Chapter I EDP

7/22/2019 Chapter I EDP

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Chapter 1

Small Business: Its meaning

Dr. Gopalakrishna BV

Associate Professor,

AJIM, Mangalore


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Contents

Meaning nature and definition of Entrepreneur

Concepts of Entrepreneur

Evolution of Entrepreneur

Characteristics of Entrepreneur

Types of Entrepreneur Functions of Entrepreneur

Qualities or Traits of Entrepreneur and skills

Role of Entrepreneurs in Economic Development Relationship between entrepreneur and

Intrapreneur, managers and entrepreneurship

Theories of Entrepreneurship


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Entrepreneur is an economic agent play animportant role in economic development of a

country. He possesses required knowledge, ski l ls, initiative,drive and spir i t of innovation and aims to achievegoals.

He is dynamic persons, who brings changes inprocess of production, innovation in business, newideas etc.

The term Entrepreneur is derived from French word

Entreprendre= ahn + tra + pra + nur = whichmeans is a person who organises and manages abusiness undertaking, assuming the risk for the sakeof profit.


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Generally speaking, entrepreneur refers to a

person who establ ishes his own business or

industr ial undertaking with a view to making

profi ts. An entrepreneur is considered to be

an originator of a business venture. He takes

the role of an organiser in the process ofproduction.

In the beginning the term entrepreneur used by

musical or other entertainment. Later in 16thcentury it was used for army leaders


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In 17thcentury Civi l Engineer ing uses this for

construction activities.

Only in 18thcentury the word entrepreneur was

coined by Richard Cantillon (1680-1734) an

Irish Economists entrepreneur refers to

economic activities. An entrepreneur is considered to be an

originator of a business venture. He takes the

role of an organiser in the process ofproduction.


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Definitions

English Dictionary, 1987 An entrepreneur isa person who sets up business deals in order tomake a profits.

J.B Say (1803) An entrepreneur is the

economic agent who unites all means ofproduction.

Richard Cantillon An entrepreneur is theagent who buys factors of production at certainprices with a view to setting its product atuncertain prices. He bearer risk, which is non-insurable.


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Peter F. Drucker Entrepreneur is one whoalways searches for change, responds to it and

exploits it as an opportunities. Innovation is a specific tool of entrepreneurs,

the means by which they exploit change as an

opportunity for different business or service. E.E. Hagen (1958) Defines an entrepreneur is

an economic man who tries to maximise hisprofits by innovations.

Innovations involve problem solving and theentrepreneur gets satisfaction from using hiscapabilities in attacking problems.


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Schumpeter (1952) An entrepreneur in anadvanced economy is an individual who

introduces something new in the economy amethod of production not yet tested by exper iencein the branch of manufacture concerned, aproduct with which consumers are not yetfamil iar, a new source of raw-mater ials or of new

markets and the li fe.

Accordingly to him the functions of anentrepreneurship are I ntroduction of new product

I ntroduction of new methods of production

Development of new markets and finding freshsources of raw-mater ials and

Making changes.


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Thus, an entrepreneur is always action-oriented.

He has the abil i ty to visualise the necessary steps

involved from idea generation to itsactualisation.

He is both a thinker and doer, planner and

worker. He is accepts r isk and manges it.

To summarise, an entrepreneur is the person who

bears r isk, unites var ious factors of production,to explore the perceived opportunities in order to

evoke demand, create wealth and employment.


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Concept of Entrepreneur

As said above definitions on entrepreneur are

broadly classified into three groups

Entrepreneur

Risk Bearer

Organiser

Innovator


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Functions of

Entrepreneur

InnovationRisk-

Bearing

Organization &

Management

New process & production

Creation of new market

New Technology

New sources of raw material

New sources of transport &

communications

Assembling Factors of

Production

Decide project

Raise Finance

Plan Production

Manage Enterprise

Earn Profit


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1. Entrepreneur as risk bearer

Richard Cantillon defined entrepreneur as an

agent who buys factors of production at certainprices in order to combine them into a product

with a view to sell ing i t at uncertain prices in

future.

He pays contractual income rent for land, wagesand salaries to labourers interest to capital.

Hence both of them are risk-bearing agents of

production. P.H. Knight described entrepreneur to be a

specialized group of persons who bear

uncertainty.


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2. Entrepreneur as an organiser

According to J.B. Say an entrepreneur isone who combines the land of one, labour of

another and capital of yet another and thus

produces a product.

By selling the product in the market, he pays

interest on capital, rent on land and wages to

labour and what remains is his profit.

This concept of entrepreneur is associated with

the functions of co-ordination, organisation and

supervision.


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3. Entrepreneur as an innovator

J.A Schumpeter (1934) considered economic

development as a dynamic change brought byentrepreneur by insti tuting new combinations of

factors of production i.e., innovation.

The introduction of a new combination accordingto him 1. I ntroduction of new product in the market

2. Use of new method of production, which is not yet

tested.

3. Opening of new market

4. Discovery of new source of raw-mater ials.

5. Br inging out of new form of organisation.


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Schumpeter also made distinction between

inventor and innovator

An inventor is one who discovers new

methods and new materials. An innovator

utilises inventions and discovers in order to

make new combinations.

Hence, an entrepreneur can be defined as a

person who tries to create something new,

organises production and undertakes risks andhandles economic uncertainty involved in

enterprise.


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Sl No. Name of the successful Entrepreneurs Areas of enterprises

1. Steve Wozniak Apple Computers

2. Bill Gates Microsoft

3. Oprah Winfrey Harpo inc.

4. Michael H & Jay Arrington Harpes Arring to Publishing

and media

5. Steven Spielberg Film Industry

6. Vera Wang Vera Wang Fashions

7. Donald Trump Trump Enterprises

8. Russel Simmons Pat Farm Clothing

9. Gordon Moore Intel Corporation

10. Tyler Perry Tyler Perry Productions

11. Bill Hewlett Hewlett Packard

12. Mark Burnett Television Show Producer

13. Larry Page & Sergey Brin Google

14. Ted Turner Turner Broadcasting

World famous and Successful Entrepreneurs


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Sl

No.

