ENTREPRENEURSHIP DEVELOPMENT

UNIT-1

Entrepreneur: Meaning of entrepreneur: Evolution of the concept: Functions of

an Entrepreneur, Types of Entrepreneur, Intrapreneur- an emerging class,
Concept of Entrepreneurship- Development of Entrepreneurship; The
Entrepreneurial Culture; Stages in entrepreneurial process.

Creativity and Innovation: Creativity, Exercises on Creativity, Source of New Idea,

Ideas into Opportunities. Creative Problem Solving: Heuristics, Brainstorming,
Synectics, Value Analysis, Innovation and Entrepreneurship.

ENTREPRENEUR

MEANING OF ENTREPRENEUR
The word entrepreneur is derived from the French verb “entreprendre” which means ‘toundertake’
or ‘go between’.

An entrepreneur is an individual who takes initiative to bundle resources in innovative ways and is
willing to bear the risk or uncertainty to act.

Encyclopedia Britannica – An individual who bears the risk of operating a business in the face of
uncertainty about the future conditions.

An economist defines an entrepreneur as one who brings resources, labour, material and other
assets in to combinations that make their value greater than before and also one who introduces
changes, innovations and anew order.

A Psychologist defines an entrepreneur as a person who is typically driven by some forces, which
create a desire to obtain or attain something.

A sociologist defines entrepreneur as a person whose actions would determine his social status and
who contributes to the development of the society.

Management experts define entrepreneur as a person who has a vision and generates an action plan
to achieve it.

According to the dictionary the word “Entrepreneur” can be defined as “one who reorganizes and
manages only enterprise especially involving high risk”.
EVOLUTION OF THE CONCEPT
In 16th century, the Frenchmen who organized and led military expeditions were referred to as
''entrepreneurs".

Entrepreneurs is derived from a French word in 17th Century-"entreprendre" which means "to
undertake".

In early 18th century French economist Richard Cantillon used the word entrepreneur to business.
Since then the word entrepreneur is used to one who takes the risk of stating new organization or
business or introducing a new idea, product or service t» society.

French tradition regarded an entrepreneur as a person translating a profitable idea into a productive
activity.

It also recognized a rich farmer as an entrepreneur who manages and makes his business profitable
by his intelligence and wealth.

According to Joseph Schumpeter (1934) "An entrepreneur in an advanced economy is an individual

who introduces something new in the economy a method of production not yet tested by experience
in the branch of manufacture concerned, a product with which consumers are not yet familiar, a new
source of raw materials or of new markets and the life".
Accordingly to him the functions of an entrepreneurship are:
Introduction of new product
Introduction of new methods of production
Development of new markets and finding fresh sources of raw materials and
Making changes

According to ILO entrepreneurs are people who have the ability to see and evaluate business
opportunities together with the necessary resources to take advantage of them, and to intimate
appropriate action to ensure success.

Peter F Drucker out lines an entrepreneur as one, who searches for change, responds to it and
exploits opportunities. Innovation is the specific tool of an entrepreneur.

According to A. H. Cole “Entrepreneurship is the purposeful activity of an individual or group of

associated individuals, undertaken to initiate, maintain or aggrandize profit by production or
distribution of economic goods and services”.

FUNCTIONS OF AN ENTREPRENEUR
An entrepreneur performs all the necessary functions that are essential from the point of
establishing and developing the enterprise.
The functions are broadly classified into three groups.
1. Primary functions
2. Other functions And
3. Functions important for developing countries.
The various functions and their sub functions are mentioned in the following table:

Primary Other functions Functions important for

function developing countries.
I. Planning 1. Diversification of production 1. Management of scarce
2.Organising 2. Expansion of the enterprise resources
3. Decision 3. Maintaining cordial employer 2. Dealing with public
making and employee relations. 3. Engineering
4. Talking labour problems
4. Management 4. New product development
5.Coordination with outside
5. Innovation 5. Parallel opportunities
agencies
6. Risk Bearing 6. Marketing
7. Leading 7. Management
8. Controlling 8. Customer relations.
The other major functions of an Entrepreneur are:
I. Idea generation and scanning of the best suitable idea.
II. Determination of the business objectives.
III. Product analysis and market research.
IV. Determination of form of ownership/organization.
V. Completion of promotional formalities.
VI. Raising necessary funds.
VII. Procuring machine and material.
VIII. Recruitment of men.
IX. Undertaking the business operations.

