Unit 1 Entrepreneur & Entrepreneurship PDF

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(18MBA26)UNIT-ENTREPRENEUR & ENTERPRENEURSHIP(Syllabus: Enterpreneur & Enterpreneurship: Meaning of entrepreneur - Evolution of the concept - Functions of an Entrepreneur - Types of Entrepreneur - Intrapreneur- an emerging class - Concept of Entrepreneurship - Evolution of Entreprene...

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ENTERPRENEURSHIP DEVELOPMENT (18MBA26)

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UNIT-1

ENTREPRENEUR & ENTERPRENEURSHIP (Syllabus: Enterpreneur & Enterpreneurship: Meaning of entrepreneur - Evolution of the concept - Functions of an Entrepreneur - Types of Entrepreneur - Intrapreneur- an emerging class - Concept of Entrepreneurship - Evolution of Entrepreneurship - Development of Entrepreneurship - Entrepreneurial Culture - Stages in entrepreneurial process.) Meaning of Entrepreneur / Introduction: Introduction: The concept of entrepreneurship has been around for a very long time. In the last decade it has resurged as if a new discovery has been made. Usually anyone who runs a business is called an entrepreneur. The more precise meaning of entrepreneur is one who creates his own business i.e. a person who organizes, operates and assumes the risk of a business venture. An entrepreneur is a person who perceives a need and then brings together manpower material and capital required to meet that need. The concept of entrepreneurship is an age-old phenomenon that relates to the vision of an entrepreneur as well as its implementation by him. Entrepreneurship is a creative and innovative response to the environment. It is also the process of setting up a new venture by the entrepreneur. Entrepreneurship is a composite skill that is a mixture of many qualities and traits such as imagination, risk-taking, ability to harness factors of production i.e. land, labour, technology and various intangible factors. Meaning: The word ‘entrepreneur’ is derived from French word ‘entrepreneur’. th

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In early 16 century it was applied to those who were engaged in military expeditions.

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In 17 century the word ‘entrepreneur’ was used for civil engineering activities such as construction and fortification.

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It was applied to business for the first time in 18 century, to designate a dealer who buys and sells goods at uncertain prices. Entrepreneur is one who always searches for change, responds to it and exploits it as an opportunity. Innovation is a specific tool to entrepreneurs, that means by which they exploit change as an opportunity for different business or service. In general, an entrepreneur is one who innovates, raises money, assembles inputs, undertakes, risks, bears uncertainties and also performs the managerial functions of decision making and co-ordination. According to the dictionary the word “Entrepreneur” can be defined as “one who reorganizes and manages only enterprise especially involving high risk”. An economist defines an entrepreneur as one who begins resources, labour, material and other assets into combinations that make their value greater than before and also one who introduces changes, innovations and a new order. A Psychologist, defines an entrepreneur as a person who is typically driven by some forces, which create a desire to obtain or attain something. Management experts, define entrepreneur as a person who has a vision and generates an action plan to achieve it.

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Compiled by Prof. ShivKumar, DOMS, MITM

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Definition of Entrepreneur: According to F.A. Walker, “Entrepreneur is one who is endowed with more than average capacities in the task of organizing and coordinating the factors of production, i.e. land, labour, capital and enterprises”. According to Gilbraith, “An Entrepreneur must accept the challenge and should be willing hard to achieve something”. According to Max Weber, “Entrepreneurs are a product of particular social condition in which they are brought up and it is the society which shapes individuals as entrepreneurs”. International Labour Organization (ILO) describes that entrepreneur are people who have the ability to see and evaluate business opportunities; togather the necessary resources to take advantage of them; and to initiate appropriate action to ensure success. Peter F. Drucker defines an entrepreneur as one who always searches for change, responds to it and exploits it as an opportunity. Innovation is the basic tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or service Evolution of the concept: The word ‘entrepreneur’ is derived from French word ‘Entreprendre’ which was used to designate an organizer of musical or other entertainments. Later in 16th century it was used for army leaders. It was extended to cover civil engineering activities such as construction in 17th century. But it was Richard Cantillon, an Irishman living in France who first used the term entrepreneur to refer to economic activities. According to Cantillon “An entrepreneur is a person who buys factor services at certain prices with a view to selling its product at uncertain prices”. Entrepreneur, according to Cantillon, an entrepreneur is a bearer of risk, which is non-insurable. SchumPeter gave a central position to the entrepreneur who believed that an entrepreneur was a dynamic agent of change; that an entrepreneur was a catalyst who transformed increasingly physical, natural and human resources into correspondingly production possibilities. Since then the term entrepreneur is used in various ways and various views. Concept of Entrepreneur: As said above entrepreneur is used in various ways and various views. These views are broadly classified into three groups, namely risk bearer, organizer and innovator. Entrepreneur as risk bearer: Richard Cantilon defined entrepreneur as an agent who buys factors as production at certain prices in order to combine them into a product with a view to selling it at uncertain prices in future. He illustrated a former who pays contractual incomes, which are certain to land owners and laborers, and sells at prices that are ‘uncertain’. He includes merchants also who make certain payments in expectation of uncertain receipts. Hence both of them are risk-bearing agents of production.

