ENTREPRENEURSHIPENTREPRENEURSHIP and and

SMALL BUSINESS SMALL BUSINESS MANAGEMENTMANAGEMENT

Prof. R.S.MathurProf. R.S.Mathur

Syllabus MBA EP SemIII

Unit 1 Concept of entrepreneurship- nature and historical evolution; entrepreneurship and economic development, effect of culture on entrepreneurship.

Unit 2 Role and importance of small business; defining small business; forms of organisation for small business; Setting up a SSI; formalities of launching a new venture; product selection; problems of SSI

Unit 3 Challenges of marketing for small businesses; sources of funds for small businesses; Human resource management issues in small businesses; managing small business operations.

Entrepreneurship – a Mission with burning desire

Concept of Entrepreneurship

Entrepreneurship is the practice of starting new organizations or revitalizing mature organizations, particularly new businesses generally in response to identified opportunities.

Entrepreneurship is often a difficult undertaking, as a vast majority of new businesses fail.

What is entrepreneurship?

Process of:1. creating something different, 2. with value, 3. by devoting necessary time and effort,4. by assuming the accompanying financial,

psychological, and social risks, 5. and receiving the resulting rewards of

monetary and personal satisfaction (Bowen and Hisrich,

1986).

What is Entrepreneurship?

Capacity to take risks Ability to own and organize Desire and capability to innovate and

diversify (Stepanek, 1962)

Process of Entrepreneurship

Entrepreneur Entrepreneurship Innovative

Creation

Person Process of Action

Object

Types of Entrepreneurship

Arbitrage Discovering the price gaps that exist and

acting on that margin to close the gapBuy low – Sell high

Innovative Discovering new trading opportunities

(Smith) Discovering lower cost or new technologies

(Schumpeter)

What makes an entrepreneur

The factors can be classified as Personality factors

Motivation and emotion– gives the drive and purpose and self confidence (Whybrow 1999)

High need for achievement( Roberts 1991) Competitiveness – main motivator Need for independence

Behavioural characteristics( Kuratko and Hodgetts 1998)– perseverance, determination, take calculated risks, creativity, honesty and integrity, initiative, taking responsibility

What makes an entrepreneur Contd.,

Environmental factors( Roberts 1991) Family background – fathers career, inheritance Education – not important, start at early age Work experience– important Action factors– what entrepreneurs do Are creative and innovative Spot and exploit opportunities Find resources to exploit opportunities Manage risk, create capital are good net workers, determined

Why does one become an entrepreneur?

There are many reasons to become an entrepreneur. Some common reasons are:1. A good business idea2. Continuing the family entrepreneurial tradition3. Special skills acquired through a hobby4. Knowledge or skills in a specific area5. Possibility to make a living6. Chance, coincidence or special offer7. Example set by another entrepreneur

Definitions (Carland et.al, 1984)

•Establishes and manages a business for principal purpose of furthering personal goals•Business primary source of income and consumes majority of one’s time and resources•Business perceived as extension of personality, family needs, desires

•Establishes and manages a business for principal purpose of profit and growth

•Characterized by innovative behaviour

•Will employ strategic management practices in the business

Small Business ownerEntrepreneur

Definitions (Carland et.al, 1984) Contd.,

•Independently owned and operated•Not dominant in its field.•Doesn’t engage in any new marketing or innovative practices.

•Engages in behavior that is aimed at profitability and growth.

•Business characterized by innovative strategic practices

Small business ventureEntrepreneurial venture

Characteristics of entrepreneurship

1. The entrepreneur has an enthusiastic vision, the driving force of an enterprise.

2. The entrepreneur's vision is usually supported by an interlocked collection of specific ideas not available to the marketplace.

3. The overall blueprint to realize the vision is clear, however details may be incomplete, flexible, and evolving.

4. The entrepreneur promotes the vision with enthusiastic passion. Cont…

Characteristics of entrepreneurship cont…

5. With persistence and determination, the entrepreneur develops strategies to change the vision into reality.

6. The entrepreneur takes the initial responsibility to cause a vision to become a success.

7. Entrepreneurs take calculated risks. They assess costs, market/customer needs and persuade others to join and help.

8. An entrepreneur is usually a positive thinker and a decision maker.

Types of Entrepreneurship

Arbitrage Discovering the price gaps that exist and

acting on that margin to close the gap Buy low – Sell high

Innovative Discovering new trading opportunities (Smith) Discovering lower cost or new technologies

(Schumpeter)

Misconceptions about Entrepreneurs

Entrepreneurs are born They are profit-hungry They are dishonest They are favoured by luck. Only rich people can become

entrepreneurs It is a monopoly of certain

communities

Peter F. Drucker observed….

