THE CONCEPT OF ENTREPRENEUR
Introduction:
After finishing your graduation you will be at the crossroads of life. You will face the
dilemma of choosing what you have to do in life. The vast majority of human beings
direct their activities towards earning a living, generating wealth and improving their
standard of living. You can choose your career from two broad categories of options –
Wage Employment or Entrepreneurship. The term ‘career’ signifies a continuous, ever
evolving, ever expanding opportunity for personal as well as business growth and
development.
We may refer entrepreneurship as a career in your own business [YOB] rather than wage
employment [JOB] .If you opt for a job then you will work for others. In case you opt for
entrepreneurship you will be your own boss.
In case of wage employment one is engaged in routine work carried on for others for
which he receives salary or wages. He has to follow instructions and execute plans laid
down by his superior. One can choose to be employed in Government Service or the
Public Sector or the Private sector. Some of the main differences between
entrepreneurship and wage employment career options are as under
Differences between entrepreneurship and wage employment
Wage Employment Entrepreneurship
Work for Others
Follow Instructions
Routine Job
Earning is fixed, never
negative
Does not create wealth
Can choose from-
Own Boss
Make own plans
Creative activity
Can be negative sometimes, generally
surplus
Creates Wealth, contributes to GDP
Can choose from-
Government service
Public Sector
Private Sector
Industry
Trade or
Service Enterprise
Entrepreneur - Concept and Meaning:
The term “Entrepreneur” is derived from the French verb “entreprendre” which means
“to undertake a business venture”. An entrepreneur is one who plays a significant role in
the economic development of a country.
Basically an entrepreneur can be regarded as a person who has the initiative skill and
motivation to set up a business of his own and who always looks for high achievements.
He is a catalyst of social change and works for the common good.
The word entrepreneur came into use in the 18th century with advent (coming) of
industrial revolution in England. During this period people began to show an innovative
spirit in their business activities. E.g. the invention of colour photography and colour
television was the outcome of the innovative skills and efforts of those people, who had
the ideas and developed them to their success. He evaluates a new situation for profitable
investments.
The term entrepreneur is used in various ways and various views.
These views are broadly classified into three groups namely,
1) Risk-bearer 2) Organizer 3) Innovator.
1) Entrepreneur as a Risk-Bearer
Richard Cantillon, an Irish man living in France was the first one to introduce the term
entrepreneur in the early 18th century.
He defined entrepreneur ‘as an agent who buys factors of production at certain prices to
combine them into a product with a view to selling it at uncertain prices in future’.
Thus he makes decisions about obtaining and using the resources while consequently
admitting the risk of enterprise.
There are two types of risks
A. Insurable risks:
Risks that can be insured against fire, accidents, death, etc
B. Non-Insurable risks:
Risks that cannot be insured. Eg. Risk of change in future prices, change in fashion,
risks of loss, etc.
2) Entrepreneur as an organizer.
One who organizes or mobilizes the four factors of production (Man. Machine, Money
and Materials also called as 4 M’s of production) for the production of the goods or
services.
3) Entrepreneur as an Innovator:
In the year 1934 Joseph A. Schumpeter assigned a crucial role of innovation to the
entrepreneur. He defined an entrepreneur as “an individual who introduces something
new in the economy.
According to J. Schumpeter innovation touches the following situations.
The introduction of a new product in the market
Instituting of new methods or new technologies of production, which are not yet
tested by experience in the field of concerned manufacturing.
The opening of a new market into which the specific product has not previously
entered.
The discovery of a new source of supply of raw material.
Bringing out changes in the organization and management.
Entrepreneurship
According to Peter 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.’
Entrepreneurship is a discipline with a knowledge base theory. It is an outcome of
complex socio-economic, psychological, technological, legal and other factors. It is a
dynamic and risky process. It involves a fusion of capital, technology and human talent.
Entrepreneurship is equally applicable to big and small businesses.
In simple words Entrepreneurship can be described as a process of action an entrepreneur
undertakes to establish his enterprise.
The above description of entrepreneurship brings out the following points:
Entrepreneurship is a process of systematic and innovative actions.
Entrepreneurship is a creative activity.
Entrepreneurship is the ability to create and build something from practically
nothing.
Entrepreneurship is the art of sensing opportunity where others see chaos,
contradiction and confusion.