Compiled by Prof. ShivKumar, DOMS, MITM

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P.H. Knight described entrepreneur to be a specialized group of persons who bear uncertainty. Uncertainty is defined as risk, which cannot be insured against and is incalculable. He made distinction between certainty and risk. A risk can be reduced through the insurance principle, where the distribution of outcome in a group of instance is known, whereas uncertainty cannot be calculated. Entrepreneur as an organizer: According to J Baptist Say “an entrepreneur is one who combines the land of one, the labor 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 laborers and what remains is his/her profit”. Say made distinction between the role of capitalist as a financer and the entrepreneur as an organizer. This concept of entrepreneur is associated with the functions of coordination, organisation and supervision. Entrepreneur as an innovator: Joseph A SchumPeter in 1934 assigned a crucial role of ‘innovation’ to the entrepreneur. He considered economic development as a dynamic change brought by entrepreneur by instituting new combinations of factors of production, i.e. innovations. The introduction of new combination according to him, may occur in any of the following forms. (a) Introduction of new product in the market. (b) Use of new method of production, which is not yet tested. (c) Opening of new market. (d) Discovery of new source of raw materials. (e) 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 utilizes inventions and discovers in order to make new combinations. Hence the concept of entrepreneur is associated with three elements riskbearing, organizing and innovating. Hence an entrepreneur can be defined as a person who tries to create something new, organizes production and undertakes risks and handles economic uncertainty involved in enterprise. Features of an Entrepreneur: The features of successful entrepreneur are: • • • • •

Disciplined Confidence Desire to Excel Hard Work Self Confidence

Compiled by Prof. ShivKumar, DOMS, MITM

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Initiative Moderate Risk-Taker Innovative Motivation Optimistic

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Characteristics of an Entrepreneur / Entrepreneurial Traits: The true entrepreneur is one who is endowed with more than average capacities in the task of organizing and co-ordinating the various other factors of production. He should be a pioneer, a captain of industry. The supply of such entrepreneurship is, however, quite limited and all are not endowed with such talent. The modern entrepreneur is one who detects and evaluates a new situation in his environment and directs the making of such adjustments in the economic system as he deems necessary. He conceives a new industrial enterprise, displays considerable initiative, grit and determination in bringing his project to fruition. Thus, a successful entrepreneur must possess the following characteristics or traits: • • • • • •

Mental ability Clear objectives Business Secrecy Human relations ability Communication ability Technical knowledge

Robert D Hisrich has added few capabilities • Motivation • Self-confidence • Long-term involvement • High energy level • Initiative • Persistent problem solver • Goal setter • Moderate risk taker

1. Mental Ability: Mental ability consists of intelligence and creative thinking. An entrepreneur should be intelligent and must have an analytical mind. He should have the capacity to engage in the analysis of various problems and situations in order to deal with them. The entrepreneur should anticipate changes and must be able to study the various situations under which decisions have to be made. 2. Clear Objectives: An entrepreneur should have a clear objective as to the exact nature of the business, nature of the goods to be produced and ancillary activities to be undertaken. A successful entrepreneur must have the objective to establish his product in the market, make profit and also render social service. 3. Business Secrecy: An entrepreneur must be able to guard business secrets. Leakage of business secrets to trade competitors is a serious matter which should be carefully guarded against by an entrepreneur. Here the entrepreneur should be able to make a proper selection of his subordinates. 4. Human Relations Ability: The most important entrepreneurial traits contributing to his success are emotional stability, personal relations, consideration and tactfulness. In other words maintenance of public relations or human relations most often makes the difference between success and failure of an entrepreneur An entrepreneur must have good relations with his customers in order to gain their continued patronage and win their confidence in his product. He must also maintain good relations with his employees, if he is to motivate them to higher levels of efficiency. An entrepreneur who maintains good human relations with customers, employees, suppliers, creditors and the community in general is much more likely to succeed in his endeavours than the individual who does not practise good human relations. 5. Effective Communication: The “gift of the gab” is a must for a successful entrepreneur. Good communication also means that the entrepreneur has the ability to put his point Compiled by Prof. ShivKumar, DOMS, MITM

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across effectively and with clarity. Communication must be to the point, crisp and convincing. Communication ability is the secret of the success of most entrepreneurs. Technical Knowledge: The entrepreneurs are dealing with situations where sophisticated technology is involved. The entrepreneur must have a reasonable level of technical knowledge. This is one trait which entrepreneurs can acquire if they try hard enough. Decision making: Running a business requires taking a number of decisions. Hence, an entrepreneur should have the capacity to analyse the various aspects of the business for arriving at a decision. Energy: As constant attention is required for the successful running of the business, an entrepreneur must have sufficient energy to work hard for long periods. Risk-bearing: ‘No-risk, no business’ or ‘no-risk, no gains’. There is an element of risk in every business, hence an entrepreneur should be prepared to accept failure in its proper perspective and view failure as a challenge and opportunity.

