Institute of Information Technology & Management, New Delhi

Subject: Entrepreneurship Development Course: BBA (V) Paper Code: BBA

Dr. Malavika Srivastava

UNIT-1

(Syllabus: Introduction: The Entrepreneur: Definition, Emergence of Entrepreneurial Class;

Theories of Entrepreneurship)

Meaning and Definition of Entrepreneur

The word entrepreneur has come from the France word “entreprendra” which means to
undertake, to pursue opportunities to fulfill needs and wants through innovation to undertake
business. In the year 1725 the word entrepreneur was first brought into economics by a social
scientist named Richard cantilion. The expert who invented the theory of entrepreneurship was
David McCellion in 1961. An entrepreneur is a person who is able to express and execute the urge,
skill, motivation and innovative ability to establish a business or industry of his own, either alone
or in collaboration with others. His motive is to earn profit through the production or distribution
of goods or services. Adventurism, willingness to face risks, innovative urge and creative power
are the inborn qualities of entrepreneurship. Entrepreneurship can also be explained as a process
of executing a work in a new and betterway.

Definition of Entrepreneur:

According to Harbison "An entrepreneur is not an innovation but an organization builder or one
who has the skill to build an organization and who must be able to harness the new ideas of
different innovators to the best of the organization."
OR
Peter F. Drucker defines “An entrepreneur as one who always searches for change, responds to
it and exploits it as an opportunity. Innovation is the specific tool of entrepreneurs, the means by
which they exploit change as an opportunity for a different business orservice”.

Characteristics of an Entrepreneur

1) Vision: An entrepreneur has a dream and he visualizes the ways and means to achieve
dream. In doing so hevisualizes:
 MarketDemands
 Socio-Economic
 Technological Environment and then based on these dynamic, he visualizes a
future for his businessventure.

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 2) Knowledge: An entrepreneur has full knowledge about all the technicalities of his
business- be it technological, operational, financial or marketdynamic.

3) Desire to Succeed: An entrepreneur has a strong desire to succeed in life. Their dreams
are not just limited to achieving one single goal but they constantly work to achieve
highergoals.

4) Independence: An entrepreneur needs independence in work and decision-making. They

don't follow the rules of thumb but make their own rules anddestiny.

5) Optimism: Entrepreneurs are highly optimistic about achieving their vision.

Entrepreneurs do not follow the conventional rules of thumb. They have a constant desire
to introduce something new to the existing business. They create, innovate or even add
value to the existingproducts/services.

6) Leadership: An entrepreneur exhibits the qualities of leader. They are good planner,
organizers, have good communication skill, good decision makers, take initiative to
implement plans and areresult-oriented.

7) Hardworking: At times they are called workaholics. Work is worship for then. They put
in continuous efforts to achieve success and know that there is no substitute for hark
work.

8) Risk-Taking Ability: Risk is an inherent and inseparable element of entrepreneurship.

He assumes the uncertainty of future. An entrepreneur guarantees rent to the landlord,
wages to employees and interest to the investor in the hope of earning more than the
expenses.

Entrepreneurship Traits

A successful entrepreneur must possess the following traits:

(1) Mental Ability: Mental ability consists of intelligence and creative thinking. An
entrepreneur should be intelligent and must have an analytical mine. He should have the
capacity to analyses the problem and able to study the various situations under which
decision have to bemade.

(2) Clear Objectives: An entrepreneur should have a clear objective. Without objective an
entrepreneur cannot success. So a successful entrepreneur must have to objective to
establish his product in the market, make profit and also render socialservice.

(3) Business Secrecy: An entrepreneur must be able to guard business secrets. Leakage of
business secrets to trade competitors is a serious matter. So the entrepreneur should be
able to make a proper selection of his subordinates.
 (4) Human Relations Ability: An entrepreneur must have good relations with his customers
to earn profit and win their confidence in his product. He must also maintain good
relation with his employees.

(5) Effective Communication: Good communication also means that the entrepreneur has
the ability to put his point effectively and with clarity. Communication ability is the
secret of the success of mostentrepreneurs.

(6) Technical Knowledge: The entrepreneurs are dealing with situations where sophisticated
technology is involved. The entrepreneur must have a reasonable level of technical
knowledge.

(7) Decision-Making: Running a business requires taking a number of decisions. Hence an

entrepreneur should have the capacity to analyses the various aspects of the business for
arriving at a decision.

(8) Risk-Bearing: 'No risk, no business' or 'no risk, no gains'. Risk is an inherent and
inseparable element of entrepreneurship. He assumes the uncertainty offuture.

(9) Self-Confidence: Entrepreneurs must have the mental capacity to face any situation.
They should also have the ability to inspire other. They must have the confidence in
themselves and the determination to achieve theirgoals.

Types of Entrepreneur/ Classification ofEntrepreneur

(A) Classification on the Basis of Ownership

(1) Founder or "Pure Entrepreneurs": Those individuals who are the founder of the
business. They are the ones who conceptualize a business plan and then put in efforts to
make the plan a success. Example: DhirubhaiAmbani of the RelianceGroup.

