Chapter 1: Entrepreneurship

 Introduction to Entrepreneurship:

 What is Entrepreneurship?
 Entrepreneurship is the practice of forming a new business or commercial enterprise,
usually in an industry or sector of the economy with a large capacity for growth.
Entrepreneurship is generally synonymous with resourcefulness, ingenuity, and the ability
to take calculated risks in order to introduce a new, untested product or service into the
marketplace.
 Entrepreneurship is driven by the entrepreneur, a person who launches and oversees the
operations of a new business venture. The entrepreneur is generally self-employed, self-
motivated, and ambitious and is willing to take chances to meet his or her goals. Unlike the
capitalist, a businessperson who generally limits his or her role to financing commercial
ventures, the entrepreneur is the driving force behind the formation of a new business and
asserts a great deal of control over the key management decisions.
 Entrepreneurship is approached as a way of thinking and acting, as an attitude and a
behavior. Our emphasis is on entrepreneurship as a process that can be applied in virtually
any organizational setting. The principle focus will be on the creation of new ventures, the
ways that they come into being, and factors associated with their success. This is a course
of many ideas and questions, and you will be encouraged to develop and defend your own
set of conclusions regarding each of these issues. This course mixes theory with practice,
and you will be challenged to apply principles, concepts and frameworks to real world
situations.

 What Is an Entrepreneur?
 An entrepreneur is an individual who creates a new business, bearing most of the risks and
enjoying most of the rewards. The entrepreneur is commonly seen as an innovator, a
source of new ideas, goods, services, and business/or procedures.
 Entrepreneurs play a key role in any economy. These are the people who have the skills
and initiative necessary to anticipate current and future needs and bring good new ideas to
market. Entrepreneurs who prove to be successful in taking on the risks of a startup are
rewarded with profits, fame and continued growth opportunities. Those who fail, suffer
losses and become less prevalent in the markets.
 What an Entrepreneur Does?
 Entrepreneurship is one of the resources economists categorize as integral to production,
the other three being land/natural resources, labor and capital. An entrepreneur
combines the first three of these to manufacture goods or provide services. They
typically create a business plan, hire labor, acquire resources and financing, and provide
leadership and management for the business.
 Entrepreneurs commonly face many obstacles when building their companies. Three that
many of them cite as the most challenging are: overcoming bureaucracy, hiring talent and
obtaining financing.

 What Motivates an Entrepreneur?

 There are 6Cs that motivate entrepreneurs to establish their own business are as follows −
 Change − Entrepreneurs frequently want change, not only change, they also want to be the
bearers of change. They are solution givers and want to interrupt the status quo. They
have a vision like "I want to assemble the world's information" or "I want to put an AC at
every desk" and they take an attempt to make this change. In this attempt, some succeed
and some fail.

 Challenge − some people love challenges and they opt for starting a new business as it is
very challenging to handle big problems. These people find typical job in a big corporate as
boring and not challenging enough.

 Creativity − Running one’s own business is all about being more creative and having the
independence to make new discoveries. For example, testing a new website design,
launching a new marketing scheme, creating inventive items that solve a known issue in a
different way, creating new advertising campaigns, etc. One needs to have an infinite room
to welcome and introduce creativity in a small business.


 Control − some people tend to start a business because they don't want to be pushed
around and work for a product/company in which they have no way to shape their destiny.
They want to be their own boss having their own time, own pace, location of their choice,
employees of their choice and have a progressive role in deciding the direction of the
company.
 Curiosity − Successful entrepreneurs are always anxious and ask − "what if we do X this
way?” They want to have more than one option to do a work and choose the best one
from them. They want to understand the customer's perceptions, point of views, markets
and competitors. They are frequently anxious to see how their particular theory like
"people want to do A with B" works. In this aspect, they can’t be differentiated from a
scientist who is trying to prove his theorem.

 Cash − the last but not the least part is the cash. Money says it all. Many non-
entrepreneurs have a misconception that cash comes first for entrepreneurs but this is
never really true. If this would be the case, then there is no reason for an Ellison or Gates
to keep expanding their business aggressively after they have made more than billion
dollars. However, money is not the primary motivation.

