Entrepreneurship – Concept, Functions, Need

and Its relevance in Indian Society

1. Understanding the Meaning an Entrepreneur

Before the concept of entrepreneurship is explored, it is important to, first,
understand the meaning of ‘entrepreneur’ & also know who can be an entrepreneur.
An entrepreneur is someone who exercises initiative by organizing a venture to take
benefit of an opportunity and, as the decision maker, decides what, how, and how
much of a good or service will be produced. An entrepreneur supplies risk capital as a
risk taker, and monitors and controls the business activities. The entrepreneur is usually
a sole proprietor, a partner, or the one who owns the majority of shares in an
incorporated venture. If one desires to be an entrepreneur, the given equation is what
describes, what an entrepreneur actually is

Entrepreneur + Capital = Products + Customers = Business.

1.1 Definitions
Let us now consider some definitions to understand who an entrepreneur is:

(i) According to Oxford Dictionary an entrepreneur is “A person who sets up a

business or businesses, taking on financial risks in the hope of profit”.

(ii) According to the International Encyclopaedia, an entrepreneur is “An

individual who bears the risk of operating a business in the face of uncertainty about the
future conditions”.

(iii) Schumpeter’s Definition – The entrepreneur, in an advanced economy is an

individual who introduces something new in the economy – a method of production not
yet tested by experience in the branch of manufacturing, a product with which consumers
are not yet familiar, a new source of raw material or of new markets and the like”.

(iv) Adam Smith’s definition – “The entrepreneur is an individual, who forms an

organization for commercial purpose. She/he is proprietary capitalist, a supplier of
capital and at the same time a manager who intervenes between the labour and the
consumer. “Entrepreneur is an employer, master, merchant but explicitly
considered as a capitalist”.

(v) Peter F. Drucker’s Views on Entrepreneur – “An entrepreneur is the 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 changes as an
opportunity for a different business or different service”.

(vi) In the 20th century the theorist Arthur H. Cole defined an entrepreneur as
an ‘organization builder’.

1.2 History of the term ‘Entrepreneur’

The term entrepreneur is a French word, and is derived from the French word
“enterprendre”. It means “to undertake”. It is commonly used to describe an
individual who organizes and operates a business or businesses, taking on financial risk
to do so.

Around 1700 A.D. the term was used for architects and contractor of public
works. In many countries, the term entrepreneur is often associated with a person who
starts his/her own new business.

1.3 Characteristics/Qualities of an Entrepreneur

Entrepreneurs have many of the same character traits as leaders, similar to the Great
Man Theory of Leadership. Entrepreneurs possess several qualities, which
according to Napoleon are 90 attributes. Some of those have been listed below.

Independent & Opportunity Information Believer in Systematic

achiever grabber seeker quality and planner
efficiency
Optimistic Keen learners Urge to build Initiative Persistent
Risk taker Goal setter Hard working Aggressive Dynamic and
catalyst visionary
*IQ- Intelligence Quotient, EQ -Emotional Quotient, SQ – Spiritual Quotient

Characteristics of Entrepreneurship:

Not all entrepreneurs are successful; there are definite characteristics that make
entrepreneurship successful. A few of them are mentioned below:

 Ability to take a risk- Starting any new venture involves a considerable

amount of failure risk. Therefore, an entrepreneur needs to be courageous and
able to evaluate and take risks, which is an essential part of being an
entrepreneur.
 Innovation- It should be highly innovative to generate new ideas, start a
company and earn profits out of it. Change can be the launching of a new
 product that is new to the market or a process that does the same thing but in a
more efficient and economical way.
 Visionary and Leadership quality- To be successful, the entrepreneur should
have a clear vision of his new venture. However, to turn the idea into reality, a
lot of resources and employees are required. Here, leadership quality is
paramount because leaders impart and guide their employees towards the right
path of success.
 Open-Minded- In a business, every circumstance can be an opportunity and
used for the benefit of a company. For example, Paytm recognised the gravity
of demonetization and acknowledged the need for online transactions would
be more, so it utilised the situation and expanded massively during this time.
 Flexible- An entrepreneur should be flexible and open to change according to
the situation. To be on the top, a businessperson should be equipped to
embrace change in a product and service, as and when needed.
 Know your Product-A company owner should know the product offerings
and also be aware of the latest trend in the market. It is essential to know if the
available product or service meets the demands of the current market, or
whether it is time to tweak it a little. Being able to be accountable and then
alter as needed is a vital part of entrepreneurship.

