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Chapter 1 Small Business: Its meaning

Dr. Gopalakrishna BV Associate Professor, AJIM, Mangalore

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

Entrepreneur is an economic agent play an important role in economic development of a country. He possesses required knowledge, skills, initiative, drive and spirit of innovation and aims to achieve goals. He is dynamic persons, who brings changes in process of production, innovation in business, new ideas etc. The term Entrepreneur is derived from French word Entreprendre = ahn + tra + pra + nur = which means is a person who organises and manages a business undertaking, assuming the risk for the sake of profit.

Generally speaking, entrepreneur refers to a person who establishes his own business or industrial undertaking with a view to making profits. An entrepreneur is considered to be an originator of a business venture. He takes the role of an organiser in the process of production. In the beginning the term entrepreneur used by musical or other entertainment. Later in 16th century it was used for army leaders

In 17th century Civil Engineering uses this for construction activities. Only in 18th century 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 of production.

Definitions English Dictionary, 1987 An entrepreneur is a person who sets up business deals in order to make a profits. J.B Say (1803) An entrepreneur is the economic agent who unites all means of production. Richard Cantillon An entrepreneur is the agent who buys factors of production at certain prices with a view to setting its product at uncertain prices. He bearer risk, which is noninsurable.

Peter F. Drucker Entrepreneur is one who always 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 his profits by innovations. Innovations involve problem solving and the entrepreneur gets satisfaction from using his capabilities in attacking problems.

Schumpeter (1952) An entrepreneur in an advanced economy is an individual who introduces something new in the economy a method of production not yet tested by experience in the branch of manufacture concerned, a product with which consumers are not yet familiar, a new source of raw-materials or of new markets and the life. Accordingly to him the functions of an entrepreneurship are
Introduction of new product Introduction of new methods of production Development of new markets and finding fresh sources of raw-materials and Making changes.

Thus, an entrepreneur is always action-oriented. He has the ability to visualise the necessary steps involved from idea generation to its actualisation. He is both a thinker and doer, planner and worker. He is accepts risk and manges it. To summarise, an entrepreneur is the person who bears risk, unites various factors of production, to explore the perceived opportunities in order to evoke demand, create wealth and employment.

Concept of Entrepreneur As said above definitions on entrepreneur are broadly classified into three groups
Risk Bearer

Entrepreneur

Organiser

Innovator

Innovation

New process & production Creation of new market New Technology New sources of raw material New sources of transport & communications

RiskBearing

Functions of Entrepreneur

Assembling Factors of Production

Organization & Management

Decide project Raise Finance Plan Production Manage Enterprise Earn Profit

1. Entrepreneur as risk bearer Richard Cantillon defined entrepreneur as an agent who buys factors of production at certain prices in order to combine them into a product with a view to selling it at uncertain prices in future. He pays contractual income rent for land, wages and 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.

2. Entrepreneur as an organiser According to J.B. Say an entrepreneur is one 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.

3. Entrepreneur as an innovator J.A Schumpeter (1934) considered economic development as a dynamic change brought by entrepreneur by instituting new combinations of factors of production i.e., innovation. The introduction of a new combination according to him
1. Introduction 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-materials. 5. Bringing out of new form of organisation.

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 and handles economic uncertainty involved in enterprise.

World famous and Successful Entrepreneurs


Sl No. Name of the successful Entrepreneurs Areas of enterprises
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. Steve Wozniak Bill Gates Oprah Winfrey Michael H & Jay Arrington Steven Spielberg Vera Wang Donald Trump Russel Simmons Gordon Moore Tyler Perry Bill Hewlett Mark Burnett Larry Page & Sergey Brin Ted Turner Apple Computers Microsoft Harpo inc. Harpes Arring to Publishing and media Film Industry Vera Wang Fashions Trump Enterprises Pat Farm Clothing Intel Corporation Tyler Perry Productions Hewlett Packard Television Show Producer Google Turner Broadcasting

10 most famous Entrepreneurs from India


Sl No. 1. 2. Name of the successful Entrepreneurs Tulsi Tanti Shiv Nadar Area of enterprises (industry) Suzion Energy Limited Hindustan Computers Limited (HCL)

3.
4. 5. 6. 7. 8. 9. 10.

