An Introduction to

UNIT 1 AN INTRODUCTION TO Entrepreneurship

ENTREPRENEURSHIP

Structure
1.0 Objectives
1.1 Introduction
1.2 Concept and Definition of Entrepreneurship
1.3 Evolution of Entrepreneurship in India
1.4 Determinants of Entrepreneurship
1.5 Entrepreneurship and Economic Development
1.6 Models of Entrepreneurship
1.7 Theories of Entrepreneurship
1.8 Let Us Sum Up
1.9 Key words
1.10 Answers to Check Your Progress
1.11 Terminal Questions

1.0 OBJECTIVES
After studying this unit, you should be able to:
x define entrepreneurship and discuss the its evolution;
x identify entrepreneurial mindset and various factors that drive indiduals
to take up entrepreneurial journey;
x classify various entrepreneurial entities into entrepreneurship models;
x explain linkages between growth of entrepreneurship and economic
development and sustainability;
x explain the theories of entrepreneurship; and
x apply the above concepts in early stage decision making situation of a
start-up with the help of Case Study.

1.1 INTRODUCTION
Entrepreneurship, as a word, has caught the imagination of a generation who
has thrived on fables of how visionaries like Thomas Alva Edison, Henry
Ford, Walt Disney, Bill Gates, Dhirubhai Ambani, Jamsetji Tata, Ardeshir&
Pirojsha Godrej .etc revolutionised the world with their enterprising ideas. In
recent years, with the emergence of technological innovations and the usage
of the same to set forth significant change in how we perceive various
problems, individuals like Steve Jobs, Elon Musk, Jeff Bezos, etc., to name a
few, managed to identify business opportunities in new radical ideas.

In its broadest sense, traces of entrepreneurship dates back to the profit-

minded traders who had traversed the silk route, and various market places
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 Entrepreneurship: around the world seeking profits in exchange for goods and services. So, does
A Perspective
it mean that being a business owner would make someone an entrepreneur?
The answer is far more complicated than it seems. While the popular
perception drives home the notion that an entrepreneur is someone who sets
up a business, by taking financial risks, in the hope for profits.
Manyeconomists would disagree and emphasise that similar to terms like
“strategy” and “business model”, entrepreneurship is elastic.

According to Howard H. Stevenson – the godfather of entrepreneurial studies

at Harvard Business School – entrepreneurship is the pursuit of opportunities
beyond resources controlled. This definition focuses on entrepreneurship
oppurtunities which are the most important aspect of entrepreneurship. The
entrepreneurship oppurtunities aim at manufacturing of goods and services or
trade for the creation of value. This definition escapes the limiting way of
portraying entrepreneurship as the process of creating and running a business
venture with associated risks to make a profit. This definition misses out on
the entrepreneurial action which stems out of the union of profitable
opportunities and enterprising individuals.
Entrepreneurs relentlessly focus on making tangible progress in a limited
period as observed by their sense of urgency, contrary to established
organisations. They look out for entrepreneurial opportunities, which are
novel in one or more of four ways. Such opportunities may involve
following activities:
i) spearheading wholly innovative ideas;
ii) creating more excellent and affordable versions of existing products;
iii) fabricating a new business model; and
iv) creation of a new market for an existing product – targeting of an
existing product to a new set of customers.

Moreover, entrepreneurs mobilise resources – human, social, and financial

capital, beyond their control, to act on what they believe is an opportunity.
This definition focuses on entrepreneurial actions which aims at creation of
new products or processes or services or entering into new markets. In order
to initiate action on the above newness, the entrepreneur may create new
organisation or infuse the new system in the existing organisation.
The high uncertainty in pursuing ( sensing the environment, indentifying
business opportunities and selecting one or few after evaluating) ideas entails
risks, for which entrepreneurs must use their judgement about whether to act
or not. Thus, the vital essence in understanding entrepreneurial action lies in
the analysis of two activities. The firstis assessing the uncertainties associated
with the venture and the second is the willingness of the individual to bear
those uncertainties, including the various theories, determinants, and models
of entrepreneurship. In this unit, you will learn about entrepreneurship, its
evolution, process, derterminants, models and theories of entrepreneurship.
You will also discuss why entrepreneurship is gaining paramount importance
all across the globe. How does it contribute to the socio-economic

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development of a nation.Let us now start our discussion with the evolution of An Introduction to
Entrepreneurship
entrepreneurship.

1.2 CONCEPT AND DEFINITION OF

ENTREPRENEURSHIP
Just as many other economic concepts, the terms entrepreneurship and
entrepreneur are subject to debate and do not have a single comprehensive
definition. Over two centuries, they have been defined distinctly by various
authorities and used in different senses in comparison to the one in which
they are used today.

Although the recent acclaim of the entrepreneurial attainments would tend to

show it as a twentieth or twenty-first-century phenomenon, the word
entrepreneur is derived from the French word “entreprendre”, which means,
“to undertake”. Richard Cantillon, an Irish-French economist, is regarded as
the originator of the word entrepreneur in his work dating back to the late
seventeenth and early eighteenth century. He considered an entrepreneur
to be a risk-taker who purposefully allocates resources and takes an
active role in pursuing opportunities to maximise the profits.
Late in the eighteenth century, J. B. Say, another Frenchman, extended the
definition and referred to an entrepreneur as an organiser of a business firm.
Besides risk-taking, functions such as coordination, organisation, and
supervision were highlighted. The nineteenth-century marked a prolific time
for entrepreneurial activities as industrial revolution augured continual
inventions and innovations. In the later part of the nineteenth century, the
definitions changed moderately to differentiate between suppliers of
resources who earned interest and those who benefited from the
entrepreneurial activities.

