Unit 2. bo (word file) - Lecture notes 10-17 PDF

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Unit II Entrepreneurship WHO IS AN ENTREPRENUER ? Entrepreneur is the one who engages in entrepreneurship. He assembles resources (capital, labour and other inputs) and puts them together to carry on a venture and assumes personal risk for success and failure of that venture • He is a person who develops and owns his own enterprise • He is a moderate risk taker and works under uncertainty for achieving the goal. • He is innovative • He peruses the deviant pursuits • Reflects strong urge to be independent. • Persistently tries to do something better. • Dissatisfied with routine activities. • Prepared to withstand the hard life. • Determined but patient • Exhibits sense of leadership • Also exhibits sense of competitiveness • Takes personals responsibility • Oriented towards the future. • Tends to persist in the face to adversity • Convert a situation into opportunity. ENTREPRENEURSHIP • A theory of evolution of economic activities. • A continuous process of economic development. • An ingredient to economic development. • Essentially a creative activity or an innovative function. • A risk taking factor which is responsible for an end result. • Usually understood with reference to individual business. • The name given to the factor of production, which performs the functions of enterprise. • Creates awareness among people about economic activity. • Generates Self-employment and additional employment Entrepreneurship is the process of bringing together creative and innovative ideas and actions with the management and organizational skills necessary to mobilize the appropriate people, money and operating resources to meet an identifiable need and create wealth in the process. It is combination of creativity and management. WHY ENTREPRENEURSHIP • To improve backwardness of the people. • Economic development of the region. • To analysis resource utilization. • Proper utilization of human potentiality. • Special attention to take up new activities. • To create self-employment and generation of employment opportunity. • Eradication of regional imbalances. • Better economic gain.

The characteristics of an unique entrepreneur are : - Need for achievement - High need for power - Independence - Propensity to take risk - Personal modernity - Support - Business enterprise - Leadership Entrepreneurship is not the proprietary quality of any caste or community. Many may possess the qualities, but are baffled with too many questions why, what and how to get about starting new venture. Importance of being an entrepreneur In entrepreneurship the individual is the most important element. Entrepreneurship is not limited to any class, community, gender or religion. There is no age bar. Any person who possesses certain traits and attitudes can become an entrepreneur. In the light of the above let us see the importance of being an entrepreneur:  An entrepreneur is an independent person and has enough scope for innovation.  Entrepreneur has an opportunity for self-expression and the realisation of one‟s dream by doing something new and different.  An entrepreneur makes his/her own decisions and acts on them.  Working on one‟ s own and thus getting rewards gives immense satisfaction and pleasure far more than what one can get in a job.  An entrepreneur generates employment for others.  An entrepreneur can make significant contributions to the development of the country.  An entrepreneur realises his personal goals and contributes to the welfare of society.  Above all he/she can be an achiever, realise his/her goals and prove one‟s achievements to the world Qualities of a Successful Entrepreneur Let us now think about the qualities of a successful entrepreneur. There may be many qualities needed to successfully run an enterprise. However, the following qualities are considered important. (i) Initiative In the world of business, opportunities come and go. An entrepreneur has to be a man of action. He should be able to initiate action and take advantage of opportunity. Once you miss the opportunity it will not come again. Therefore, initiative on the part of entrepreneur is a must. (ii) Willingness to assume risk In any business there is an element of risk. It implies that a businessman may be successful or unsuccessful. In other words it is not necessary that every business shall earn profit. This deters individuals to take up business. However, an entrepreneur always volunteers to take risks to run a business and be successful. (iii) Ability to learn from experience An entrepreneur may commit mistakes. However, once an error is committed, it should not be repeated as that will lead to heavy losses. So, one

should learn from his mistakes. An entrepreneur, therefore, should have the ability to learn from experience. (iv) Motivation Motivation is key to success. This is necessary for success in every walk of life. Once you get motivated to do something you will not rest unless you complete it. For example, sometimes you become so much interested is reading a story or a novel that you do not sleep unless you complete it. This kind of interest in the work comes through motivation. This is an essential quality of a successful entrepreneur. (v) Self-confidence For achieving success in life, one should have confidence in himself or herself. A person who lacks confidence can neither do any work himself nor can inspire others to work. Self-confidence is reflected in courage, enthusiasm and the ability to lead. A successful entrepreneur must have self-confidence. (vi) Orientation towards hard work There is no substitute for hard work in life. While running a business, everyday, one problem or the other may arise. The businessman has to be vigilant about it and solve it as early as possible. This requires hard work on the part of entrepreneur. He cannot afford to say that now office time is over and I will not work. In some situations he may even have to work for the whole night. Thus, orientation towards hard work is the secret of success of an entrepreneur. (vii) Decision making ability In running an enterprise, the entrepreneur has to take a number of decisions. He should therefore be capable of taking suitable and timely decision. In other words he must take right decision at the right time. In the present world things move very fast. If an entrepreneur does not have the ability to take timely decision, he might miss opportunity and incur loss. Functions of an Entrepreneur Some of the major functions of an entrepreneur are: i) Identifying entrepreneurial opportunity – There are many opportunities in the world of business. These are based on human needs like food, fashion, education, etc., which are constantly changing. These opportunities are not realised by common man, but an entrepreneur senses the opportunities faster than others do. An entrepreneur therefore, has to keep his eyes and ears open and require imagination, creativity and innovativeness. ii) Turning ideas into action – An entrepreneur should be capable of turning his ideas into reality. He collects information regarding the ideas, products, practices to suit the demand in the market. Further steps are taken to achieve the goals in the light of the information collected. iii) Feasibility study – The entrepreneur conducts studies to assess the market feasibility of the proposed product or services. He anticipates problems and assesses quantity, quality, cost and sources of inputs required to run the enterprise. Such a blue print of all the activities is termed as a „business plan‟ or a „project report‟. iv) Resourcing – The entrepreneur needs various resources in terms of money, machine, material, and men to running the enterprise successfully. An essential function of an entrepreneur is to ensure the availability of all these resources. v) Setting up of the Enterprise – For setting up an enterprise the entrepreneur may need to fulfil some legal formalities. He also tries to find out a suitable location, design the premises, install machinery and do many other things. vi) Managing the enterprise – One of the important function of an entrepreneur is to run the enterprise. He has to manage men, material, finance and orgainse production of goods

