrong notion since one can find a lot of differences between these two as given below:
Entrepreneur 7

Entrepreneur Manager
1. Owner: An entrepreneur is the owner of the 1. Servant: A manager is acting in the capacity
enterprise which he establishes himself. of a servant in the enterprise.
2. Profit: The reward for an entrepreneur is 2. Salary: The reward for a manager is salary
profit which is highly uncertain. and his salary is certain and fixed.
3. Full risk bearing: As a owner, the 3. No risk bearing: As a servant, the manager
entrepreneur has to bear all risks and need not bear any risk involved in the enterprise.
uncertainties involved in running the business.
4. All functions: An entrepreneur has to 4. Managerial functions only: A manager
perform many functions in order to run the renders only the managerial services in an
enterprise successfully. enterprise.
5. Innovator: An entrepreneur mainly acts as 5. Executor: A manager mainly acts as an
an innovator and prepares plans for execution. executor of plans prepared by the entrepreneur.

Intrapreneur/Corporate Entrepreneur
In recent times, a new brand of corporate entrepreneurs called “intrapreneurs” has come into
picture. Since they emerge within the frontiers of an existing enterprise, they are called intrapreneurs.
“In” refers to “within.” In big organisations, the top executives with entrepreneurial talents are encouraged
to generate new ideas and then convert them into products through research and development carried
out within the organisation itself. If the talent inside an organisation is recognised the entrepreneur
could avoid stagnation and decline in his enterprise.
This concept of intrapreneurship has gained much popularity in developed countries like America.
If the managements are not receptive to their new ideas, they tend to leave their parent organisation and
start ventures of their own. When Steve Wozniak could not get his dream of making a small computer
fulfilled at Hewlett Packard, he left that popular company. He then teamed up with Steve Jobs to form
Apple Computers which has subsequently become a prestigious organisation. It is found that many of
such intrapreneurs have become exceedingly successful in their ventures to the extent of even causing
a threat to their parent organisation. Generally, intrapreneurs breed new and innovative ideas to the
entrepreneurs.
Companies should provide intrapreneurs with adequate financial resources and freedom so that
their ideas can be developed. Hence, selected top executives should be given a status within the
organisation similar to that of an entrepreneur in the society. What drives talent within an organisation
is not monetary gain, but, a deep desire of personal achievement. Thus, an intrapreneur is an individual,
who performs all the duties of an entrepreneur, but within an established organisation.
8 Entrepreneurship Development

Characteristics
Understand the Environment: An intrepreneur needs to understand all aspects of the environment.
To establish successful intrapreneurial venture, the individuals must be creative and have broad
understanding of the internal and external environments of the corporation.
Visionary: The person who is going to establish new intrepreneurial venture must be a visionary
leader — a person who has great dreams. The intrapreneur must have a dream and overcome all the
obstacles in achieving it.
Flexible and Create Management Options: An intrapreneur must be open to and even encourages
change. By flexibility, he can create something new in the organisational structure.
Encourage Teamwork: The intrapreneur must possess the ability to encourage teamwork and
use a multidisciplined approach.
Encourage Open Discussion: Open discussion must be encouraged in order to develop a good
team for creating something new. A successful new intrapreneurial venture can be formed only when
the team involved feels the freedom to disagree and to agree to an idea, in an effort to reach the best
solution. The degree of openness among the team depends on the degree of openness of the intrapreneur.
Build a Coalition of Supporters: Openness also leads to the establishment of a strong coalition
of supporters. The intrapreneur must encourage each team member, particularly during difficult times.
This encouragement is important as it helps to establish a new intrapreneurial venture.
Persistence: Frustration and obstacles will occur throughout the establishment of a new venture.
Only through the intrapreneur's persistence, will a new venture be created successfully.
The differences that exist between these two types of business leaders are given below:

Entrepreneur Intrapreneur

1. Independent: An entrepreneur is an 1. Dependent: On the other hand, an

independent person in his business operations. intrapreneur is completely depending on the
entrepreneur for everything in the organisation.
He cannot take any decision by himself.
2. Need not be highly educated: It is not 2. Highly educated: An intrapreneur enters into
necessary that an entrepreneur should have a an existing organisation with a high education
high education. He can learn everything by and qualification. He is indeed a business
experience provided he has the basic qualities specialist in the chosen field.
of a successful entrepreneur.
3. Fund raising: An entrepreneur himself 3. No fund raising: An intrapreneur is
raises funds necessary for starting and completely free from the botheration of raising
establishing his enterprise. funds.
4. Risk bearing: An entrepreneur has to bear 4. No risk bearing: An intrapreneur need not
all the risks involved in the business by himself. bear any risk involved in the business.
Entrepreneur 9

5. Routine work: An entrepreneur is more 5. Specialist: An intrapreneur acts as a specialist

concerned with doing routine work and in his chosen field and serves as an outside
sometimes he may not know the important professional.
details of his own business.
6. Operation from outside: An entrepreneur 6. Operation from inside: But, an intrapreneur
always operates from outside. The owner is operates from within the organisation itself. He
different and the enterprise he owns is different. is a part and parcel of the organisation.
7. Strong authoritarian: Generally, an 7. Less authoritarian: On the contrary,
entrepreneur operates with a strong intrapreneur is less authoritarian. He is more
authoritarian backup. “adaptable” in the organisation.

Copreneurs
Copreneurs are married couple who share ownership, commitment and responsibility for a business.
The concept of married couples working together in a business is as old as the family itself. In recent
times, there is a steady rise in the number of copreneurial ventures all over the world. It has been
proved that marital satisfaction increases when both husband and wife are emotionally supportive of
each other's career.

Types of Entrepreneurs
There are various ways by which entrepreneurs have been classified. Different authorities have
classified entrepreneurs differently at different times. The most popular classification has been given
by Clarence Danhof on the basis of his study of the American agriculture. According to him,
entrepreneurs may be classified as follows:
1. Innovative Entrepreneur
2. Adoptive or Imitative Entrepreneur
3. Fabian Entrepreneur
4. Drone Entrepreneur
1. Innovative Entrepreneur: An innovative entrepreneur is one who is able to foresee potentially
viable and profitable opportunities through innovation. This type of entrepreneur is highly motivated
and talented and “innovation” is his key function. According to Peter F. Drucker, an innovating
entrepreneur is one “who always searches for change, responds to it, and exploits it as an opportunity.”
He creates new values or increases the value of what already exists.
An innovative entrepreneur may exhibit his talents of innovation in any one of the following forms:
z Introduction of a new product or introduction of a new quality of an existing product.
z Introduction of a new method of production.
z Opening of a new market.
10 Entrepreneurship Development

z Discovery of a new source of supply of raw materials or semi-finished goods.

z Reorganisation of the enterprise so as to achieve monopoly or to break up the monopoly
position.
One should not confuse the terms ‘innovator’ and ‘inventor’ at this juncture. An entrepreneur is
not an inventor. An inventor discovers new methods and new materials. But an innovator commercialises
these inventions to produce new and better goods. Thus, an innovating entrepreneur implements the
inventor’s ideas.
2. Adoptive or Imitative Entrepreneur: Imitative entrepreneur is one who is ready to adopt the
successful innovations already introduced by innovating entrepreneurs. In other words, an imitative
entrepreneur does not innovate anything by himself, but he only imitates techniques and technologies
innovated by others. He follows the innovators after carefully observing the extent to which their
innovation has been successful. For example, the Cochin Shipyard has been constructed by using the
innovative technology provided by the Mitsubishi Heavy Industries Ltd., of Japan.
This type of entrepreneur has a vital role to play in developing countries. Innovative entrepreneurs
are scarce in developing countries. To add fuel to fire, there is also a problem of scarcity of capital and
skilled labour in these countries, which hinder innovative entrepreneurship. In this context, the imitative
entrepreneur fills up this gap admirably by simply imitating the technology, skill and technique already
developed by innovative entrepreneurs in developed countries. Hence, developing countries need imitators
who are responsible for the development of their countries with the limited resources available in these
countries.
3. Fabian Entrepreneur: Fabian entrepreneur is one who adopts a great caution and scepticism
in introducing any change in the business. Normally, he has neither the will to introduce any new
changes nor the desire to adopt new methods. He is ready to imitate only when it becomes perfectly
clear that failure to do so would definitely result in heavy loss for him. He is dominated more by
customs, religions, traditions and past practices and he is not ready to take any risk at all.
4. Drone Entrepreneur: Drone entrepreneur is one who blindly follows the traditional methods
of production even when it causes loss to him. He is not prepared to introduce any change under any
circumstances in the method of production he has already introduced. He continues to carry out his
business in the traditional way even when he suffers losses. For example, the coir industry in Kerala is
dominated by drone entrepreneurs.