The consistency in the close tie between entrepreneurship and economics has
been emphasised, over the years, by noteworthy economists. In the mid-
1930s, Joseph Schumpeter defined the concept of entrepreneurship from
an economics point of view. He defined it as a management style where an
individual pursues an opportunity regardless of the availability of the
resources in hand. Schumpeter proposed that the entrepreneurship involved
creative destruction, which is a process wherein existing products, business,
processes, and ideas are substituted with better ones. According to him, the
entrepreneurs were at the forefront of bringing about a change through
“creative destruction” and further highlighted the essential role
“innovation” plays in entrepreneurship.

In the twentieth century, Peter Drucker, a well-known writer on management

issues, contended that entrepreneurship involves maximising opportunities –
entrepreneurs should identify and act on underdeveloped and untapped
opportunities.

In modern times, entrepreneurs are closely associated as a harbinger of

change. An enterprising action not only comprises of the ability to assess
risks in new ventures but to manage them and mobilise resources into
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 Entrepreneurship: profitability. The definition, Entrepreneurshipis a pursuit of opportunities
A Perspective
beyond resources controlled – as defined by the Howard H. Stevenson, who
is notable academician of entrepreneurial studies at Harvard Business School
– encompasses various facets of an entrepreneurial endeavour. They are the
relentless pursuit of making tangible progress in a shorter duration to attract
investors; employing novel business models for innovative products and
services; always looking for additional resources beyond those which are
already in possession to further organisational development. Chandler
(1990:8) defines entrepreneurship as dealing with uncertainty, making a
distinction between risk, which can be calculated, and uncertainty which
can’t be overcome.
After going through the definitions given by the experts, it can be
summarised that “Entrepreneurship is a process of creating an enterprise
(both for profit and not for profit) by sensing the environment, identifying
business opportunity and mobilising resources which are available and
bearing the risks thereof with the innovative interventions.” We cannot
confine entrepreneurship into some set of restricted activities. It is rather a
mindset.
Based on the definitions discussed above the following are the features of
entrepreneurship:

x creation of a new organisation or infusion of newness in existing

organisation’
x it involoves dealing with risks and uncertainities,
x it creates value,
x it generates and syustains new ideas, process and system,
x it involves manufacturing, trading and marketing of goods and services,
x it involves management activities, and
x it creates employment.

1.3 EVOLUTION OF ENTREPRENERUSHIP IN

INDIA
History of entrepreneurship in India is as early as “Rigveda”. Rigveda says
that metal handicraft exisited in the society.Craftsmanship was encouraged,
promoted and protected. This indicates that entrepreneurship in India is as old
as the human civilisation. Traces of entrepreneurship dates back to the profit-
minded traders who had traversed the silk route, and various market places
around the world seeking profits in exchange for goods and services.
Efficient artisans with their unique skill to make various useful articles are
existing since then. This Indian artisan industries were flourishing in those
days as the rulers recognised their importance and protected their skill and
promoted their businesses. However, during pre-indepence era (18th century),
this industry declined because of various reasons such as dissolution of royal
courts, indifference of British colonial government for Indian handicrafts,
imposing heavy duities on the imports of Indian goods in England, low
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priced commodities offered by the British (enjoying the economies of large An Introduction to
Entrepreneurship
scale) gave tough competition to the products of Indian handicraft, changing
taste and preferences of the Indian consumers (preference to western culture)
etc.

However, India could see some entrepreneurial growth during the colonial
period. Few communities triggered manufacturing entrepreneurship during
the time. Since then the face of entrepreneurship is changing in India. To
futher understand the evolution of entrepreneurship, you need to know how
entrepreneurship is defined by various experts and how it has emerged as a
subject of study.

1.4 DETERMINANTS OF ENTREPRENEURSHIP

Development of entrepreneurs and culture of entrepreneurship is driven by
multiple factors which can be divided into : (a) individual factors and (b)
environmental factors.You may see figure 1.0 to understand the determinants
at a glance .

Determinants of Entrepreneurship

Individual factors (individual traits) Environmental factors (also called as

external factors)
 Ability and to initiate  Conducive atmosphere
 Mobility and utilising resources  Entrepreneurial culture
 Ability to sense the environment  Political and legal environment
 Perseverance  Technological advancements
 Resilience  Socio-economic conditions
 Creative and innovative
 Problem solving behaviour
 Risk taking behaviour
 Need for achievement
 Need for power
 Need for affiliation
 Innovative attitude
 Desire to sense entrepreneurial oppurtunities
 Capability to put the entrepreneurial activities into action