Rahul Bajaj
Dr. Pratap Reddy Naresh Goyal Narayana Murthy Anil Dhirubhai Azim Premji Ekta Kapoor Kiran Mazumdar Shaw

Bajaj Group
Apollo Hospital Groups Jet Airways Infosys Technology Limited Anil Dhirubhai Ambani Groups Wipro Technologies Queen of Indian Television Biotechnology Company in India

Evolution of Entrepreneur The term entrepreneur is derived from the French word Entreprendre which mean to undertake business activities for the sake of profits. However the current meaning of entrepreneur has evolved through centuries of various usages of the same word. Some stages of the evolution of the concept entrepreneur are as follows In the beginning the term entrepreneur used by musical entertainment. Middle Age Actor or person-in-charge of large scale production project.

16th Century people who organised and led military expeditions in France. 17th Century Person bearing the risk of either profit or loss in a fixed-price contract with the government. 18th Century An entrepreneur as a person is risktaking and different from the person who supplies capital. 19th Century An entrepreneur is distinct from both a financier as well as manager. A Finacier receives interest for funds supplied while a manager receives salary for responsibilities discharged. 20th Century An entrepreneur came to be know as an innovator and risk-taker during the middle of 20th century.

Characteristics of entrepreneur
An entrepreneur is a highly goal oriented, enthusiastic and energetic individual. Anybody can become an entrepreneur provided he has got a certain set of behaviour traits and mental aptitudes. His success depends more on hard work than good luck. He must be a DOER and not a DREAMER. The success of an entrepreneur depends largely on his intelligence, imagination capacity to innovate and his ability to turn visions into realities.

It is not necessary that he should possess


a professors intelligence, a prophets foreseeing capacity, a salesmans persuasiveness, a bankers financial talent, a politicians power, a filmstars magnetic personality.

The only capacity, very essential to become an entrepreneur is the willingness to work hard.

1. Action-oriented highly motivated and ready to take risk at all levels to achieve the goal. 2. Should have unwavering determination and commitment. 3. Creativeness and result oriented, hardworking 4. Accepts responsibilities with enthusiasm 5. Self confident, dedicated and self disciplined 6. Both thinker and doer, planner and worker 7. Future vision, intelligent, imaginative and self directed.

Characteristics of Entrepreneur
E N T R E P R E N E U R Effective communication Negotiating skills Total commitment/tactical/team man Risk-taking ability Emotional Stability/Ethical Problem solving Result oriented Energetic Net working ability Excellence in Economics Unambiguous Real Innovator

Accepting Challenges

Decision Making

Organisation

Risk Taking

Skillful Management
Management of the enterprise A Success

Innovation

Entrepreneurship

1. Vision An entrepreneur has a dream and visualizes to achieve that dream. In doing so he visualises marked demand, socioeconomic and technical environment. Without a vision of making a big mark on the mobile industry Dhirubhai and now Ambani could not have made what Reliance Communication is today. 2. Knowledge An entrepreneur has sound conceptual knowledge about all the technicalities of his business. Technological, operational, financial or market dynamics. For example without sound knowledge of computers Narayanamurty could not have made Infosys what it is today.

3. Desire to succeed An entrepreneur has a strong desire to succeed in life. Their dreams are not just limited to achieving one single goal but they constantly work to achieve higher goals. For example Mukesh Ambani Retail, Real Estates and Bio-tech. 4. Independence An entrepreneur needs independence in work and decision-making. They dont follow 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 and Arzoo.Com.

5. Optimism Entrepreneurs are highly optimistic about achieving their vision Narayanamurthy Infosys for example. 6. Value Addition Entrepreneurs do not follow the conventional rules of thumb. They have a constant desire to introduce something new to the existing business. They create, innovate or add value to the existing products and services. Without the value addition of introducing life time free incoming call Tata Indicom.

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. Hardworking work 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.

9. Desire to have control over their own fate Entrepreneurs do not want to move in herds like 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 ability as the most integral element in defining entrepreneurial characteristics.

Types of Entrepreneurs
1. 2. 3. 4. Low growth Entrepreneur Medium growth Entrepreneur High growth Entrepreneur Very high Entrepreneur

Growth of Entrepreneurs

Types of Business

1. 2. 3. 4. 5. 6. 7.

Business Entrepreneur Trading Entrepreneur Industrial Entrepreneur Corporate Entrepreneur Agricultural Entrepreneur Retail Entrepreneur Service Entrepreneur

Use of Technology

1. 2. 3. 4. 5.

Technical Entrepreneur Non-technical Entrepreneur Professional Entrepreneur High-tech Entrepreneur Low-tech Entrepreneur

According to Area

1. Urban Entrepreneur 2. Rural Entrepreneur

Gender and Age

1. 2. 3. 4.