THE CHARACTERISTICS OF A SUCCESSFUL ENTREPRENEUR ARE:

1. Creativity:It is the ability to bring something new into existence. This emphasizes on “ability” and
not the “activity”.
The Creative process for an idea involves five stages –
I. Germination: The seeding stage of new idea
II. Preparation: Conscious search for knowledge
III. Incubation: Subconscious assimilation of information.
IV. Illumination: Recognizing an idea as feasible
V. Verification: Application or test to prove idea has value.
2. Innovation:It is the act that endows resources with a new capacity to create wealth. It
indeed creates a resource.
3. Dynamism:it is potential combination of prosperity. Given the potentialities of the
enterprise, he sets attainable goals, which are to be accomplished within specific time
frames. Tends to approach problems in pragmatic way.
4. Leadership:This spirit keeps him paces forward in any field. Leadership qualities will enable a
person to stand apart in whatever profession he might be.
5. Team building: Team is a group of individuals with a common purpose that is focused and
aligned to achieve a specific task or set of outcomes.
Team building skills consists of five stages
I. Wanting to feel better
II. Identifying the problem and needs of the enterprise
III. Creating a vision
IV. Setting goals for the group
V. Reviewing progress
6. Achievement motivation: Entrepreneurs have a high need for achievement and are guided by
their inner self, motivating their behavior towards accomplishments. Based on this entrepreneurs
can be classified as dreamers, doubters and doers.
7. Problem solving: A formal problem-solving model helps entrepreneurs to solve problems on a
logical manner. The model consists of six steps:
I. Define the problem
II. Gather information
III. Identify various solutions
IV. Evaluate alternatives and select best option
V. Take action
VI. Evaluate the action taken
8. Goal orientation: Goal setting is the achievement of targets and objectives for successful
performance of an entrepreneur. The goal setting process has three steps:
I. Definition of Goal
II. Specific goals
III. Feedback
Types of Goals:-
I. Target Oriented Goals
II. Achievement Oriented
III. Specific or Primary
IV. Overall Goal
V. Secondary goals.
VI. Long range / Short range
VII. Personal / Social
9. Risk taking and decision making ability: Entrepreneurs are persons who take decisions under
conditions of uncertainty and therefore are willing to bear risk. Persons who can take risks and make
quick decisions always prosper.
10. Commitment:One of the subtle qualities of an entrepreneur is his will power. Strong
determination with sound thinking fortifies will power.

TYPES OF ENTREPRENEUR
Entrepreneurs are classified on the basis of Functional Characteristics, Developmental Angle, Types
of Entrepreneurial Business, Personality Types and Schools of thought on Entrepreneurship.

1) Based on Functional Characteristics

a) Innovative Entrepreneur: They introduce new goods or new methods of production or discover
new markets or reorganize their markets. Entrepreneurs in this group are characterized by an
aggressive assemblage of information for trying out a novel combination of factors.
b) Imitative or adoptive entrepreneur: They do not innovate but imitate the techniques and
technology of others. Entrepreneurs in this group are characterized by their readiness to adopt
successful innovations by successful entrepreneurs.
c) Fabian entrepreneur: Such entrepreneurs display great caution and skepticism in experimenting
with any change in their enterprise. They change only when there is an imminent threat to the very
existence of their enterprise.
d) Drone entrepreneur: Such entrepreneurs are characterized by a die-hard conservatism and may
even be prepared to suffer the loss of business.

2) Based on Developmental Angle

a) Prime mover: This entrepreneur sets in motion a powerful sequence of development, expansion
and diversification of business.
b) Manager: Such an entrepreneur does not initiate expansion and is content just staying in business.
c) Minor innovator: This entrepreneur contributes to economic progress by finding better use for
existing resources.
d) Satellite: This entrepreneur assumes a supplier’s role and slowly moves towards a productive
enterprise.
e) Local Trading: Such an entrepreneur limits his enterprise to the local market.

3) Based on types of Entrepreneurial Business

a) Manufacturing: An entrepreneur who runs such a business actually and produces the products
that can be sold using resources and supplies. E.g.: Apparel and textile products, chemical related
products etc.
b) Wholesaling: An entrepreneur with such a business sells products to the middle man.
c) Retailing: An entrepreneur with such a business sells products directly to the people who use or
consume them.
d) Service: An entrepreneur in this business sells service rather than products.

