Management & Entrepreneurship

Module – 3
Mr. Mahesh M
Topics to be covered
 Entrepreneur : Meaning of Entrepreneur, Evolution of the
concept
 Function of an entrepreneur, types of entrepreneur
 Evolution of Entrepreneurship, development of
entrepreneurship
 Stages in entrepreneurial process, role of entrepreneurs in
economic development, entrepreneurship in India
 Entrepreneurship – its barriers
Meaning of Entrepreneur
 An entrepreneur is defined as a person who innovates, organizes,
operates and assumes the risk for a new business venture. The
term entrepreneur has been derived from old French word
entrependre, which means to undertake.
 An entrepreneur innovates, i.e. comes up with a new concept,
product or service. Secondly, an entrepreneur organizes a new
business venture, i.e. initiates or starts a new business enterprise.
Thirdly, an entrepreneur operates, i.e. runs a new business
venture and strives hard to sustain and grow it. Fourthly an
entrepreneur assumes the risk, i.e. takes the responsibility of the
outcomes of a business enterprise.
 Entrepreneur is the one who always searches for change,
responds to it and exploits it as an opportunity.
 Schumpeter regarded an entrepreneur basically as an innovator
who carries out new combinations to initiate and accelerate the
process of economic development. According to Schumpeter,
innovation may occur in the following forms:
The introduction of new product in the market.
Instituting new production technology which is not yet tested by
experience in the branch of manufacturing concerned.
The opening of new market into which the specific product has not
previously entered.
The discovery of a new source of supply of raw materials.
The carrying out of new form of organisation of a business venture.
Evolution of the Entrepreneur
 Earliest Period
In the earliest period, merchant adventurer was given a loan for the
purpose of trading. He used to play active role in trading and used
to bear the physical risks. When the merchant adventurer sold the
goods and completed the trip, the profits were divided with the
capitalist taking most of the profit while the merchant was settled
with very little share.
 Middle Ages
In the middle ages, entrepreneur was more described as an actor, a
person and as a manager. His job was to manage large production
projects while the risk was borne usually by the government of
the country and not the entrepreneur.
 17th Century
The entrepreneur is derived from 17th Century French verb
‘Entrependre’ and the German word ‘Uternethmen’ both
referring to individuals who are undertakers, i.e. those who
undertook the risk of new enterprise.
Entrepreneurs emerged as contractors who took the risk of profit or
loss. Entrepreneurs entered into an agreement with the
government to perform a service or to supply stipulated products.
Since the contract price was fixed, any resulting profit or loss was
entrepreneur’s.
Cantillon developed one of the early theories of the entrepreneur
and is regarded by some as the founder of the term. He viewed the
entrepreneur as a risk taker, observing that merchants, farmers,
craftsmen buy at a certain price and sell at an uncertain price,
therefore operating at a risk.
 18th Century
In 18th Century, a differentiation was made between two persons:
 The person with capital (Present day Venture Capitalist)
 The person who needed capital (Entrepreneur)
Thus a distinction was made between a money provider and the
entrepreneur. One reason for this differentiation was the
industrialization occurring throughout the world. For instance,
Tomas Edison developed new technology (bulb) but didn’t have
enough funds to finance his own invention. Finally, Edison raised
capital from private sources to develop and experiment in the
fields of electricity and chemistry.
 19th Century
In the late 19th & early 20th centuries, entrepreneurs were
frequently not distinguished from managers and were viewed
mostly from an economic perspective in the following manner :
1. He organises and operates an enterprise for personal gain.
2. He pays current prices for the materials consumed in the
business such as land, labour and capital in the form of rent,
wages and interest respectively.
3. He further contributes his own initiative, skill and ingenuity in
planning, organizing and administering the enterprise.
4. He also assumes the chance of loss and gain consequent to
unforeseen and uncontrollable circumstances.
Till 19th Century, entrepreneur need not be an inventor but could
also adapt and develop new technology in the creation of
products to achieve economic vitality.
 20th Century
During the period of 20th century entrepreneur was seen as
innovator in the economy. He was the one who came up the
unique concept in the market. He performed following functions
as entrepreneur :
a. To revolutionize the pattern of production by exploiting
inventions.
b. To reform pattern of production by exploiting an untried
technological method of producing new commodity or old
commodity in new pattern.
c. Opening new source of supply of raw materials or new outlet
for products
d. Performing these functions by organizing new industry.
 21st Century
During the present century, two peculiar characteristics are
associated with an entrepreneur, i.e. creativity and
innovativeness. Creativity is the ability to bring something new
into existence. Accomplished innovators are very practical
people and create from the opportunities created by reality.
Following principles of innovation have emerged leading to
success of entrepreneur :
a. Action oriented i.e. active and searching for new ideas
b. Making the product, service or process simple and
understandable
c. Trying, testing and revising
d. Learning from failures
e. Hard work is the key to success
 Risk
taking
Supervise and Innovate
control