(2) Second-generation operators of family-owned business: They are individuals who

have inherited the business from their fathers and forefathers. Example: Like
MukeshAmbani and Anil Ambani sons of DhirubhaiAmbani of the Reliance Group
now split into two: Reliance Industries Limited and Reliance-Anil
DhirubhaiAmbaniGroup.

(3) Franchisees: It is a method of doing business wherein the parent owner licenses his
trademarks and tried and proves methods of doing business to a franchisee in exchange
for a recurring payment. Example: NIIT has given its franchisee operations to local
players after thorough scrutiny and proper training.

(4) Owner-Manager: When a person buys a business from the founder and then invests his
time and resources in it he is called the owner-manager. Example: Like Sabeer Bhatia is
the founder entrepreneur ofHotmail.
(B) Classification On The Basis Of Personality Traits and Their Style of Running The
Business

(1) The Achiever: These types of entrepreneurs have personal desires to excel. The only
drive that pushes them is the desire to achieve something in life, the desire to make a
mark in society, the desire to prove their excellence. They do not need any external
stimulus but areself-driven.

(2) The Induced Entrepreneur: These types of entrepreneurs are induced by some external
factors to start a business. The external factors could belike:
 GovernmentPolicies
 Unemployment
 FamilySupport
 Facilitating InstitutionalSupport

(3) The Idea Generator: These kinds of entrepreneurs are highly creative people who are
always in search of innovative ideas for setting up new business ventures. They enjoy the
First Movers' Advantage and are able to skim higher profits from themarket.

(4) The Real Manager: The real managers run the business in a systematic manner. They
analyze business situation, assess the demands of future, both in terms of opportunities
and threats and then take actions based on the aboveassessments.

(5) The Real Achievers: The real achievers are full of life. They are looking for the
achievement of not even their goals but also of people associated with themselves like
employees, suppliers and distributors.

(C) Classification based on the type of Business

(1) Industrial Entrepreneur: Industrial entrepreneur is an entrepreneur who is into

manufacturing of a product. He identifies the needs and wants of customers and
accordingly manufactures products to satisfy these needs andwants.

(2) Trading Entrepreneurs: Trading entrepreneur is one who undertakes trading activities
and is not concerned with the manufacturing of products. He identifies potential markets,
stimulates demands and generates interest among buyers to purchase aproduct.
(3) Corporate Entrepreneur: Corporate entrepreneur is a person who demonstrates his
innovative skill in organizing and managing a corporate undertaking which is registered
under some acts that given it a separate legalentity.

(4) Agricultural Entrepreneur: Agricultural entrepreneurs are those entrepreneurs who

undertake business related to agricultural activities like farm equipments, fertilizers and
other inputs ofagriculture.

(D) Classification on the Stages of Development

 (1) First Generation Entrepreneur: A first-generation entrepreneur is one who starts an
industrial unit by means of an innovative skill. He is essentially an innovator combining
different technologies to produce a marketable product or service.

(2) Modern Entrepreneur: A modern entrepreneur is one who undertakes business to

satisfy the contemporary demands of the market. They undertake those ventures which
suit the current socio-cultural trends.

(3) Classical Entrepreneur: A classical entrepreneur a stereo-type entrepreneur is one

whose aim is to maximize the economic returns at a level consistent with the survival of
the firm, with or without element of growth.

(E) Clearance Danhof’s Classifications

Danhof classifies Entrepreneur into four types.

(1) Innovative Entrepreneur: This category of Entrepreneur is characterized by smell of

innovativeness. This type of Entrepreneur, sense the opportunities for introduction of new
ideas, new technology, discovering of new markets and creating new organizations. Such
Entrepreneur can work only when certain level of development is already achieved and
people look forward to change and improve. Such Entrepreneur are very much helpful for
their country because they bring about a transformation in lifestyle.

(2) Adoptive or Imitative Entrepreneur: Such entrepreneurs imitate the existing

entrepreneur and set their enterprise in the same manner. Instead of innovation, may just
adopt the technology and methods innovated by others. Such types of entrepreneur are
particularly suitable for under-developed countries for imitating the new combination of
production already available in developedcountries.

(3) Fabian Entrepreneurs: Fabian entrepreneurs are characterized by great caution and
skepticism, in experimenting any change in their enterprises. They imitate only when it
becomes perfectly clear that failure to do so would result in a loss of the relative position
in theenterprises.

(4) Drone Entrepreneurs: Such entrepreneurs are conservative or orthodox in outlook.

They always feel comfortable with their old fashioned technology of production even
though technologies have changed. They never like to get rid of their traditional business,
traditional machineries and traditional system of business even at the cost of reduced
returns.

(f) Arthur H Cole Classification

Arthur H Cole classifies entrepreneurs as empirical, rational and cognitive entrepreneur.