Entrepreneurship is the attitude of mind to seek opportunities, take calculated
risks and derive benefits by setting up a venture.
Entrepreneurship comprises of numerous activities involved in conception,
creation and running an enterprise.
Entrepreneurship is the purposeful and organized search for change, conducted
after systematic analysis of opportunities in the environment.
Enterprise:
Entrepreneur is a person who starts an enterprise. The process of creation is called
entrepreneurship. The entrepreneur is the actor and entrepreneurship is the act. The
outcome of the actor and the act is called the enterprise.
An enterprise may be defined as ‘the business organization that is formed as the outcome
of entrepreneurs actions and which provides goods and services, creates jobs,
contributes to national income, exports and overall economic development.’
Differentiating Entrepreneurs and Intrapreneurs
Who are Intrapreneurs?
The term Intrapreneur was first used by Macre in the year 1976 to refer to those
Entrepreneurs who emerge form with in the existing enterprises and organizations.
Recently, a new breed of entrepreneurs is coming to the forefront in large industrial
organizations, who emerge from within the confines or boundaries of an existing
enterprise. They are commonly referred to as intrapreneurs.
In big organizations the top executives are encouraged to catch hold of new ideas and
then change these into products through research and development (R & D) activities
within the framework of organization. These top officials are known as “Intrapreneurs”.
The concept of “Intrapreneurship” has become very popular in developed countries.
It is found that an increasing number of intrapreneurs is leaving their jobs in big
organizations and starting own enterprises. And many of such intrapreneurs have
become exceedingly successful in their ventures.
Differences between Entrepreneur and Intrapreneur:
Points of Differences
Entrepreneur Intrapreneur
Dependency An entrepreneur is an
independent business
man.
An intrapreneur is dependent on the
entrepreneur. He works under the
chief executive / promoter.
Funds / Capital An entrepreneur himself
raises the funds / capital
needed.
Funds are not raised by the
intrapreneur. He uses the capital
raised by the company.
Risk Entrepreneur bears the
risk involved in the
business.
An intrapreneur may not be
required to fully bear the risk
involved in the enterprise.
Operation An entrepreneur operates
from outside.
An intrapreneur is an organizing
man operating from within the
organization itself.
2) Entrepreneur and Manager:
Are all small entrepreneurs managers? Are all small business managers entrepreneurs?
The terms entrepreneur and manager are many times used interchangeably yet they are
different. An entrepreneur starts a venture then a manager takes over to organize and co-
ordinate continuous production. An entrepreneur is being enterprising as long as he starts
something new then the routine day-to-day management of the business is passed on to
the manager.
Thus, an entrepreneur is a person who finds out an idea of doing the business. He invests
his funds, starts the business, takes the risk, and organizes business activities.
A manager is appointed by an entrepreneur as an employee to look after administrative
activities.
The main differences between the two are summed up below:
Differences between a manager and an entrepreneur:
Points of
Differences Entrepreneur Manager
Motive The main motive of an entrepreneur
is to start a venture by setting up an
enterprise.
The main motive of a manager is to
render his services in an enterprise
already setup by someone else.
Status An entrepreneur is the owner of the
enterprise.
A manager is the servant in the
enterprise owned by the entrepreneur.
Risk - bearing An entrepreneur being the owner of
the enterprise assumes all risks and
uncertainty involved in running the
enterprise.
A manager as a servant does not bear
any risk involved in the enterprise.
Rewards The reward an entrepreneur gets for
bearing risks involved in the
enterprise is profit which is highly
uncertain.
A manager gets salary as reward for
the services rendered by him in the
enterprise. Salary of a manager is
certain and fixed.
Innovation Entrepreneur himself thinks over
what and how to produce goods to
meet the changing demands of the
customers. Hence he acts as an
innovator also called a change agent.
Or catalyst of social change.
But what a manager does is simply to
execute the plans prepared by the
entrepreneur. Thus a manager simply
translates the entrepreneurs ideas
into practice (a new product /service)
Qualification An entrepreneur needs to possess
qualities and qualifications like high
achievement motive, originality in
thinking foresight, risk bearing
ability and so on.
On the contrary a manager needs to
possess distinct qualifications in terms
of sound knowledge in management
theory and practices.
Characteristics of an Entrepreneur
There are certain characteristics of entrepreneurs which are found usually prominent in
them. The principal ones are discussed below:
Hard Working:
Willingness to work hard distinguishes a successful entrepreneur from unsuccessful one.