Figure 1.1 Determinants of Entrepreneurship

Individual/Personal factors : These are the traits of individuals which leads

them to think and act entrepreneurial. Personal factors comprise personal
initiatives of individuals who like to do things before some body else
translates that idea into a running enterprise. Personal factors also include
ability of individuals to identify and utilise resources in wake of
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 Entrepreneurship: opportunities. These are lot of people who can sense opportunities and it is
A Perspective
usually challenging to translate those ideas into execution. Another
individual trait is perseverance, which influnces culture of entrepreneurship,
where people like to take up challenging tasks, assignments or projects and
they are less likely to be complacent about their prevailing status quo.
Another important individual factor is problem solving behaviourand quest
for solutions in a new and better way. One can find lot of entrepreneurs in
India with varying degree of success who got into entrepreneurship triggered
by this problem solving behaviour combined with few other indidual traits
mentioned above. Hence they also need access to resources including funds
at different stages of their entrepreneurial journey. They should have art of
persuation to earn investor patronisation. However, investors or partners
demand self confidence of the entrepreneur or customers and suppliers
demand confidence in the stability of the entrepreneurial set up or enterprise.
Hence ability of individuals to be confident of their decisions, take
informed decisions and being self aware is a desirable traits to audit a
good entrepreneurial culture. Above all individual risk taking behaviour is
what it takes to get into innovative entrepreneurial space.
Environmental factors: They are also called as external factors.
Environment of a place is essential ingredient of entrepreneurial eco-system
which provides conducive atmosphere or otherwise that affects growth of
entrepreneurial culture positively or negatively. It includes technological
advances, political environment, legal system, economic and social
conditions, business circumstances, etc. Political stability in a region, for
example, is important to smooth economic activity which includes catalysing
entrepreneurs to fructify their aspirations. Policy support for a market driven
competitive market encourages new player to enter markets as well as
brushes off complacency among the incumbents. For example during last
couple of decades due to increased globalisation and advances in technology,
innumerable technology ventures have come up globally including India. The
conducive atmosphere may be created by the availaibility of finance by the
financial institutions, supply chain network, ancillary industry,
entrepreneurial culture etc.
Hence, it is the individual traits and external influences that shape
entrepreneurship and its growth in a place. The entrepreneurship facilitates in
the accomplishment of goals envisaged by the individual, the organisation
and the society.
Enterpreneurship Development will take place in the society where individual
traits are supported by exciting and encouraging external factors.

1.5 ENTREPRENEURSHIP AND ECONOMIC

DEVELOPMENT INCLUDING INCLUSIVE
GROWTH
Entrepreneurship has an important role in the economic development and
growth of a state. It plays a major role in introduction of new products,
technology adavnces, technology application and catalyses market
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dynamicstowards growth. Entrepreneurs are relatively better positioned to An Introduction to
Entrepreneurship
try newer ideas, processes and business model changes versus established
incumbents because their size and agile capabilities. Hence they can take
higher risk and experiments with new solutions. Hence entrepreneurs
explore, analyze and smell opportunities in the environment and create
economic entities which strengthen prospects of economic growth. In the
process, lot of other ancillary entities also develop which cater to its
requirements for human resource, raw material, and various other services
necessary to make make these entities run their operations.

As entrepreneurship scales its roots in a place, it inspires more to join this

path and a progressive entrepreurial culture develops like silicon valley in
US, IT hubs in Bangluru, Hyderabad etc. in India Therefore, there is
multiplier effect.. This results in a process of upward change which can
positively affect overall production of goods, services and consumption.
This translates into better real per capita income of a country rises and,
hence, development of the state. More entrepreneurial activity means
higher levels of employment possibilities. Indian states with higher level of
entrepreneurial activity have demonstrated relatively higher levels of
economic development.Thus, entrepreneurial development leadsto economic
development, encourage self employment and generation of income, balance
development of an economy, important entity of supply chain activities,
important entity of supply chain activities, creation of self sufficient village,
rural entrepreneurship. Atma Nirbhar Bharat may play significant role in
creation of innovativeness, facillitatwes new ways of business operations.
The export-import firms may facilitates in earning foreign exchange.

As per economic theories, economic growth cycles can be stretched through

innovation and entrepreneurs are anchors of innovation eco-system. Hence,
entreprenurs according to these theorists plays a key role in sustainable
economic growth. Also sustainable economic growth is also dependent on
overall social welfare and entrepreneurs many times apart from state, NGOs
etc., play a crucial role particularly in the form of social entrepreneurship.

To sum it up, role of entrepreneurship in economic development of a nation

can be discussed as follows:

x Creation and distribution of wealth:they mobilise resources which

otherwise would remain idle, earn money and distribute it to society in
the form of rent such as interest to capital (Investor’s rent) Salaries and
wages to human resources, rent to other inputs of factors of production
x Employment generation: entrepreneurs while establishing and
managing their enterprises generate and provide employment to people
in the society.

x Balanced regional growth and development: Entrepreneurs locate

their businesses even in remote and less developed area this leades to
growth in industry and other businesses which further brings
improvement and development in infrastructure such as rail, road,
airports, electricity, water, schools, hospitals holds etc. That is why
entreprenurship is called as growth accelerator.
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 Entrepreneurship: x Contribution in GDP: Enterprises, especially MSMES contributes
A Perspective
significantly in the GDP of India. More business units use more
resources, resultantly National Income, and per capita income also
increases.

x Increase in standard of living: by bringing in innovation entrepreneurs

make huge contribution in improving th standard of living. Fore
example, mobile phone services are so less that each and every
household, irrespective of their economic status, is using mobile phone
services now a days which was affordable nearly tow decades ago.

x Increase in international trade: In the want of getting access to the

bigger market, enterprises cross boundaries when they feel that domestic
market is coverd and saturated and they want to expand further. They
make their reach in forign maket. This increases the export of the
country.

Check Your Progress A

1) Distinguish between Ambitious Innovators and Adaptive innovators.
2) Fill in the blanks:

i) ……………… assigned a crucial role of innovation to the

entrepreneur.

ii) ……………………. develop enterprises in the fields of healthcare,

mass education particularly for below the poverty line populations,
civil rights, climate, animal life etc.

iii) ……………….. believes in high risk taking and experimentation.

iv) ……………… are the one who are ready to adopt successful
innovations inaugurated by innovating entrepreneurs.

v) Entrepreneurs undertakes ……………….. and handles economic

uncertainity involved in an enterprise.