 Results of Motivation:-
o Successful entrepreneurship needs determination, freedom, discipline, connectivity and
an abundance of skills in planning. People with a complete package of physical strength
combined with perseverance, mental strength, and self-discipline have the passion and
urge to succeed. With proper motivation, we get the following outcomes −
 Heavy industrialization − Tremendous growth can be seen in industrialization. Example:
Companies like TISCO, TELCO have been set up and are flourishing.
 Self-employment − A common man gets a chance to make a difference, set a new
standard of industrial growth. Example: Entrepreneurs like Dhirubhai Ambani and Azim
Premji are born.
 Economic growth − When there is growth in an individual’s economy, there is a growth in
the company’s economy, which in turn results in the growth of that particular area and
country. Example: Emergence of smart cities concept.
 Creating new jobs − More entrepreneurship leads to more job openings. More job
openings leads to more employment opportunities.
 Proper social benefit − When a country’s economy grows or increases we see that more
advanced and proper social benefits are provided to the general public like construction
of roads, school, hospital, colleges, etc.
  Role/Importance of an entrepreneur in economic growth of Country:
 The entrepreneur who is a business leader looks for ideas and puts them into effect in
fostering economic growth and development. Entrepreneurship is one of the most
important input in the economic development of a country. The entrepreneur acts as a
trigger head to give spark to economic activities by his entrepreneurial decisions. He/she
plays a pivotal role not only in the development of industrial sector of a country but also in
the development of farm and service sector. The major roles played by an entrepreneur in
the economic development of an economy is discussed in a systematic and orderly manner
as follows:-
1. Employment opportunities-Entrepreneurs employ labor for managing their business
activities and provides employment opportunities to a large number of people. They
remove unemployment problem & as time passes, these enterprises grow, providing direct
and indirect employment opportunities to many more. In this way, entrepreneurs play an
effective role in reducing the problem of unemployment in the country which in turn clears
the path towards economic development of the nation lastly This is why the Govt. of India
has launched initiatives such as Startup India to promote and support new startups, and
also others like the Make in India initiative to attract foreign companies and their FDI into
the Indian economy. All this in turn creates a lot of job opportunities, and is helping in
augmenting our standards to a global level.

2. Balanced Regional Development- Government promotes decentralized development of

industries as most of the incentives are granted for establishing industries in backward and
rural areas. Thus, the entrepreneurs to avail the benefits establish industries in backward
and rural areas. They remove regional disparities and bring balanced regional
development. They also help to reduce the problems of congestion, slums, sanitation and
pollution in cities by providing employment and income to people living in rural areas.
They help in improving the standard of living of the people residing in suburban and rural
areas & the growth of industries and business in these areas lead to a large number of
public benefits like road transport, health, education, entertainment, etc. Setting up of
more industries lead to more development of backward regions and thereby promotes
balanced regional development.
3. Mobilization of Local Resources- Entrepreneurs help to mobilize and utilize local
resources like small savings and talents of relatives and friends, which might otherwise
remain idle and unutilized. Thus they help in effective utilization of resources &
entrepreneur will definitely look for that in house resources which will also help to them
consume time and cost as less as possible.

4. Optimization of Capital- Entrepreneurs aim to get quick return on investment. They act as
a stabilizing force by providing high output capital ratio as well as high employment capital
ratio.

5. Promotion of Exports- Entrepreneurs reduce the pressure on the country’s balance of

payments by exporting their goods they earn valuable foreign exchange through exports
basically they help in promoting a country’s export-trade, which is an important ingredient
of economic development. They produce goods and services in large scale for the purpose
earning huge amount of foreign exchange from export in order to combat the import dues
requirement. Hence import substitution and export promotion ensure economic
independence and development & this is an important ingredient of economic
development since it provides access to bigger markets, and leads to currency inflows and
access to the latest cutting-edge technologies and processes being used in more developed
foreign markets. Another key benefit is that this expansion that leads to more stable
business revenue during economic downturns in the local economy.