Name of the successful

Entrepreneurs Area of enterprises (industry)

1. Tulsi Tanti Suzion Energy Limited

2. Shiv Nadar Hindustan Computers Limited (HCL)

3. Rahul Bajaj Bajaj Group

4. Dr. Pratap Reddy Apollo Hospital Groups

5. Naresh Goyal Jet Airways

6. Narayana Murthy Infosys Technology Limited

7. Anil Dhirubhai Anil Dhirubhai Ambani Groups

8. Azim Premji Wipro Technologies

9. Ekta Kapoor Queen of Indian Television

10. Kiran Mazumdar Shaw Biotechnology Company in India

10 most famous Entrepreneurs from India


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Evolution of Entrepreneur

The term entrepreneur is derived from the French

word Entreprendre which mean to undertakebusiness activities for the sake of profits.

However the current meaning of entrepreneur hasevolved through centuries of various usages of the

same word.

Some stages of the evolution of the conceptentrepreneurare as follows

In the beginning the term entrepreneur used bymusical entertainment.

Middle Age Actor or person-in-charge of largescale production project.


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16th Century people who organised and led militaryexpeditions in France.

17

th

Century Person bearing the risk of either profitor loss in a fixed-price contract with the government.

18th Century An entrepreneur as a person is risk-taking and different from the person who supplies

capital. 19thCentury An entrepreneur is distinct from both a

financier as well as manager. A Finacier receivesinterest for funds supplied while a manager receivessalary for responsibilities discharged.

20thCentury An entrepreneur came to be know as aninnovator and risk-taker during the middle of 20thcentury.


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Characteristics of entrepreneur

An entrepreneur is a highly goal oriented,enthusiastic and energetic individual.

Anybody can become an entrepreneur provided hehas got a certain set of behaviour traits and

mental aptitudes. His success depends more on hard work than goodluck.

He must be a DOER and not a DREAMER.

The success of an entrepreneur depends largely onhis intel l igence, imagination capacity to innovate

and his abil i ty to turn visions into reali ties.


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It is not necessary that he should possess

a professorsintelligence,

a prophetsforeseeing capacity,a salesmanspersuasiveness,

a bankersfinancial talent,

a politicianspower,a filmstarsmagnetic personality.

The only capacity, very essential to become an

entrepreneur is the willingness to work hard.


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1. Action-oriented highly motivated and readyto take risk at all levels to achieve the goal.

2. Should have unwavering determination andcommitment.

3. Creativeness and result oriented,

hardworking4. Accepts responsibilities with enthusiasm

5. Self confident, dedicated and self disciplined

6. Both thinker and doer, planner and worker7. Future vision, intelligent, imaginative and

self directed.


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Characteristics of Entrepreneur

E - Effective communication

N - Negotiating skillsT - Total commitment/tactical/team man

R - Risk-taking ability

E - Emotional Stability/Ethical

P - Problem solvingR - Resultoriented

E - Energetic

N - Net working ability

E - Excellence in Economics

U - Unambiguous

R - Real Innovator


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Entrepreneurship

Decision Making

Risk Taking

InnovationManagement of

the enterprise A

Success

Skillful

Management

Organisation

Accepting Challenges


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1. Vision

An entrepreneur has a dream and visualizes to achievethat dream.

In doing so he visualises marked demand, socio-economic and technical environment.

Without a vision of making a big mark on the mobileindustry Dhirubhai and now Ambani could not have

made what Reliance Communication is today.2. Knowledge

An entrepreneur has sound conceptual knowledge aboutall the technicalities of his business.

Technological, operational, financial or marketdynamics.

For example without sound knowledge of computersNarayanamurty could not have made Infosys what it istoday.


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3. Desire to succeed

An entrepreneur has a strong desire to succeed in life.

Their dreams are not just limited to achieving one singlegoal but they constantly work to achieve higher goals.

For example Mukesh Ambani Retail, Real Estatesand Bio-tech.

4. Independence An entrepreneur needs independence in work and

decision-making.

They dontfollow the rules of thumb but make their own

rules and destiny. Shabeer Bhatia quite his job and start new business

on his own Hotmail, internet Portal andArzoo.Com.


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5. Optimism

Entrepreneurs are highly optimistic about achieving

their vision Narayanamurthy

Infosys forexample.

6. Value Addition

Entrepreneurs do not follow the conventional rules

of thumb.

They have a constant desire to introduce somethingnew to the existing business.

They create, innovate or add value to the existingproducts and services.

Without the value addition of introducing life timefree incoming call Tata Indicom.


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7. Leadership

An entrepreneur exhibits the qualities of leader.

They are good planners, organisers, good

communication skills, empathetic towards their

employees, good decision makers, initiative to

implement plans and result-oriented.8. Hardworkingwork is worship

They put in continuous efforts to achieve success

and know that there is no substitute for hard work. Put in hard work from now to find changes in your

own aspirations, growth and sustainability.


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9. Desire to have control over their own fate

Entrepreneurs do not want to move in herds

l ike sheep but want to pave their own paths.

They do not believe in luck or destiny but

create their own destiny.

Sarath babu of IIM, Ahmadabad.

10. Risk taking ability

Frank-Knight has identified risk-taking abilityas the most integral element in defining

entrepreneurial characteristics.


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Growth of Entrepreneurs

1. Low growth Entrepreneur

2. Medium growth Entrepreneur

3. High growth Entrepreneur

4. Very high Entrepreneur

Types of

Business

1. Business Entrepreneur

2. Trading Entrepreneur

3. Industrial Entrepreneur

4. Corporate Entrepreneur

5. Agricultural Entrepreneur

6. Retail Entrepreneur

7. Service Entrepreneur

Types of Entrepreneurs


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Use of Technology

1. Technical Entrepreneur

2. Non-technical Entrepreneur

3. Professional Entrepreneur4. High-tech Entrepreneur

5. Low-tech Entrepreneur

According to Area1. Urban Entrepreneur

2. Rural Entrepreneur

Gender and Age

1. Men Entrepreneur

2. Women Entrepreneur

3. Young Entrepreneur

4. Old Entrepreneur


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Stage of Development1. First Generation of entrepreneu

2. Classical Entrepreneur

3. Modern Entrepreneur

Scale of Entrepreneur

1. Small Scale Entrepreneur

2. Medium Scale Entrepreneur

3. Large Scale Entrepreneur

Others

1. Innovating Entrepreneurs

2. Adoptive Entrepreneurs

3. Fabien Entrepreneurs4. Drone Entrepreneurs


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Small Scale

Entrepreneur

Large Scale

Entrepreneur

Medium Scale

Entrepreneur

Scale of Production


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1. Innovative Entrepreneur

An innovating entrepreneur is one who

introduces new goods.