Direct Analyze
activities of opportunity
firm
Functions of
entrepreneur

Develop Strategies to
venture start venture

Develop
Start venture business
Acquire
plan
resources
 FUNCTIONS OF ENTREPRENEUR
1. Risk measurement and risk taking : Risk taking and risk
measurement is the primary function of entrepreneur. Risks
are not only related to success or failure of business but also on
the personal and professional front like career opportunities
foregone for the sake of starting the new venture.
2. Innovate/ create/ discover : entrepreneurship is
innovativeness of individual and does not involve ownership.
Principal function of the entrepreneur is to carry out new
combinations of means of production.
3. Analyze opportunities : entrepreneur has to have
opportunity seeking style of management where he has to
evaluate credibility of various alternatives and choose suitable
alternative which will prove to be profitable in future.
4. Strategize for the venture : entrepreneur has to strategize
long term plan for starting venture. He has to analyze the market
and devise effective strategies to reach out to the potential
customers and face present and future competition.
5. Develop business plan : business plan is a written document
containing details about every aspect of proposed business
venture. It provides roadmap to employees working in company
to attain objectives and convince the potential investors and
financial institutions about the viability of the venture so that
they may agree to invest in it.
6. Acquire resources : entrepreneur has to acquire various types
of resources such as men, money, material, machinery to start
venture. Entrepreneur has to have suitable skills to line up
required resources for the company.
7. Organize and start venture : entrepreneur should be a good
organizer, he should deploy suitable resources in the right
activities at the right time required by the company to ensure
effective working of the organization.
8. Develop and grow venture : it is not only important to start a
venture but also company should be able to respond to changes
happening in the business market which is a crucial factor deciding
the existence of company.
9. Delegate, direct and lead the firm : during the growth stage
of a new start-up firm, it starts growing in size and thus, requires
that the entrepreneur delegates the routine matters to other
colleagues, while providing strategic direction to the firm as a
leader.
10. Supervise and control : For the success of business it is
important to have suitable control mechanism in place so that
entrepreneur can track the overall health of the enterprise..
 TYPES OF ENTREPRENEURS
1. According to type of business :
a. Business entrepreneur : these are set of entrepreneurs who
conceive the idea of new product or service and then translate
ideas into reality.
b. Trading entrepreneur : they are concerned with trading
activities. They are basically into buying the finished product
from the producer and selling off to the customer directly or
through the retailer.
c. Industrial entrepreneur : he is the one who sets up
industrial unit. He perceives opportunity to set up his business,
complies with necessary formalities of getting licence, power
connection, pollution contol and ensures availability of
required resources for starting the business.
d. Corporate entrepreneur : is the one who plans, develops and
manages a corporate body. He is promoter, organizer and
director responsible for running the organization. He gets the
corporate body registered under the suitable companies act in
compliance with legal legislation.
e. Agricultural entrepreneur : is the one who is engaged in
agricultural activities. He uses the latest technology to increase
the productivity of agriculture.
2. According to Capital Ownership :
a. Private entrepreneur : when an individual or group of
people together set up enterprise, arrange finance collectively
bear the risk and adopt the latest techniques in business are
known as private entrepreneur.
b. State entrepreneur : refers to trading or industrial venture
undertaken by the state or the government.
c. Joint entrepreneur : refers to combination of private and
state entrepreneur running the business by sharing resources
with each other.
3. According to stages of Development
 First generation entrepreneur – Those entrepreneurs who
do not possess any entrepreneurial background. They start an
industrial unit by means of their own innovative skills. Eg. Dhiru
Bhai Ambani, Narayanamurthy.
 Second generation entrepreneur – Those entrepreneurs
who inherit the family business firms and pass it from one
generation to another. Eg. Anil Ambani, Mukesh Ambani.
 Classical Entrepreneur – His aim is to maximize his
economic returns at a level consistent with the survival of the
unit but with or without an element of growth.
4. Classification Given by Danhof
 Innovating entrepreneur – Are generally aggressive and
possess the art of cleverly putting the attractive possibilities into
practice. An innovating entrepreneur is one who introduces new
goods, inaugurates new methods of production, discovers new
market and re-organizes the enterprise. Eg. Steve Jobs.
 Imitative Entrepreneurs – Are characterised by readiness to
adopt successful innovations inaugurated by successful innovating
entrepreneurs. They do not imitate the changes themselves, they
only imitate techniques and technologies innovated by others.
 Fabian entrepreneur – Are cautious and skeptical in
experimenting change in their enterprises. Such entrepreneurs are
shy, lazy and lethargic. They are imitative by nature but are not
determined and also lack power.
 Drone entrepreneur – Are characterised by a refusal to
adopt opportunities to make changes in production formulae
even at the cost of severely reduced returns. They can suffer
loss but are not ready to make changes in their existing
production methods. When competition increases they are
pushed out of the market as it becomes uneconomical for
them to carry their business further due to financial crisis.
 Concept of Entrepreneurship
 Entrepreneurship is the tendency of a person to organise the