1.4 Types of Entrepreneurs

Depending upon the level of willingness to create innovative ideas, there can be the
following types of entrepreneurs:

(i) Innovative Entrepreneurs – These entrepreneurs have the ability to think newer,
better and more economical ideas of business organisation and management. They are
the business leaders and contributors to the economic development of a country.
Inventions like the introduction of a small car ‘Nano’ by Ratan Tata, organised
retailing by Kishore Biyani, making mobile phones available to the common man
by Anil Ambani are the works of innovative entrepreneurs.

(ii) Imitating Entrepreneurs – These entrepreneurs are people who follow the path
shown by innovative entrepreneurs. 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. In our country also, a large number of
such entrepreneurs are found in every field of business activity. Development of small
shopping complexes is the work of imitating entrepreneurs. All the small car
manufacturers now are the imitating entrepreneurs.

(iii) Fabian Entrepreneurs – Fabian entrepreneurs are those individuals who do not
show initiative in visualising and implementing new ideas and innovations. On the
contrary, they like to wait for some development, which would motivate them to
initiate unless there is an imminent threat to their very existence.

Note: Meaning of ‘Fabian’- He/she is ‘a person seeking victory by delay rather than
by a decisive battle’ & ‘Drone’ is ‘a person who lives on the labour of others’
(iv) Drone Entrepreneurs – Drone entrepreneurs are those individuals who are
satisfied with the existing mode and speed of business activity and show no inclination in
gaining market leadership. In other words, drone entrepreneurs are ‘die-hard
conservatives’ and even ready to suffer the loss of business.

(v) Social Entrepreneurs – Social entrepreneurs drive social innovation and

transformation in various fields including education, health, human rights, workers’
rights, environment and enterprise development. Dr. Mohammed Yunus of Bangladesh
who started Gramin Bank is a case of social entrepreneur.

(vi) Agricultural Entrepreneur – The entrepreneurs who undertake agricultural

pursuits are called Agricultural Entrepreneurs. They cover a wide spectrum of
agricultural activities like cultivation, marketing of agricultural produce, irrigation,
mechanization and technology.

(vii) Trading Entrepreneur – As the name itself suggests, the trading entrepreneur
undertakes the trading activities. He/she procures the finished products from the
manufacturers and sells these to the customers directly or through a retailer. These serve
as the middlemen as wholesalers, dealers, and retailers between the manufacturers and
customers.

(viii) Manufacturing Entrepreneur – The manufacturing entrepreneurs

manufacture products. They identify the needs of the customers and, then, explore the
resources and technology to be used to manufacture the products to satisfy the
customers’ needs.

(ix) Women Entrepreneurs – Women entrepreneurship is defined as the enterprises

owned and controlled by a woman/women having a minimum financial stake of 51 per
cent of the capital and giving at least 51 per cent of employment generated in the
enterprises to women.
(x) Inventors & Challenger Entrepreneurs – Inventor entrepreneurs with their
competence and inventiveness invent new products. Their basic interest lies in research
and innovative activities & Challenger entrepreneurs plunge into industry because of
the challenges it presents. When one challenge seems to be met, they begin to look for
new challenges.

(xi) Life-Timer Entrepreneurs – These entrepreneurs take business as an integral

part to their life. Usually, the family enterprise and businesses which mainly depend on
exercise of personal skill fall in this type/category of entrepreneurs.

2. Entrepreneurship – Meaning, Nature & Concept

After learning about the Entrepreneurs, in depth. Let us now understand the meaning of
entrepreneurship. Entrepreneurship is the dynamic process of creating incremental
wealth. This wealth is created by individuals who assume the major risks in terms of
equity, time, and/or career commitment of providing value for some product or service.
The product or service itself may or may not be new or unique but value must somehow
be infused by the entrepreneur by securing and allocating the necessary skills and
resources. Also, it was generally recognized that entrepreneurs serve as agents of
change, provide creative, innovative ideas for business enterprises and help
businesses grow and become profitable. Whatever the specific activity they engage
in, entrepreneurs in the twenty-first century are considered the heroes of
free enterprise. Many of them have used innovation and creativity to build huge
enterprises. Entrepreneurship is now regarded as “Pioneer ship” of business. The
history of the early industrial development and trade and subsequent innovation in any
country is largely the history of its entrepreneurs. It describes people with the
pioneering spirit, intuitive and inspiration and a willingness to work hard
and take risks. They are the energetic self-starters who make it their mission to meet
business challenges, independently and are restless in working for someone else, for a
salary.

