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UNIT 1

ENTREPRENEURSHIP
INTRODUCTION AND DEFINITION
MEANING OF ENTREPRENEURS
TYPES OF ENTREPRENEURS
DIFFERENCE BETWEEN ENTREPRENEURS AND
MANAGERS
MEANING AND DEFINITION
According to A Schumpeter Entrepreneurship is essentially a
creative activity or it is an innovative function.
Entrepreneurship is usually understood with reference to individual
business, and has been identified with the individual as success of
an enterprise depends upon imagination, vision, innovativeness and
risk taking. Production is possible due to the cooperation of various
factors of production, eg land,labour, capital, market, management
and of course entrepreneurship.
Thus entrepreneurship is a risk-taking factor which is responsible
for the end result in the form of profit or loss.
Thus we can sum up that Entrepreneurship is the propensity of the
mind to take calculated risks with confidence to achieve a
predetermined objective that is industrial or business objective.
It is the risk taking ability coupled with the correct decision making.
MEANING AND DEFINITION OF
ENTREPRENEURS
According to J.A Schumpeter a person who introduces innovation
changes is an entrepreneur. He is an integral part of economic
growth and is the fundamental source of equilibrium.
According to Peter Drucker An Entrepreneur is a person who always
searches for change, responds to it and exploits it as an
opportunity. Innovation is the specific tool of entrepreneurs.
According to H. Dantroff entrepreneur is a person who makes
decision under alternative course of action.
Thus an entrepreneur is an important input of economic
development.He is a catalyst of economic development.
An entrepreneur is one who innovates, raises money, assembles
inputs, chooses managers and sets the organisation going with his
ability to identify them. Innovation occurs through a new product,
a new quality in a product, discovery of a fresh demand and a fresh
source of supply.

TYPES OF ENTREPRENEURS
Entrepreneurs have been broadly classified according to the type of business,
motivation, professional skill, growth and stages of development.
According to the type of Business:
Business entrepreneursThey are those individuals who conceive an idea for a
new product or service and then create a business to materialize their idea into
reality.
Trading entrepreneurs Is one who undertakes trading activities and is not
concerned with manufacturing work.
Industrial entrepreneursIs essentially a manufacturer who identifies the
potential needs of customers and tailors a product to meet the marketing needs.
Corporate EntrepreneursIs a person who demonstrates his innovative skills in
organising and managing corporate undertaking.
Agriculture EntrepreneursThey are those people who undertake agricultural
activities as raising and marketing of crops, fertilizers and other inputs of
agriculture.They are motivated to raise agriculture through mechanisation,
irrigation and application of technologies for dry land agriculture products.
TYPES CONTD.
According to the Use of Technology:
Technical EntrepreneursHe is essentially compared to a
craftsman. He develops improved quality of goods due to
his craftsmanship.
Non Technical EntrepreneurAre those who are not
concerned with the technical aspects of the product.Are
concerned with developing alternative marketing and
distribution strategies to promote their business.
Professional EntrepreneurIs a person who is interested
in establishing a business but does not have interest in
operating or managing it once it is established.
TYPES CONTD..
According to Motivation:
Pure EntrepreneurIs an individual who is motivated by
rewards.
Induced EntrepreneurIs one who is induced to take up
entrepreneurial task due to the policy measures of the
government that provide assistance, incentives,
concessions and necessary facilities to start a venture.
Motivated EntrepreneursNew entrepreneurs are
motivated by desire for self fulfillment.
Spontaneous EntrepreneursThese entrepreneurs start
their business by their natural talent.They are persons with
initiative boldness and confidence in their ability which
motivate them to undertake entrepreneurial activity.
TYPES CONTD..
According to Growth:
Growth EntrepreneurAre those who
necessarily take up a high growth industry
which has substantial growth prospects.
Super Growth EntrepreneursAre those who
have shown enormous growth of performance
in their venture.The growth performance is
identified by the liquidity of funds,
profitability and gearing.
TYPES CONTD
According to Stages of Development:
First Generation EntrepeneurIs one who starts
an industrial unit by innovative skill. He is
essentially an innovator.
Modern EntrepreneurIs one who undertakes
those ventures which go well along with the
changing demand in the market.
Classical EntrepreneurIs one who is concerned
with the customers and marketing needs through
the development of a self supporting venture.
TYPES CONTD
According to area:
Urban entrepreneur-those from an urban set
up
Rural Entrepreneur-Those from a rural set up.
According to gender and age:
Men and Women Entrepreneurs.
Others
Depending upon other qualities.