business of his own and to run it profitably, using all the qualities of
leadership, decision making and managerial calibre etc.It is
concerned with the development and coordination or
entrepreneurial functions.
 Entrepreneurship is the attempt to create value through
recognition of business opportunity, the management of
risk taking appropriate to the opportunity and through
the communicative and management skills to mobilize
human, financial and material resources necessary to
bring a project to fruition”.
 A.H. Cole has defined entrepreneurship as “the purposeful activity
of an individual or group of associated individuals, undertaken to
initiate, maintain or earn profit by production and distribution of
economic goods and services”.
Evolution of Entrepreneurship (Entrepreneurship in
India)
 Entrepreneurship during pre-independence: In the
excavation in Harappan and Mohanjodaro the handcraft items
and metal molded items were found. It is also found that the
craftsmen of the time made, handicraft items as part of their
contribution to the society in which they lived. The
entrepreneurship to make handicraft items existed in India
around 2500 B.C. People developed their own social system and
village economy in India. India also developed cast-based
divisions of work, which helped in the development of skills of
artisans.
 Unfortunately the prestigious Indian handicrafts industries which
were basically a cottage and tiny sector declined at the end of 18th
century, because of the following reasons.
 1. Disappearance of royal patronage to the handicrafts
 2. Lukewarm attitude of British colonial towards Indian crafts
 3. Imposition of heavy duty on imports of Indian crafts
 4. Low priced British made goods
 5. Changes in the tastes and habits of developing Indian citizens
etc.
In other words East India Company handicapped Indian cottage and
tiny sectors.
 The emergence of managing agency system triggered Indian
entrepreneurship. In 1936 Carr, Tagore & Co assumed the
management of Calcutta steam tug association. Dwarakanath
Tagore encouraged others to form joint-stock companies in which
management remains in the hands of ‘firm’ rather than ‘individual’.
The European management agency houses, after East India
Company loosing its monopoly entered business, trade and
banking. It is stated that the managing agency houses were the
real entrepreneurs and these agency houses emerged to overcome
the limitations imposed by shortage of venture capital and
entrepreneurial acumen.
 Entrepreneurship during post-independence: In 1948 Indian
government came forward with the first Industrial policy, which was
revised from time to time. The government identified the responsibility of
the state to promote, assist and develop industries in the national interest
and recognized the role of private sector in accelerating industrial
development.
The government took three important measures namely:
1. To maintain a proper distribution of economic power between private and
public sector.
2. To encourage industrialization from existing centers to other cities, towns
and
villages.
3. To disseminate the entrepreneurship acumen concentrated in a few dominant
communities to a large number of industrially potential people of varied social
state.
 To achieve this, government accorded emphasis on development
of small scale industries in the country by providing various
incentives and concessions in the form of capital, technical
know-how markets and land to the entrepreneurs in the
potential areas to remove the regional imbalances in
development. To facilitate the new entrepreneurs in settings up
their enterprises, Government established several institutions
like Directorate of Industries, Financial Corporations, small scale
industries corporations, small industry service institutes etc.
 DEVELOPMENT OF ENTREPRENEURSHIP
The origin of programmes for the development of entrepreneurs in
India can be traced to the pioneering efforts of the Small
Industry Extension Training Institute, now known as the National
Institute for Micro, Small & Medium Enterprises.
1. Government and non government support bodies :
government in country has come up with various institutions for
supporting SSI. They are National institute for entrepreneurship
and small business development ( NIESBUD ) was established in
1983 by the ministry of micro, small and medium enterprise.
Entrepreneurship development institute of India ( EDI ) an
autonomous body and not-for-profit institution set up for
supporting SSI in country. Innovative scheme of financing new
entrepreneurs begun in 1968, that relied on the competence of
the individual and viability of the project rather than the
applicant’s financial background.
2. Incubation facilities : premier business schools and technical
institutions in India have entrepreneurship centres which provide
incubation facility to start up small scale unit. Incubator is a
facility designed to assist start up companies with respect to
providing knowledge and technical assistance. For eg. Nadathur
S. Raghavan Centre for Entrepreneurial Learning at IIM,
Bangalore provides such incubation facilities in the form of an
office, computing and telecommunication facilities and faculty
consultancy support at nominal charges.
3. Educational programs : entrepreneurship is becoming
popular choice as an elective in MBA programs of business
schools in India. In addition to educational programs there are
some business schools which provide certification programs and
training to candidates intending to start up their own business.
4. Entrepreneurship networks : refers to association formed
by successful entrepreneurs where by becoming member of such
association fresher's will get some guidance and assistance to
start up their own business. E.g. TiE : The Indus Entrepreneurs
was founded in silicon valley in 1992 by successful
entrepreneurs and professionals in country. National
entrepreneurship network ( NEN ) founded in 2002 is the not-
for-profit initiative working to inspire and educate emerging
entrepreneurs in India.
 STAGES IN ENTREPRENEURIAL PROCESS