Inaugurates new method of production.

Discovers new market and re-organizes of the

enterprise. Peter F. Drucker - an innovating entrepreneur

is one who always searches for change,

responds to it, and exploits it as anopportunity.

He creates new values or increases the value ofwhat already exists.


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Joseph Schumpeter, only the innovating

persons are designated as entrepreneur.

The ordinary producers repeat the sameproduction for years where as innovatorsproduce new goods in new ways and enter intonew strategies.

1. I ntroduction of new product in the market

2. Use of new method of production, which is not

yet tested.

3. Opening of new market4. Discovery of new source of raw-mater ials.

5. Br inging out of new form of organisation.


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2. Adoptive or imitative Entrepreneur

Imitative entrepreneur is one who is ready to adopt thesuccessful innovations already inaugurated by innovating

entrepreneurs. In other words, an imitative entrepreneur does not

innovate anything by himself, but he only imitatestechniques and technologies innovated by others.

He follows the innovators after carefully observing howthe later fare and to what extent their innovation hascaught the imagination of the society.

Such types of entrepreneurs are particularly suitable forthe under-developed regions.

For example the Cochin Shipyard has been constructedby using the innovative technology provided byM itsubishi Heavy Industr ies L td by Japan.


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3. Fabian Entrepreneur

These are traditionally bounded entrepreneur

who always be cautious and they neither

introduce new changes nor adopt new

methods innovated by the most enterprising

entrepreneurs. They are lazy, follow old customs, traditional

sentiments etc.

Hence, they are total ly uninterested in takingr isk and imitatingsuccessful entrepreneurs.


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4. Drone Entrepreneurs

Drone entrepreneur is one who blindly fol lows

the traditional methods of production even

when it causes lots to him.

He is not prepared to introduce any change

under any circumstances in the method of

production he has already introduced.

He continue to carry out his business in the

traditional way even when he suffers losses

Coir Industry in Kerala is dominated by drone

entrepreneurs


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Types of Business

1. Industrial Entrepreneur

Industrial entrepreneur is an entrepreneur who is into

manufacturing of a product. He identifies the needs and wants of customers and

accordingly manufactures products to satisfy theseneeds and wants.

It would include all the entrepreneurs essentially intomanufacturing.

2. Trade Entrepreneurs

Trading entrepreneur is one who undertakes tradingactivities (buying and selling of goods and services) andis not concerned with manufacturing of products.

He identifies potential markets, stimulates demandsand generates interest among buyers to purchase aproduct.


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3. Agricultural Entrepreneurs

Agricultural entrepreneurs are those entrepreneurs

who undertake business related to agriculturalactivities.

Like farm equipments, fertilizers and other inputs ofagriculture.

They provide supportive products that can increase the

agricultural production through biotechnologies,mechanization and improvement in agricultural yield.

4. Service Entrepreneurs

Such entrepreneurs engage in service activities like

repair, consultancy, beauty parlor etc whereentrepreneurs provide service to people.

5. Corporate entrepreneurs

Corporate entrepreneurs undertake their businessactivities under legally registered company or trust.


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Stages of Development

First Generation Entrepreneur

A First Generation Entrepreneur is one who starts an

industrial unit by means of an innovative skill. He is essentially an innovator combining different

technologies to produce a marketable product or service.

Classical Entrepreneur

A Classical Entrepreneur a stereo-type entrepreneur isone whose aim is to maximize the economic returns at alevel consistent with the survival of the firm, with orwithout element of growth.

Modern Entrepreneur

Modern Entrepreneur is one who undertakes business tosatisfy the contemporary demands of the market.

They undertake those venture which suit the currentsocio-cultural trends.


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Use of Technology

Technical Entrepreneur - is essentially comparedto a master craftsman who develops and

improved quality of goods because of histechnological expertise. In this type concentration ismore on production than on marketing.

Non-technical Entrepreneurs are those who are

not concerned with the technical aspects of theproduct, but concerned only with marketing anddistr ibution for promoting their business.

High-tech Entrepreneurs who concerned with

updated technicalaspects of their product.Professional Entrepreneurs is a person who isinterested in establishing a unit, but does not haveinterest in managing it , once it is established.


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Rural Entrepreneurs

Entrepreneursselecting rural based industrial opportunity ineither khadi or village industries sector or in farm

entrepreneurship are regarded as rural entrepreneurs. According to khadi and village industry commission (KVIC)

Village or rural industry means any industry located in ruralarea, population of which do not exceed 10,000 whichproduces any goods and services in which fixed investment

of an artisan or a worker does not exceed Rs. 1,000.Women Entrepreneurs

According to GOI an entrepreneurs is defined as anenterprise owned and controlled by 16 women and havingminimum financial interests of 51% of the capital and giving

at least 51% of the employment generated in the enterprise towomen.

Women entrepreneurs play an important role in economyespecially in rural areas.


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Function of Entrepreneurs

Classical Approach - considered entrepreneur as

the owner and provider of capital. Modern Approach separates co-operate

ownership and control.

An entrepreneur has to carryout a combination of

function like innovation, risk-taking, decision-making organising and controlling etc.

In tune with the demands of dynamic business

environment and changing times - LPG An entrepreneur has to perform a number of

functions right from the generation of idea up tothe establishment of an enterprise.


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1. Primary function

Planning, organisation, decision-making,

management, innovation, risk-bearing2. Other function

Diversification of production, expansion of the

enterprise, maintaining cordial employer and

employee relations, talking labour problems, co-ordination with outside agencies.

3. Functions important for developing countries

Management of scarce resources, dealing withpublic, engineering, new product development,

parallel opportunities, marketing, management,

customer relation.


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Planning

Organisation

Decision-makingManagement

Innovation

Risk-bearing

Uncertainty-bearing

Primary Function Other Functions Functions importantfor developing

countries

Function of Entrepreneur

Diversification of

Production

Expansion of theEnterprise

Employer and Employee

Takling Labour Problem

Coordination with outside agencies

Management of scarce

Resources

Dealing with public

New Product

Development

Parallel Opportunities

MarketingManagement

Customer relations


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1. Planning planning is a first step of

entrepreneur. He prepares his plan of proposed

project or business in a very systematic way.Planning involves

Study of various ideas Scanning and

selection of the best idea Selection of

location of plant Deciding the type of

business organisation Preparation of

Budget Studying the govt rules and

regulations study Selection of work forceStudy selection of market strategies.