1.6 MODELS OF ENTREPRENEURSHIP

Discussion of various theories explaining drives, influences or factors,
internal or external to the entrepreneurs, can be argued further in terms of
various entrepreneurship models as a consequence. Some of the important
models of entrepreneurships are as follows:

Ambitious Innovators
This model of entrepreneurship believes in high risk taking,
experimentation and tolerance to failures. The entrepreneurs of this
category believe in solutions of radical nature from the current solutions.
They could be individual entrepreneurs or representatives of corporations
where there is conducive climate for trying new solutions and failures in
trying new things are not usually penalised.Ambitious innovators are
proponents of exploration and creation. Entrepreneur’s may later dilute the
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ownership or sell their venture outright and engagement may continue An Introduction to
Entrepreneurship
sometimes even after sell out. There are external positive effects created by
these ventures which could stretch to economy at a bigger scale and generate
employment opportunities. Many technology ventures in last few decades
like Google, Facebook, Oyo, Coursera etc., are examples of this type. Some
times ambitious innovators may even develop new sectors and later on many
other entrepreneurs may bring incremental innovation on top of earlier
innovation led new enterprise.

Adaptive Innovators
This type of entrepreneurship is driven by relatively lesser level of risk
taking appetite and follow incremental innovation approach. Sounds
complicated to you? Wait, let me explain incremental innovation to you first.
Incremental innovation, is a series of small improvements to the products
already existing in the market. Adaptive innovators do not take huge risk so
they follow incremental innovation approach where they do not introduce or
alter an entirely new solution (business offerings) rather they imitate
innovative entrepreneurs by making small improvements in the existing
products or business offerings (products or services). It could be also
influenced by amount of resources available or accessible partnerships, These
entrepreneurs usually tookthe path of exisiting entrepreneurswith some
tweaks or by incrementally innovating. They imitate innovative entrepreneurs
because the environment in which they operate is such that it does not permit
them to have creative and innovative ideas on their own. Adaptive innovators
are more common is places where entrepreneurial ecosysm is relatively less
mature or less conducive for initiating innovative ideas. Many bigger firms
also sometimes cultivate capabilities in an entrepreneurial framework ( own
or in partnership) or nurture new ventures which are meant to work
continuously and innovate incremently keeping pipeline line new rollouts
ready for their targeted markets. From an economic stand point these
innovations in essense are replications or tweaks of the more radical
innovations made by others. Other explanation of these incremental efforts
are many times compulsions for sustainability and expansion. Even these
innovator entrepreneurs also need to continuously explore and experiment.
While several entrepreneurs do this by understanding the market
opportunities created by the innovations of other entrepreneurs. Some
entrepreneurs develop their footprint by rolling out distinct new
functionalities or sometimes process innovations. The number of these type
of enterprises is relative larger than the ambitious innovators. These
enterprises can potentially create larger economic impact and scope for
employability. The impact could involve more competition, efficiency and
rivalry in the specific sector.

Solo Self Employed

This constitutes the largest group of entrepreneurs who are working on their
own and normally contributes maximum in terms of their numbers. These
companies have the potential to bring higher agility to their client firms
usually a higher tier firm in case of Business to Business (B2B) engagements.
These solo self-employed outfits facilitate growth of their partner companies
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 Entrepreneurship: byadding to the agile capability. However, in spite of solo self-employed may
A Perspective
outnumber other types of entrepreneurship models. They focus on self driven
entrepreneurial activities. Therefor, they may not contribute greatly in
employment generation. At times , this model is a recourse for people who
find it compulsive to do something on their own because other options are
limited.

Managerial Employers
This constitutes rest of employer entrepreneurs whoare not ambitious with
respect to firm growth. Their prime focus is sustainability or business
continuity. Mostly their efforts are focussed towards cost efficiency through
process improvements or innovations. Many times such companies may
acquire a company with radical innovation capability to sustain. Many of
these enterprises follow adaptive innovation or incremental innovation,
exploration of new resources, new partners, optimum resource management
and similar efforts to maintain their growth and scale. Their role in overall
national growth figures of states including India is dependable and important.

Social Entrepreneur
Social entrepreneurs are focused on societal concerns including ecological
challenges. Their major focus is to solve community basied problems. Social
entrepreneurs take risk and make efforts to create positive changes in the
society. They start business for the greater social good and not only for
profits. They may develop enterprises in the fields of healthcare, mass
education particularly for below the poverty line populations, civil rights,
climate, animal life etc. Besides other sector.In the passion of an
entrepreneur, they follow poverty alleviation goals, best strategies and strive
to transcend traditional methods and innovate.

1.7 THEORIES OF ENTREPRENEURSHIP

There are multiple theories which form basis of conceptual domain of
entrepreneurship. These theories have origins in economics, psychology,
sociology, anthropology, and management. Prominent among these theories
are as follows:
1) Psychological Entrepreneurship Theory
2) Economic Entrepreneurship Theory
3) Opportunity-Based Entrepreneurship Theory
4) Sociological Entrepreneurship Theory
5) Anthropological Entrepreneurship Theory
6) Resource-Based Entrepreneurship Theory

1) Psychological EntrepreneurshipTheories

In this theory, the focus is on individual personality traits. Advocates of this
theory believes that people with certain traits are more likely to become an
entrepreneur. Need for achievement and control leads to inclination for
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innovativeness, risk taking and acceptance of initial failures in An Introduction to
Entrepreneurship
experimentation. According to traits theorists, traits necessary for
entrepreneurial capability are inborn. Personality traits are defined as
sustained qualities that an individual displays in most situations (Coon,
2004). Entrepreneurs are mostly sensing opportunities, relatively creative and
have appetite for faster learning of management skills. Locus of Control
explores individual’s perception about the reasons behind events of life
(Rotter, 1966). Entrepreneurial belief about the reasons of successis also
explained based on concept of locus of control orientation and varied
perceptions of entrepreneurs about the reasons of their success. The success
may be due to internal efforts called internal locus of control orientation or
some external support termed as external locus of control orientation.
However, it has been found that business owners have a slightly higher
internal locus of control than other populations. Individuals want to
achieve more and succeed (McClelland, 1961). Achievement theory
underline the need to achieve as the underlying motivation for inititaives
and there are evidences proving linkages between achievement need and
career decision favouring entrepreneurship. (Johnson, 1990).