1. Genesis of business idea

2. Conduct preliminary feasibility

3. Detailed feasibility analysis

4. Write business plan

5. Launch venture
 STAGES IN ENTREPRENEURSHIP PROCESS
1. Genesis of a business idea : First step in the process of
entrepreneurship involves critical thinking about business idea,
that is to select the most viable option among the available
alternatives. It requires detailed analysis of merits and demerits
of innovative products/services created by entrepreneur and
SWOT analysis about present resources of company.
2. Conduct preliminary feasibility : preliminary feasibility
involves quick assessment about the potential of business idea
and screening out the option with highest potential. This step is
conducted to choose one single idea among the available
options. It generally follows four criteria : market and market
related issues, competitive advantage, value creation and
realization issues, over all potential of the plan.
3.Detailed feasibility analysis : detailed feasibility analysis is
done for the option chosen by the company. Detailed analysis is
helpful in making suitable modifications in the business idea
before taking it to the business plan stage. It comprises of
following components :
a. Product/ service feasibility : is conducted by showing
concept or idea to sample group of potential customers and their
reactions towards the product is taken as feedback. Data obtained
through feedback is taken into consideration for further
development of product and to assess its sales potential. A
prototype or a sample unit of the product can also be created.
b. Industry / market feasibility : it involves detailed study of
market condition where company has to see the customer
demand for similar product as offered by the competitors, try to
analyze as products of company will be offered to which segment
of customer in the market, basically tries to analyze taste and
preference and effect of other environmental factors on the
company. It also involves making study on existing business cycle.
c. Organizational feasibility : it includes analysis of two aspects
they are 1 ) assessment of organizational capability to start up
business 2) availability of non financial resources such as office
space, talent pool etc required to set up business.
d. Financial feasibility : it refers to assessing the financial capability of
firm in terms of initial capital investment required for starting the
venture and overall financial attractiveness of the investment in terms
of expected returns in the form of profit.
4. Write business plan : business plan is a written document
containing the details about every aspect of proposed business venture.
It serves as roadmap for internal parties of organization and helps in
convincing potential investors and financial institutions about the
viability of the venture so that they may agree to invest in it.
5. Launch the venture : this is the final step in the process of
entrepreneurial process and involves launching the venture as per the
business plan. Launching business venture involves uncertainties as
business environment is dynamic in nature. Entrepreneur should be
predictive in nature and should be prepared to face hurdles and
challenges during the launching of the venture.
ROLE OF ENTREPRENEURS IN ECONOMIC DEVELOPMENT
1. Create employment opportunities : unemployment is
major problem faced by developing and under developed
countries around the world. As small scale industries are labour
intensive in nature they generate more employment
opportunities rather then large scale industries in country.
2. Inspire others towards entrepreneurship : The team
created by an entrepreneur provides opportunity for the
employees-cum-team mates to have a first hand experience of
getting involved in an entrepreneurial venture. It also creates
possibility for team mate to come up with his own SSI in
future.
3. Create knowledge spill over : When an engineer leaves an