In a nutshell, concept of entrepreneurship can be understood as under:

(i) Entrepreneurship involves decision making, innovation, implementation, forecasting

of the future, independency, and success.

(ii) Entrepreneurship is a discipline with a knowledge base theory and is an outcome of

complex socio-economic, psychological, technological, legal and other factors.

(iii) It is a dynamic and risky process.

(iv) It involves a fusion of capital, technology and human talent.

(v) Entrepreneurship is equally applicable to big and small businesses, to economic and
non-economic activities.

(vi) Different entrepreneurs might have some common traits but all of them will have
some different and unique qualities.

(vii) Entrepreneurship is a process. It is not a combination of some stray incidents.

(viii) It is the purposeful and organized search for change, conducted after systematic
analysis of opportunities in the environment.

(ix) Entrepreneurship is a philosophy and is the way one thinks, one acts and therefore it
can exist in any situation, be it business or government or in the field of education,
science & technology.

(x) Entrepreneurship is a creative activity.

(xi) It is the ability to create and build something from practically nothing.

(xii) It is a knack of sensing opportunity where others see chaos and confusion.

(xiii) Entrepreneurship is the attitude of mind to seek opportunities, take calculated risks
and derive benefits by setting up a venture.

(xiv) It is made up of activities to conceive, create and run an enterprise.

(xv) Entrepreneurship is a dynamic process of vision, change and creation.

To sum up, “Entrepreneurship is a dynamic process of vision, change and creation. It

requires an application of energy and passion towards the creation and implementation
of new ideas and creative solutions. Essential ingredients include the willingness to take
calculated risks-in terms of time, equity, or career, ability to formulate an effective
venture team, creative skill to organize needed resources, the fundamental skill
of building a solid business plan and, above all, the vision to recognize opportunity where
others see chaos, contradiction, and confusion.’’

2.1 History of Entrepreneurship

The term “entrepreneurship” can be traced back to as early as the Middle Ages, when
the “entrepreneur” was simply someone who carried out tasks, such as buildings and
construction projects by applying all the resources at his disposal. However, it was during
the 16th century when “business” was used as a common term, and the
“entrepreneur’’ came into focus, as a person, who is responsible for undertaking a
business venture.

Entrepreneurship as a term can be traced back to the economists of the eighteenth

century, and it continued to attract the interest of economists in the nineteenth century.
In the twentieth century, the word became synonymous with free enterprise and
capitalism.

During the 20th century, within the last two decades, the concept of entrepreneurship
has evolved from being a single individual to an entire organization or a corporation.

2.2 Definitions of Entrepreneurship

(i) According to Peter F. Drucker “Entrepreneurship is defined as a systematic
innovation, which consists in the purposeful and organized search for changes, and it
is the systematic analysis of the opportunities such changes might offer for economic
and social innovation”.

(ii) According to Ricardo Cantillon “Entrepreneurship entails bearing the risk of

buying at a certain price and selling at uncertain prices.”

(iii) In the words of Joseph A. Schumpeter “Entrepreneurship is any kind of

innovative function that could have a bearing on the welfare of an entrepreneur.”

(iv) According to Robert K. Lamb “Entrepreneurship is that form of social decision

making performed by economic innovators.”

(v) As per A.H.Cole “Entrepreneurship is the purposeful activity of an individual or a

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

(vi) The concept of Entrepreneurship has also been defined as “a special skill or
ability to mobilize the factors of production – Land, labour & capital and use them
to produce new goods and services”.

(vii) Entrepreneurship can also be described as a process of action, which an

entrepreneur undertakes to establish his/her enterprise.

3. Functions of Entrepreneurship
The various functions of entrepreneurship are Innovation and creativity, Risk taking
and achievement and organization and management, Catalyst of Economic
Development, Overcoming Resistance to Change and Research. These have been
depicted, at a glance, with the help of the given Figure and are being discussed, in
brief, below.
(i) Innovation and Creativity – Innovation generally refers to changing processes or
creating more effective processes, products and ideas. For businesses, this could mean
implementing new ideas, creating dynamic products or improving your existing
services. Creativity is defined as “the tendency to generate or recognize ideas,
alternatives, or possibilities that may be useful in solving problems, communicating with
others. Creativity and innovation have always been recognized as a sure path to success.
Entrepreneurs think outside of the box and explore new areas for cost-effective
business solutions.