His tireless, tedious and laborious work enables him to revive his business, even at the
face of failure.
Desire for high achievement:
The entrepreneurs have a strong desire to achieve high goals in business. This high
achievement motive strengthened them to surmount the obstacles suppress anxieties
repair misfortunes and run a successful business.
Highly Optimistic:
The successful entrepreneurs are not disturbed by the present problems faced by them.
They are Optimistic for future that the situations will become favorable to business in
future. Optimism means seeing good side or brighter side of life or business.
Independence:
One of the common characteristics of the successful entrepreneurs has been that they don
not like to be guided by others and to follow their routine. They like to be independent in
the matters regarding their business.
Foresighted:
The entrepreneurs have a good foresight to know about future business environment.
They will visualize the likely changes to take place in market. Consumer attitude,
technological developments and take actions accordingly.
Organizing Capacity:
An entrepreneur must have the ability to organize all production resources like man,
money, material an to channel them in such a way as to star up the enterprise and produce
goods.
Innovative skills:
Production is meant to meet the customer's requirement. In view of the changing taste of
customers from time to time the entrepreneurs must initiate (to start) research and
innovative activities to produce goods to satisfy the customers changing demands for the
products.
Entrepreneurial Competencies or Traits
Introduction:
A competence is referred to the characteristic of a person which leads to his or her
effective or superior performance in a job. A job competence is a good combination of
one's underlying characteristics such as one's knowledge, skill, motive, etc which one
uses to perform a given job well. The underlying characteristics possessed by an
entrepreneur which result in superior performance are called the entrepreneurial
competencies or trait.
Knowledge: It means collection and retention of information in one's mind. It is
necessary for performing a task but not sufficient.
Skill: It is the ability to demonstrate a system and sequence of behavior which results in
something observable and something that one can see.
Motive: It is an urge to achieve ones goal. This continuous concern over goal
achievement directs a person to perform better and better.
Thus in order to perform any task effectively and successfully including establishing and
running an industrial unit a person needs to possess a set of knowledge, skill and motive
which could be together.
Major Entrepreneurial Competencies:
People used to believe that entrepreneurs are born not made. In other words, persons with
business family background could become successful entrepreneurs. Subsequently the
sharpened knowledge of entrepreneurial competencies over the last four decades made
people believe that entrepreneurs are made and not born. According to this view, persons
possessing proper knowledge and skill acquired through education and experience can
become successful entrepreneurs. The following are the major competencies that led to
superior performance of the entrepreneurs:
1. Initiative: It is entrepreneur who initiates a business activity. He does things before
being asked by events.
2. Looking for opportunities: He looks for an opportunity and takes appropriate
actions as and when arise.
3. Persistence: He follows the Japanese Proverb "Fall seven times; stand up eight".
He makes repeated efforts to overcome obstacles that get in the way of reaching
goals.
4. Information seeker: Takes individual research and consults experts to get
information to help reach the goal.
5. Quality Conscious: He has always strong urge to excel to beat the existing
standard.
6. Committed to Work: Does every sacrifice to get the task completed.
7. Efficiency Seeker: Makes always tenacious efforts to get the task completed with
in minimum costs and time.
8. Proper Planning: Formulates realistic and proper plans and then executes
rigorously to accomplish the task.
9. Problem Solver: Always tries to find out ways and means to tide over the difficult
times.
10. Self – Confidence: A strong believer in his strength and abilities
11. Assertive: Good in asserting his issues with others for the cause of his enterprise.
12. Persuasive: Able to successfully persuade people to do what he actually wants
from them.
13. Efficient Monitor: Personally supervises the work so that it is done as per the
standards laid down.
14. Employees' Well Wisher;; Has great concern and also takes necessary measures to
improve the welfare of the employees working in his enterprise. Treats employees
as a factor of production having emotions and feelings.
15. Effective Strategist: Introduces the most effective strategies to effect employees to
achieve the enterprise goals whatsoever it may be.
Developing Competencies: Competency results in superior performance. This is
exhibited by one's distinct behavior in different situations. Entrepreneurial competency
development is discussed as below:
1. Competency Recognition: Acquisition of a new behavior begins with
understanding and recognition of what a particular behavior means.