….“Most of what you hear about entrepreneurship is all wrong. It’s not magic; it’s not mysterious; and it has nothing to do with genes. It’s a discipline and, like any discipline, it can be learned”.

and “The entrepreneur always searches for change,

responds to it, and exploits it as an opportunity.”

- Peter F. Drucker

Role of the Entrepreneur

An innovator who combines technical innovations and financial finesses.

Important role in producing competitive products, processes, and services.

Generation of new employment Local and regional economic development Improved allocation of resources and transfer

of technologies

Entrepreneur as an Economic Pioneer

Introduction of new goods and products Introduction of new processes and

methods of production Opening up of new markets Opening up of new sources of supply Industrial re-organization

Strategic Importance of the Small-Scale Sector

Significant contributions to national income, employment, and export earnings

Value of output over Rs. 5,70,000 crores Employment of over 17.5 million (> twice the

private sector; almost as much as all public sector employment)

Exports of over Rs. 54,000 crores (> 35 per cent of all exports) (2000-01 figures)

Entrepreneurship and Small Businesses

Entrepreneurship is especially critical in small businesses because:

Important source of competition for large firms; challenge their economic power

Offer a wide range of choice to consumers Sources of innovation and creativity Good career opportunities to work in an

unstructured environment of a small company

Contributions of Entrepreneurs

1.Create employment.

The biggest employer is the private business sector. Millions of jobs are provided by the factories,

service industries, agricultural enterprises, and the numerous small-scale businesses.

Such massive employment has multiplier and accelerator effects in the whole economy.

More jobs mean more incomes. This increases demand for goods and services. This stimulates production. Again, more production requires more employment.

2.Develop new markets

Under the modern concept of marketing, markets are people who are willing and able to satisfy their needs.

In Economics, this is called effective demand. Entrepreneurs are resourceful and creative. They can create customers or buyers. This makes entrepreneurs different from

ordinary businessmen who only perform traditional functions of management like planning, organization, and coordination.

3.Discover new sources of materials

. Entrepreneurs are never satisfied with traditional or existing sources of materials.

Due to their innovative nature, they persist on discovering new sources of materials to improve their enterprises.

In business, those who can develop new sources of materials enjoy a comparative advantage in terms of supply, cost and quality.

4.Mobilize capital resources

. Entrepreneurs are the organizers and coordinators of the major factors of production, such as land labor and capital.

They properly mix these factors of production to create goods and service.

Capital resources, from a layman's view, refer to money.

However, in economics, capital resources represent machines, buildings, and other physical productive resources.

Entrepreneurs have initiative and self-confidence in accumulating and mobilizing capital resources for new business or business expansion.

5.Introduce new technologies, new industries and new products

Aside from being innovators and reasonable risk-takers, entrepreneurs take advantage of business opportunities, and transform these into profits.

So, they introduce something new or something different.

Such entrepreneurial spirit has greatly contributed to the modernization of economies.

Every year, there are new technologies and new products.

All of these are intended to satisfy human needs in more convenient and pleasant way.

Advantages of Entrepreneurship

Every successful entrepreneur brings about benefits not only for himself/ herself but for the society, the municipality, region or country as a whole.

The benefits that can be derived from entrepreneurial activities are as follows:

See subsequent slides-

Advantages of Entrepreneurshipcont..

1. Enormous personal financial gain

2. Self-employment, offering more job satisfaction and flexibility of the work force

3. Employment for others, often in better jobs

4. Development of more industries, especially in rural areas or regions disadvantaged by economic changes, for example due to globalisation effects cont…

Advantages of Entrepreneurshipcont..

5. Encouragement of the processing of local materials into finished goods for domestic consumption as well as for export

6. Income generation and increased economic growth

7. Healthy competition thus encourages higher quality products

8. More goods and services available

Advantages of Entrepreneurshipcont..

9. Development of new markets 10. Promotion of the use of modern technology

in small-scale manufacturing to enhance higher productivity

11. Encouragement of more researches/ studies and development of modern machines and equipment for domestic consumption cont..

Advantages of Entrepreneurshipcont..

12. Development of entrepreneurial qualities and attitudes among potential entrepreneurs to bring about significant changes in the rural areas

13. Freedom from the dependency on the jobs offered by others

14. The ability to have great accomplishments 15. Reduction of the informal economy 16. Emigration of talent may be stopped by a better

domestic entrepreneurship climate

Role of Entrepreneurship in Economic development

Increasing per capita output and Income Involves initiating and constituting change

in the structure of business and society The theory of economic growth depicts

innovation as the key not only for developing new products but also in stimulating investment interest in the new ventures cont….