(ii) Risk taking and Achievement – Entrepreneurship is a process in which the

entrepreneur establishes new jobs and firms, new Creative and growing organization
which is associated with risk, new opportunities and achievement. It results in
introducing a new product or service to society. In general, entrepreneurs accept four
types of risks namely Financial Risk, Job Risk, Social & Family Risk & Mental & Health
Risk, which are as follows:

(a) Financial Risk – Most of entrepreneurs begin by using their own savings and
personal effects and if they fail, they have the fear of losing it. They take risk of failure.

(b) Job Risk – Entrepreneurs, not only follow the ideas as working situations, but also
consider the current risks of giving up the job & starting a venture. Several entrepreneurs
have the history of having a good job, but gave it up, as they thought that they were not
cut out for a job.

(c) Social and Family Risk – The beginning of entrepreneurial job needs a high
energy which is time consuming. Because of these undertakings, he/she may confront
some social and family damages like family and marital problems resulting on account of
absence from home and not being able to give adequate time to family.

(d) Mental Health Risk – Perhaps the biggest risk that an entrepreneur takes it is, the
risk of mental health. The risk of money, home, spouse, child, and friends could be
adjusted but mental tensions, stress, anxiety and the other mental factors have many
destructive influences because of the beginning and continuing of entrepreneurial
activity. This can even lead to depression, when faced with failure.

(iii) Organization and Management – The entrepreneurial organization is a simple

organizational form that includes, one large operational unit, with one or a few
individuals in top management. Entrepreneurial management means the skills necessary
to successfully develop and manage a business enterprise. A small business start-up
under an owner-manager is an example of an entrepreneurial organization. Here,
the owner-manager generally maintains strict control over business operations. This
includes directing the enterprise’s core management functions. According to
Mintzberg, these include the interpersonal roles, informational roles and
decision-making roles. The smaller the organization, the more concentrated these
roles are in the hands of the owner-manager. The entrepreneurial organization is
generally unstructured.

(iv) Research – An entrepreneur is a practical dreamer and does a lot of ground-work

before taking a leap in his/her ventures. In other words, an entrepreneur finalizes an idea
only after considering a variety of options, analysing their strengths and weaknesses by
applying analytical techniques, testing their applicability, supplementing them with
empirical findings, and then choosing the best alternative. It is then that he/she applies
the ideas in practice. The selection of an idea, thus, involves the application
of research methodology.

(v) Overcoming Resistance to Change – New innovations are generally opposed by

people because it makes them change their existing behaviour patterns. An entrepreneur
always first tries new ideas at his/her level. It is only after the successful implementation
of these ideas that an entrepreneur makes these ideas available to others for their benefit.
His/her will power, enthusiasm and energy help him/her in overcoming the society’s
resistance to change.

(vi) Catalyst of Economic Development – An entrepreneur plays an important role

in accelerating the pace of economic development of a country, by discovering new uses
of available resources and maximizing their utilization. Today, when India is a fast
developing economy, the contribution of entrepreneurs has increased multi-fold.
3.1 Process/Steps involved in Entrepreneurship
Entrepreneurship is the act and art of being an entrepreneur or one who undertakes
innovations or introducing new things, finance and business acumen in an effort to
transform innovations into economic goods. The most obvious form of
entrepreneurship is that of starting new businesses. In more recent times, the
term entrepreneurship has been extended to include elements not necessarily related to
business formation activity, but it also includes specific forms of social
entrepreneurship, political entrepreneurship, or knowledge
entrepreneurship.

Following are the steps involved in the entrepreneurial process. This

entrepreneurial process is to be followed, again and again, whenever any new venture is
taken up by an entrepreneur, therefore, it is an ever ending process.

(i) Search for a new Idea – An entrepreneurial process begins with the idea
generation, wherein the entrepreneur identifies and evaluates the business opportunities
before him/her.

(ii) Preliminary assessment of Idea – The identification and the evaluation of

opportunities is a difficult task, therefore, an entrepreneur seeks inputs from all the
persons including employees, consumers, channel partners, technical people, etc. to
reach to an optimum business opportunity. Once the opportunity is decided, the next step
is to evaluate it.