Men Entrepreneur Women Entrepreneur Young Entrepreneur Old Entrepreneur

Stage of Development

1. First Generation of entrepreneur 2. Classical Entrepreneur 3. Modern Entrepreneur


1. Small Scale Entrepreneur 2. Medium Scale Entrepreneur 3. Large Scale Entrepreneur 1. 2. 3. 4. Innovating Entrepreneurs Adoptive Entrepreneurs Fabien Entrepreneurs Drone Entrepreneurs

Scale of Entrepreneur

Others

Scale of Production

Small Scale Entrepreneur

Medium Scale Entrepreneur

Large Scale Entrepreneur

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 an opportunity. He creates new values or increases the value of what already exists.

Joseph Schumpeter, only the innovating persons are designated as entrepreneur. The ordinary producers repeat the same production for years where as innovators produce new goods in new ways and enter into new strategies.
1. Introduction 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-materials. 5. Bringing out of new form of organisation.

2. Adoptive or imitative Entrepreneur Imitative entrepreneur is one who is ready to adopt the successful innovations already inaugurated by innovating entrepreneurs. In other words, an imitative entrepreneur does not innovate anything by himself, but he only imitates techniques and technologies innovated by others. He follows the innovators after carefully observing how the later fare and to what extent their innovation has caught the imagination of the society. Such types of entrepreneurs are particularly suitable for the under-developed regions. For example the Cochin Shipyard has been constructed by using the innovative technology provided by Mitsubishi Heavy Industries Ltd by Japan.

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 totally uninterested in taking risk and imitating successful entrepreneurs.

4. Drone Entrepreneurs Drone entrepreneur is one who blindly follows 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

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 these needs and wants. It would include all the entrepreneurs essentially into manufacturing. 2. Trade Entrepreneurs Trading entrepreneur is one who undertakes trading activities (buying and selling of goods and services) and is not concerned with manufacturing of products. He identifies potential markets, stimulates demands and generates interest among buyers to purchase a product.

3. Agricultural Entrepreneurs Agricultural entrepreneurs are those entrepreneurs who undertake business related to agricultural activities. Like farm equipments, fertilizers and other inputs of agriculture. 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 where entrepreneurs provide service to people. 5. Corporate entrepreneurs Corporate entrepreneurs undertake their business activities under legally registered company or trust.

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 is one whose aim is to maximize the economic returns at a level consistent with the survival of the firm, with or without element of growth. Modern Entrepreneur Modern Entrepreneur is one who undertakes business to satisfy the contemporary demands of the market. They undertake those venture which suit the current socio-cultural trends.

Use of Technology Technical Entrepreneur - is essentially compared to a master craftsman who develops and improved quality of goods because of his technological expertise. In this type concentration is more on production than on marketing. Non-technical Entrepreneurs are those who are not concerned with the technical aspects of the product, but concerned only with marketing and distribution for promoting their business. High-tech Entrepreneurs who concerned with updated technical aspects of their product. Professional Entrepreneurs is a person who is interested in establishing a unit, but does not have interest in managing it , once it is established.

Rural Entrepreneurs Entrepreneurs selecting rural based industrial opportunity in either 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 rural area, population of which do not exceed 10,000 which produces 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 an enterprise owned and controlled by 16 women and having minimum financial interests of 51% of the capital and giving at least 51% of the employment generated in the enterprise to women. Women entrepreneurs play an important role in economy especially in rural areas.

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, decisionmaking 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 to the establishment of an enterprise.

1. Primary function Planning, organisation, decision-making, management, innovation, risk-bearing 2. Other function Diversification of production, expansion of the enterprise, maintaining cordial employer and employee relations, talking labour problems, coordination with outside agencies. 3. Functions important for developing countries Management of scarce resources, dealing with public, engineering, new product development, parallel opportunities, marketing, management, customer relation.

Function of Entrepreneur

Primary Function
Planning Organisation Decision-making Management Innovation Risk-bearing Uncertainty-bearing

Other Functions
Diversification of Production Expansion of the Enterprise Employer and Employee Takling Labour Problem

Functions important for developing countries


Management of scarce Resources Dealing with public New Product Development Parallel Opportunities Marketing Management Customer relations

Coordination with outside agencies

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 force Study selection of market strategies.

2.Organisation An entrepreneur coordinates and supervises the various tasks of organising for optimal utilisation of resources. 3.Decision-making He has to take effective decisions with regard to business objectives of the enterprises. Arrangement of resources men, material, machines, money, technology etc. 4.Management managing of the day-to-day problems. 5.Innovation he should be innovative in launching of new product, new technology, new market etc. 6.Risk-taking he should undertake responsibility of risk due to unforeseen situations.