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and services. He has to market each product and service, after ensuring appropriate returns (profits) of the investment. Only a properly managed organisation yields desired results. Growth and Development – Once the enterprise achieves its desired results, the entrepreneur has to explore another higher goal for its proper growth and development. The entrepreneur is not satisfied only with achieving a set goal but constantly strives for achieving excellence. vision..

Types of entrepreneurs 1. Innovative entrepreneurs 2. Non-innovative entrepreneurs Innovative Entrepreneurs: These are having creative and innovative ideas to start a business. Innovative entrepreneurs results into creation of something new. They are the contributors to the economic development of the country. Non-innovative Entrepreneurs : Under developed countries or economies are usually less conducive to the growth of the innovative entrepreneurs. These are of following three typs: I. Imitators: these entrepreneurs do not bring new ideas because of weak industrial and institutional foundation of an economy. These are suitable for developing countries that cannot afford enough facilities (land, labour and capital etc) for conducting research in new areas. II. Fabian: These do not have the need for achievement or desire to create something new. They take up new projects only when it is necessary to do so. They work within the framework of social customs, beliefs and values. III. Drone: Drone is an idler. They do not wish to create anything new and continue to work in the already existing set up. They copy innovations only if required to do so. Forms of Business Organization Classification of Business Broadly business may be classified on the basis of size, ownership and functions. Let us discuss this in detail. A. Classification on the basis of Size The size of business may be measured by the amount of capital invested, number of persons employed, the volume of transactions and the area of operation. On the basis of these, business activities can be grouped into small-scale and large-scale. Those business units which require less capital, employ few workers, produce and sell limited items within a limited area, are called small-scale business. Small-scale business units are generally owned and managed by a single individual or a few individuals. Grocery stores, stationery stores, restaurants, poultry farms, etc, are some of the examples of small-scale business. Similarly, business units that require heavy capital investment, employ a large number of workers, produce and sell large volume of goods and services are called large-scale business. Their area of operation and volume of activities are larger as compared to small-scale business. These business units are generally owned and managed by groups of individuals or the government. Iron and steel, aluminium, fertilizer,

petrochemicals, and automobile manufacturing units are some of the examples of large-scale business. B. Classification on the basis of ownership You must have seen the owners of the small shops in your locality. But have you ever seen the owners of Tata Iron and Steel Company (TISCO), Bharat Sanchar Nigam Limited (BSNL) or National Aluminum Company (NALCO), ? As you know, these are large-scale business enterprises and therefore their owners are not single individuals. There may be a group of individuals or the government who own these businesses. So on the basis of owners of business, we can classify business as Private sector enterprise and Public sector enterprise. Business enterprises owned and managed by individuals or group of individuals other than the Government are called private sector enterprises. These enterprises may be organized in the form of  Sole Proprietorship,  Partnership,  Joint Hindu Family,  Joint Stock Company and  Co-operative Society. C. Classification on the basis of Functions We may classify business as Industry and Commerce on the basis of functions. Industry includes activities involved in conversion of raw materials into useful products. It processes raw materials or semi-finished goods into finished goods. For example, cotton is converted into cloth in textile industries, sugar is extracted from sugarcane in sugar industries, automobiles are produced in automobile industries, and so on. These activities are called industrial activities and the units that undertake these activities are called industrial enterprises. On the other hand, Commerce includes all those activities which are necessary for the purpose of exchange of goods and services. It refers to various activities that make goods available to the consumers for consumption. Trade, transportation, storage, packaging etc. are all included in commerce. These activities are called commercial activities and the units that undertake these activities are called commercial enterprises. Sole Proprietorship 'Sole' means single and 'proprietorship' means ownership. It means only one person or an individual becomes the owner of the business. Thus, the business organisation in which a single person owns, manages and controls all the activities of the business is known as sole proprietorship form of business organisation. The individual who owns and runs the sole proprietorship business is called a „sole proprietor‟ or „sole trader‟. A sole proprietor pools and organises the resources in a systematic way and controls the activities with the sole objective of earning profit. We can now define sole proprietorship as– A business enterprise exclusively owned, managed and controlled by a single person with all authority, responsibility and risk. Characteristics of Sole Proprietorship Sole proprietorship form of business organizations has the following characteristics. i. Single Ownership ii. No sharing of Profit and Loss