Many experts believes in Psychological theory of entreprenurship which

stresses on individual personality traits. They believe that because of these
traits, entrepreneurs emerge. Three of the most popular psychological
theories of entreprenurship are given below:
x McClelland’s theory
x Rotter Locus of control theory
x Action regulation theory

David McClelland theory says that entrepreneur are guided and motivated
by three important needs viz, need for aliliation, need for power and need for
achievement. These three needs are the greatest motivators and influencers.
Rotter’s locus of control theory (formulated by Julian Rotter in 1954)
believes that people are guided by their perceived locus of control amongst
individuals. Locus of control may be internal, called as internal locus of
control or it can be created through external support, termed as external locus
of control. Entrepreneurs are found to be guided mainly by Internal locus of
control. You must be wondering what is internl and external locus of control.
Let me explain it to you. People with Internal locus of contol believe that
they can make things happen by their actions i.e., ther are capable of doing
anything or solving any problem, where as people with high external locus of
control, believe that the happening in life is beyond their control and these
happenings occur because of external factors such as fate, change etc.
Michael Frese formulated action regulation theory. In this theory it is
believed that entrepreneurship is related to planning. An individual with
planning behaviour or attitude is mor likely to be successful. Cognitive
ability is very crucial for entrepreneurs, according to this theory.

2) Economic Entreprenurship Theories

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 Entrepreneurship: Economic theories of entrepreneurship can be divided into three different
A Perspective
time periods: (i) Classical (ii) Neo-classical and (iii) Austrian market process.
Let us quickly discuss the essence of these theories.

i) Classical Theory of Entrepreneurship:

Advocates of classical theory believed that role of entrepreneur is restricted
to production and distribution of market goods in a competitive market place.
There are two noteworthy classical theories of entrepreneurship

a) Richard Cartillon Theory (1755)

b) Innovation theory by Schumpeter

a) Ricard Cartillon Theory: Ricard Cantillon was an Irish-French

economist. He is regarded as the originator of the word entrepreneur in
his work during late seventeenth and early eighteenth century. He
advocated that entrepreneur is a risk taker who conducts all exchanges
(resource allocation, and taking an active role in pursuing opportunities
to maximise his profit). He believed that entrepreneurs are not innovators
as they cannot change the demand and supply trends in the market. They
can just perceive the changes and are intelligent enough to maximise
profits and have willingness to take risk.

b) Innovation theory by Schumpeter: Innovation theory is considered to

be one of the most important economic theories of entrepreneurship. This
theory was propounded by Joseph Schumpeter.

Schumpeter underlined the key role of entrepreneurs in bringing

innovation by engaging with different actors of an economic eco-system.
His ideas on role of entrepreneurs in sustaining economic wellbeing has
been quite influential and followed by many nations. His innovation
theory is a popular theory of entrepreneurship which is used across
countries. Lot of subsequent innovation models are built around his concept
of entrepreneur as the anchor of innovation eco-system. Schumpeter stresses
that entrepreneurial creativity is major driver of an entrepreneur’s path
of specific domain. Innovation can happen through multiple ways :
x New distinct product or service
x New distinct process to produce product or service
x Address a different audience or market
x Exploring successfully a new resource input in the production process
x New business model or radically a new organisation through
transformation with newer capabilities.
To sum it up, we can say that innovation can be in the product, process or in
the services of the market offerings.

ii) Neo-classical theory of entrepreneurship

Neo Classical theorists proposed that the role of exchange in an economic
engagement along with diminishing marginal utility creates possibilities for
20 entrepreneurial role (Murphy, Liao &Welsch, 2006).

iii) Austrian Market process theory of entrepreneurship An Introduction to
Entrepreneurship
This theory focuses on entrepreneurs actions based on their information
understanding and knowledge regarding the economy. Advocates of this
theory believe that entrepreneurs responds to the changes in the dynamic
market to make profits. Their response to the changing market is based on
their ability to understand the dynamics of the market. They do product
research and development and bring technological innovations to obtain
profits. Profit seeking entrepreneurs constatntly promote the evolution of
economic structure.

3) Opportunity Based Entrepreneurship Theory

The opportunity-based theory gives a stretched space for resaerchers to
explain the becoming of an entrepreneur and its determinants. Peter Druker
(1985) argues that entrepreneurs most likely seize the opportunities arising
from changes around us with an economic prospect.Entrepreneurs keep
looking for new possibilities and problems which can be addressed through a
new or better solution than the existing solution. After identification of any
opportunity, entrepreneur responds with a solution depending on access to
the resources and capabilities (Stevenson, 1990).
Access to relevant resources directly or through partners in business are
essential to accomplish key activities of business which are fundamental to
achieve entrepreneurial business goals in context of opportunities identified
and resposes deigned by the entrepreneur (Alvarez &Busenitz, 2001). The
key activities could be operation processes, channel requiremnets or any
specific relational activities envisaged by the entrepreneur to differentiate
products or services for sustained growth and performance.