Cole’s Classification
Arthur H. Cole classifies entrepreneurs as follows:
1. Empirical Entrepreneur,
2. Rational Entrepreneur and
3. Cognitive Entrepreneur
Entrepreneur 11

1. Empirical Entrepreneur: An empirical entrepreneur is one who never introduces anything

revolutionary in his method of production or business. He simply follows the principle of rule of
thumb. He is similar to a drone entrepreneur.
2. Rational Entrepreneur: A rational entrepreneur is one who is ready to introduce even
revolutionary changes on the basis of the general economic conditions prevailing in that area. He takes
rational decisions by himself depending upon the situation.
3. Cognitive Entrepreneur: A cognitive entrepreneur is one who takes the advices and services
of experts and introduces changes. Since he acts on the advice of experts, he is called a cognitive
entrepreneur.
The entrepreneurs may be classified on the basis of type of business, use of technology and on the
basis of motivations.

On the Basis of Type of Business

On the basis of type of business, the entrepreneurs can be classified as follows:
1. Trading Entrepreneur: An entrepreneur who undertakes trading activities only is called trading
entrepreneur. He identifies potential markets, and creates demand for his chosen product line.
2. Industrial Entrepreneur: An industrial entrepreneur is a product-oriented person who starts
his industrial unit for manufacturing some new products.
3. Business Entrepreneur: The business entrepreneur conceives idea for a new product and
create a business to materialise his idea into reality. He engages in both production and marketing
activities.
4. Agricultural Entrepreneur: These entrepreneurs undertake agricultural activities. They raise
the productivity of agriculture through modernisation and application of modern technology.

On the Basis of Use of Technology

1. Technical Entrepreneurs: The entrepreneurs who are technically qualified or experienced are
known as Technical Entrepreneurs. Engineering graduates, diploma holders from polytechnic, etc.,
who use their technical knowledge in production techniques and persons with experience who use
their skills in production process, when they start their venture, are technical entrepreneurs.
2. Non-technical Entrepreneurs: The non-technical entrepreneurs are concerned with the non-
technical aspects of business such as developing marketing and distribution strategies to promote sales
creating demand for their goods and services and the like.
3. Professional Entrepreneurs: These entrepreneurs take active part in establishing new
enterprises but never stay in the business for long time. Such entrepreneurs identify innovative ideas
and convert them into commercially viable projects. Once the business takes off, they sell out the
existing one and start new ventures.
 12

Classification of Entrepreneurs

On the On the On the On the On the On the On the Others

basis of basis of basis of basis of basis of basis basis of
type of use of motivation of growth stages of of scale gender
business technology development of enterprise and age

z Business z Technical z Pure z Growth z Classical z Small-scale z Men z Immigrant

Enterpreneur Entrepreneur Entrepreneur Entrepreneur Entreprenuer Entrepreneur Entre- Entrepreneur
z Trading z Non- z Induced z Super z Modern z Large-scale preneur z Urban
Entrepreneur technical Entrepreneur Growth Entreprenuer Entrepreneur z Women Entrepreneur
z Industrial Entrepreneur z Spontaneous Entrepreneur Entre- z Rural
Entrepreneur z Professional Entrepreneur preneur Entrepreneur
z Agricultural Entrepreneur z Bureaucratic
Entrepreneur z Hi-tech Entrepreneur
z Private Entrepreneur z Intrapreneur
Entrepreneur
z Public
Entrepreneur
Entrepreneurship Development
Entrepreneur 13