4) Based on Nine Personality types of entrepreneurs

a) The Improver: If you operate your business predominately in the improver mode, you are focused
on using your company as a means to improve the world. They run the business with high integrity
and ethics.
b) The Advisor: The business personality type will provide an extremely high level of assistance &
advice to customers. The advisors motto is customer is right and we must do everything to please
them.
c) The Superstar: Here the business is centered on the charisma and high energy of the superstar
CEO. This personality often will cause you to build your business around your own personal brand.
They will be too competitive and workaholics.
d) The Artist: The business personality is the reserved but a highly creative type (E.g.: Web design, Ad
agency). As an artist type you will tend to build your own business around the unique talents and
creativities that you have. You may be overly sensitive to your customer’s response even if the
feedback is constructive. Let go the negative self-image.
e) The visionary: A business built by a visionary will often be based on the future vision and thoughts
of the founder. You will have a high degree of curiosity to understand the world around you and will
set-up plan to avoid the landmines. Visionaries can be too focused on the dream with little focus on
reality. Action must precede vision.
f) The Analyst: here your company’s focus is on fixing problems in a systematic way. These
companies excel at problem solving.
g) The Fireball: A business owned and operated by a fireball is full of life, energy and optimism. Your
company is life energizing and makes customer feel the company has a get it done attitude in a fun
and playful manner.
h) The Hero: You have an incredible will and ability to lead the world and your business through any
challenge. You are the essence of entrepreneurship and can assemble great companies.
i) The Healer: If you are a healer, you provide nurturing and harmony to your business. You have an
uncanny ability to survive and persist with an inner calm.

5) Based on Schools of Thought on Entrepreneurship

The Great Person School of Entrepreneurship. This school believes that an entrepreneur is born with
an intuitive ability, sixth sense, traits, and instincts.
• The Psychological Characteristics School of Entrepreneurship. This school of thought focuses on
personality factors and believes that entrepreneurs have unique values and attitudes towards work
and life.
• The Classical School of Entrepreneurship. Innovation, creativity, or discovery is key factors
underlying the classical body of thought and research on entrepreneurship.
• The Management School of Entrepreneurship. An entrepreneur is “a person who organizes or
manages a business undertaking, assuming the risk for the sake of profits.”

INTRAPRENEUR- AN EMERGING CLASS

Intrapreneurship is the practice of entrepreneurship by employees within an organization. It is an
opportunity for corporate managers or employees to take initiative innovate and try new ideas
within an organization.It is used to bridge the gap between science and market place.

Existing business will have the financial resources, necessary skills to carry out business, the
marketing and distribution systems to commercialize the innovation.

Elements of Intrapreneurship:

The intrapreneurship has four important elements.

  (i) New business venturing:This is the corporate venturing, the creation of new business with
in the organization. This includes redefining the company's products or services,
development of new market segment or formation of new corporate ventures.
(ii) Innovations: Innovation is the development of new products, improvement of existing
products, development of improved and simplified production methods and procedures.
(iii)Self-renewal: This is the transformation of an organization through the renewal of main
ideas, this includes a redefinition of a business concept, reorganization or modifications in
the system with an aim to initiate innovating.
(iv) Proactiveness: Proactiveness includes initiative and risk taking, competitiveness and dash
ing to take new challenges. Organisationswith this type of pro-activeness spirit will lead
the market than follow the competitors.
Brief comparison of intrapreneurs, entrepreneurs and managers is given below:

Point Intrapreneur Entrepreneur Manager

1. Goal Independent, Independent starts newDelegates and
mana- innovates new venture and leads directsupervises more
gement ideas involvement. than direct
involvement
2. Status Notconcerned Not concerned about status Concerned about
about traditional status symbol
status, but wants
recognition.
3. Risk Owns moderate Bears all the risk andDoes not bear any
risk uncertainty risk.
4. Rewards Gets fixed Since there is risk, he mayWorks for salary
reward for his get profit or loss depending for his service
work. Many On outcome. which is fixed and
get extra for Definite.
His innovations.
5. Innovative Very innovative Need not be
Innovation innovative. He
manages the ideas
of top
management
6. Decision Moderate, limitedVery much involved inDelegates the
making to decision making decisions of top
his work. management

CONCEPT OF ENTREPRENEURSHIP- EVOLUTION OF ENTREPRENEURSHIP

•Derived from a French word in 17th Century – Entreprendre means “to undertake” i.e. the individual
who undertook the risk of a new enterprise.

•In the earlier part of 16th century, the French men who organized and led military expeditions were
referred to as entrepreneurs.

•French tradition regarded an entrepreneur as a person translating a profitable idea into a

productive activity.

•It also recognized a rich farmer as an entrepreneur who manages and makes his business profitable
by his intelligence and wealth.

• In the 17th Century, it was extended to cover civil engineering activities such as construction and
fortification.
It was only in the beginning of the 18th century that the word was used to refer to economic aspects.
Since then the term “entrepreneur” is used in various ways and views. These can be broadly
classified into three groups namely: -Risk Bearer, Organizer and Innovator.
• In 1934, for the first time Joseph Schumpeter, an economist assigned a crucial role of innovation to
the concept of entrepreneurship. He considered economic development as a discrete dynamic
change bought by entrepreneur by instituting new combination of production i.e. innovations.