4) Sociologiocal Entrepreneurship Theory

There are some major social factors which trigger entrepreneurship
opportunities (Reynolds , 1991). Social network play a major role as trigger
as well as facilitate during various stages of entrepreneurial lifecyle . The
underlined idea is for building social relationships which enhance trust. The
entrepreneur can succeed more from cultivating and maintaining trust with
the intended audience of the entrepreneurial activity. Another factor which
reinforces trust through perceived non-opportunism as audience over time
understand the intention behind actions. This understanding further
strengthens with more and more experience by the users of goods or services.
Individual; sociological lineage is also an important determinant of
entrepreneurship. One more dimension is based on play of environmental
factor called population ecology like the political influences prevelant and
influences of all kinds of business stakehokders e.g., competitors,
suppliers, customers etc. In last several years there is a huge push for
startups in India from the government facilitated through various policy
initiatives. For example, Startup India, Make-in-India etc. Also lot of
investment from start up investors is chasing good ideas for funding support.
Many states and large firms in India have worked on setting up incubation
and accelerator facilities.
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 Entrepreneurship: 5) Anthroplogical Entrepreneurship Theory
A Perspective
Anthropologists emphasise role of culture like customs, origin, and beliefs of
a community. This theory can explain prevalence of orientation towards
business, picking a specific type of professional career etc., among certain
communities. We have seen in India, certain geographic belts with
specific culture , one can find people opting career in defense forces, or
setting up businesses or commerce orientation or towards art, music etc.
The focus is on the cultural entrepreneurship model. Culture is a function of
multiple dimensions including socio-economic, polirtical and ecological
factors which further influences attitude and subsequent intention for
entrepreneurial choices. (Shane 1994).

6) Resource Based Entrepreneurship Theory

The resource based theoryunderlines role of various types of resources
critical to success of entrepreneurial journey (Aldrich, 1999). Ability to
mobilize necessary resources enables entreprenurs tap opportunities and find
solutions of problems (Davidson & Honing, 2003). The resource need
depends on type of business model adopted by the entrepreneur. Asset heavy
firms may need more financial resources whereas asset light initiaves may
need better partnerships or human resources. To understand entrepreneurship
model you may recall entrepreneurship model explained earlier in this unit
(section 1.3).For example, an entrepreneur in the space of reverse logistics,
partnering with ecommerce platforms like amazon.in or flipkart.com, may
need more financial resources if it focuses on disposal of returned or
rejected goods. Moreover, it may need operational excellence or efficient
services if it focuses on returned goods which are sent back to ecommerce
platform sellers. However, there is sufficient evidence to show that growth of
entrepreneurs is positively associated with access to financial resources
(Blanchflower et al, 2001, Clausen, 2006). There are studies also to show that
in many situations, entrepreneurs, in early stages of development, may not
depend necessarily on financial resources accessible (Hurst &Lusardi, 2004).
Also among other resources, Social Network Theory give importance to
network or social network resources which then entrepreneurs are able to
translate into instruments of effective market penetration or competitive
collaboration which lead to sustainable entrepreneurial journey (Clausen,
2006).These theorists argue that entrepreneurs with sufficient network access
are able to better mobilise various other resources also like access to reliable
supplies or penetration into new markets. Literature on this theory shows that
stronger social ties to resource providers facilitate the acquisition of resources
and enhance the probability of opportunity exploitation (Aldrich &Zimmers,
1986).

Dear Learner, now you can actually recall and summarise the evolution of
entrepreneurship chronologically, discussed in section 1.2 of this unit.

Check Your Progress B

1) Fill in the blanks:

i) Psychological theories focus is on individual ………………… .

22

 ii) Economic growth cycles can be stretched through ……………. . An Introduction to
Entrepreneurship
iii) The anthropological entrepreneurship theory emphasise on the role
of …………………. .

iv) ……………. focus on the way individuals leverage different types

of resources to get entrepreneurial efforts on the ground.

v) The ……………… contends that entrepreneurs are one who take
advantage of possibilities created by social, cultural, economic and
technological changes.

2) State whether the following statements are True or False.

i) Resources entrepreneurs might leverage include social network and

the information they provide.

ii) Sustainable economic growth is also dependent on overall social

welfare.

iii) According to traits theorists, entrepreneurship developed because

individuals called entrepreneurs possess certain specific
competencies.
iv) Entrepreneurs responds to an opportunity with a solution depending
on their access to the resources and capabilities.
v) Individuals with external locus of control consider themselves
responsible for all the events in their life.

ACTIVITY 1
Rishi, Paramjeet and Anil have recently complete their MBA from a reputed
business school of India. They are planning together astartup, Smartbuy.com
in Gurugramcity of Haryana. They want to provide an ecommerce platform
and logistics support for local food service providers to sell goods online to
the customers in the same local catchment area. They are deliberating a
strategy to focus only on food and grocery retail in major Indian cities. They
believe that there is a huge food and grocery retail market at around 65% of
retail transaction value in India. While the share of organised retail and e-
commerce is likely to increase, the traditional retail is expected to continue
to hold a major share of the Indian Retail market. Traditional retail had 88 %
share, organised retail 8% and E-Commerce 4% in 2017 amounting to around
US$ 800 Billion. EIU report for 2021 puts projections at Traditional retail
(75%), Organised retail (18%) and E-Commerce (7%) which could amount
to around US$ 1200 Billion.