On the Basis of Motivation

Pure Entrepreneurs: Guided by motive, these entrepreneurs start new business, apply their business
skills and prove their excellence in business.
Induced Entrepreneurs: In order to motivate potential businessmen to start their own ventures,
the Central and State Governments provide facilities and incentives and offer subsidies in the form of
land at cheap rate, loans at concessional rate, tax exemption, supply of scarce raw materials, subsidy
on capital investment, etc. Induced by the incentives and concessions, the entrepreneurs set up their
own business units. Such entrepreneurs are called induced entrepreneurs.
Spontaneous Entrepreneurs: The inner urge and strong desire to become an entrepreneur,
drive people to start their own business. Such entrepreneurs have self-confidence and inborn talent to
run the business successfully. They set up their industrial units spontaneously with no motivation from
others or inducement from promotional agencies.

Other Classification
1. The New Entrepreneurs: Larry C. Farrell in his work “Searching for the Spirit of Enterprise”
has introduced a new type of entrepreneurs called “The New Entrepreneurs.” According to him, most
of the self-inspired entrepreneurs are very ordinary persons except a few. Most of them have emerged
as entrepreneurs only due to circumstances like being very poor; or full of frustration; or losing a job
and similar other reasons. They are basically very ordinary people who find themselves in extraordinary
situations in a later period and hence, they are called ‘The New Entrepreneurs.’
2. Academic Entrepreneurs: Teachers are referred to as academicians. If they design new
courses or make innovations either in curriculum or teaching methods or devise new methods of
teaching, they are called as academic entrepreneurs. They attract students by acting as academic
entrepreneurs and make the course programme viable and profitable.
3. Educational Entrepreneurs: In recent times, many entrepreneurs have come up with new
ideas to engage children during summer vacation. They have novel ways to keep youngsters busy
during vacations by organising a varieties of short-term courses to suit the varied requirements of
children and students. Many parents also prefer them because they believe that summer schools help in
occupying their children’s time in a fruitful way. These entrepreneurs are called educational entrepreneurs
and they have, in fact, changed the concept of the term vacation. Some of the prominent courses
organised are:
(a) Short-term courses on computer languages and electronics.
(b) Courses on marketing, export management, personality development, etc.
(c) Courses on fine arts like painting, music, flower arrangement, hairdressing, etc.
(d) Coaching classes for entrance examinations of professional courses.
4. Paper Entrepreneurs: After liberalisation, financial operations are taking place on a global
scale. A new class of entrepreneurs have emerged in this field also for buying and selling of shares,
buying and selling of companies, master-minding takeovers, mergers, etc. These entrepreneurs are
14 Entrepreneurship Development

actually indulging in financial speculation at the cost of actual production. In most cases, their offices
can be seen as independent of any national economy or Government. This type of entrepreneurs are
said to indulge in “paper entrepreneurship” and they are called paper entrepreneurs.
5. Ontrepreneur/Netpreneur: In these days of information technology, one can become an
entrepreneur very easily by launching ‘online business.’ The internet has changed the concept of
everything including the business. It has reduced the task of entering into a business. With a meagre
investment, any person can set up a website and look for potential customers in the line of business that
he offers. An individual who launches a new business or an innovation through the internet has been
called by Adam Bryant as the “Ontrepreneur” or “Online entrepreneur.” He can also be called
‘Netpreneur.’