DEVELOPMENT OF ENTREPRENEURSHIP/FACTORS RESPONSIBLE FOR EMERGENCE OF

ENTREPRENEURSHIP

An individual‟s decision to pursue an entrepreneurial career is dependent on various factors.

1. Background Factors:
(a) Education, Training and Experience:
The type of education, training and experience an individual has acquired influences his choice of
setting up an enterprise. Technically, qualified persons normally set up their ventures in the field of
their specialization, mainly because working in one‟s area of specialization provides confidence and
reduces the uncertainty with the new venture.
(b) Family, role models and association with similar type of individuals:
If an individual has a supportive family, has role models who have been successful or are in
association with the same or similar type of business activity the individual is engaged in, they add
vigour to his desire to set up a new venture.
(c) Financial Conditions:
Both adverse and supporting financial conditions can motivate an individual to set up a new venture.
When an individual is unemployed or is not able to support his family demands, or if he has surplus
funds, he may start looking for a new business venture where he can put in his time/money to
achieve success and thus fulfill his demands.
2. Motivational Factors
(a) Need for achievement:
This has been identified as the most important reason for Entrepreneurial motivation by various
researchers. Need for achievement means the drive to achievement means the drive to achieve a
goal. Entrepreneurs have a compelling drive to succeed. They strive consider themselves responsible
for their growth and development.
(b)Personal motives/expectations:
This has been found to be one of the crucial factors responsible for entrepreneurship amongst
individuals. These individuals have an internal focus of control i.e. they consider themselves
responsible for their growth and development.
3. Business Environment:
Supportive business environment like low rate of competition, high profit margins, good economic
condition of the region, high demand –all contribute towards motivating an individual to set up a
new venture.
(a) Supportive Government policies:
From time to time, the government keeps formulating policies and programmes to promote
entrepreneurs in different fields. Tax holidays, for instance, are such a policy measure. These policies
and procedures go a long way towards catalyzing the entrepreneurial motivation.
(b) Availability of financial assistance from various funding bodies:
An Entrepreneur needs funds to set up a business and many may not be having the required funds to
support the requirements of the business set up. In such situation he/ she can obtain assistance from
financial institutions. Hence the financial institutions can facilitate the setting up of a new venture by
easing out the disbursement of funds to them.
Ancillary support: Ancillary support from suppliers, distributors, retailers etc., even bigger units can
act as a great encouragement to budding entrepreneurs.
(c) Availability of technical factors like premises, electricity, labour:
Feasibility with which factors of production are available to the entrepreneurs will facilitate/ obstruct
an entrepreneur in making the final decision of setting up a business venture and even in the success
of a business.
4. Reward
(a) Recognition: Since the success of a business is usually proportionate to the efforts put in by the
entrepreneur, setting up of new ventures gives an entrepreneur an individuality, the outcome of
which is highly dependent on him. Since the success of an enterprise is associated with the efforts
and success of an entrepreneur he/she gets enough recognition to enhanced his/her self-esteem.
(b) Social status: Entrepreneurship is the way to get large profit margins which a salaried employee
cannot even think of. Hence, if the business runs successfully, it automatically raises the social status
of an individual. Moreover, the idea of being responsible for one‟s fate, employing a number of
individuals, taking important decisions, all go a long way in bestowing a higher social status upon an
individual.

ROLE OF ENTREPRENEUR IN ECONOMIC DEVELOPMENT

The role of entrepreneurs in economic development involves more than just increasing the output
and income; it involves in initiating and effecting the change in the structure of business or society.
In spite of the importance of investment and innovation in the economic development of an area,
there is little awareness of the product evolution process. This is the process through which
innovation develops and commercializes through the entrepreneur's activity which in turn results in
economic growth.
Therefore Entrepreneur bridges the gap between science and the market place, creating new
enterprises and brings new products and services into the market. Those activities of an
entrepreneur significantly affect the economy of an area by building economic base and providing
jobs. In some areas entrepreneur creates new products and new employment. Thus entrepreneur
thrusts impact and plays vital role both in overall economic development and creating employment
to people!

Following are the roles that entrepreneurship plays in the economic development of a country:
I. Entrepreneurship promotes capital formation by mobilizing the idle saving of the public.
II. It provides immediate large scale employment. Thus, it helps reduce the unemployment problem
in the country.
III. It promotes balanced regional development.
IV. It helps reduce the concentration of economic power.
V. It stimulates the equitable redistribution of wealth, income and even political power in the interest
of the country.
VI. It encourages effective resource mobilization of capital and skill which might otherwise remain
unutilized and idle.
VII. It also induces backward and forward linkages which stimulate the process of economic
development in the country.
VIII. It also promotes country’s export trade i.e. an important ingredient to economic development.