The founders of Smartbuy's board believe that in the context of the major
transformations happening in the Indian retail market, citing experts and
reports that amalgamation of the various general and modern trade channels
is the need of the hour. At the same time, the modern retailers and the e-
commerce channels still face significant challenges with regard to the last-
mile delivery and requires assistance from Kirana stores to penetrate. Proof
of model success has limited examples across both products and services
23

 Entrepreneurship: which are different stages of entrepreneurial growth stage. Grofers is an
A Perspective
example of grocery hyperlocal model. In the recent past another big Indian
retail chain ( Reliance ) has been carrying out pilots of hyperlocal online
food and grocery sales in select cities. Smartbuy is planning partnership
with local retailers and Kirana merchants to list their products on the portal
and sell them to the customers which will be supported by logistics and
payment facilitation. One of the founders, Paramjeet, is slightly
apprehensive about this model focused on food and grocery alone because
of various failures of hyperlocalstartups in food and grocery. There are
several online hyperlocal food and grocerystartups which closed down, even
some got sizeable funding, like PepperTap, Eatio, Tinyowl and Spoonjoy.
There is also a challenge to tying up with local players of food and grocery
category in the sense that logistics control and coordination in Indian
conditions is difficult because severe high temperature in summers, lack of
technical infrastructure at level of local stores and access to necessary cold
supply chain facilities.

According to reports, Indian retail market is one of the fastest growing

across the world and is the fifth largest retail destination globally. The factors
attributed to the growth are economic growth, increasing consumerism and
growing disposable income. The industry is expected to grow exponentially
to reach USD 1,200 billion by 2021 and USD 1,750 billion by 2026. The
growth is expected not only in large cities and metro, but also in Tier II and
Tier III cities. The increase in consumption expenditure also drives the
growth in the retail industry. Of the total retail market, Food and Groceries
comprise the largest share, followed by Apparel and Footwear.
Despite the rapid growth in modern trade and e-commerce over the past
years, traditional retail still holds a major share of the retail landscape in
India and expected to continue domination in the foreseeable future. Unique
offerings of traditional retail outlets such as ease of access due to locational
proximity, local community knowledge, and personal relations with
customers considered as an edge of traditional retail stores.

However, each type of stores and e-commerce platforms have their own
challenges. Challenges of Kiranas include lack of the latest technology,
working capital issues, Competition from modern retail outlets, lack of space
and lack of capital to improve store fit out/ambience. Similarly, challenges
faced by organised retail include lack of strong supply chain, getting the
right merchandise mix, unavailability of affordable real estate and
infrastructure and logistics issues. E-Commerce retailers are facing the policy
uncertainty, higher acquisition cost, infrastructure and logistic issues, high
cost of delivery, excessive returns and rejections making reverse logistics a
bleeding issue and last mile delivery challenges.

With 451 million monthly active internet users at end of financial year 2019,
India is now second only to China in terms of internet users, according to a
report by Internet and Mobile Association of India (IAMAI). However, with
only 36 per cent internet penetration, there is still much headroom for
growth, it said. The report mentions that out of 451 million monthly active
users, 385 million are over 12 years of age and 66 million are in the age
24

bracket of 5 to 11 years, who access the Internet on the devices of family An Introduction to
Entrepreneurship
members. In terms of absolute numbers, urban India with 192 million users
has almost the same number of users as rural India. However, in terms of
percentages or penetration, given the disparity of population distribution in
urban and rural India, urban India had a considerably higher penetration
level.

According to EIU report the number of online shoppers is expected to

increase from the current 15 percent of the online population to 50 percent
by 2026. The average online retail spending in India was US$ 225 per user
in 2017 and around 2 million shipments were handled daily where half of
this demand came from the metro cities. However, ecommerce is
increasingly attracting customers from Tier II and III cities, where people
have limited access to brands but have high aspirations. More than 30 percent
of online shoppers are from Tier II and below cities while the rest are from
Metros and Tier I cities. This number is expected to increase to over 55
percent for Tier II and below cities in the next three to five years. Low
servicing costs in Tier II and below cities is expected to be a key driver for
growth in these cities. Owing to the rise in demand from Tier II and below
cities, and given the challenge of last mile delivery, the e-commerce
companies can be expected to consider exploring partnerships with
traditional retail stores to reach the consumers in these cities.

According to retail research reports organised retail and e-commerce, strives

for the largest share of the Indian retail pie, the challenges hinder the growth
of these channels. According to some ecommerce experts the need of the
hour is a confluence of the retail channels, wherein each channel
complements the offerings of the other and provides a seamless shopping
service for the benefit of the consumers. Large modern brick and mortar
retailers and ecommerce players are advancing towards leveraging the
widespread network of Kirana stores to increase their retail presence and to
win over the Indian consumer. With just 3 percent of Kirana stores being
tech-enabled and the rest with the willingness to adopt technology (70
percent of Kirana stores in big cities and 37 percent of Kirana stores in Tier
II cities want to be tech-enabled), the retail giants using this opportunity to
technologically and financially empowering the Kirana stores. E-commerce
companies are collaborating with Kirana stores for increasing their outreach,
and are also providing them with an additional source of earning by way of
acting as their channel partners/distributors. For tech-enablement, Kirana
stores are provided with POS billing systems, app payments, and back-end
integration with wholesaler. To help Kirana stores cope with working capital
shortages, easy loans are provided. Additionally, to improve profit margins,
stores staff is trained on planograms, assortment selection, and product
placement.

However, many retail domain think tanks suggest that offline and online has
to move forward in a complementary format for sustainability of overall
retail industry. Confrontation could lead to policy interventions and price
wars. Some partnerships already being tried out across these formats. Given
these broader trends, mix of experiences, online retail market dynamics and
local policy challenges, Smartbuy founders need to take next steps including 25

 Entrepreneurship: a detailed business plan before hunting for investors in Bamgloru which is
A Perspective
scheduled after a couple of weeks

Case Questions
1) Discuss possible factors which may have led Smartbuy founders choose
path of entrepreneurship.

2) Where will you place Smartbuy.com across various types of

entrepreneurship models discussed in this unit? Why?

3) List out risks and challenges associated with proposed plan.

4) Do you support the envisaged plan of Smartbuy to develop a online

hyperlocal model focused on food and grocery segment? Why?