Social Entrepreneur
A social entrepreneur uses his entrepreneurial talent to create positive social change value for the
society at large. A social entrepreneur has a unique ability to recognise the complexities of social-
environmental problems. He identifies situational multiplexity as factors that lead to innovative ideas
and make large-scale benefit to the society.
Commercial entrepreneurs identify and address unfulfilled market needs and wants. The motive is
to increase personal as well as shareholder's wealth. The social entrepreneurs identify and address
long-standing unsolved social problems. The innovation, competition and profits are driving force for
commercial entrepreneurs. Social entrepreneurs foster innovation and inclusiveness which enable them
to bring about a positive social change in the society.
Customer satisfaction, corporate social responsibility and brand image are the secondary goals of
corporate entrepreneurial ventures whereas, growth through economic sustainability and social change
are the secondary goals of social entrepreneurial ventures.
A social entrepreneur involves in all stages of the venture such as identification of social problem,
idea generation, implementation and evaluation. He is, therefore, a transformational leader. A commercial
entrepreneur involves in all stages of the venture such as identification of an opportunity, idea generation,
implementation and evaluation. He is a Transactional leader.

Designpreneurs
National Institute of Design, Hyderabad is meant to encourage entrepreneurs focussed on design.
It aims to foster a culture of entrepreneurship in designers so that they come with products and
services that will find a good response in the market. The objective is to create a new class of entrepreneurs
called designpreneurs.

Motivating Factors to Become Entrepreneur

There are varied approaches to understanding why some individuals decide to venture into
entrepreneurship. There are no well-defined psychological attitudes of profiles that all entrepreneurs or
characteristics to which entrepreneurs generally conform.
Entrepreneur 15

The National Knowledge Commission Study confirms that there is no motivating factor that
triggers the decision to become an entrepreneur. The significant motivating factors are:
1. Independence – Freedom to do one’s own thing
2. Market opportunity
3. Family background
4. New idea
5. Challenge
6. Desire to become an entrepreneur.
According to the study, for female entrepreneurs, the ‘Independence’ as well as the identification of
'marketable idea’ are the most important motivators. Male entrepreneurs were found to be most significantly
influenced by ‘family background’ and ‘independence’.
‘Idea driven’ motivators are more significant for entrepreneurs above the age of 35. ‘Market
opportunity’ is a far significant motivating factor for the below-35 age group.
‘Independence’ is the powerful motivator for the first generation entrepreneur.
‘Market opportunity’ has become an increasingly significant motivating factor since the economic
liberalisation gathered momentum. It is the most important trigger for those with more than 10-year
work experience.

Entrepreneurial Competencies
Competence is a combination of knowledge, skill and appropriate motives or traits that an individual
must possess to perform a given task. The entrepreneur needs to have certain knowledge, skill and
traits to plan, implement and manage the small enterprises. All these characteristics put together is
known as competence.

Knowledge
Knowledge means the collection of information and retained facts that an individual possess and
also skills to translate that knowledge into actions.

Skill
Skill is the ability to perform functions that are related to attaining goal.

Motives and Traits

Motive is a recurrent concern for a goal which drives and directs behaviour of a person.
Trait is a quality which includes thoughts and psychological activities related to a general category
of events.

Kinds of Competencies
Competencies are of two kinds:
1. Hard-skill competencies
2. Soft-skill competencies
16 Entrepreneurship Development

Hard-skill competencies are those skills that are acquired through education or through work
experience.
Soft-skill competencies are generally inherent in an individual or developed by him consciously.
Example: Communication Skill.
Both skills are necessary to perform efficiently.