Important functions of an Entrepreneur are 1. Idea generation 2. Determination of business objectives 3. Raising of funds 4. Procurement of machines and materials 5. Market research 6. Determining form of enterprise 7. Recruitment of manpower 8. Implementation of the project.

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.

2. Determination of business objectives Entrepreneur has to state and lay down the business objectives. Objectives should be spelt out in clear term. The entrepreneur must be clear about the nature and type of business. Whether manufacturing concern or service oriented unit or a trading business. 3. Determining form of enterprise Entrepreneur has to determine form of enterprise depending upon the nature of the product, volume of investment etc. The form of ownership are sole proprietorship, partnership, joint stock company, co-operative society etc.

4. Rising of funds All the activities of the business depend upon the finance and hence fund rising is an important function of an entrepreneur. An entrepreneur can raise the fund from internal source as well as external source. He should be aware 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.

5. Market research Market research is the systematic collection of data regarding the product which the entrepreneur wants to manufacture. Entrepreneur has to undertake market research persistently 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.

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 face competition boldly. While procuring machineries he should specify the technical details and the capacity. He should consider the warranty, after sales service facilities etc before procuring machineries.

7. Recruitment of manpower To carry out this function an entrepreneur has to 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.

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 the commissioning stage are to be accomplished by him in accordance with the implementation schedule to avoid cost and time overrun. He has to organise various resources and coordinate various activities. This implementation of the project is an important function of the entrepreneur.

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 entrepreneurial competencies High achievement and success, Risk-taking, Opportunity explorer, Planner, Stress taker, Facing uncertainties, Independent, Flexible, Self confidence, Motivation

James J. Berne has stressed the following qualities of good entrepreneur 1. He is an enterprising 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 quality 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 firm believer in planning and systematic work. 6. He works for the society at large and for the good of his fellow-being.

Success and Achievement

Risk-bearing

Opportunity & explorer

Motivation

Planner

Qualities of Entrepreneurs
Self-confident Stress taker

Flexible

Independent

Facing Uncertainties

1. Success and achievement The entrepreneurs are self directed to achieve goals. Strong desire to do something different from others Standard of excellence and success High self-esteem. 2. Risk-bearer Takes calculated risks career risk, financial risk, psychological risk, technological risks etc. Does not like to undertake tasks which are either very easy or impossible to achieve Undertakes tasks or makes decisions that involve a moderate probability of success and where he is sure that his efforts can influence success

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. 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 it positive ways. 6. Facing uncertainty They should face the uncertainties and unexpected outcomes and accept them sudden price increases, policy can be change, business recession etc.

7. Independent He is an independent person and likes to be his own master - He is a job given and not job seeker. An entrepreneur needs independence in work and decision-making. The entrepreneurs dislike controls from outsiders government, politicians etc. 8. Flexible He is an open minded person, flexible to adopt to demanding situational changes economic policy and budget policy etc.

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 good administrator. He should know the art of getting things done by other people without hurting their feelings or selfrespect. He initiates and influences people, motivates the people to accomplish the goals.

Entrepreneurial Skills Entrepreneurs do not shoot in dark room, they are not gamblers, yes they do take risks but only calculated 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 risk 4. Business Management risk 5. Technological risk

1. Career risk own 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 risk and on the other hand, his professional reputation is at risk. The career risks are
1. To work for someone else 2. To be a self-employed professional 3. To be an entrepreneur

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 finance which he has arranged from his savings and borrowings is at stake. 3. Psychological Risk Business involves a series of uncertainty due to consumer demands, competitors strategies, new innovations and substitute products, government polices, changing economic conditions and demographic trends etc.

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 The term Intrapreneur emerged in during the seventies. Several senior executives of big corporations left their jobs to start their own small business. Because the top bosses in these corporation were not receptive to innovative ideas. This kinds of Brain Drain phenomena is not limited to US but also spread all over the world. Every organisation faces the problem of sudden resignation of their top executive. A few of these executives tend to become entrepreneurs and start their own ventures. Some of these business ventures may become competitors to the organisation.

Intrapreneur is the person who focuses on innovation and creativity and who transforms a dream or idea into a profitable venture, by operating within the organization. Therefore, companies should provide such entrepreneurial talents with adequate financial support and freed to develop their business idea. Those who do a good job for the company are to be rewarded with promotion and bonus.

Gifford Pinchot III an American Management Guru suggested in 1985 that large corporations should create smaller streams within the organisation and allow certain executive to operate like entrepreneurs. He also suggested that these ambitious executives should 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 products, services and processes which enable the company to grow and succeed in a changing environment. Infact, many American Corporations such as IBM, GM DUPONT, AT and T, Texas Instruments etc have 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, who performs all the duties of an entrepreneur, but within an established organisation.