5) How can Smartbuy.com support economic growth and development of

state economies where it finally decides to operate its business?

1.8 LET US SUM UP

Entrepreneurial action lies in assessing the uncertainties associated with the
venture and the willingness of the individual to bear those uncertainties,
including the various theories, determinants, and models of
entrepreneurship.theories which form basis of conceptual domain of
entrepreneurship. Various theories contributed help explain drivers, factors,
drives for becoming an entrepreneur. These theories have roots across
economics, psychology, sociology, anthropology, and management where
can be broadly classified as Psychological entrepreneurship theory,
Economic entrepreneurship theory, Opportunity-Based entrepreneurship
theory, Sociological entrepreneurship theory, Anthropological
entrepreneurship theory and Resource-Based entrepreneurship theory.
Entrepreneurship can be mapped to models based on type of innovation and
ownership pattern as Ambitious Innovators, Adapters, Solo Self Employed
and Managerial Employers. Various factors which drive entrepreneurs, aslo
explained through various types of theories, can be individual or external
influences. Entrepreneurial culture leads to larger footprint of
entrepreneurship in a state which leads to larger economic development and
sustainability.

1.9 KEY WORDS

Entrepreneurship: Itinvolves maximising opportunities – entrepreneurs
should identify and act on underdeveloped and untapped opportunities.
Dealing with uncertainty, making adistinction between risk, which can be
calculated, and uncertainty which can’t be overcome.

Ambitious Innovators: Entrepreneurs who are high risk taking,

experimentation and tolerance to failures.

Adaptive Innovators: Entrepreneurs usually toe the pathof exixiting

entrepreneurs with some tweaks or incrementally innovate
26

Solo Self Employed: Entrepreneurs who are largest group of entrepreneurs An Introduction to
Entrepreneurship
who are working on their own and normally contributes maximum in terms
of their numbers.

Managerial Employers:Entrepreneurs who are focused on scale and

efficiency and may also take up incremental innovative steps.
Hyper Local Retail Model: Retail Model where local needs of customers are
serviced from local suppliers.

1.10 ANSWERS TO CHECK YOUR PROGRESS

A. 2. i. Joseph A. Schumpter ii. Social entrepreneurs iii.ambitious
innovators iv. adaptive entrepreneurs v.Risk

B. 1. i.personality traits ii. innovation iii. culture iv. Resource based theory
v. opportunity-based entrepreneurship theory

2. i. true ii. true iii. true iv. true v. false

1.11 TERMINAL QUESTIONS

1) Define the term entrepreneurship and and discuss its evolution.
2) Write a brief note on different models of entrepreneurship.
3) Disscuss in detail the Pyschologicaltheories of Entrepreneurship.
4) Critically evaluate the different theories of entrepreneurship.
5) Discuss the factors which drive the development of entrepreneurship.
6) Explain the importance of entrepreneurship in a developing country.

Note: These questions will help you to understand the unit better. Try to
write answers for them. But do not submit your answers to the University for
assessment. These are for your practice only.

FURTHER READING
x Aldrich, H. E. (1999). Organizations evolving. London: Sage

x Aldrich, H., & Zimmer, C. (1986).Entrepreneurship through social

networks. In D. Sexton, &R. Smilor (Eds.), The art and science of
entrepreneurship. Cambridge, MABallinger.
x Alvarez, S. A., &Busenitz, L. W. (2001).The entrepreneurship of
resource-based theory.Journal of management, 27(6), 755-775.
x Blanchflower, D. G., Oswald, A., &Stutzer, A. (2001). Latent
entrepreneurship across nations.European Economic Review, 45(4-6),
680-691.
x Chandler, A. (1990). Entrepreneurship and Economic Growth.
Cambridge, HarvardUniversity Press.
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 Entrepreneurship: x Clausen, T. H. (2006). Who identifies and exploits entrepreneurial
A Perspective
opportunities. Oslo: TIK, University of Oslo.
x Coon, C. S. (2004). Principles of anthropology (Vol. 1). Genesis
Publishing Pvt Ltd.
x Davidson, P., & Honing, B. (2003), “The role of social and human
capital among nascent entrepreneurs”, Journal of Business
Venturing,20,121
x Druker, P. (1985). Innovation and entrepreneurship: Practice and
principles. NY: Harper& Row.
x Hurst, E., &Lusardi, A. (2004).Liquidity constraints, household wealth,
and entrepreneurship.Journal of political Economy, 112(2), 319-347.
x Johnson, B. R. (1990). Toward a multidimensional model of
entrepreneurship: The case of achievement motivation and the
entrepreneur. Entrepreneurship Theory and practice, 14(3), 39-54.
x McClelland, D. C.(1961), The Achieving Society.(Princeton, New Jersey:
Van, Nostrand.
x Rotter, J. B. (1966).Generalized expectancies for internal versus external
control of reinforcement. Psychological monographs: General and
applied, 80(1), 1.

x Say, J. (1816). A treatise on political economy. London: Sherwood,

Neeley and Jones.
x Shane, S. (1994), Cultural Values and the Championing Process.
Entrepreneurship Theory & Practice, 18, 25-41.
x Simpeh, K. N. (2011). Entrepreneurship theories and Empirical research:
A Summary Review of the Literature. European Journal of Business and
Management, 3(6), 1-8.

x Stevenson, L. (1990). Some methodological problems associated with

researching women entrepreneurs. Journal of business ethics, 9(4-5),
439-446.
x Wennekers, S., & van Stel, A. (2017). Types and roles of productive
entrepreneurship: a conceptual study. The Wiley Handbook of
Entrepreneurship, 37-69.

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