(iii) Detailed analysis of promising Idea – An entrepreneur can evaluate the

efficiency of an opportunity by continuously asking certain questions such as, whether
the opportunity is worthy of investing, its attractiveness, proposed solutions feasibility,
chances of competitive advantage & various risks associated with it etc. Above all, an
entrepreneur must analyse his/her personal skills & capabilities to ensure realisation of
entrepreneurial Goals.

(iv) Selection of the most promising Idea – Once the analysis is done at both macro
& micro level, then the entrepreneur selects the best possible option amongst the chosen
few, on the basis of the key factors identified by him/her before idea generation.

(v) Assembling the Resource and Personnel – The next step in the process is
resourcing, wherein, the entrepreneur identifies the sources from where the finance and
the human resource can be arranged. Here, the entrepreneur finds the investors for its
new venture and the personnel to carry out the business activities.

(vi) Determining size of unit – On the basis of the ability to manage resources, the
entrepreneur determines the initial size of the business and the possibilities of expansion.
(vii) Deciding location of Business & Planning Layout – This is a significant
decision. Entrepreneur should ideally decide the location where there are Tax holidays &
cheap labour & material are available in abundance.

(viii) Sound Financial Planning – Once the funds are raised and the employees are
hired, business location and layout have been finalised, then efforts are made to do sound
financial planning with the available financial resource in order to put it to optimum use.

(ix) Launching the Enterprise – Launching the enterprise by an entrepreneur can be

a daunting adventure as the entrepreneur needs to stay focused and should always be
open to suggestions. If he/she is mission-driven entrepreneur, it must be remembered
that building a truly great company is a marathon, not a sprint.

(x) Managing the Company – Once the funds are raised and the employees are hired,
the next step is to initiate the business operations to achieve the set goals. First of all, an
entrepreneur must decide the management structure or the hierarchy, which is required
to solve the operational problems, as and when they arise.

(xi) Harvesting – The final step in the entrepreneurial process is harvesting, wherein,
an entrepreneur decides on the future prospects of the business, such as its growth and
development. Here, the actual growth is compared against the planned growth and then
the decision regarding the stability or the expansion of business operations are taken.

4. Importance of Entrepreneurship:

 Creation of Employment- Entrepreneurship generates employment. It

provides an entry-level job, required for gaining experience and training for
unskilled workers.
 Innovation- It is the hub of innovation that provides new product ventures,
market, technology and quality of goods, etc., and increase the standard of
living of people.
 Impact on Society and Community Development- A society becomes
greater if the employment base is large and diversified. It brings about changes
in society and promotes facilities like higher expenditure on education, better
sanitation, fewer slums, a higher level of homeownership. Therefore,
entrepreneurship assists the organisation towards a more stable and high
quality of community life.
 Increase Standard of Living- Entrepreneurship helps to improve the standard
of living of a person by increasing the income. The standard of living means,
increase in the consumption of various goods and services by a household for
a particular period.
 Supports research and development- New products and services need to be
researched and tested before launching in the market. Therefore, an
entrepreneur also dispenses finance for research and development with
research institutions and universities. This promotes research, general
construction, and development in the economy.
5. Entrepreneurship in Indian Society
In India, there is a peculiar Joint Family Structure, which has been a source of success of
many Indian businesses. But that success has been possible due to economic
liberalization in India. That success will continue, only if the reforms continue and if the
risks that could derail the growth due to terrorism, political corruption, stalled reforms
and growth that focuses only on the urban rich, are tackled well by the Government.

(i) The pre 1990 period – For the old business houses, success had come from the
close-knit joint family structure that fosters family values, teamwork, tenacity and
continuity. Under this structure, generations lived and worked together under one roof.
Wealth from the businesses supported the joint family by providing a social safety net for
members. In the structure, businesses and families were intertwined though they were
also distinct entities with separate rules. Hence, survival of the family became
synonymous with the survival of the business. Prior to the decade of 90s, Indian business
success was a function of ambition, licenses, government contacts, and an understanding
of the bureaucratic system. Decisions were based on connections, rather than the market
or competition. During this era, entrepreneurship was subdued, capital was limited and
India had very few success stories.

(ii) The post 1990 period – In 1991, the Indian government liberalized the economy,
thus changing the competitive landscape. Family businesses, which dominated Indian
markets, then faced competition from multinationals, which boasted of superior
technology, financial strength and deeper managerial resources. Thus, Indian businesses
had to change.