Role of Entrepreneurs in Economic Development Entrepreneurs play an important role in the economic development of a region. Economic development implies development of agriculture, industry and service sectors resulting in an increase in the per capita income of the country. The economic development largely depends on human resources. Again human resources alone cannot 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

Economic development cannot be attained by a country without achieving balanced regional development - large scale employment generation. The regional imbalance in a developing economy like India is overcome by decentralized industrial structures. Various state government and central government have designed variety of schemes such as Entrepreneurship Development Institute Technical Training Institute Training Consultancy Organization Export Promotion Boards and Councils etc.

Role of Entrepreneurs in economic development of the country is summarized below 1. Coordinating Role 2. Capital formation 3. Generation of Employment 4. Improvement of Per capita Income 5. Reduces concentration of wealth and income 6. Balanced Regional Development 7. Resource Mobilisation 8. Improvement in Standard of Living 9. National Self-reliance 10.Harnessing Natural Resources

1. Coordinating role The essential function of an entrepreneur is to coordinate the various factors of production. Coordination involves selection of the right type of factors, employment of each factor in the right quantity, use of the best technology, division of labour etc. Schumpeter feels that economic development will be a reality if new combinations of factors of production are undertaken. In the absence of this coordinating role, the factors of production will remain idle in the country.

2. Capital formation Entrepreneurs promote capital formation by mobilising 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, economic development would remain static.

3. Generation of Employment By creating a new venture, entrepreneurs generate employment opportunities for others. Unemployment is a major issue, especially in the context of developing economies like India. Educated youth often are unable to get a suitable employment for themselves. Thus, entrepreneurs do the service by not only employing themselves into entrepreneurial ventures, but also by employing others. From the last 20 years, Fortune 500 companies and large corporations have endured major retrenchment and eliminated millions of jobs, whereas discoveries in the entrepreneurial sector have yielded an average of 600,000 new incorporations per year.

4. Improvement in Per capita income Entrepreneurs locate and exploit opportunities. They convert the latent and idle resources like land, labour and capital into national income and wealth in the form of goods and services. They help to increase Net National Product and Per Capita Income in the country, which are important yardsticks for measuring economic development. 5. Reduces Concentration of Wealth Entrepreneurs help in reduction of concentration of wealth and economic power in the hands of few people.

6. Balanced Regional Development Entrepreneurs help in remove regional disparities in economic development. Entrepreneurs play a dominant role to achieve balanced regional development by starting small-scale industries. Small scale industries provide immediate large scale employment, ensure a more equitable distribution of national income and thus facilitate balance regional development. In addition, various concessions and subsidies, they setup industries in backward areas, facilitating the development of that area ensuring balanced regional development. They help in equitable distribution of resources, wealth, income and political power in the entrust of the country.

7. Resource Mobilisation Entrepreneurs encourage effective resource mobilization of funds and skill which may otherwise remain unutilized or underutilized. 8. Improvement in Standard of Living Entrepreneurs help in removing scarcity of essential 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 Innovation is a key to entrepreneurship. Innovation implies the commercial application of an invention. As an innovator, the entrepreneur assumes the role of a pioneer and an industrial leader. Entrepreneurs have contributed many innovations in developing new products and the existing products and services. All these have resulted in economic development by providing more employment and more income etc. Infact, the innovational activity raises the productive efficiency of the economy resulting in greater output and income.

10. Export Promotion role Entrepreneurs also promote a countrys export trade which is an important ingredient to economic development. 11. Harnessing Natural Resources Entrepreneurs help in harnessing vast natural resources of the country for its economic growth. 12. National Self-reliance Entrepreneurs help in manufacturing import substitutes thereby reducing dependence on foreign countries. They contribute substantially in the countrys export trade and help to earn scares and vital foreign exchange for the country. This leads to economic independence of the country.

Stages in Entrepreneurial process Entrepreneur can increase their chances of success if they understand, follow and implement the basic 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 required for completing that stage, cost that may be likely incurred for each activity which can be used for preparing budgets.