(1) Empirical: He is entrepreneur hardly introduces anything revolutionary and follows the
principle of rule ofthumb.
 (2) Rational: The rational entrepreneur is well informed about the general economic
conditions and introduces changes, which look morerevolutionary.

(3) Cognitive: Cognitive entrepreneur is well informed, draws upon the advice and services
of experts and introduces changes that reflect complete break from the existing scheme of
enterprise.

Qualities of an Entrepreneur

The entrepreneur must have following qualities

(1) Planner: Entrepreneur has a strong desire to achieve a higher goal and make their dreams
come true. So the entrepreneur must have these quality to achieve the target an
entrepreneur cannot achieve thetarget.

(2) Technician: An entrepreneur must have the technical knowledge. He should know that
how to use the resources and achieve thetarget.

(3) Risk Bearing Ability: Risk is very important element. An entrepreneur must have
capacity to bearing risk an entrepreneur cannotsuccess.

(4) Decision Maker: Decision making is the process of choosing best alternative among
various alternatives. An entrepreneur must have these qualities because decision making
affect the profitability and reputation of theenterprise.

(5) Ability to find and Explore Opportunities: Entrepreneurial persons are quick to see
and seize opportunities. They show an innovative turn of mind and convert difficulties
into opportunities.

(6) Motivator: An entrepreneur must have a motivator. He inspires the employees to

achieving the target. Without motivation an entrepreneur cannot achieve the target. So
motivation is very necessary for achieving thetarget.

(7) Future Oriented: Entrepreneur shows a high level of future orientation. They do not
allow the past to obsess them. They are oriented towards present andfuture.

(8) Interpersonal Skills: An entrepreneur is a person who during the course of his activities
he should be a person who likes working with people and who has skills of dealing with
people.

(9) Facing Uncertainty: An entrepreneur is a person who faces uncertainty. The future is
uncertain. So the decision of entrepreneur affects the profitability and reputation of the
enterprise.
 (10) Coordination: An entrepreneur must have a coordinator. He allocates the
resources and utilizes the resources for achieving the target. Without coordination an
entrepreneur cannot achieve thetarget.

Functions of Entrepreneur

An entrepreneur has to perform the following function:

(1) Risk taking and Uncertainty Bearing: The future is unpredictable. The entrepreneur has
to take risks in these circumstances. If the venture succeeds, the entrepreneur profits; if it
does not, losses occur. Thus, taking risks forms an important entrepreneurial function.

(2) Taking Business Decisions: All decisions concerning business are taken by the
entrepreneur. He has to formulate an action plan regarding the product and quality of the
product to be produced. He has to evolve the best possible method of production which
would earn him a sizeableprofit.

(3) Managerial Functions: The entrepreneur performs various managerial functions. The
entrepreneur arranges finance, purchase raw materials, provides the necessary
infrastructure for production. The entrepreneur has a multiphase personality when he
undertakes managerialfunctions.

(4) Innovation: The most important function of an entrepreneur is innovation. He introduces

far-reaching improvements in the quantity and quality of production line. He considers
the economic viability and technical feasibility of aninvention.

(5) Coordination: The entrepreneur coordinates the other factors of production.

Coordination involves selection of the right type of factors, employment of each factor in
the right quantity, use of the best technical devices, division of labor, reduction of waste
etc.

(6) Maintain Good-Relations: An entrepreneur must have good relations with his customer
to earn profit and win their confidence in his product. He must also maintain good
relations with his employees.

(7) Analysis the Environment: An entrepreneur analysis the environment. Environment is

that factor which affects the business. There are two type of environment: Internal
Environment: Internal environment are controllable External Environment: External
environment are beyond the control of thebusiness.

(8) Planning: Planning is the first function of the management. Planning is deciding in
advance what is to be done, how is to be done, which is to be done, by whom is to be
done. It is very necessary function of entrepreneur. Without planning an entrepreneur
cannot achieve thetarget.
 (9) Utilizes the Resources: An entrepreneur allocates the resources and utilizes the
resources. An entrepreneur must utilize the resources for the achievement of the
objectives. If the entrepreneur does not utilizes the resources he cannot become a
successful entrepreneur.

Distinction between Entrepreneur and Manager

Often the two terms namely entrepreneur and manager are considered as synonym.
However the two give different meaning. An entrepreneur starts a venture then a manager takes
over to organize and co-ordinate continuous production. An entrepreneur is being enterprising as
long as he starts something new then the routine day-to-day management of the business is
passed on to the manager. Peter Drucker claims that the process of entrepreneurship is directing
the use of resources to progressive activities rather than for “administrative efficiencies”. This
really clarifies the role of an entrepreneur from that of a manager. Please note that in most small
businesses the entrepreneur who starts the venture also has to perform the role of a manager in
nurturing it and making it grow and managers frequently have to think of new ways to capture
markets, face competition etc.

The major points of distinction between the two are presented here.