Apart from these basic characteristics / traits, Robert D. Hisrich has identified a few more entrepreneurial traits. In his opinion the entrepreneur must have adequate commitment, motivation and skill to start and build a business. It is his responsibility to determine if the management team has the complementary skills necessary to succeed. Hisrich feels that the entrepreneur must possess the following traits in addition to those mentioned in the preceding paragraphs: (a) Motivation: An entrepreneur must built an efficient team, keep it motivated and provide an environment for individual growth and career development. (b) Self-confidence: Entrepreneurs must have the mental capacity to face any situation. They should also have the ability to inspire others. They must have the confidence in themselves and the determination to achieve their goals. (c) Long-term involvement: Entrepreneurs must be committed to long-term projects which require continuous and consistent involvement. (d) High energy level: Success of an entrepreneur demands the ability to work long hours for sustained periods of time. (e) Trouble-shooter: The entrepreneur must possess the trait of the proverbial “troubleshooter”. He must have the ability to identify where a problem is and suggest on the spot solutions. (f) Initiative: The entrepreneur must have initiative, accepting personal responsibility for actions and above all make good use of resources. It is this trait which gives the entrepreneur the courage to risk and learn from failures. (g) Goal-setter: An entrepreneur must be able to set challenging, but realistic goals. This personal traits can go a long way in the all round progress of a nation. These personal traits make an entrepreneur a successful person. However, it must be stated that no entrepreneur possesses all these strengths. No entrepreneur is born with all these traits. It is possible for him to acquire these traits if the environment is suitable for this purpose.

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Importance of Entrepreneurs / Role of Entrepreneurship in Economic Development: Entrepreneurs play an important role in economic development of a country. Economic development greatly depends upon entrepreneurial and industrial development. The important role that an entrepreneur are as follows: 1) Importance of entrepreneur as an innovator 2) Importance of entrepreneur in generation of employment opportunities. 3) Role of an entrepreneur in economic growth of the country. • Employment generation • Capital formation • Increase in per capita income • Improvement in physical quality of life • Improvement in standard of living • Growth of infrastructural facilities • Balanced regional development • Economic independence • Backward and forward linkages 4) Importance of entrepreneur in bringing social stability. • Absorption of workforce in industries • Alleviation of poverty • Glorification of self help • Checking expansion of monopolies • Equitable distribution of income • Creation of social infrastructure • Empowerment of women through enterprise • Supply of qualitative goods and services Difference/Relationship between Entrepreneur and Enterprise Entrepreneur Is a Person Is a risk taker Is a decision maker

Enterprise

Is the business unit Is the business unit involving risk and uncertainty It serves as the frame work withing which decision concerning what to produce, how much to produce, where to produce are taken by the entrepreneurs Procures raw materials and Utilizes the raw material and other inputs in the process other inputs for production of production Distinction between Entrepreneur and Manager: Points 1. Motive

2. Status 3. Risk Assumes

Entrepreneur The main motive of an entrepreneur is to start a venture for his personal gratification. Owner risk and uncertainty

Compiled by Prof. ShivKumar, DOMS, MITM

Manager Main motive of a manager is to render services in an enterprise already set by someone else Servant Manager does not bear any risk Page | 6

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4. Rewards 5. Innovation

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involved in enterprise. Profits, which are highly uncertain Salary which is certain and fixed. and not fixed. Entrepreneur himself thinks over A manager simply executes plans what and how to produce goods to prepared by the entrepreneur. meet the changing needs of the customers. Hence he acts as innovator / change agent. An entrepreneur needs to possess A manager needs to possess qualities and qualifications like high distinct qualifications in terms of achievement motive, originality in sound knowledge in management thinking, foresight, riskbearing theory and practice. ability etc.

Functions of an Entrepreneur: An Entrepreneur has to perform a number of functions right from the generation of idea up to the establishment of an enterprise. He also has to perform functions for successful running of his enterprise. Entrepreneur has to perceive business opportunities and mobilize resources like man, money, machines, materials and methods. The following are the main functions of an Entrepreneur. 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 terms. The Entrepreneur must be clear about the nature and type of business, i.e. whether manufacturing concern or service oriented unit or a trading business so that he can very well carry on the venture in accordance with the objectives determined by him. 3. 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 government sponsored schemes such as PMRY, SASY, REAP etc. in which he can get government assistance in the form of seed capital, fixed and working capital for his business. 4. 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. 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 intendi...