The six stages are as follows Stage 1 Identify an opportunity Stage 2 Establish a vision Stage 3 Persuade Others Stage 4 Gather Resources Stage 5 Create New Venture Stage 6 Change/Adapt with time

Stages in Entrepreneurial Process


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

Various Stages Stage I

Focus Identification of New Opportunities

Activities of Entrepreneurs Searching of New Opportunities R & D 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


Multiple skills required Team Works Preparation of Business Plan Financial Resources Operating Resources Human Resources Information Resources (MIS) Establishment of New Venture Enthusiasm Persuasion Passion Self-believes and courage Adaptability changing world Global Business Environment

Stage III

Persuade Others

Stage IV

Gather Resources

Stage V

Create New Venture

Stage VI

Change or Adapt with Time

1. Identify an opportunity Identification of an opportunity is the first step towards building and running successful business enterprise. Entrepreneurs identify opportunity where other see obstacles and impossibility R and D Identification of opportunity at right time is of utmost importance. New opportunity catch-up market better profits and faster economies of scale Entrepreneur sense opportunities, they are creative and are open to the new idea.

2. Establish a Vision Merely seeking opportunity is not enough, an entrepreneur further moves to establish a vision. A dream for future which can be achieved only if opportunities are tapped at right time. He has complete faith in his vision and it is quite clear to him. Even if some market forces change he would readjust his vision to keep his dream viable and fruitful. Every successful entrepreneurs have big visions For example Dhirubai Ambani Reliance, Narayana murthy Infosys technology, Azim Premji Wipro

3. Persuade others Team work An entrepreneur does not work alone, he understands 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 with others team efforts. Skilled workers, unskilled workers, financiers, family members, relatives etc. For example Narayana murthy of Infosys was supported by his wife for financial and psychological backing and couple of friends.

4. Gather Resources Identifying an opportunity establishing a vision persuading others to join is not enough. A business enterprise needs resources to be come successful. This is the phase, which can convert an entrepreneurs dream into reality. Resources can be considered under four categories

1. 2. 3. 4.

Financial resources Operating resources Human Resource Management Information Resources

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, retained capital, commercial partnerships, banks, venture capital, Government Institutions, NGOs, floating public issues.

Operating Resources

Tangible
1. 2. 3. 4.

Intangible

Machineries 1. Company image Raw-materials 2. Operating procedures Land and buildings Office equipment etc 3. Transportation 4. Management

C. Human Resource Management Human resources are the only living and vibrant part of the organisation. They are the most important resource of the organisation. This is due to rising competition, privatisation and globalisation. 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.

5. Create new venture In the fifth stage of entrepreneurial process is the 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.

6. Change or adapt with time As change has become the rate of the game in todays business environment the entrepreneur needs to continuously keep the organisation upgraded and changing time. It is not only involves availability of funds but also the adaptability of human resources towards the changed environment.

Distinction between an Entrepreneur and a Manager Sometimes, the two terms, namely, an entrepreneur and 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 two are Motives, status, Risk-bearing, Rewards, Innovation and Qualifications.

Factors
Motive

Entrepreneur An Entrepreneur starts a venture by setting up a new enterprise for his personal gratification

Manager But the main aim of a manager is to render his services in an enterprise already set up by someone else.

Status

entrepreneur is the owner A manager is the servant of enterprise in the enterprise An entrepreneur being the A manager as a servant owner of the enterprise does not bear any risk assumes all risks and involved in the enterprise. uncertainty involved in running the enterprise

Risk bearing

Factors

Entrepreneur

Manager
On the contrary, a manager needs to possess distinct qualifications in terms of sound knowledge in management theory and practice. A manager executes the plans of the entrepreneur. Thus a manager translates the ideas into practice. A manager receives salary as reward for service rendered which is fixed and regular can never be negative

Qualification An entrepreneur needs to possess qualities and qualifications like high achievement motive, originality in thinking, foresight, riskbearing ability and so on. Innovation As an innovator he is called as change agent who introduces goods and services to meet changing needs of the customer Entrepreneur for his risk bearing role he receives profit. It is not only uncertain and irregular but can at times be negative

Rewards

Entrepreneur Vs Entrepreneurship Having studied the term entrepreneur, it is equally important to devote our attention to the term entrepreneurship as well. Though these two terms are two faces of the same coin. Conceptually they are different, while entrepreneur refers to a person, entrepreneurship refers to the function. Basically, entrepreneur is a business leader and the functions performed by him in relation to that business is entrepreneurship Entrepreneur is a tangible person, whereas entrepreneurship refers to an intangible process.

Sl No.

Entrepreneur

Entrepreneurship

1.
2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Person
Organiser Innovator Motivator Leader Creator Risk-bearer Initiator Visualiser Technician Imitator

Function or process
Organisation Innovation Motivation Leadership Creation Risk-bearing Initiative Vision Technology Imitation

12.
13. 14. 15. 16.