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2.Organisation An entrepreneur coordinates andsupervises the various tasks of organising for

optimal utilisation of resources.3.Decision-making He has to take effectivedecisions with regard to business objectives of the

enterprises. Arrangement of resources men,

material, machines, money, technology etc.4.Management managing of the day-to-dayproblems.

5.Innovationhe should be innovative in launchingof new product, new technology, new market etc.

6.Risk-taking he should undertake responsibilityof risk due to unforeseen situations.


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Importantfunctions of an Entrepreneur are

1. Idea generation

2. Determination of business objectives

3. Raising of funds

4. Procurement of machines and materials5. Market research

6. Determining form of enterprise

7. Recruitment of manpower8. Implementation of the project.


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1. Idea generation

The first and the most important function of an

entrepreneur is idea generation.

Idea generation implies product selection and

project identification.

Idea generation is possible through vision,

insight, keen observation, education,

experience and exposure.

This needs scanning of business environment

and market survey.


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2. Determination of business objectives

Entrepreneur has to state and lay down the businessobjectives.

Objectives should be spelt out in clear term. Theentrepreneur must be clear about the nature and type of

business.

Whether manufacturing concern or service oriented unitor a trading business.

3. Determining form of enterprise

Entrepreneur has to determine form of enterprise

depending upon the nature of the product, volume ofinvestment etc.

The form of ownership are sole proprietorship,partnership, joint stock company, co-operative society etc.


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4. Rising of funds

All the activities of the business depend upon the

finance and hence fund rising is an importantfunction of an entrepreneur.

An entrepreneur can raise the fund from internal

source as well as external source. He should beaware of different sources of funds.

He should also have complete knowledge of govt

sponsored schemes PMRY, SASY, REAP etc.

He can get govt assistance in the form of seed,

capital, fixed and working capital for his business.


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5. Market research

Market research is the systematic collection of

data regarding the product which the entrepreneurwants to manufacture.

Entrepreneur has to undertake market researchpersistently to know the details of the intending

product i.e. The demand for the product

Size of the market/customers

The supply of the product Competition

The price of the product etc.


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6. Procurement of machines and materials

Another important function of an entrepreneur

is to procure raw-materials and machines. Entrepreneur has to identify cheap and regular

sources of raw-materials which will help him to

reduce the cost of production and facecompetition boldly.

While procuring machineries he should specifythe technical details and the capacity.

He should consider the warranty, after salesservice facilities etc before procuringmachineries.


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7. Recruitment of manpower

To carry out this function an entrepreneur hasto perform the following activities

Estimating man power requirement for short

term and long term.

Laying down the selection procedure.

Designing scheme of compensation

Laying down the service rules Designing mechanism for training and

development.


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8. Implementation of the project

Entrepreneur has to develop schedule and action

plan for the implementation of the project The project must be implemented in a time bound

manner.

All the activities from the conception stage to thecommissioning stage are to be accomplished byhim in accordance with the implementationschedule to avoid cost and time overrun.

He has to organise various resources and co-ordinate various activities.

This implementation of the project is an importantfunction of the entrepreneur.


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Qualities of Successful Entrepreneurs

There are different belief on what makes

successful entrepreneurs.

The study conducted by Entrepreneurship

Development Institute of India (EDI) has

identified the following entrepreneurialcompetencies -

H igh achievement and success, Risk-taking,

Opportunity explorer, Planner, Stress taker,Facing uncertainties, Independent, Flexible,

Self conf idence, Motivation


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James J. Berne has stressed the following qualities ofgood entrepreneur

1. He is an enterpr ising individual energetic,hardworking, resourceful, aware of new

opportunities and able to adjust himself to changing

world.

2. He is interested in a advancing technologically and

improving the quali ty of his product or services.

3. He is interested in expanding the scale of operation.

4. He can adopt himself to changing world.

5. He is a f irm believer in planning and systematicwork.

6. He works for the society at large and for the good of

his fellow-being.


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Success and

Achievement

Motivation

Risk-bearingOpportunity &

explorer

Planner

Stress takerSelf-confident

Flexible Independent Facing

Uncertainties

Qualities ofEntrepreneurs


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3. Opportunity explorer

He always identifies opportunities and explores

them. New product, new technology, new market,

discovering new sources of raw-materials and new

means of transportation and communication.4. Planner

He is a good planner and doer. He plans and

follows the plans sincerely to achieve the goals.

planning is a first step of entrepreneur. He prepares

his plan of proposed project or business in a very

systematic way

5 St t k


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5. Stress taker

He should accept and bear any amount of

stresses that may evolve in the business. Fully commits himself to the project and rests

only when achieved longer hours works.

What ever problem arises he can take itpositive ways.

6. Facing uncertainty

They should face the uncertainties andunexpected outcomes and accept them sudden price increases, policy can be change,business recession etc.

7 I d d t


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7. Independent

He is an independent person and likes to be his

own master - He is a job given and not jobseeker.

An entrepreneur needs independence in workand decision-making.

The entrepreneurs dislike controls fromoutsiders government, politicians etc.

8. Flexible

He is an open minded person, flexible to adoptto demanding situational changes economicpolicy and budget policy etc.


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9. Self-confidence

He directs his abilities towards the accomplishment

of goals. What ever steps taken by him, he feel confident

about his ability.

10. Motivation

A Successful entrepreneur should be a goodadministrator.

He should know the art of getting things done by

other people without hurting their feelings or self-respect.

He initiates and influences people, motivates thepeople to accomplish the goals.


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Entrepreneurial Skills

Entrepreneurs do not shoot in dark room, they

are not gamblers, yes they do take risks but onlycalculated risk.

Some experts think of entrepreneurs are willing to

take risks that other people are not.

Types of risks

1. Career Risk

2. Financial Risk

3. Psychological risk4. Business Management risk

5. Technological risk


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1. Career riskown risk

He has risked his means to earn a living for

himself and his family. He takes a career risk either by not opting to take

up a job or by leaving a job.

In doing so, on one hand his livelihood is at riskand on the other hand, his professional reputationis at risk.

The career risks are

1. To work for someone else2. To be a self-employed professional

3. To be an entrepreneur

2 Fi i l Ri k


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2. Financial Risk

Any business venture needs finances for creation,

functioning and growth. And since there is an element of uncertainty

involved in the success of business, the financewhich he has arranged from his savings and

borrowings is at stake.3. Psychological Risk

Business involves a ser ies of uncertainty due to consumer demands, competi tors strategies, new

innovations and substi tute products, government

polices, changing economic conditions and

demographic trends etc.