6. Consumer Demands- Entrepreneurs produce a wide range of products required by

consumers. They meet the demand of the consumers without creating a shortage for
goods.

7. Social Advantage- Entrepreneurs help in the development of the society by providing

employment to people and paves for independent living, they encourage democracy and
self-governance. They are adept in distributing national income in more efficient and
equitable manner among the various participants of the society & entrepreneurs again play
a key role in increasing the standard of living in a community. They do this not just by
creating jobs, but also by developing and adopting innovations that lead to improvements in
the quality of life of their employees, customers, and other stakeholders in the society.
Ultimately this enables the people to avail better quality goods at lower prices which results
in the improvement of their standard of living.
 8. Increase per capita income- Entrepreneurs help to increase the per capita income of
the country in various ways and facilitate development of backward areas and weaker
sections of the society & They explore and exploit opportunities,, encourage effective
resource mobilization of capital and skill, bring in new products and services and develops
markets for growth of the economy. In this way, they help increasing gross national
product as well as per capita income of the people in a country. Increase in gross national
product and per capita income of the people in a country, is a sign of economic growth not
only that India’s MSME sector, comprised of 36 million units that provide employment for
more than 80 million people, now accounts for over 37% of the country’s GDP. Each new
addition to these 36 million units makes use of even more resources like land, labor and
capital to develop products and services that add to the national income, national product
and per capita income of the country. This growth in GDP and per capita income is again
one of the essential goals of economic development.

9. Capital formation- A country can attain economic development only when there is more
amount of investment and production. Entrepreneurs help in channelizing their savings and
savings of the public to productive resources by establishing enterprises. They promote
capital formation by channelizing the savings of public to productive resources & they
employ their own as well as borrowed resources for setting up their enterprises. Such type
of entrepreneurial activities lead to value addition and creation of wealth, which is very
essential for the industrial and economic development of the country.

10. Growth of capital market- Entrepreneurs raises money for running their business
through shares and debentures. Trading of shares and debentures by the public with the
help of financial services sector leads to capital market growth & by establishing the
business entity, entrepreneurs invest their own resources and attract capital (in the form of
debt, equity, etc.) from investors, lenders and the public. This mobilizes public wealth and
allows people to benefit from the success of entrepreneurs and growing businesses.

11. Growth of infrastructure- The infrastructure development of any country determines

the economic development of a country, Entrepreneurs by establishing their enterprises in
rural and backward areas influence the government to develop the infrastructure of those
areas. Economic development doesn’t always translate into community development.
Community development requires infrastructure for education and training, healthcare, and
 other public services. For example, you need highly educated and skilled workers in a
community to attract new businesses. If there are educational institutions, technical training
schools and internship opportunities, that will help build the pool of educated and skilled
workers.

A good example of how this kind of community development can be promoted is Azim
Hashim Premji, Chairman of Wipro Limited, who donated Rs. 27,514 crores for promoting
education through the Azim Premji Foundation. This foundation works with more than
350,000 schools in eight states across India.

12. Development of Trader- Entrepreneurs play an important role in the promotion of

domestic trade and foreign trade. They avail assistance from various financial institutions in
the form of cash credit, trade credit, overdraft, short term loans, secured loans and
unsecured loans and lead to the development of the trade in the country.

 Theories of Entrepreneurship:-
o An entrepreneur puts together a business and accepts the associated risk to make a profit.
While this definition serves as a simple but accurate description of entrepreneurs, it fails
to explain the phenomena of entrepreneurship itself. A number of theories exist, but all of
them fall into one of five main categories, the following theories are:

 Economic Theories- Economic entrepreneurship theories date back to the first half of the
1700s with the work of Richard Cantillon, who introduced the idea of entrepreneurs as risk
takers. The classic, neoclassical and Austrian Market process schools of thought all pose
explanations for entrepreneurship that focus, for the most part, on economic conditions and
the opportunities they create. The economic system consisted of exchange participants,
exchange occurrences, and the impact of results of the exchange on other market actors.
The importance of exchange coupled with diminishing marginal utility created enough
impetus for entrepreneurship in the neoclassical movement The classical theory extolled
the virtues of free trade, specialization, and competition (Ricardo, 1817; Smith,
1776).The theory was the result of Britain’s industrial revolution which took place in the
 mid-1700 and lasted until the 1830s.The classical movement described the directing role of
the entrepreneur in the context of production and distribution of goods in a
competitive marketplace (Say, 1803). Classical theorists articulated three modes of
production: land; capital; and labor. There have been objections to the classical theory.
These theorists failed to explain the dynamic upheaval generated by entrepreneurs of the
industrial age (Murphy, Liao & Welsch, 2006).

 Resource-Based Theories- Resource-based theories focus on the way individuals leverage

different types of resources to get entrepreneurial efforts off the ground. Access to capital
improves the chances of getting a new venture off the ground, but entrepreneurs often start
ventures with little ready capital. Other types of resources entrepreneurs might leverage
include social networks and the information they provide, as well as human resources, such
as education. In some cases, the intangible elements of leadership the entrepreneur adds to
the mix operate as resource that a business cannot replace. This theory argues that
entrepreneurs have individual-specific resources that facilitate the recognition of new
opportunities and the assembling of new resources for the emerging firm (Alvarez &
Busenitz, 2001). Research shows that some persons are more able to recognize and exploit
opportunities than others because they have better access to information and knowledge

 Psychological Theories- Psychological theories of entrepreneurship focus on the individual

and the mental or emotional elements that drive entrepreneurial individuals. A theory put
forward by psychologist David McCLelland, a Harvard emeritus professor, offers that
entrepreneurs possess a need for achievement that drives their activity. Julian Rotter,
professor emeritus at the University of Connecticut, put forward a locus of control theory.
Rotter’s theory holds that people with a strong internal locus of control believe their actions
can influence the external world and research suggests most entrepreneurs possess trait. A
final approach, though unsupported by research, suggests personality traits ranging from
 creativity and resilience to optimism drive entrepreneurial behavior. These theories
emphasize personal characteristics that define entrepreneurship. Personality traits need for
achievement and locus of control are reviewed and empirical evidence presented for three
other new characteristics that have been found to be associated with entrepreneurial
inclination. These are risk taking, innovativeness, and tolerance for ambiguity. They have
also been found to be optimistic, (they see the cup as half full than as half empty),
emotionally resilient and have mental energy, they are hard workers, show intense
commitment and perseverance, thrive on competitive desire to excel and win, tend to be
dissatisfied with the status quo and desire improvement, entrepreneurs are also
transformational in nature, who are life long learners and use failure as a toolRisk taking
and innovativeness, need for achievement, and tolerance for ambiguity had positive
and significant influence on entrepreneurial inclination Mohar, Singh and Kishore (2007).
However, locus of control (LOC) had negative influence on entrepreneurial inclination. The
construct locus of control was also found to be highly correlated with variables such as risk
taking, need for achievement, and tolerance

 Sociological Theories- The sociological theory centers its explanation for entrepreneurship
on the various social contexts that enable the opportunities entrepreneurs leverage. Paul
D. Reynolds, a George Washington University research professor, singles out four such
contexts: social networks, a desire for a meaningful life, ethnic identification and social-
political environment factors. The anthropological model approaches the question of
entrepreneurship by placing it within the context of culture and examining how cultural
forces, such as social attitudes, shape both the perception of entrepreneurship and the
behaviors of entrepreneurs. The sociological theory is the third of the major
entrepreneurship theories. Sociological enterprise focuses on the social context .In other
words, in the sociological theories the level of analysis is traditionally the society
(Landstrom, 1998). Reynolds (1991) has identified four social contexts that relates to
 entrepreneurial opportunity. The first one is social networks. Here, the focus is on building
social relationships and bonds that promote trust and not opportunism. In other words,
the entrepreneur should not take undue advantage of people to be successful; rather
success comes as a result of keeping faith with the people. The second he called the life
course stage context which involves analyzing the life situations and characteristic of
individuals who have decided to become entrepreneurs. The experiences of people could
influence their thought and action so they want to do something meaningful with their
lives.