Administrator
Communicator Planner Manager Decision maker

Administration
Communication Planning Management Decision-making

Definitions
Entrepreneurship is an elusive concept. Hence, it is defined differently by different authors at different periods. A.H. Cole Entrepreneurship is the purposeful activity of an individual or a group of associated individuals, undertake to initiate, maintain or organise, a profit oriented business unit for the production or distribution of economic goods and services. Schumpeter entrepreneurship is based on purposeful and systematic innovation. Mc Clelland entrepreneurship involves doing things in a new and better way. It calls for decisionmaking under uncertainty.

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 Entrepreneur

Person

Process of Action

Object

Barriers of Entrepreneurship The slow pace of growth of entrepreneurship can be attributed mainly to the present of barriers prohibiting the entry into entrepreneurship. Continuing as an entrepreneur and existing from a business venture. The various barriers to entrepreneurship can be classified as under 1. Environmental Barriers 2. Financial Barriers 3. Personal Barriers 4. Societal Barriers

Environmental Barriers

Financial Barriers

Barriers of Entrepreneurship

Personal Barriers

Societal Barriers

1. Environmental Barriers 1. Raw-materials non availability of raw materials 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 a big difficulty for small business organizations. 4. Land, building and infrastructure these go a long way in deciding the fortunes of the company and the lack of good facilities act as major barriers.

2. Financial Barriers Finance is the life-blood of any organisation. If there is no proper flow of finances both in company and in the country, there are bound to be problems. There are plenty of successful small businesses in India. But the entrepreneurs lack the will and the strength to scale-up their operations. 3. Societal Barriers Religious and conservative attitudes of the society can inhibit entrepreneurs. Added to this the communistic feelings in certain states in India definitely kills the entrepreneurial spirit in many Indians.

4. Personal Barriers Lack of self-confidence this is a very big emotional barrier to an individual. It caused by peer pressure and lack of experience. Lack of Motivation in the beginning all entrepreneurs are enthusiastic about their projects. But they may lose interest especially in the face of challenges and competition. Lack of patience this barrier is more dominant among youth entrepreneurs. When things do not go as expected they may lose interest because 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 contributed innovative products to the world.

Theories of Entrepreneur It is universal fact that entrepreneur is an important factor in economic development employment and GDP. En entrepreneur is the risk bearer and works under uncertainty. But no attempts were made by economists for formulating systematic theory of entrepreneur. The Traditional notion an entrepreneur is that he brings together the factor inputs and organises productive activity managerial function. Modern Growth Theory entrepreneur is a residual factor technological changes in the production process which includes technology, education, institutional organisation etc.

Theorists Categorization Psychological Theory Schumpeter Mc Clelland Hagen Kunkel Sociological Theory Max Weber Cochran Hoselitz Stocker Young Economic Theory Papanek Harris Kizner

Views by Various Theorists


Sl No Theories Various Theorists Theories

1.

Schumpeter Psychological Mc Clelland Theory Hagen John Kunkel


Max Weber Kunkel Bert F. Hoselitz J.R. Harris G.F. Papanek Kirzner

Innovation Theory Need for Achievement Theory Status of Withdrawal Theory Behavioural Model
Theory of Social Change Theory of Social Behaviour Theory of Leadership Theory of Model Personality Economic Incentives Inner drivers, Economic Gains Exploits when market is out of equilibrium

2.

Sociological Theory

3.

Economic Theories

1. Economic theories Entrepreneur and Economic development are interdependent. Economic development takes place countrys real national income increases and employment opportunities Economic incentives include taxation policy, industrial policy, sources of finance and rawmaterials, infrastructure availability, investment and marketing opportunities, access to information about market conditions, technology etc.

2. Sociological Theory Entrepreneurship is likely to get a boost in a particular social culture. Social Theory includes societys values, religious beliefs, customs, labours influence the behavior of individuals in a society. The entrepreneur is a role performing according to the role expectations by the society. Max Weber, Cochran, Hoselitz, Stokes and Young

3. Psychological Theory Entrepreneurship gets a boost when society has sufficient supply of individuals with necessary psychological characteristics. The psychological characteristics include need for 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 selfsufficiency. Etc. Schumpeter, Mc Clelland, Hagen, Kunkel etc.

1. 2. 3. 4. 5. 6. 7.

Different theories of entrepreneurship Innovation Theory Joseph Schumpeter Need for Achievement Theory David Mc Clelland Status of Withdrawal Theory Prof Hagen Theory of Social Change Max Weber Theory of Leadership - Hoselitze Theory of Model Personality - Cochran Theory of Systematic Innovation Peter Drucker

1. Innovation Theory 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 or enterprise. introduces new combinations.

New combination theory covers five cases 1. The introduction of a new good which consumers are not yet familiar or a new quality 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 of any industry like the creation of a monopoly position.