organization to create a new firm, knowledge acquired by her in
the organization gets spilled over to the new firm.
entrepreneurship serves as a mechanism by which knowledge
spills over to a new firm in which it is commercialized. New firm
gets the benefit by the experience and knowledge gained by the
founder in her previous organization.
4. Augment the number of enterprises : When new firms are
created by entrepreneurs, the number of enterprises based upon
new ideas in a region increases.Augment refers to making basic
comparison and trying to find out area in which competitors are
ahead. Entrepreneurship not only leads to formation of new
business but also brings into picture idea or new concept in
market exploring almost all the available areas in market creating
tuff competition in market thus leading to supply of quality
products in market.
5. Provide diversity in firms : entrepreneurial activity in a
particular region often results into creation of a variety of firms
in a region. These firms operates into diverse activities and these
diversity fosters economic development and growth in the
country.
 ENTREPRENEURSHIP AND ITS BARRIERS
1. Macro economic environment : macroeconomic environment
in which SSI operates is dependent on policies of the government in
supporting private participation in business. Macro means large and
it refers to various factors existing in the environment which effect
the working of company. E.g. instability in government of country
which leads to change in legal legislation on a continuous basis. In
India, the process of liberalization started during mid 1980’s
encouraged foreign MNC’s to create joint ventures with Indian
domestic companies.
2. Legal and regulatory environment : for entrepreneurship is
formed by registration and licence procedure, commercial and
contractual laws, real estate regulations, property rights law,
bankruptcy and collateral laws and labour laws. If the administrative
procedure and laws are unclear, time consuming and cumbersome
then it proves a barrier to entrepreneurship.
3. Corruption and unfair competition : a corrupt economy
can lead to unfair competition, which in turn can become a
major hurdle to entrepreneurship activity in country. Excessive
regulations and approval from the government required by
entrepreneurs may make the government officials corrupt. They
develop attitude to take bribe for quicker completion of work.
4. Financial obstacles : start up ventures are usually dependent
upon capital to be sourced from banks and financial institution.
But it is general tendency of financial institution to be reluctant
in providing finance to SSI rather than LSI. Banks charge high
interest rates, which pose a major obstacle to entrepreneurs.
5. Tax burden : in many regions, the government charges high
taxes from SSI which SSI cannot afford to pay as the revenue
generated by SSI is comparatively less. There is also a tedious
procedure for compliance of tax submission formalities.
6. Challenges in attracting talent : to generate improved
quality of product in the company human resource in company
should be efficient in nature. It is possible only when company is
able to attract efficient employees to join company, but
candidates these days expect high salary which SSI cannot afford
to pay because of the same SSI has to compromise with average
candidates in the company. Best of talent in engineering,
management wants to work for MNCs rather than SSIs.
7. Difficulty to source raw material : for timely production of
product in the market it is important to have proper supply of
raw materials, but supplier in market gives second preference to
SSI in market compared to LSI as they order in bulk amount
rather than SSI in market.
8. Expensive to access proprietary technology : as
investment amount of SSI is less they cannot afford to do heavy
investment in technology which again has adverse effect on
quality and quantity of products produced by the company.