THEORIES OF ENTREPRENEURSHIP
Theories of Entrepreneurship are broadly
classified into economic, psychological,
sociological and cultural.
The phenomenon of entrepreneurship
development has been viewed explained and
interpreted differently by social scientists.
The concepts of entrepreneur and
entrepreneurship have been investigated from
economic, social, political cultural and managerial
points.
THEORIES
THEORY 1An Economic Theory
Marc Casson in his book The Entrepreneur An Economic
Theory, presented a functional definition of entrepreneur
and considered why the entrepreneurial function is so
valuable.
He emphasised that the demand for entrepreneurship
stems from the need to adjust to change.
Supply of entrepreneurship is limited firstly by the scarcity
of requisite personal qualities and secondly by the difficulty
of identifying them when they are available.
He suggested that there are four main qualities of a
successful entrepreneur of which one imagination is almost
entirely innate, the other three may be enhanced.
THEORIES
THEORY2 LEIBENSTEINS X-EFFECIENCY THEORY
This theory originally developed for another purpose, has been
applicable to analyze the role of the entrepreneur.
Basically the X-Efficiency is the degree of inefficiency in the use of
resources within the firm. It measures the extent to which the firm
fails to realize its productive potential.
X-Efficiency arises either because the firms resources are used in
the wrong way or either because they are not used at all.
Leibensteins identifies two main roles for the entrepreneur. The
first role is input completion which involves making available those
inputs which improve the efficiency of existing production methods.
The second role is gap filling that is visualising the economy as a net
made up of nodes and pathways.
THEORIES
THEORY-3 DYNAMIC ESHIP INNOVATION THEORY
A Dynamic theory of eship was first advocated by Schumpeter who
considered entrepreneurship as the catalyst that disrupts the
stationary flow of the economy and thereby initiates and sustains
the process of development. The entrepreneur activates the
economy to a new level of development. This he terms as
innovation and says that it has five functions
Introduction of a new method of production
Introduction of a new good
Opening of new market
Conquest of a new source of supply of raw materials
Carrying of a new organization of any industry.
His concept of innovation included the elements of risk taking and
coordination.
THEORY
THEORY-4 HARVARD SCHOOL THEORY
According to the Harvard School entrepreneurship comprises any
purposeful activity that initiate, maintain or develop a profit-
oriented business in interaction with the internal situation of
business or with political, economic and social circumstances
surrounding the business. This approach emphasizes two type of
activities: the organization or coordination activity and the
sensitivity to the environmental characteristics that affect decision
making.
Another factor of the Harvard tradition is emphasized on activities
such as searching and evaluating economic opportunities ,
mobilising resources necessary for the production process,
connecting different markets and creating or expanding the firm.
The essence of entrepreneurship consists in the alertness of market
participants to profit opportunities.