THE ENTREPRENEURIAL CULTURE

An Entrepreneurial Culture consists of a group of individuals who have suppressed individual
interests in an effort to achieve group success because group success will advance their individual
interest.

“An entrepreneurial culture consists of a group of individuals who have suppressed individual
interests in an effort to achieve group success because group success will advance their individual
interests."

Components of entrepreneurial culture

People and empowerment focused
Value creation through innovation and change
Attention to the basics
Hands-on management
Doing the right thing
Freedom to grow and to fail
Commitment and personal responsibility
Emphasis on the future

Secrets for building Entrepreneurial Culture

•Build parallel interests
•Be an architect of the future
•Be decisive, multifaceted, and ethical to a fault
•Know the risk – measure the reward
•Communication - be a shower not a teller
•Power to the people
•Become a trust builder
•Sharing wealth increases wealth
•Be constant, consistent and concise
•Treat important people like important people

STAGES IN ENTREPRENEURIAL PROCESS

This process has five important stages:
(i) Identification of an opportunity
(ii) Evaluation of the opportunity
(iii) Preparation of the business plan
(iv) Determination and organizing the resources
(v) Management of the enterprise

(i) Identification of opportunity:

The first step in the entrepreneurial process is the identification of opportunity. This may be from his
own idea or from external sources like consumers and business associates, members of distribution
system, independent technical organizations, consultants, etc.( Consumers are the best source of
ideas for a new venture who spells out the need of a product or service. The business associates also
can give ideas of a product or service.
Due to the close contact with the end user, member of distribution system also see product needs
one can identify new business opportunities through a discussion with a retailer, wholesalers or a
trade representative.
Some individuals are highly technical oriented and are not interested in any entrepreneurship.
Such people conceptualize new business opportunities that can be given to the interested. Some
government organizations and R & D centers also provide new ideas.

(ii) Evaluation of the opportunity:

The opportunity identified by using either input from consumers, business associates, channel
members or technical people, must be carefully screened and evaluated. This evaluation is perhaps
the most critical element of the entrepreneurial process as it allows the' entrepreneur to assess
whether the specific product or service provides sufficient return on investment. The evaluation
process involves looking at the length of opportunity, its real and perceived valve, its risks and
returns, its fit with personal skills and goals o f the entrepreneur and its uniqueness or differential
advantage in its competitive environment.
The length of opportunity and the market size and share are two main aspects for deciding the risk
and gains or profits. SWOT (strengths, weaknesses, opportunities and threats) analysis is one of the
useful analysis tools. Strength and weakness are internal factors and related to the organization and
opportunities and threats are external and related to the environment and competition. The risks
reflect the market, competition, technology and amount of capital involved. The capital invested
forms the basis for returns and profits. The opportunity must finally fit the personal skills and goals of
the entrepreneur. It is very important that the entrepreneur must be able to put forth the necessary
time and effort needed to see the venture succeed. An overall opportunity assessment plan is
prepared to evaluate the opportunity. Unlike a business plan, this is a short one, focuses only on the
opportunity with risks and rewards and makes it clear whether or not to go with it.
This plan includes:
> description of product or service
> agreement of opportunity
> assessment of the entrepreneur and his team
> resources needed
> amount and source of capital needed
> rewards and profit expected.

(iii) Development of a business plan:

To achieve the proposed business opportunity, a well defined business plan needs to be developed.
This is a tedious and time consuming activity of the entrepreneurial process. The business plan
should contain the following in order.
 > Title of project, table of contents and executive summary.
> Description of business and industry.
> Technology plan.
> Financial plan.
> Organization plan.
> Production and operation plan.
> Marketing and distribution plan.
> Summary of plan.
A good business plan is very essential to develop the opportunity and determine the resources
received, pooling up the resources for successful managing of the proposed venture.

(iv) Determination and organizing the resources:

This process begins with the assessment of present resources. Enough care must be taken not to
underestimate the amount and nature of resources required. The risk involved with insufficient or
incorrect resources should be calculated. Organizing the required resources at the appropriate time
is another important aspect of entrepreneurial process. Alternative sources of supply, process of
manufacture etc., are to be planned.

(v) Management of Enterprise:

After resources are acquired, the entrepreneur must use them to implement the business plan. The
operational problems of the growing enterprise must also be examined. This calls for a management
with all functions like Planning, organizing, staffing, directing and controlling.