Intrapreneurs

A new breed of entrepreneurs is coming to the fore in large industrial organizations. They are
called as ‘Intrapreneurs’. In large organizations, the top executives are encouraged to catch hold
of new ideas and then convert them into products through R and D activities within the
framework of organizations. It is found in developed countries that such Intrapreneurs in large
number are leaving the organization and started their own enterprises. Many ofsuch
Intrapreneurs have become exceedingly successful in their ventures. The difference between
entrepreneurs and Intrapreneurs is given below

Ultrapreneurs

Through the entrepreneurship has been there for a long time, its performance and execution
evolve with the prevalent economic conditions of the day. The entrepreneurs of the 90s are a
different breed in relation to their immediate predecessors from the 80s. Thus, the path of
successful entrepreneurship is ever changing as the art and science of entrepreneurship, is taking
a new colors. Now-a-days new products and services are conceived, created, tested, produced
and marketed very quickly and with great speed. Therefore today’s entrepreneurs need to have
different mindset about establishing and operating a company. This mindset is what is called
ultrapreneuring.
According to James B Arkebaur, the concept of ultrapreneuringis to identify business
opportunity, determine its viability and form a company. It requires assembling a super
competent management team who then develop, produce and market the product or service.
They then sell the majority interest of the company, all of this with maximum resource leverage
of both talent and money in the shortest optimum time period. Ultra growth companies are not
made to pass on to the next generation. Ultrapreneurs create them and then sell out, merge or
combine. Their life long challenge is to do it again and overagain.

Role of Entrepreneur in Economic Growth

Entrepreneur has his role in modern economic development at least three aspects:

(1) The entrepreneur co-ordinates the other factors of production. This involves not only
assembling the factors, but also to see that the best combination of factors is made
available for the production process.
 (2) The entrepreneur takes risks. This is the important function of the entrepreneur and the
quantum of profit he receives is directly proportionate to the risks he takes. Risks are
generally based on the anticipation ofdemand.

(3) Finally the entrepreneur innovates. Innovation is different from invention. Invention is
the work of scientists. Innovation implies the commercial application of an invention. As
an innovator the entrepreneur assumes the role of a pioneer and an industrial leader. The
entrepreneur can undertake anyone type of the following five categories ofinnovation:
 The introduction of a new good or a new quality of agood
 The introduction of a new method ofproduction
 The opening of a newmarket
 The conquest of a new source of supply of rawmaterials
 The carrying out of a new organization of anyindustry

Importance of Entrepreneur in Economic Development:

Every country tries to achieve maximum economic development. The economic development of
a country to a large extent depends on human resources. But human resource alone will not
produce economic development-there must be dynamic entrepreneurs. Importance’s of
entrepreneurs in economic developmentare:

(1) Employment Generation: Growing unemployment particularly educated unemployment

is an acute problem of the nation. If a hundred persons become entrepreneur they not only
create a hundred jobs for themselves but also provide employment to many more. These
enterprises grow providing direct and indirect employment to many more. Thus
entrepreneurship is the best way to fight the evil of unemployment.

(2) National Income: National Income consists of goods & services produced in the country
and those imported. The goods & services produced are for consumption within the
country as well as to meet the demand of exports. The domestic demand increases with
ever increasing population and standard of living. The export demand also increases to
meet the needs of growing import due to various reasons. An increasing number of
entrepreneurs are required to meet this increasing demand for goods and services. Thus
entrepreneurship increases the national income.

(3) Dispersal of Economic Power: When a society produces a small number of

entrepreneurs the enterprise due to lack of competition grow into a few big business
houses. This results in concentration of wealth in a few families. This can have a serious
social and national implication. When the number of entrepreneurs increases, a large
amount of national wealth is also shared by a large number of entrepreneurs, thus
dispersing wealth. This dispersal of wealth promotes the real socialism and makes the
economy healthy.

(4) Balance Regional Development: The growth of industry and business leads to a large
number of public benefits like road, transport, health, education, entertainment etc. A
rapid development of entrepreneurship ensures a balanced regional development. When

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 the new entrepreneurs grow at a faster pace, in view of the increasing competition in and
around the cities, they are forced to set up their enterprise in the smaller towns away from
big cities. This helps in the development of the backward regions.

(5) Economic Independence: Entrepreneurship is essential for national self-reliance.

Businessman export goods and services on a large scale and earn the scarce foreign
exchange for the country. Such import substitution and export promotion help to ensure
the economic independence of the country.

(6) Improvement in Living Standards: Entrepreneurs set up industries which remove

scarcity of essential commodities and introduce new products. Production of goods on
mass scale and manufacture handicrafts etc. in the small scale sector help to improve the
standard of life of a common man. These offer goods at lower costs and increase variety
in consumption.

(7) Harnessing Locally Available Resources and Entrepreneurship: India is considered

to be very rich in natural resources. A few large scale industries started by entrepreneurs
from outside the state in economically backward areas may help as models of pioneering
efforts, but ultimately the real strength of industrialization in backward areas depends
upon the involvement of local entrepreneurship in such activities. Increased activities of
localentrepreneurswillalsoresultinmakinguseofabundantlyavailablelocalresources.