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Technical Skills

Writing, Oral Communication, Monitoring

environment, Technical Business Management,

Technology, Interpersonal, Listening, Ability to

organise, Network building, Management style,

Coaching and Being a team player

Business management Skills

Planning and goal setting, Decision making,

Human relations, Marketing, Finance, Accounting,Management, Control, Negotiation skill, Venture

launch, Managing growth

Intrapreneur


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Intrapreneur

The term Intrapreneuremerged in during the seventies.

Several senior executives of big corporations left theirjobs to start their own small business.

Because the top bosses in these corporation were notreceptive to innovative ideas.

This kinds of Brain Drain phenomena is not limited toUS but also spread all over the world.

Every organisation faces the problem of suddenresignation of their top executive.

A few of these executives tend to become entrepreneursand start their own ventures.

Some of these business ventures may becomecompetitors to the organisation.


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I ntrapreneur is the person who focuses on

innovation and creativi ty and who transforms

a dream or idea into a profi table venture, byoperating within the organization.

Therefore, companies should provide such

entrepreneurial talents with adequate financialsupport and freed to develop their business

idea.

Those who do a good job for the company areto be rewarded with promotion and bonus.


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Gif ford Pinchot I I I an American Management

Guru suggested in 1985 that large corporations

should create smaller streams within theorganisation and allow certain executive to

operate like entrepreneurs.

He also suggested that these ambitious executivesshould be provided with adequate financial

resources and the autonomy necessary for the

development and application of their ideas.

Such a system would provide selected executives a

status similar to that of an entrepreneur in the

society intrapreneurs.

These intrapreneurs would introduce new


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These intrapreneurs would introduce newproducts, services and processes which enable thecompany to grow and succeed in a changing

environment. Infact, many American Corporations such as IBM,

GM DUPONT, AT and T, Texas Instruments etchave started encouraging intrapreneurs and have

had considerable success. For example Steve Wozniak small computer

Hewlett Packard, he left the popular company

Steve Jobs Apple Computers.

Thus, an Intrapreneur is an individual, whoperforms all the duties of an entrepreneur, butwithin an established organisation.

Role of Entrepreneurs in Economic Development


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Role of Entrepreneurs in Economic Development

Entrepreneurs play an important role in theeconomic development of a region.

Economic development implies development ofagr icul ture, industry and service sectors resultingin an increase in the per capita income of thecountry.

The economic development largely depends onhuman resources. Again human resources alonecannot produce economic development.

It requires an agent who is nothing but a dynamic

entrepreneur. The entrepreneur really acts as a captain of a ship

of economic development


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1. Coordinating role

The essential function of an entrepreneur is to

coordinate the var ious factors of production. Coordination involves selection of the r ight typeof factors, employment of each factor in the r ight

quanti ty, use of the best technology, division of

labour etc.

Schumpeter feels that economic development wi l l

be a reali ty if new combinations of factors of

production are undertaken.

In the absence of this coordinating role, thefactors of production will remain idle in the

country.


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2. Capital formation

Entrepreneurs promote capital formation by

mobil ising the idle savings of the public. Again, the profits they earn lead to savings of

wealth which ultimately goes to capital

formation. Entrepreneurs have been referred to as the

human agents needed to mobilse capital to

exploit natural resources, to create markets

and to carry on trade.

Without capital formation, economicdevelopment would remain static.

3 Generation of Employment


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3. Generation of Employment

By creating a new venture, entrepreneurs generateemployment opportunities for others.

Unemployment is a major issue, especially in the contextof developing economies like India.

Educated youth often are unable to get a suitable

employment for themselves.

Thus, entrepreneurs do the service by not onlyemploying themselves into entrepreneurial ventures, butalso by employing others.

From the last 20 years, Fortune 500 companies andlarge corporations have endured major retrenchmentand eliminated millions of jobs, whereas discoveries inthe entrepreneurial sector have yielded an average of600,000 new incorporations per year.

4 Improvement in Per capita income


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4. Improvement in Per capita income

Entrepreneurs locate and exploit opportunities.They convert the latent and idle resources likeland, labour and capital into national income andwealth in the form of goods and services.

They help to increase Net National Product and

Per Capita Income in the country, which areimportant yardsticks for measuring economicdevelopment.

5. Reduces Concentration of Wealth

Entrepreneurs help in reduction of concentration ofwealth and economic power in the hands of fewpeople.

6. Balanced Regional Development


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6. Balanced Regional Development

Entrepreneurs help in remove regional disparities ineconomic development.

Entrepreneurs play a dominant role to achieve balancedregional development by starting small-scale industries.

Small scale industries provide immediate large scaleemployment, ensure a more equitable distribution of

national income and thus facilitate balance regionaldevelopment.

I n addition, var ious concessions and subsidies, they set-

up industries in backward areas, facilitating the

development of that area ensur ing balanced regionaldevelopment.

They help in equitable distribution of resources, wealth,income and political power in the entrust of the country.

7 Resource Mobilisation


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7. Resource Mobilisation

Entrepreneurs encourage effective resource

mobilization of funds and skill which mayotherwise remain unutilized or underutilized.

8. Improvement in Standard of Living

Entrepreneurs help in removing scarcity ofessential commodities and introduce new

products which help to improve the standard of

living of a common man. Besides this employment generation also helps

in improving the living standards.

9 Role of Innovation


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9. Role of Innovation

Innovation is a key to entrepreneurship.Innovation implies the commercial application ofan invention.

As an innovator, the entrepreneur assumes the roleof a pioneer and an industrial leader.

Entrepreneurs have contributed many innovationsin developing new products and the existingproducts and services.

All these have resulted in economic developmentby providing more employment and more income

etc. Infact, the innovational activity raises the

productive efficiency of the economy resulting ingreater output and income.

10. Export Promotion role


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10. Export Promotion role

Entrepreneurs also promote a countrys export tradewhich is an important ingredient to economic

development.11. Harnessing Natural Resources

Entrepreneurs help in harnessing vast natural resourcesof the country for its economic growth.

12. National Self-reliance

Entrepreneurs help in manufacturing import substitutesthereby reducing dependence on foreign countries.