2. Self – Assessment: Once the particular competence is understood and recognized,
the next sep towards acquiring a particular behavior is to see whether one possesses
the particular competence or not. If yes, then to see how frequently one exhibits the
same in his practical life.
3. Competency Application: Having known where one stands with respect to a
particular competency one needs to practice the same on a continuous basis in
various activities. In order to make a new behavior as a part of one's personality. the
particular behavior or competency needs to be applied frequently even in the
simplest activities that one performs in ones day-to day life. This is because practice
makes a man perfect.
4. Feedback: After understanding, internalizing and practicing a particular behavior or
competency, one needs to make an introspection of the same in order to sharpen and
strengthen one's competency. This is called 'feedback'. In simple words feedback
means to know the strengths and weaknesses of one's new behavior. This helps to
know how the new behavior has been rewarding.
Thus the underlying characteristics of an entrepreneur which result in superior
performance are called the entrepreneurial competences. Knowledge, skill, and motive
are the components of competencies. Competencies can be injected in human being
through education and training. Practice helps develop competencies.
Entrepreneurship & Small Business
Introduction:
The importance of small business was highlighted by many thinkers like Schumpeter, and
others.
Schumpeter’s famous book: “Small is beautiful”, stressed on to convert big industries
into smaller, flexible business units due to its advantages.
The Small Scale Sector is the natural habitat of entrepreneurs. Most entrepreneurs start
small and then nurture their units into large industries. The SSI Sector provides an
opportunity for them to hone their skills and talents, to experiment, to innovate and
transform their ideas into goods and services needed by the society.
Over the last six decades the Small Scale Industry sector has emerged as a highly vibrant
and dynamic sector. It has acquired a prominent place in the socioeconomic development
of the country. Mostly this sector exhibited positive growth trends even during periods
when other sectors of the economy experienced either negative or nominal growth.
A very fast growth of small business units is witnessed all over the world especially in
USA, Japan, Taiwan, China etc.
The importance of small business:
1) Employment potential: Creation of maximum amount of employment
opportunities, including that of self employment.
2) Low capital requirements: Creation of ventures (business) that requires small
investment.
3) Quick yielding: Production of consumer goods on a large scale. The fruition lag
(gestation period) is shorter than large industries.
4) Mobilization of local skill and capital.
5) Balanced regional development: Equitable (equal) distribution of industrial
units into all areas of Oman.
Nature and Characteristics of Small Businesses:
Small-scale industries have certain unique features, which distinguish them from the
Large-scale sector. Some of the salient characteristics of small-scale businesses are
given below.
1. Personal Character: In most small businesses the owners themselves are managers
and so they can operate independently. They can give customized service to their
clients, which in many cases is their USP.
2. Flexibility: Since most small businesses are a one-man show they do not have to go
through a hierarchy to get permissions to make changes. Small business can
respond quickly to environmental trends. Nimbleness and agility are characteristics
that allow small entrepreneurs to understand market conditions and rapidly respond
to changes.
3. Labor Intensive: Small businesses have tremendous capacity for employment
generation through their labor intensive techniques. Small businesses actually create
more jobs than big businesses. This feature of a small-scale unit is of great
significance in a country like Oman where the number of unemployed people is
phenomenal.
4. Local Area of Operation: Small businesses are largely local in operation; however
the market for its products may be local, regional or even international.
5. Short Gestation Period: The capital investment in the small sector is generally low
and the time taken for production to commence is also less. As a result of short
gestation period the units give quick returns and consequently the pace of economic
development quickens.
Problems associated with Small Businesses
While the small entrepreneurs can set up a unit even with less capital, enjoy quick returns
and have the flexibility to handle the vagaries of the market, they have to face many
problems like the following:
1. Paucity of Finance: The small entrepreneurs possess a weak financial structure and
find it extremely difficult to obtain credit because of lack of collateral security. This
acts as a big handicap, especially in the initial stages, in most of their operations
like their ability to hire the best workers or to purchase the latest machinery and
equipment or to acquire sophisticated technology.
2. Poor availability of power and other infrastructure: Though infrastructural
bottlenecks are problems for big businesses too, yet they can overcome these
problems to some extent because of their financial strength e.g. generating their
own power, or even influencing the government in framing its policies sometimes.
The small entrepreneur on the other hand has to battle with them.