(8) Innovations in Enterprises: Business enterprises need to be innovative for their survival
and better performance. Entrepreneurship development programs are aimed at
accelerating the pace of small firms' growth in India. Increased number of small firms is
expected to result in more innovations and make the Indian industry compete in
international market.

Causes Of Success and Failure of Entrepreneur

An entrepreneur may sometime become successful and sometime becomes failure. There are
some causes of such success and failure. They are noted below:

1. Selection of business: It is an important aspect. That means an entrepreneur has to

determine what type business he is going to start. Form various points of view the feasibility of
the business should betested.

2. Proper planning: Proper planning me s also important. For planning, planning premises
like political, economic, social premised should be considered first. The steps of planning should
be followedproperly.

3. Initial capital: if the initial capitals are not an optimal level the organization would fall. So
whether the enterprise is big or small the initial capital should be sufficientenough.

4. Determination o0f market demand: Through research the demand in the market should
be identified. Both for long term and short term it should beconsidered.
5. Marketing of product: If the promotion policy, channel of destitution, transportation is
not good the enterprise wouldfall.

6. Education and experience: One of the important tasks of the entrepreneurs is to select
right person for the right post because the success of an enterprise depends on the right selection
ofemployees.

7. Joint initiative: One may have much money and another may have more merit. Through
joint initiative it can be balanced. But sometime for joint initiative misunderstanding arise, or
sometimes corruption occur which may result in fall ofenterprise.

8. Employment: Recruitment and appointment should be properly done. Those who have
specialized skill should be appointed to that specialized job. Inefficient, corrupted employees
may be responsible for fall ofbusiness.

9. Location of business: Site selection is an important factor. While starting a new business,
an entrepreneur should think about the location of the business. In this case, many factors should
be considered such as availability of raw materials, proper communication system, availability of
labor, marketing facilities and soon.

10. Qualities of management: The management must have a minimum quality to success
otherwise it wouldfall.

These are the common causes for which one enterprise may become successful and another may
fall.

Meaning and Definition of Entrepreneurship

Economic development essentially means a process of upward change. It can be define as a

process whereby the real per capita income of the country increases over a long period of time.
Concept Entrepreneurship is the tendency of a person to organize the business of his own and it
run a profitably, using the quality of leadership, decisions making and managerial caliber etc.
The term entrepreneurship is often used interchangeably with entrepreneurship. But conceptually
they aredifferent

Meaning of Entrepreneurship

Entrepreneurship refers to a process of action an entrepreneur undertakes to establish his

enterprise. It is a creative and innovative response to the environment. In other words
entrepreneurship can be defined as an ability to discover, create or invent opportunities and
exploit them to the benefit of the society, which in turn brings prosperity to the innovator and his
organization.
B. Higgins, in his book "The economic Development" has said. "Entrepreneurship is
meantthefunctionofseekinginvestmentandproductionopportunity,organizinganenterpriseto
undertake a new production process, raising capital, hiring labor, arranging the supply of raw
materials, finding site, introducing a new technique and commodities, discovering new sources
of raw materials and selecting top managers of day to day operations of the enterprise."

According to S. S. kanaka “Entrepreneurships is a process involving various actions to be taken

to establish an enterprise”.

From the functional view point entrepreneurship is defined as the combination of activities such
as perception of market opportunities gaining command over scarce resources purchasing input
producing and marketing of product responding to competition and maintaining relation with
political administration and public bureaucracy for concession licenses and taxes etc.

The various definitions of entrepreneurship identify two basic elements of entrepreneurship

namely innovation and risk bearing.

(1) Innovation: Innovation is doing something new or something different. Entrepreneurs

constantly look out to do something different and unique to meet the changing
requirements of the customers. Entrepreneurs need not be inventors of new products or
new methods of production or service, but may possess the ability of making use of the
inventions for their enterprises. For example, in order to satisfy the changing needs of the
customers, now-a-days fruit juice (mango, fruits etc.) in being served in tins, instead of
bottles so that customers can carry it and throw away the containers after drinking the
juice. Ratan Tata did not invent automobile. Foreseeing the peoples desire to have small
cars at lower price, he applied new methods of mass manufacturing, made use of new,
lights and relatively cheaper materials. Hence entrepreneurship needs to apply inventions
on a continuous basis to meet customers changing demands forproducts.