They contribute substantially in the countrys exporttrade and help to earn scares and vital foreign exchangefor the country.

This leads to economic independence of the country.

Stages in Entrepreneurial process


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Stages in Entrepreneurial process

Entrepreneur can increase their chances of success

if they understand, follow and implement thebasic six stage entrepreneurial process.

These six stages form the backbone of the

entrepreneurial process. Each of the stages includes a main focus activity,

tactics to complete the task, the estimated time

requi red for completing that stage, cost that may

be l ikely incur red for each activi ty which can be

used for preparing budgets.


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The six stages are as follows

Stage 1 Identify an opportunity

Stage 2 Establish a vision

Stage 3 Persuade Others

Stage 4

Gather ResourcesStage 5 Create New Venture

Stage 6 Change/Adapt with time

Stages in Entrepreneurial Process


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Stage 1 Identify an Opportunity

Stage 2 Establish Vision

Stage 3 Persuade Others

Stage 4 Gather Resource

Stage 5 Create New Venture

Stage 6 Change/Adapt with time

Stage I

Identification of New

Opportunities

Searching of New OpportunitiesR & D

Acquiring New Markets


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Stage I Opportunities Acquiring New Markets

Better Profits and faster economies of scale

Stage II Establishment of a

Vision and Mission

State of Vision

Clear Vision

Re-adjustment of Vision

Dream comes reality

Stage III Persuade Others

Multiple skills required

Team Works

Preparation of Business Plan

Stage IV Gather ResourcesFinancial ResourcesOperating Resources

Human Resources

Information Resources (MIS)

Stage V Create New Venture

Establishment of New Venture

EnthusiasmPersuasion

Passion

Self-believes and courage

Stage VI Change or Adapt

with Time

Adaptabilitychanging world

Global Business Environment

1. Identify an opportunity


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1. Identify an opportunity

Identification of an opportunity is the first step

towards building and running successful businessenterprise.

Entrepreneurs identi fy opportunity where other

see obstacles and impossibi l i ty R and D

Identification of opportunity at right time is of

utmost importance.

New opportunity catch-up market better

profi ts and faster economies of scale

Entrepreneur sense opportunities, they are creative

and are open to the new idea.

2. Establish a Vision


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Merely seeking opportunity is not enough, anentrepreneur further moves to establish a vision.

A dream for future which can be achieved only ifopportunities are tapped at r ight time.

He has complete faith in his vision and it is quiteclear to him.

Even if some market forces change he would re-adjust his vision to keep his dream viable andfruitful.

Every successful entrepreneurs have big visions

For example Dhirubai Ambani Reliance,Narayana murthy I nfosys technology, AzimPremji Wipro

3.Persuade othersTeam work


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An entrepreneur does not work alone, heunderstands that multiple skills are required to

make business successful team work. Entrepreneur forms a group of individuals who

would work together to realise his dreams.

An entrepreneur prepares a business plan to make

the vision and means of achieving the vision withothers team efforts.

Skilled workers, unskilled workers, financiers,family members, relatives etc.

For example Narayana mur thy of I nfosys wassupported by his wife for financial andpsychological backing and couple of fr iends.

4. Gather Resources


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4. Gather Resources

Identifying an opportunity establishing a visionpersuading others to join is not enough.

A business enterprise needs resources to be comesuccessful.

This is the phase, which can convert anentrepreneursdream into reality.

Resources can be considered under fourcategories

1. Financial resources

2. Operating resources3. Human Resource Management

4. Information Resources


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A. Financial resources

Finance is the life blood of any organisation. Finance is required to start, run and expand the

business.

Personal savings, family and friends, retainedcapital, commercial partnerships, banks,

venture capital, Government Institutions,

NGOs, floating public issues.

O ti R


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Tangible1. Machineries

2. Raw-materials

3. Land and buildings

4. Office equipment etc

Intangible1. Company image

2. Operating

procedures

3. Transportation

4. Management

Operating Resources

C. Human Resource Management


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g

Human resources are the only living and vibrant part ofthe organisation.

They are the most important resource of theorganisation.

This is due to rising competition, privatisation andglobalisation.

HR can provide them a cutting edge over others.Whether employees are permanent or

temporary/casual employees.

Amount and type of manpower in the organisation

Procedure for recruitment and selection.Training the employees

Compensation systems

Performance appraisals.


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5. Create new venture

In the fifth stage of entrepreneurial process isthe creation or establishment of the new

venture and running the business venture

successfully.

It requires lot of enthusiasm, persuasion

together optimum resources.

The running the business venture requires lot

of perseverance and passion to believe in self.


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6. Change or adapt with time

As change has become the rate of the game intodays business environment the

entrepreneur needs to continuously keep the

organisation upgraded and changing time.

It is not only involves availabi l i ty of fundsbut

also the adaptability of human resources

towards the changed environment.

Distinction between an Entrepreneur and a


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Distinction between an Entrepreneur and aManager

Sometimes, the two terms, namely, an entrepreneurand a manager are considered as synonym i.e.,meaning the same.

At times, an entrepreneur can be a manager, but a

manager cannot be an entrepreneur. Infact, the two terms are two economic concepts

meaning two different meanings.

The major points of distinction between the twoare

Motives, status, Risk-bearing, Rewards,

I nnovation and Qualif ications.

Factors Entrepreneur Manager


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Motive

An Entrepreneur starts a

venture by setting up a

new enterprise for his

personal gratification

But the main aim of a

manager is to render his

services in an enterprise

already set up by

someone else.

Statusentrepreneur is the ownerof enterprise

A manager is the servantin the enterprise

Riskbearing

An entrepreneur being the

owner of the enterpriseassumes all risks and

uncertainty involved in

running the enterprise

A manager as a servant

does not bear any riskinvolved in the enterprise.

Factors Entrepreneur Manager


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p g

Qualification An entrepreneur needs to

possess qualities and

qualifications like highachievement motive, originality

in thinking, foresight, risk-

bearing ability and so on.

On the contrary, a manager

needs to possess distinct

qualifications in terms of soundknowledge in management

theory and practice.

InnovationAs an innovator he is called aschange agent who introduces

goods and services to meet

changing needs of the

customer

A manager executes the plans ofthe entrepreneur. Thus a

manager translates the ideas

into practice.

Rewards Entrepreneur for his riskbearing role he receives profit.