3. Obsolete Technology: Most small businesses use old technologies because they
cannot afford better. As a result the quality of their goods is inferior and the cost of
production is higher than in case of other big ventures. This has acted as a serious
handicap especially after opening up of the economy when they have had to
compete with imported goods.
4. Marketing Problems: The small entrepreneur cannot supply standardized goods of
high quality and as a result cannot compete with products of large companies or
MNCs. They usually do not have a brand name or loyalty, as there are hardly any
funds for advertising or sales promotion. All these increase their marketing woes.
5. Poor Managerial and Organizational Skills: usually the entrepreneur has to
perform a multitude of diverse functions invariably without having any exposure to
professional education or formal training. The large sector on the other hand can
hire the best qualified and trained people.
6. High Incidence of Sickness: On an average 5 out of 10 small businesses usually
fall sick and die within 3 to5 years and this rate is even higher in Oman. Main
causes for this are a wrong choice of product, poor managerial skills, lack of
experience, poor quality of products because of the use of old technologies, etc.
Apart from the above-mentioned problems the small entrepreneur has weak bargaining
power to deal with suppliers and financial institutions, has to face bureaucratic red-
tapism and is unable to invest in R & D. After the opening up of the economy the small
sector has been finding it extremely difficult to compete with the high quality goods
available in the market.
Role of Small Businesses in National Economy
Small businesses have played a very crucial role in transforming the economies of many
countries from backward primary sector economies to their present stature. Its benefits
range from creating job opportunities for millions of people, including many with low
levels of formal education. It nurtures the inherent entrepreneurial spirit in far flung
corners of the nation resulting in the growth and development of all regions. The small
scale sector contributes specifically in the following areas:
1. Employment Generation: The Small Business sector has a greater potential of
employment generation per capita investment as compared to large-scale sector. For
example, In India every Rupees 1.0 million (OR 8000) of investment, the small-scale
sector provides jobs to 26 people as compared to 4 jobs created in the large-scale
sector.
2. Low Initial Capital Investment: Another common feature of most of the
developing economies is the scarcity of capital. The modern large-scale sector
requires colossal investments whereas the small sector is just the opposite. Not only
is the employment capital ratio high for the SSI but the output capital ratio is also
high.
3. Balanced Regional Development: Dispersion of small business in all parts of the
country helps in removing regional imbalances by promoting decentralized
development of industries. It helps in industrialization of rural and backward areas. It
also helps to reduce problems of congestion, pollution, housing, sanitation etc.
4. Equitable Distribution of Income: This is a natural corollary of the above. When
entrepreneurial talent is tapped in different regions and areas the income is also
distributed instead of being concentrated in the hands of a few individuals or
business families.
5. Promotes Inter-Sectoral Linkages: SSI units are supplementary and
complementary to large and medium scale units as ancillary units. Many small units
produce sub-parts, assemblies, components and accessories for the large-scale sector
especially in the electronic and automotive sectors.
6. Exports: The most significant contribution of the SSI has been in the field of
exports. There has been a significant increase in the exports from this sector of both
traditional and non-traditional goods including jewelry, garments, hand tools,
handicrafts etc.
7. Development of Entrepreneurship: Small business taps the latent potential
available locally. This way they facilitate the spirit of enterprise, which results in
overall growth, and development of all the regions /sectors of the nation.
Small Business as Seed-Bed of Entrepreneurship
Small business is the natural habitat of an entrepreneur. They serve as a nursery of
entrepreneurial and managerial talent. Initially the capital investment in small ventures is
nominal and the technology used is low, so it becomes easy for first time entrepreneurs to
set up a venture. In the beginning usually these ventures are a “one man show” where the
entrepreneur looks after the myriad functions of production, marketing, finance, legal etc.
The entrepreneur gets a chance to increase his knowledge, skill and competence. He takes
decisions independently and it is in these circumstances that entrepreneurial talent
blossoms.
In developing economies it is through a large number of such small enterprises started by
these imitator entrepreneurs that a chain reaction is set into motion, which leads to
cumulative progress. It is pertinent to note that nearly 70 percent of the total innovations
in the world have come from the Small Scale Sector. Many of the big businesses today
were all started small and then nurtured into big businesses.
Small business mobilizes small savings, taps the latent entrepreneurial talent across
regions and provides a platform for them to develop and fine-tune their entrepreneurial
spirit. In the process the entire country benefits in the form of goods and services and
higher standard of living.