Soft-skills
1. Initiative: Initiative refers to taking action beyond the job requirement or demands of the
situation. Entrepreneur should think before being asked or forced to by circumstances and act to
develop the business.
2. Persistence: Persistence means repeated action to overcome obstacles that get in the way of
reaching goals.
3. Information Seeking: Nobody knows everything. One will have to acquire knowledge and
gather information from elsewhere. Take help from experts and refer to books and journals to gain
information.
4. Concern for High Quality of Work: Entrepreneurs should have the desire to produce work
of high standard. Act to do things that meet or beat existing standards for excellence.
5. Commitment: Commitment means making personal sacrifice or extending extraordinary effort
to complete a job. One should keep to the time schedule for delivery and satisfy the customers.
6. Efficiency Orientation: Efficiency orientation is finding ways to do things faster or with
fewer resources or at a low cost.
7. Systematic Planning: Developing and using logical step by step plan to reach goals is referred
to as systematic planning. One should plan by breaking up a large task into sub-tasks, develop plans
that anticipate obstacles, evaluate alternatives and take a logical and systematic approach to activities.
8. Problem Solving: Problem solving attitude and not avoiding attitude develop competency.
9. Seek Confidence: One should have strong belief in oneself and his own abilities. Express
confidence in your own ability to complete a task or meet challenge.
10. Assertiveness: Assertiveness means confronting problems with others directly. You must tell
others what they have to do and discipline those failing to perform as expected.
11. Persuasion: Persuasion is convincing someone to buy a product or service, provide finance
or do something that he would like that person to do.
12. Use of Influence Strategies: Use a variety of strategies to influence others. Developing
business contacts, using influential people to accomplish objectives, limiting information given to others,
etc., are influence strategies.
Bharat Desai, Chairman, CEO and co-founder of Syntel Inc., observes the following from his
experience in the last 27 years. These could help guide prospective entrepreneurs and lay the foundation
for a successful enterprise.
Entrepreneur 17

The Idea
Having a great idea is just the first step. It needs to be combined with brilliant execution to make
it a successful business venture. Most successful entrepreneurs aren’t those who had a brilliant idea,
but those who executed their ideas better.

Abilities
When launching a business, reconcile yourself to the fact that you cannot be everything to
everybody. Take a personal inventory, analyze your strengths and weaknesses. Building a successful
business requires 7-10 years of non-stop effort. If you enjoy what you’re doing and have the passion
to drive it, the odds of success go up dramatically. In addition, you’ll encounter a thousand people who
will tell you why your idea can’t succeed. You have to maintain an exceptional commitment to the
concept and a positive outlook.

Research
Understand the market for your product or service. Learn about the industry, traits and buying
habits of potential customers, any potential government regulations and strengths and weaknesses of
the competition. It will give you a good idea of how to position your product/service.

Planning
This is one of the most important steps. Your business venture must be based on sound principles.
Even abundant capital can be quickly squandered without a plan based on principles of sound financial
management. Your principles should reflect your overall business goals and philosophy.

Leadership
There is absolutely no substitute for positive leadership. Your enterprise will encounter many
challenges – and you will need to dig deep within yourself to be the guiding light.

Innovate
Innovation holds the key to continued success. The focus of an entrepreneur needs to move to
innovation, including process innovation, product innovation, management innovation and business
model innovation. This will help the business stay ahead of the competition and win in the market.

What Makes a Successful Entrepreneur?

The survival and success rate of small business is relatively poor. This emphasises the need to
gain insight into what makes a successful entrepreneur.

Know Your Business in Depth

Before you set an industry, read every thing that relates to that industry – trade journals, periodicals,
books, research reports and learn what it takes to succeed in it. Personal contact with customers, trade
associations and others in the same industry in another way to gain knowledge. Join trade associations
and visit trade shows to get valuable information and make contacts before starting the business.
18 Entrepreneurship Development

Develop a Sound Business Plan

Developing a sound business plan is a crucial element for business success. A good plan provides
the right direction. It allows entrepreneurs to replace sometimes – faulty assumptions with facts before
making the decision to start the business.

Manage Financial Resources

The first step in managing financial resources effectively is to have adequate start up capital.
Many entrepreneurs begin their business with inadequate capital. Estimate the capital requirements and
it almost costs more than any entrepreneur expects to launch a business.
Management of cash is a crucial factor. A business must have adequate supply of cash to pay its
bills and obligations. Forecasting is essential for new businesses because companies do not generate
sufficient cash to stay in the early stage of the business.

Understanding of Basic Financial Statements

Launching a successful business requires all entrepreneurs to have basic understanding of
accounting and finance. The financial statements are reliable indicators of a firm’s health. Analysis and
interpretation of financial statements help to understand the potential problems such as declining sales,
falling profits, raising debt, etc., which require immediate attention of the entrepreneur.