In his theory also made out 1. He makes a distinction between an innovation and an inventor (person) Invention means creation of new things and innovation means applicable of new things up to practical use. 2. Emphasis on entrepreneurial functions He emphasis on role of entrepreneurial function in economic development. Basic transformation of the economy brought about by entrepreneurial function. 3. Disequilibrium situation through entrepreneurial activity dynamic activities. 4. Entrepreneurism dream will found a private kingdom.

2. Need for Achievement Theory This theory was developed by David C. Mc Clelland concerned himself with economic growth and the factors that influence it high achievement orientation Mc Clelland emphasis on two factors internal and external 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, not so much for the sake of social recognition or prestige.

3. Status Withdrawal Theory E. Hagen attempted to formulate a theory of social change or status of withdrawal theory. According to Hagen, entrepreneurship is a function of status withdrawal. His creative personality is an individual characterized by a high need for achievement. His view of economic development does not lay any emphasis on the speed of market, capital accumulation, the percentage of profitable opportunities and willingness to save. Economic development is seen almost exclusively as a process of technological change in the society. Most of entrepreneurs in India as a creative problem or solving problems.

Hagen postulates four types of events which can produce status withdrawal 1. Displacement of a traditional elite group from its previous status by another traditional group by physical force. 2. Denigration of values, symbols through some change in the attitude of superior group. 3. Inconsistency of static symbol with a changing distribution of economic power and 4. Non-acceptance of expected status on migration to a new society.

Hagen further opined that creative innovation or change is the basic feature of economic growth. He describes an entrepreneur as a creative problem shooter interested in things in the practical and technological realm. Such type of individual feels a sense of increased pleasure when facing a problem and tolerates disorder without discomfort. In traditional societies, positions of authority are granted on the basis of status, rather than individual ability.. That is why, Hagen visualized an innovative personality.

4. Theory of Social Change Max Weber who first of all took the stand that entrepreneurial growth was depend upon ethical value system of the society. Webers theory of social change consists treatment of the protestant ethic and the spirit of capitalism. Moreover, this theory provides an analysis of religion and its impact on entrepreneurial culture. Max Weber opined, the spirit of rapid industrial 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 a specific value orientation of individuals. Weber analysed his theoretical formulation by the relationship between protestant ethic and the spirit of capitalism. Protestant are progressed fast in bringing capitalism because their ethical value system provided them with rational economic attitude, while the jews, jains, Hindu and juda failed to develop industrial capitalism because of their value of pariha. According to this theory, driving entrepreneurial energies are generated by the adoption of exogenously supplied religious beliefs.

The important elements of Webers theory are 1. Spirit of Capitalism The capitalism is an economic system in which economic freedom and private enterprise are glorified. 2. Adventurous Sprit He also made distinction between spirit of capitalism 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 According to Max Weber the spirit of capitalism can be grown only when the mental attitude in the society 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 of business enterprise. Infact, this theory suited the British rules, who desired to encourage European entrepreneurship in India.

5. Theory of Leadership 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 in goods and services. 2. Managers - are authority oriented. 3. Entrepreneurs production oriented, they creates his own commodity and its acceptability is uncertain. Therefore, the entrepreneur assumes more risk as compared to a trader or a money lender. Therefore, GOI and State Governments are trying to encourage first generation entrepreneurs by offering them various types of incentives and subsidies. Potential entrepreneurs are also opting for enterprise development without cring for social or cultural restrictions.

7. Theory of Model Personality The theory of Cocharn is a sociological theory of entrepreneurial supply. Cocharn emphasizes cultural values, role expectations and social sanctions as the key elements that determine the supply of entrepreneurs. According to him, an entrepreneur is neither a super normal individual nor a deviant person but represents a societys model personality. His performance is influenced by three factors 1. His own attitudes towards his occupation 2. The role expectations held by sanctioning groups 3. The operational requirements of the job.

8.Theory of Systematic Innovation Prof Drucker has developed the theory of systematic innovation. Systematic innovation consists in the purposeful and organised search for changes and in the systematic analysis of the opportunities economic and social innovation. Systematic innovation consists of seven sources for innovative opportunity within the enterprise (4) and outside the enterprise of industry (3)

Internal sources - within the enterprise, whether business or public service institution or within an industry or service sector 1. The unexpected the unexpected success, the unexpected failure. 2. The incongruity between reality as it actually is and reality as it is assumed. 3. Innovation based on process need 4. 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 7. New knowledge, both scientific and non-scientific.