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One-man’s Capital One-man Control Unlimited Liability Less legal formalities

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Single Ownership: A single individual always owns sole proprietorship form of business organization. That individual owns all assets and properties of the business. Consequently, he alone bears all the risk of the business. Thus, the business of the sole proprietor comes to an end at the will of the owner or upon his death. No sharing of Profit and Loss : The entire profit arising out of sole proprietor ship business goes to the sole proprietor. If there is any loss it is also to be borne by the sole proprietor alone. Nobody else shares the profit and loss of the business with the sole proprietor. One man’s Capital : The capital required by a sole proprietorship form of business organisation is totally arranged by the sole proprietor. He provides it either from his personal resources or by borrowing from friends, relatives, banks or other financial institutions. One-man Control: The controlling power in a sole proprietorship business always remains with the owner. The owner or proprietor alone takes all the decisions to run the business. Of course, he is free to consult any body as per his liking. Unlimited Liability: The liability of the sole proprietor is unlimited. This implies that, in case of loss the business assets along with the personal properties of the proprietor shall be used to pay the business liabilities. Less Legal Formalities: The formation and operation of a sole proprietorship form of business organisation requires almost no legal formalities. It also does not require to be registered. However, for the purpose of the business and depending on the nature of the business, the sole proprietorship has to have a seal. He may be required to obtain a licence from the local administration or from the health department of the government, whenever necessary.

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Advantages • Easy to form and wind up • Direct Motivation • Quick Decision and Prompt Action • Better Control • Maintenance of Business Secrets • Close Personal Relation • Flexibility in Operations Limitations • Limited Capital • Unlimited Liability • Lack of Continuity • Limited Size • Lack of Managerial Expertise

Suitability of Sole Proprietorship Form of Business Let us consider the type of businesses where sole proprietorship form is most suitable. Sole proprietorship form of business organization is suitable:  Where the market for the product is small and local. For example, selling grocery items, books, stationery, vegetables, etc.  Where customers are given personal attention, according to their personal tastes and preferences. For example, making special type of furniture, designing garments, etc.  Where the nature of business is simple. For example, grocery, garments business, telephone booth, etc.  Where capital requirement is small and risk involvement is not heavy. For example, vegetables and fruits business, tea -stall, etc.  Where manual skill is required. For example, making jewellery, haircutting or tailoring, cycle or motorcycle repair shop, etc. Partnership: Meaning of Partnership You have studied that sole proprietorship form of business organisation has certain limitations. Its financial and managerial resources are limited. It is also not possible to expand the business activities beyond a certain limit. In order to overcome these drawbacks, another form, i.e., partnership form of business has come into existence. Let us first find out what is 'partnership'. It is basically a relation between two or more persons who join hands to form a business organisation with the objective of earning profit. The persons who join hands are individually known as „Partner‟ and collectively a „Firm‟ . The name under which the business is carried on is called „firm name‟ . Sultan Chand & Co, Ram Lal & Co, Gupta & Co are the names of some partnership firms. The partners provide the necessary capital, run the business jointly and share the responsibility. You must be thinking how much capital each partner contributes? Do all the partners jointly manage the business or can any of them manage the business on behalf of others? Who will take the profits? If there is any loss then who will suffer the loss? Yes, these are the few questions that might be coming to your mind. Actually, when you invite your friends to start such a business, it should be the duty of all of you to decide (i) the amount of capital to be contributed by each one of you; (ii) who will manage; (iii) how will the profits and losses be shared. Thus, there must be some agreement between the partners before they actually start the business. This agreement is termed as „Partnership Deed‟ , which lays down certain terms and conditions for starting and running the partnership firm. This agreement may be oral or written. Actually, it is always better to insist on a written agreement among partners in order to avoid future controversies. A partnership firm is governed by the provisions of the Indian Partnership Act, 1932. Section 4 of the Indian Partnership Act, 1932, defines partnership as “a relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all”. Features of Partnership form of business organisation After having a brief idea about partnership, let us identify the various features of this form of business organisation. i. Two or more Members - You know that the members of the partnership firm are called partners. But do you know how many persons are required to form a partnership firm? At

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least two members are required to start a partnership business. But the number of members should not exceed 10 in case of banking business and 20 in case of other business. If the number of members exceeds this maximum limit then that business cannot be termed as partnership business. A new form of business will be formed, the details of which you will learn in your next lesson. Agreement: Whenever you think...