Learn to Manage People

Every business depends on a foundation of well trained and motivated employees. Hiring and
retaining a corps of quality employees is not an easy task. The entrepreneurs must learn to attract right
people and manage them effectively.

Passion for Business

The success of the business depends on constant presence and attention of the entrepreneur. This
needs physical and mental health. The entrepreneur must monitor his health closely.
Time is the most valuable asset. An entrepreneur must learn to manage time effectively. All these
are possible only when he has passion for his business.

Entrepreneur and Economic Development

Every country is very keen in promoting its economic development. Economic development implies
development of agriculture and industry resulting in an increase in the per capita income of the country.
It is clear that economic development cannot occur spontaneously. The economic development largely
depends on human resources. Again, human resources alone cannot produce economic development.
It requires an agent who is nothing but a dynamic entrepreneur. The entrepreneur really acts as a hero
in the drama of economic development. The crucial role being played by entrepreneurs in the economic
development of a country can be studied under the following heads:
Entrepreneur 19

1. Coordinating Role: The essential function of an entrepreneur is to coordinate the various

factors of production. Coordination involves selection of the right type of factors, employment of each
factor in the right quantity, use of the best technology, division of labour, etc. He must also see that the
best combination of factors is made available for the production process. Schumpeter feels that
economic development will be a reality if new combinations of factors of production are undertaken.
In the absence of this coordinating role, the factors of production will remain idle in the country. Thus,
entrepreneurs enhance economic growth by coordinating and integrating the resources available in the
country.
2. Agent's Role: Entrepreneurs are aptly called ‘Agents of change.’ Entrepreneurs act as catalyst
or agent of economic development by perceiving opportunities and putting them into action.
Entrepreneurs, seizing opportunities, set up business undertakings and industries and thereby make
economic transformation. Thus, economic development is an effect for which entrepreneurship is the
cause.
3. Role of Innovation: Innovation is a key to entrepreneurship. Innovation implies the commercial
application of an invention. As an innovator, the entrepreneur assumes the role of a pioneer and an
industrial leader. Entrepreneurs have contributed many innovations in developing new products and in
the existing products and services. All these have resulted in economic development by providing more
employment, more income, etc. In fact, the innovational activity raises the productive efficiency of the
economy resulting in greater output and income. Schumpeter finds the secret of economic development
in this rising productivity. Thus, innovative entrepreneurship can alter the production function of nations
and bring about rapid development. In their absence, many scientific inventions would have remained
as they were.
4. Risk Assumption Role: The most important function of an entrepreneur is the assumption of
risk. Every productive venture involves risks and production cannot take place if people do not come
forward to bear risks. The economic reward for risk bearing is profit. The quantum of profit depends
upon the quantum of risks undertaken. Profit leads to saving of wealth which ultimately goes to capital
formation which is the basic ingredient for economic development. Thus, entrepreneurs promote
economic development by coming forward to assume risks of productive ventures.
5. Imitating Role: Entrepreneurs in developing countries take the role of “imitators” who generally
copy the innovations introduced by the “innovative” entrepreneurs of the developed countries. They
copy the organisation, technology and the products of innovation from other developed regions. They
are capable of adopting the innovative technology to the local conditions prevailing in the country and
establish business enterprises. Imitative entrepreneurship seems to be the best medicine for
underdeveloped countries to overcome their entrepreneurial ills and bring about substantial economic
development. They constitute the main spring of development of underdeveloped regions.
6. Capital Formation Role: Entrepreneurs promote capital formation by mobilising the idle savings
of the public. Again, the profits they earn lead to saving of wealth which ultimately goes to capital
formation. Entrepreneurs have been referred to as the human agents needed to “mobilise capital to
exploit natural resources, to create markets and to carry on trade.” Without capital formation, economic
development would remain static.
20 Entrepreneurship Development