(2) Risk bearing: Giving birth to a new enterprise involves risk. Doing something new and
different is also risky. The enterprise may earn profit or incur loss, which depends on
various factors like changing customer preferences, increased competition, shortage or
raw materials etc. An entrepreneur needs to be bold enough to assume the risk involved
and hence an entrepreneur is a risk-bearer not risk-avoider. This risk-bearing ability
keeps him to try on and on which ultimately makes him to succeed. Though the terms
entrepreneur and entrepreneurship are used interchangeable, yet they are conceptually
different. The relationship between entrepreneur and entrepreneurship are discussed
below:
Relationship between entrepreneur and entrepreneurship:

The relationship between entrepreneur and entrepreneurship are discussed below

Entrepreneur Entrepreneurship
1) Entrepreneur is aperson. Entrepreneurship is a process.
2) Entrepreneur is anorganizer. Entrepreneurship is an organization.
3) Entrepreneur is aninnovator. Entrepreneurship is an innovation.
4) Entrepreneur is a riskbearer. Entrepreneurship is a risk bearing.
5) Entrepreneur is amotivator. Entrepreneurship is a motivation.
6) Entrepreneur is acreator. Entrepreneurship is a creation.
7) Entrepreneur is avisualizer. Entrepreneurship is a vision.
8) Entrepreneur is aleader. Entrepreneurship is aleadership.
9) Entrepreneur is animitator. Entrepreneurship is animitation.

The Entrepreneurial Process

A wide range of factors could influence someone to become an entrepreneur, including
environmental, social, personal ones, or a combination of them. After one decides to be an
entrepreneur, there are four steps of the entrepreneurial process he/she has to follow:
1. Spot and assess theopportunity.
2. Draw up a businessplan.
3. Establish the resources needed and getthem.
4. Run the companycreated.

1. Spot and Assess The Opportunity: to identify an opportunity and analyze its potential
in terms of: market needs, competitors and market potential and product lifecycle. It is
important the entrepreneur to test his/her business idea/concept with potential customers,
asking if they would buy the product or service, doing some research to find the market
size and whether if it is growing, stable or stagnating, finding out about his/her
competitors strengths and weaknesses, threats andopportunities.
2. Draw up the Business Plan: .The business plan is an important part of the
entrepreneurial process. A well planned business will have more chance to succeed all the
other aspects of the company being equal. It is crucial for the entrepreneur to know how
to plan his/her actions and lay out strategies for the business to be created or under
expansion.
 3. Establish the resources needed and provide them: The entrepreneur should use his/her
planning ability and bargaining skills to get to know the best alternatives on the financing
market for their business, that is, which will offer the best cost benefitratio.
4. Run the firm created: .Running the company can seem to be the easiest part of the
entrepreneurial process, since the opportunity has been identified, the business plan
developed and the source of funding provided. But running a company is not as
straightforward as it seems. The entrepreneur must recognize his/her limitations, recruit a
first rate team to help manage the company, implementing actions to minimize problems
and maximize profits. That is, the firm has to produce more, with the fewest resources
possible, combining efficiency andefficacy.

Emergence of Entrepreneurial Class/ Evolution of Entrepreneurship

History of entrepreneurship and emergence of entrepreneurial class in India may be presented in

two sections viz. entrepreneurship during pre-independence and post-independence.

(1) Entrepreneurship during pre-independence: In the excavation in Harappan and

Mohanjodaro the handcraft items and metal molded items were found. It is also found
that the craftsmen of the time made, handicraft items as part of their contribution to the
society in which they lived. The entrepreneurship to make handicraft items existed in
India around 2500 B.C. People developed their own social system and village economy
in India. India also developed cast-based divisions of work, which helped in the
development of skills ofartisans.
The artisans in different parts of India grouped together and developed their own artifacts
and were well known for their quality. The cities like Banaras, Gaya, Puri, Allahabad and
Mirzapur, which were on the banks of Ganga River, established their own type of
handicrafts work. The royal patronage by the local kings of that period helped artisan
industries to flourish. The handicrafts industry of the time was basically skill based and
started as tiny sector.
The population in India grew in the middle age and spread to the full geographical area.
The local kings gave patronage to the handicrafts, silk, cotton-ware and development of
other cottage based industries for consumption of higher section of the society. The
development of agriculture products like spices, Ayurvedic medicines also flourished in
some parts of the country and started export them. Spices from kerala, Corah from
Bengal, Shawls from Kashmir and Banaras, brass and Bidriware, Silk from Nagpur and
Mysore enjoyed prestigious status in international market till earlier years of 18th
century. The craftsmen gathered together in halls, which were called‘Karkhanas’.
Unfortunately the prestigious Indian handicrafts industries which were basically a cottage
and tiny sector declined at the end of 18th century, because of the following reasons.
 Disappearance of royal patronage to thehandicrafts
 Lukewarm attitude of British colonial towards Indiancrafts
 Imposition of heavy duty on imports of Indiancrafts
 Low priced British madegoods
 Changes in the tastes and habits of developing Indian citizensetc.
 In other words East India Company handicapped Indian cottage and tiny sectors.
The company injected various changes in the Indian economy by exporting raw materials
and import of finished goods in India. ‘Parsis’ established good report with company.
The company established the first shipbuilding industry in Surath and from 1673 Parsis
started manufacturing vessels for the company. In 1677 ManjeeDhanjee was given the
contract of building large gun-powder-mill in Bombay. In 1852 a Parsi foreman who was
working in the gun factory started steel industry in Bombay. That is to say East India
Company made some contribution toward entrepreneurial growth inIndia.
The actual emergence of manufacturing enterprise can be noticed in the second
half of nineteenth century. In 1854 CowasjeeNanabhoy started textile mill at Bombay, R.
Chotelal started textile mill in 1861 in Ahamdabad, and in 1880 NawrojeeWadia opened a
mill in Bombay. Jamshadjee Tata established first steel industry in 1911. Though late,
other commercial community namely jains, vaishyas changed their attitude from
commercial entrepreneurship to industrial entrepreneurship. The ‘swadeshi’ campaign
provided a seed bed for inculcating and developing nationalism in the country.
Jamshadjee Tata was influenced by this and named his first mill ‘swadeshi mill’ and
Krishna in its advertisement made the appeal “our concern is financed by native capital and
is under native managementthroughout”.