Role of Entrepreneurship in Economic development cont…

4. Production evaluation process: Process for developing & commercializing an innovation

5. Iterative Synthesis: The intersection of knowledge & social need that starts the product development process

6. Ordinary innovations: New products with little technological change

7. Technological innovations: New products with significant technological advancement

Role of Entrepreneurship in Economic development cont…

8. Breakthrough innovations: New products with some technological change

9. Government as an innovator: Govt active in commercializing technology

10. Technological Transfer: Commercializing technology in the laboratories into new products.

Entrepreneurs...Traits

Self-confident and optimistic

Able to take calculated risk Respond positively to

changes Flexible and able to adapt Knowledgeable of markets Able to get along well with

others Independent minded

Energetic and diligent Creative, need to achieve Dynamic Leader Responsive to suggestions Take initiatives Resourceful and

persevering Perceptive with foresight Responsive to criticism

Role of the Entrepreneur

An innovator who combines technical innovations and financial finesses.

Important role in producing competitive products, processes, and services.

Generation of new employment Local and regional economic development Improved allocation of resources and transfer

of technologies

Entrepreneur as an Economic Pioneer

Introduction of new goods and products Introduction of new processes and

methods of production Opening up of new markets Opening up of new sources of supply Industrial re-organization

Strategic Importance of the Small-Scale Sector

Significant contributions to national income, employment, and export earnings

Value of output over Rs. 5,70,000 crores Employment of over 17.5 million (> twice the

private sector; almost as much as all public sector employment)

Exports of over Rs. 54,000 crores (> 35 per cent of all exports) (2000-01 figures)

Entrepreneurship and Small Businesses

Entrepreneurship is especially critical in small businesses because:

Important sources of competition for large firms; challenge their economic power

Offer a wide range of choice to consumers Sources of innovation and creativity Good career opportunities to work in an

unstructured environment of a small company

Small Business Contribution to Indian Economy

Under the Micro, Small and Medium Enterprises Development Act (MSMED), 2006 the filing of Memorandum (Registration) by Entrepreneurs intending to establish a Micro, Small or Medium Enterprise is discretionary and not mandatory.

As such, the number of Micro, Small and Medium Enterprises, functioning in the country as per Quick Results of 4th All India Census, in the registered and unregistered category are 15.52 lakh (5.94%) and 245.48 lakh (94.06%) respectively cont…

Small Business Contribution to Indian Economy cont…

1. The MSME sector has acquired a prominent place in the growth of the economy of the country.

2. This sector has continuously  contributed significantly in the gross domestic product (GDP), industrial production,

3. employment generation and 4. export.

Micro, Small and Medium Enterprises' (MSMEs) share in domestic product (GDP) is constantly increasing,

As per MSME Ministry "According to the last available data, the micro and small enterprise (MSE) sector shares 7.20 percent in the GDP in the year 2006-07."

Small Business Contribution to Indian Economy cont…

According to the latest report of Prime minister's Task Force (March 2010) on MSMEs, the sector contributes:

1. 8 percent of the country's GDP, 2. 45 percent of the manufactured output and 3. 40 percent of its exports. 4. The MSMEs provide employment to about 60 million persons

through5. 26 million enterprises. 6. The labor to capital ratio in MSMEs and overall growth in the

MSME sector is much higher than the large industries. 7. The geographical distribution of the MSMEs is also more even.

The share of micro and small enterprise (MSE) sector in the GDP of the country during, 2004-05, 2005-06 and 2006-07 (latest available) is as per the table given below:

Effect of Culture on Entrepreneurship

Entrepreneurs are also people, – people who live and work in society.

Economic development takes place at the community level.

The society’s role in supporting or limiting the development process is critically important.

The effect of socio-cultural factors can be profound.

Some of these factors are mentioned on the next slides.

The Indian Society and E’ship cont..

The Indian society continues to be divided based on ‘varna’- Rajputs, Brahamins, Vashyas and Shudras.

Traditionally, each ‘varna’ was assigned to contribute to the society by well defined duties and activities,

The ‘bania’ class was assigned to practice trade and commerce and therefore placed most suitably to develop entrepreneurial skills.

India has many examples of entrepreneurial brilliance and courage coming from this part of the society- Birlas, Bangurs, Goenkas etc. Cont…

The Indian Society and E’ship cont..

In societies other than ‘vaishyas’ entrepreneurship was never a preferred path.

The order of choice of young people remained as:1. Secure Government/ PSU job2. Private sector job and3. Business/Entrepreneurship as a last resort Persons pursuing entrepreneurship were looked down upon

and Strong social stigma was attached to ‘failure’ Societal support was poor and the govt. still has no ‘safety

net’ Now , with the ‘varna’ structure gradually dismantling, and

opportunities in the govt. highly restricted, entrepreneurship path is being accepted as the ‘next best’ to finding a job.

The Indian Society and E’ship cont..

Entrepreneurial culture is still weak in India and way behind entrepreneurial strong societies.

There is an urgent need to accept, nurture, and give support to entrepreneurial efforts by the society and the government.

This is the only route to economic growth.