It is not only uncertain and

irregular but can at times be

negative

A manager receives salary asreward for service rendered

which is fixed and regular can

never be negative


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Sl No. Entrepreneur Entrepreneurship

1. Person Function or process


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2. Organiser Organisation

3. Innovator Innovation

4. Motivator Motivation

5. Leader Leadership

6. Creator Creation

7. Risk-bearer Risk-bearing

8. Initiator Initiative

9. Visualiser Vision

10. Technician Technology

11. Imitator Imitation

12. Administrator Administration

13. Communicator Communication

14. Planner Planning

15. Manager Management

16. Decision maker Decision-making

Definitions


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Entrepreneurship is an elusive concept. Hence, it isdefined differently by different authors at different

periods. A.H. Cole Entrepreneurship is the purposeful

activity of an individual or a group of associatedindividuals, undertake to initiate, maintain or

organise, a profit oriented business unit for theproduction or distribution of economic goods andservices.

Schumpeter entrepreneurship is based onpurposeful and systematic innovation.

Mc Clelland entrepreneurship involves doingthings in a new and better way. It calls for decision-making under uncertainty.

All the above definitions clearly point out the


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All the above definitions clearly point out the

various functions performed by an

entrepreneur.

Thus, entrepreneurship is a process involving

various function to be undertaken to establish

an enterprise.

Entrepreneur Entrepreneurship

PersonProcess of

ActionObject

Entrepreneur

Barriers of Entrepreneurship


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Barriers of Entrepreneurship

The slow pace of growth of entrepreneurship can

be attributed mainly to the present of barriersprohibiting the entry into entrepreneurship.

Continuing as an entrepreneur and existing from abusiness venture.

The various barriers to entrepreneurship can beclassified as under

1. Environmental Barriers

2. Financial Barriers3. Personal Barriers

4. Societal Barriers

Environmental Financial


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Barriers of

Entrepreneurship

Environmental

Barriers

Societal

Barriers

Personal

Barriers

Financial

Barriers

1. Environmental Barriers

il bili f


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1. Raw-materials non availability of rawmaterials for production, especially during peak

season, is a very big barriers.2. Labour human resources is the most important

resource in any organization.

Lack of availability, both quality and quantity, can

affect entrepreneurs.3. Machinery machinery becoming obsolete, and

the need for their maintenance and upgrading is abig difficulty for small business organizations.

4. Land, building and infrastructure these go along way in deciding the fortunes of the companyand the lack of good facilities act as majorbarriers.

2. Financial Barriers


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Finance is the life-blood of any organisation. If thereis no proper flow of finances both in company andin the country, there are bound to be problems.

There are plenty of successful small businesses inIndia. But the entrepreneurs lack the will and the

strength to scale-up their operations.3. Societal Barriers

Religious and conservative attitudes of the societycan inhibit entrepreneurs.

Added to this the communistic feelings in certainstates in India definitely kills the entrepreneurialspirit in many Indians.

4. Personal Barriers

Lack of self confidence this is a very big emotional


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Lack of self-confidence this is a very big emotionalbarrier to an individual. It caused by peer pressure and lackof experience.

Lack of Motivation in the beginning all entrepreneurs areenthusiastic about their projects.

But they may lose interest especially in the face ofchallenges and competition.

Lack of patience this barrier is more dominant amongyouth entrepreneurs.

When things do not go as expected they may lose interestbecause of lack of perseverance.

Inability to invest in R and D and Innovate

This is one of the greatest barriers of Indian entrepreneurs. Since India does not invest in R & D heavily, they have not

caused any technological breakthroughs nor contributedinnovative products to the world.

Theories of Entrepreneur

It is universal fact that entrepreneur is an


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It is universal fact that entrepreneur is animportant factor in economic development

employment and GDP. En entrepreneur is the r isk bearer and works underuncertainty.

But no attempts were made by economists for

formulating systematic theory of entrepreneur. The Traditional notion an entrepreneur is that hebrings together the factor inputs and organisesproductive activity managerial function.

Modern Growth Theory entrepreneur is aresidual factor technological changes in theproduction process which includes technology,education, institutional organisation etc.

Theorists Categorization


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Psychological

Theory

Sociological

Theory

Economic

Theory

Schumpeter Max Weber Papanek

Mc Clelland Cochran Harris

Hagen Hoselitz Kizner

Kunkel Stocker

Young

Sl Various

Views by Various Theorists


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Sl

No Theories

Various

Theorists Theories

1. Psychological

Theory

Schumpeter

Mc Clelland

Hagen

John Kunkel

Innovation Theory

Need for Achievement Theory

Status of Withdrawal Theory

Behavioural Model

2. Sociological

Theory

Max Weber

Kunkel

Bert F. Hoselitz

Theory of Social Change

Theory of Social Behaviour

Theory of Leadership

Theory of Model Personality

3. Economic

Theories

J.R. Harris

G.F. Papanek

Kirzner

Economic Incentives

Inner drivers, Economic Gains

Exploits when market is out of

equilibrium

1. Economic theories


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Entrepreneur and Economic development are

interdependent. Economic development takes place countrysreal national income increases and

employment opportunities

Economic incentives include taxation policy,industr ial policy, sources of finance and raw-

materials, infrastructure availability,

investment and marketing opportunities,access to information about market

conditions, technologyetc.

2. Sociological Theory


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g y

Entrepreneurship is likely to get a boost in a

particular social culture. Social Theory includes societys values,

rel igious beliefs, customs, labours inf luence

the behavior of individuals in a society. The entrepreneur is a role performing

according to the role expectations by the

society. Max Weber, Cochran, Hoseli tz, Stokes and

Young

3. Psychological Theory


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Entrepreneurship gets a boost when society has

sufficient supply of individuals with necessarypsychological characteristics.

The psychological characteristics include needfor high achievement, a vision or foresight,

ability to face opposition. These characteristics are formed during the

individuals upbringing which stress on

standards of excellence, self reliance and self-sufficiency. Etc.

Schumpeter, Mc Clelland, Hagen, Kunkel etc.

Different theories of entrepreneurship


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1. Innovation Theory Joseph Schumpeter

2. Need for Achievement Theory

David McClelland

3. Status of Withdrawal Theory Prof Hagen

4. Theory of Social Change

Max Weber

5. Theory of Leadership - Hoselitze

6. Theory of Model Personality - Cochran

7. Theory of Systematic Innovation Peter

Drucker

1. Innovation Theory


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y

This theory was propounded by J.A.

Schumpeter.