After the first world war the Indians agreed to ‘discriminating’ protection to
certain industries and made companies should be registered in India with rupees capital
and have a proportion their directors as Indians. These measures helped in establishing
and extending the factory manufacturing in India during the first four decades of 20 th
century during which the relative importance of Parsis declined and Gujarati’s, Marawaris,
and Vaishyas gained their importance in India’s entrepreneurial scene. The emergence of
managing agency system triggered Indian entrepreneurship. In 1936 Carr, Tagore & Co
assumed the management of Calcutta steam tug association. Dwarakanath Tagore
encouraged others to form joint-stock companies in which management remains in the
hands of ‘firm’ rather than ‘individual’. The European management agency houses, after
East India Company loosing its monopoly entered business, trade and banking. It is stated
that the managing agency houses were the real entrepreneurs and these agency houses
emerged to overcome the limitations imposed by shortage of venture capital and
entrepreneurialacumen.

(2) Entrepreneurship during post-independence: In 1948 Indian government came

forward with the first Industrial policy, which was revised from time to time. The
government identified the responsibility of the state to promote, assist and develop
industries in the national interest and recognized the role of private sector in accelerating
industrial development.
The government took three important measuresnamely:

 To maintain a proper distribution of economic power between private and

publicsector.
 To encourage industrialization from existing centers to other cities, towns
and villages.
  To disseminate the entrepreneurship acumen concentrated in a few
dominant communities to a large number of industrially potential people
of varied socialstate.

To achieve this, government accorded emphasis on development of small scale industries

in the country by providing various incentives and concessions in the form of capital, technical
know-how markets and land to the entrepreneurs in the potential areas to remove the regional
imbalances in development. To facilitate the new entrepreneurs in settings up their enterprises,
Government established several institutions like Directorate of Industries, Financial
Corporations, small scale industries corporations, small industry service institutes etc. Because of
this small-scale units emerged very rapidly and their number increased from 1,21,619 in 1966 to
1,90,727 in 1970. There are also examples that some entrepreneurs grew from small to medium-
scale and from medium to large scale manufacturing units during theperiod.
With the invention of digital computer, information technology era started in 1970.
IBM was one of the pioneers in this field. The software developments created new opportunities
and the service industries started growing faster than manufacturing industry after 1980. The
high growth of new industries also had high risks. The new top rated entrepreneurship
opportunities arose such as communication, food services, entertainment, merchandising,
cosmetics, and apparel with the electronic communication reducing the distances to a Global
Village. The market size is growing and the entrepreneur has to benchmark himself with the
globalstandards.

Barriers to Entrepreneurship

A large number of entrepreneurs particularly in the small enterprises fail due to several problems
and barriers. The greatest barrier to entrepreneurship is the failure of success.

Karl. H. Vesper has identified the following entrepreneurship barriers:

1. Lack of a viable concept

2. Lack of market knowledge
3. Lack of technical skills
4. Lack of seed capital
5. Lack of business knowhow
6. Complacency—lack of motivation
7. Social stigma
8. Time presence and distractions
9. Legal constraints and regulations
10. Monopoly and protectionism
11. Inhibitions due to patents
 Theories ofEntrepreneurship

Main theories of entrepreneurship are summarized as follows:

(1) Entrepreneurship: A Function of Innovation: Joseph A. Schumpeter (1934), for the first
time, put the human agent at the centre of the process of economic development and assigned a
critical role to the entrepreneurship in his theory of economic development. He considered
economic development as a discrete technological change. The process of development can be
generalized by five different types ofevents:

(i) Firstly, it can be the outcome of the introduction of a new product in themarket.
(ii) Secondly, it can be the result of a new productiontechnology.
(iii) Thirdly, it may arise on account of a newmarket.
(iv) Fourthly, it may be the consequences of a new source ofsupply.
(v) Fifthly, it may be due to the new organization of any industry.