7. Balancing Role: Developing countries like India aims at decentralised industrial structure to
remove the regional imbalances in the levels of economic development. Entrepreneurs play a dominant
role to achieve balanced regional development by starting small-scale industries. Small-scale industries
provide immediate large-scale employment, ensure a more equitable distribution of national income and
thus, facilitate balanced regional development. Moreover, it should be noted that from small enterprises,
entrepreneurs get inspiration to start large units which have a wider impact on the economy as a whole.
8. Status Transformation Role: Entrepreneurs create wealth, generate employment and income
and thereby they increase the standard of living of the people. People are able to have a better standard
of living by getting improved products and comforts provided by entrepreneurs.
Increase in the standard of living automatically promotes and stimulates economic development
and it has the effect of reducing the wide disparity in income levels. It also helps to reduce the
concentration of economic power.
9. Employment Generation Role: Entrepreneurs with high achievement motivation come forward
to establish business and industry ventures which provide immediate large-scale employment. Thus,
entrepreneurs help to reduce the unemployment problem in the country. In fact, unemployment problem
is the root cause of all socio-economic problems.
10. Export Promotion Role: Entrepreneurs also promote a country’s export trade which is an
important ingredient to economic development.
Thus, the entrepreneur is always on the lookout of making the economic system at its dynamic
best. They stimulate progress by means of their entrepreneurial activities and act as mainspring of
economic development. They have the potential of transforming their underdeveloped economies into
developed one.

TEST YOUR KNOWLEDGE

I. Fill up the Blanks with Suitable Word/Words
1. The word entrepreneur is derived from the Latin word __________.
2. The plans for an enterprise are prepared by __________ whereas they are executed by __________.
3. Entrepreneur arising within an organisation is called __________.
4. The entrepreneur who has neither the will nor the desire to introduce and adopt new methods is
called __________.
5. The entrepreneur who launches an ‘online business’ is called __________.
[Ans: 1. Entreprendre, 2. Entrepreneur and Manager, 3. Intrapreneur, 4. Fabian entrepreneur, 5. Ontrepreneur
Netpreneur.]

II. Choose the Best Answer from the Following

1. The most important function of an entrepreneur is __________.
(a) Risk assumption function (b) Managerial function
(c) Function of innovation (d) Decision making function.
Entrepreneur 21

2. When an enterprise is launched by married couple, they are called __________.

(a) Netpreneurs (b) Copreneurs
(c) Intrapreneurs (d) Couple-preneurs
3. The entrepreneur who blindly follows the traditional methods of production in spite of the loss is
called __________.
(a) Drone entrepreneur (b) Adoptive entrepreneur
(c) Fabian entrepreneur (d) Innovative entrepreneur
4. Teachers who make innovations in curriculum by designing new courses are called __________.
(a) Educational entrepreneurs (b) Cognitive entrepreneurs
(c) Empirical entrepreneurs (d) Academic entrepreneurs
[Ans: 1. (c), 2. (b), 3. (a), 4. (d).]

III. State Whether the Following Statements are True or False

1. The term entrepreneur refers to entrepreneurship.
2. An intrapreneur emerges within the frontiers of an existing organisation.
3. Innovative entrepreneurs are scarce in developing countries.
4. Imitative entrepreneurs are scarce in developing countries.
5. Soft skills are those skills that are acquired through education.
[Ans: (i) False, (ii) True, (iii) True, (iv) False, (v) False.]

IV. Short Answer Type

1. Define the term entrepreneur.
2. Who is an intrapreneur?
3. What is frugal innovation?
4. Who is a Cognitive entrepreneur?
5. Distinguish between ‘entrepreneur’ and ‘ontrepreneur.’
6. Who is a social entrepreneur?

V. Paragraph Answer Type

1. Define the term ‘entrepreneur’ and distinguish it from ‘manager.’
2. Describe the main functions of an entrepreneur.
3. Distinguish between an innovative entrepreneur and an adoptive entrepreneur.
4. Who is an intrapreneur? Bring out his characteristic features.

VI. Essay Type

1. Define an entrepreneur and bring out his functions and characteristic features.
2. Classify entrepreneurs and bring out their features.
3. Discuss the role of entrepreneurs in the economic development of a country.