Development implies that carrying out of new

combination of entrepreneur is basically a

creative activity. According to Schumpeter, entrepreneur is one

who perceives the opportunities to innovate

i.e., to carry out new combinations orenterprise. introduces new combinations.

New combination theory covers five cases


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1. The introduction of a new good which

consumers are not yet familiar or a newquality of good

2. The introduction of new method of

production

3. The opening of a new market

4. The conquest of new source of supply of raw

material

5. The carrying out of the new organisation ofany industry like the creation of a monopoly

position.


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2. Need for Achievement Theory

This theory was developed by David C. Mc Clelland


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This theory was developed by David C. Mc Clellandconcerned himself with economic growth and thefactors that influence it high achievementorientation

Mc Clel land emphasis on two factors internal andexternal factors.

Internal factors - human values and motives that lead

man to exploit opportunities. External factors favourable opportunities for trade

and unusual natural resources.

The entrepreneur is concerned with need for

achievement (n-achievement). The n-achievement is called as a desire to do well , notso much for the sake of social recogni tion or prestige.

3. Status Withdrawal Theory

d f l h f i l


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E. Hagen attempted to formulate a theory of socialchange or status of withdrawal theory.

According to Hagen, entrepreneurship is a function ofstatus withdrawal.

His creative personality is an individual characterized bya high need for achievement.

H is view of economic development does not lay any

emphasis on the speed of market, capital accumulation,

the percentage of profitable opportunities and

wil l ingness to save.

Economic development is seen almost exclusively as a

process of technological change in the society.

Most of entrepreneurs in I ndia as a creative problem or

solving problems.

Hagen postulates four types of events whichcan prod ce stat s ithdra al


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can produce status withdrawal

1. Displacement of a traditional elite groupfrom its previous status by another

traditional group by physical force.

2. Denigration of values, symbols through some

change in the attitude of super ior group.3. Inconsistency of static symbol with a

changing distribution of economic power

and4. Non-acceptance of expected status on

migration to a new society.

Hagen further opined that creative innovation or


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change is the basic feature of economic growth.

He describes an entrepreneur as a creativeproblem shooter interested in things in thepractical and technological realm.

Such type of individual feels a sense of increased

pleasure when facing a problem and toleratesdisorder without discomfort.

In traditional societies, positions of authority aregranted on the basis of status, rather than

individual ability..

That is why, Hagen visualized an innovativepersonality.

4. Theory of Social Change


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Max Weber who first of all took the stand thatentrepreneur ial growth was depend upon ethicalvalue system of the society.

Webers theory of social change consists -treatment of the protestant ethic and the spir i t of

capitalism. Moreover, this theory provides an analysis of

religion and its impact on entrepreneurial culture.

Max Weber opined, the spir i t of rapid industr ial

growth depends upon a rationalized technology,

acquisition of money and its rational use for

productivity and multiplication of money.

These elements of industrial growth depend upon aifi l i t ti f i di id l


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specific value orientation of individuals.

Weber analysed his theoretical formulation by therelationship between protestant ethic and the spiritof capitalism.

Protestant are progressed fast in bringing capitalism

because their ethical value system provided themwith rational economic attitude, while the jews,jains, Hindu and juda failed to develop industrialcapitalism because of their value of pariha.

According to this theory, driving entrepreneurialenergies are generated by the adoption ofexogenously supplied religious beliefs.

The important elements of Webers theory are


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1. Spirit of Capitalism

The capitalism is an economic system in whicheconomic freedom and private enterprise areglorified.

2. Adventurous Sprit

He also made distinction between spirit ofcapitalism and adventurous spirit.

According to him, the former is influenced by the

strict discipline. Whereas the latter if affected by free force of

impulse.

3. Protestant Ethic

di b h i i f i li


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According to Max Weber the spirit of capitalismcan be grown only when the mental attitude in thesociety is favourable to capitalism.

4. Inducement of profit

Weber introduced the new business man into the

picture of tranquil routine. The spirit of capitalism intertwined with the motive

of profit resulted in creation of greater no ofbusiness enterprise.

I nfact, this theory suited the British rules, who

desired to encourage European entrepreneurship

in I ndia.

5. Theory of Leadership

di li hi i


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According to Hoselitz, entrepreneurship is a

function of managerial skills and leadership. Business also requires finance but that is of

secondary important.

He further explains that a person who is to become

an industrial entrepreneur must have more than the

drive to earn profits and amass wealth.

In this process, he has to show his ability to lead

and manage.

There are three types of leadership Merchant

money lenders, managers and entrepreneurs.

1. Money lenders are market oriented which deals ingoods and services


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goods and services.

2. Managers - are authority oriented.

3. Entrepreneurs production oriented, they creates hisown commodity and its acceptability is uncertain.

Therefore, the entrepreneur assumes more risk ascompared to a trader or a money lender.

Therefore, GOI and State Governments are trying toencourage first generation entrepreneurs by offeringthem various types of incentives and subsidies.

Potential entrepreneurs are also opting for enterprise

development without cring for social or culturalrestrictions.

7. Theory of Model Personality

The theory of Cocharn is a sociological theory of


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The theory of Cocharn is a sociological theory ofentrepreneurial supply.

Cocharn emphasizes cultural values, role expectationsand social sanctions as the key elements that determinethe supply of entrepreneurs.

According to him, an entrepreneur is neither a super

normal individual nor a deviant person but represents asocietysmodel personality.

His performance is influenced by three factors

1. His own atti tudes towards his occupation

2. The role expectations held by sanctioning groups

3. The operational requirements of the job.

8.Theory of Systematic Innovation

P f D k h d l d th th f


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Prof Drucker has developed the theory ofsystematic innovation.

Systematic innovation consists in thepurposeful and organised search for changesand in the systematic analysis of the

opportunities economic and socialinnovation.

Systematic innovation consists of seven

sources for innovative opportunity within theenterprise (4) and outside the enterprise ofindustry (3)

Internal sources - within the enterprise, whetherbusiness or public service institution or within an


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pindustry or service sector

1. The unexpected the unexpected success, theunexpected failure.

2. The incongruity between reali ty as it actual ly is andreali ty as it is assumed.

3. I nnovation based on process need4. Changes in industry structure or market structure

that catch every one unawares.

External sources - outside the enterprise of industry

5. Demographics (population changes)

6. Changes in perception, mood and meaning

Documents

Chapter I EDP