According to Schumpeter

(i) Development is not an automatic process, but it must be deliberately and actively
promoted by some agency within the system, Schumpeter called the agent who initiates
the above changes as anentrepreneur.
(ii) He is the agent who provides economic leadership that changes the initial conditions of
the economy and causes discontinuous dynamicchanges.
(iii) By nature, he is neither technician, nor a financier, but he is considered aninnovator.
(iv) Entrepreneurship is not a profession or a permanent occupation and therefore, it cannot
formulate a social class likecapitalists.
(v) Psychological, entrepreneurs are not solely motivated by profit.

(2) Entrepreneurship: An Organization Building Function: Fredrick Harbison states that

the 'organization building' ability is the most critical skill needed for the industrial development.
According to him entrepreneurship means the skill to build an organization. Harbison spots
the crux of the entrepreneurship in his ability to multiply himself by effectively delegating
responsibilities to others. The main featuresare:

(i) Unlike Schumpeter, Harbison's entrepreneur is not an innovator but an 'organization

builder' who must be able to harness the new ideas of different innovators to the rest of the
organization.
(ii) Such persons are not always the men with ideas or men who try new combinations
of resources but they may simply be good leaders and excellentadministrators.
(iii) Harbison's definition of entrepreneurship lays more stress on the managerial skills and
creativity so far as organization isconcerned.

(3) Entrepreneurship : A Function of Managerial Skill and Leadership: Hoselitz states

that a person who is to become an industrial entrepreneur must have additional
personality traits. In addition to being motivated by the expectations of profit he must also have
some managerial abilities and more important he must have ability to lead. Hoselitzmaintains
that financial skills have only a secondary consideration in entrepreneurship. According to
him managerial skills and leadership are the important facts of entrepreneurship. He identifies
three types of business leadership in the analysis of economic development of under
developed countries:
□ The merchant money lender type
□ The managerial type
□ The entrepreneur type.

(4) Entrepreneurship: A Function of High Achievement: McClelland states that a

business man who simply behaves in traditional ways is not an entrepreneur. Moreover,
entrepreneurial role appears to call for decision making under uncertainty. Mc Clelland identified
two characteristics of entrepreneurship firstly "doing things in a new and better way" and
secondly "decision making under uncertainty". Persons with high achievement would take
moderate risks. They would not behave traditionally (no risk). The high achievement is
associated with better performance at tasks which require some imagination, mental
manipulation or new ways of putting things together, and such people do better at non routine
task that require some degree of initiative or even inventiveness. People with high achievement
are not influenced by money reward as compared to people with low achievement. People with
low achievement are prepared to work harder for money or such other external incentives. For
people with high achievement, profit is a measure of success andcompetency.

(5) Entrepreneurship: A Function of Social, Political and Economic structure: John

Kunkel states that the industrial entrepreneurship depends upon four structures which are found
within a society orcommunity.
(i) Limitation Structure: The society limits specific activities to members of particular
subcultures. This limitation structure affects all the members of asociety.
(ii) Demand Structure: The limitation structure is basically social and cultural but the demand
structure is mainly economic. The demand structure is not static, and changes with economic
progress and government policies. Demand structure can be improved by providing material
rewards.
(iii) Opportunities Structure: This structure is necessary to increase the probability of
entrepreneurial activity. The opportunity structure constitutes the availability of capital,
management and technological skills, information concerning production methods, labours
and markets. All the activities associated with the effective planning and successful operation of
industrial enterprises.
(iv) Labors Structure: Kunkel argues that the labors supply cannot be viewedon
par with the supply of other material conditions like capital. He states that labors means
'men' and is a function of several variables. The supply of factory labors is governed by available
alternative means of livelihood, traditionalism and expectations oflife.

(6) Entrepreneurship: 'Input Completing' and 'Gap filling' Function: Liebenstein

identified gap filling as an important characteristic of entrepreneurship. In economic theory the
production function is considered to be well defined and completely known. But the theory is
silent about the keeper of the knowledge of production function. Where and to whom in the firm
this knowledge is supposed to be available is never stated. It is the entrepreneurial function to
make up the deficiencies or to fill the gaps. These gaps arise because all the inputs inthe
production function cannot be marketed because some inputs like motivation, leadership etc. are
vague in their nature and whose output is underminate. This "gap-filling" activity gives rise to a
most important entrepreneurial function namely "Input-Completing". He has to marshal all the
inputs to realize final products.

(7) Entrepreneurship: A Function of Group Level Pattern: Frank W. Young was reluctant
to accept the entrepreneurial characteristics at the individual level. According to him, instead of
individual, one must find clusters which may qualify itself as entrepreneurial groups, as the
groups with higher differentiation have the capacity to react. He defined 'reactiveness' or solidarity'
as the degree to which the members of the group create, maintain and project a coherent definition
of their situation; and 'differentiation' is defined as the diversity, as opposed to coherence, of the
social meanings maintained by the group, when a group has a higher degree of institutional and
occupational diversity, relative to its acceptance, it tends to intensify its internal communication
which gives rise to a unified definition of thesituation.

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