 Opportunity-Based Theory- Prolific business management author, professor and corporate

consultant, Peter Drucker put forward an opportunity-based theory. Drucker contends that
entrepreneurs excel at seeing and taking advantage of possibilities created by social,
technological and cultural changes. For example, where a business that caters to senior
citizens might view a sudden influx of younger residents to a neighborhood as a potential
death stroke, an entrepreneur might see it as a chance to open a new club. Entrepreneurs
do not cause change (as claimed by the Schumpeterian or Austrian school) but exploit the
opportunities that change (in technology, consumer preferences etc.) creates (Drucker,
1985). He further says, “This defines entrepreneur and entrepreneurship, the
entrepreneur always searches for change, responds to it, and exploits it as an
opportunity”. What is apparent in Drucker’s opportunity construct is that entrepreneurs
have an eye more for possibilities created by change than the problems. This is based on
research to determine the differences between entrepreneurial management and
administrative management. This theory concludes that the hub of entrepreneurial
management is the “pursuit of opportunity”.
 Anthropological Theory- The fourth major theory is referred to as the anthropological
theory. Anthropology is the study of the origin, development, customs, and beliefs of a
community. In other words, the culture of the people in the community .The
anthropological theory says that for someone to successful initiate a venture the social and
cultural contexts should be examined or considered. Here emphasis is on the cultural
entrepreneurship model. The model says that new venture is created by the influence of
one’s culture. Cultural practices lead to entrepreneurial attitudes such as innovation that
also lead to venture creation behavior. Individual ethnicity affects attitude and behavior
(Baskerville, 2003) and culture reflects particular ethnic, social, economic, ecological, and
political complexities in individuals (Mitchell et al., 2002a). Thus, cultural environments can
produce attitude differences (Baskerville, 2003) as well as entrepreneurial behavior
differences.

 Entrepreneurship Development Programme (EDP)-India

 Entrepreneurship Development Programme (EDP) is a programme which helps in
developing the entrepreneurial abilities. The skills that are required to run a business
successfully is developed among the people through this programme. Sometimes,
people may have skills but it requires polishing and incubation. This programme is
perfect for them. This programme consists of a structured training process to develop
an individual as an entrepreneur. It helps the person to acquire skills and necessary
capabilities to play the role of an entrepreneur effectively. As per National Institute of
Small Industry Extension Training, Hyderabad, an EDP is an effort of converting a
person to an entrepreneur by passing him through a thoroughly structured training.
An entrepreneur is required to respond appropriately to the market and he/she is also
required to understand the business needs. The skills needed are varied and they
need to be taken care in the best possible way. EDP is not just a training programme
but it is a complete process to make the possible transformation of an individual into
 an entrepreneur. This programme also guides the individuals on how to start the
business and effective ways to sustain it successfully.

 Objectives of EDP

The objective of this programme is to motivate an individual to choose the

entrepreneurship as a career and to prepare the person to exploit the market
opportunities for own business successfully. These objectives can be set both in the
short-term and long-term basis.

 Short-term objectives: These objectives can be achieved immediately. In the short-

term, the individuals are trained to be an entrepreneur and made competent enough
to scan existing market situation and environment. The person, who would be the
future entrepreneur, should first set the goal as an entrepreneur. The information
related to the existing rules and regulations is essential at this stage.
 Long-term objectives: The ultimate objective is that the trained individuals
successfully establish their own business and they should be equipped with all the
required skills to run their business smoothly.

The overall objectives of EDP are mainly to help in rapid industrialization by supplying
skilled entrepreneurs. At the same time, it also industrializes underdeveloped areas.
The performance of small and medium scale industries are expected to improve by
this and therefore providing a huge scope of employment generation in these sectors.
This programme primarily aims at providing self-employment to the young
generation.