THEORIES
THEORY-5 THEORY OF HIGH ACHIEVEMENT
Mc Clelland identified two characteristics of entrepreneurship
namely doing things in a new and better way and decision making
under uncertainty. He stressed the need for achievement as the
most directly relevant factor for explaining economic behavior. This
motive is defined as the tendency to strive for success in situations
involving an evaluation of ones performance in relation to some
standard of excellence. People having high need for achievement
are more likely to succeed as entrepreneurs.McClelland explains the
entrepreneurs interest in profits in terms of a need for
achievement. Profit is merely a measure of success and
competency for people with high achievement need. People with
high achievement are not influenced by rewards as compared to
people with low achievement.
THEORIES
THEORY-6 THEORY OF PROFIT
Knight identifies the entrepreneur as a recipient of
pure profit. Pure profit according to him, with regard to
the entrepreneur is bearing the costs of uncertainty. He
identifies uncertainty with a situation where
probabilities of alternative outcomes cannot be
determined either by reasoning. Reasoning is simply
irrelevant to economic situation involving a unique
event.
Knight argues that business uncertainty can be reduced
through consolidation, it is a method of reducing total
uncertainty by pooling individual instances.
THEORIES
THEORY-7 THEORY OF ADJUSTMENT OF PRICE
For Kirzner, the adjustment of price is the main role of the
entrepreneur. If the wrong price prevails in the market,
then an opportunity for profit is created somewhere in the
market if a frustrated buyer or seller is willing to pay a
higher price or accept a lower one. Then again if different
prices prevail in the same market, there is scope for
profitable arbitrage between the two segments of the
market.
Alertness is a distinguishing characteristic of an
entrepreneur. It enables some individuals to intervene in
the market by changing the price while other individuals
simply respond by changing their buying and selling plans
due to the new price.

THEORIES
THEORY-8 HAGENS THEORY OF SOCIAL CHANGE
Everett Hagen in his work Theory of Social Change says that creative
personality is an individual characterised by a high need for achievement.
He views the entrepreneur as a creative problem solver interested in
things in the practical and technological realm, and driven by a duty to
achieve.
Hagen considers the withdrawl of status as the trigger mechanism for
changes in personality formation. Status withdrawl occurs in the following
four types of events:
Displacement of a traditional elite group from its previous status by
another traditional supply physical force.
Denigration of valued symbols through through some change in the
attitude of the superior group.
Inconsistency of status symbols with a changing distribution of economic
power.
Non Acceptance of expected status on migration to a new society.

DISTINCTIVE FEATURES OF
ENTREPRENEURS AND PROFESSIONAL
MANAGERS
Entrepreneurs and Managers are both answerable
for producing results. Both have to produce results
through people working with them, though they deal
with different sets of people.
Both are decision makers but the decisions are
different as their tasks vary.
Both have to operate under constraints which are
understandably different.
To be effective both have to follow sound principles
of management like planning, staffing, delegation
and control.
DISTINCTION BETWEEN
TRADITIONAL MANAGERS AND
ENTREPRENEURS
Managers Entrepreneurs
Are power motivated eg promotion Are goal oriented self
reliant,self motivated
Respond to quotas and budgets, End goals of 5-10 years
Weekly, quarterly, next promotion growth as guides and
move furthar
Delegate action, supervising, Gets hands dirty, may
Reporting upset employees, by
suddenly doing their
work
DIFFERENCES CONTD..
Managers Entrepreneurs
Professional training, often Knows business intimately
Business school trained, people more business acumen
People management, political skills than managerial or
political skill, often
technically trained
Attention mainly on events Attention mainly on
Inside the corporation technology and market
Risk-careful Likes moderate risks, but
invests and expects to
succeed
DIFFERENCES CONTD
Managers Entrepreneurs
Has market study done to Creates needs and
Discover needs and products and products that often
cant be tested with
market research
Cares about status symbols Happy sitting on an
orange crate if job is done
Strives to avoid mistakes Deals with mistakes and
failures as learning
experiances
DIFFERENCES CONTD.
Managers Entrepreneurs
Agrees with those in power Follows own vision,
decisive, action oriented
Sees system as protective,seeks may rapidly advance in a
Position within it system, and form a new
one if required
Pleases others Pleases self and
customers
Highly educated Less well educated in
earlier studies, but con
fident, self motivation
INTRAPRENEURS
A new breed of corporate entrepreneurs has
come into force in large organizations.
They are called intrapreneurs, they are those
entrepreneurs who catch hold of a new idea
for a product, service, process and work to
bring this idea to success within the
organization.Intrapreneurs are considered as
valuable assets to the organization due to
their innovation and dedicated effort. They
can successfully start their own businesses.

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