CHAPTER-1

INTRODUCTION TO
ENTREPRENEURSHIP
A U T H O R : A L PA N A T R E H A N
 DEFINE ENTREPRENEURSHIP

 Entrepreneurship is about taking risks and the behaviour of

the entrepreneur reflects a kind of person who wishes to put
his career and financial security on the line and take risks in
the name of an idea, spending much time as well as capital
on an uncertain venture. --- H. Knight and Peter Drucker

 Entrepreneurship is doing things in a better way and decision-

making under the condition of uncertainty. --- D.C. McClelland

© 2011, Dreamtech Press :: Chapter 1 2

 SIGNIFICANCE OF ENTREPRENEURSHIP

 Generating Employment
 Developing the Economy of a Country
 Improving Standard of living
 Facilitating proper utilization of resources
 Creating new market
 Fuelling technological innovations
 Increasing productivity

© 2011, Dreamtech Press :: Chapter 1 3

 THEORIES OF ENTREPRENEURSHIP

 Discovery Theory
 Emphasizes on identification of opportunities by individuals
 Assumes that different individuals has different ability of identifying
opportunities
 Assumes that risk bearing is an essential part of the entrepreneurial
process
 Creation Theory
 Focuses on entrepreneurs and the creation of enterprises
 Assumes that opportunities are not recognized by individuals, but
created by them
 Assumes that individuals bear uncertainty not risk

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 MODELS OF ENTREPRENEURSHIP
DEVELOPMENT
 Psychological Model
 This model signifies that psychological factors are responsible for the
development of entrepreneurial behavior in individuals.
 Major contributors are McClelland and D. G. Winter.
 Sociological Model
 This model considers societal factors responsible for the
development of entrepreneurial behavior in individuals.
 Major contributor is Frank W. Young.
 Population-Ecology Model
 This model analyzes the determinants of entrepreneurship
development.
 Major Contributors are Hannan and Freeman.

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 DEFINE ENTREPRENEUR

 An entrepreneur searches for change, responds to it and

exploits opportunities. Innovation is the specific tool of an
entrepreneur. --- Peter F. Drucker

 An entrepreneur is a businessman who assumes the risk of

bringing together the means of production including capital,
labor and material and receives his reward in profit from the
market value of his product.--- Encyclopedia Americana

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 GREAT ENTREPRENEURS

 Henry Ford of Ford Motor Company

 Akio Morita of Sony Corporation
 Bill Gates of Microsoft
 Walt Disney of The Walt Disney Company
 Soichiro Honda of Honda Motor Company Ltd.
 Harland David Sanders of Kentucky Fried Chicken
 Ray Kroc of McDonald`s Corporation

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 TRAITS AND CHARACTERISTICS OF A
SUCCESSFUL ENTREPRENEUR
 Creativity
 Innovation
 Leadership
 Dynamism
 Decision-Making Ability
 Self-Motivation
 Self-Confidence
 Time Management
 Vision
 Persistence
 Technical Knowledge
 Problem-Solving Skills
 Flexibility
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 FUNCTIONS OF AN ENTREPRENEUR

 Identifying business opportunity

 Making customers aware of the products and services offered
 Bearing risks involved in establishing a new enterprise or
starting a new business venture
 Arranging finance for setting up the enterprise
 Employing individuals with the required skill-sets for
operating in the different functions of the organizations

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 T YPES OF ENTREPRENEURS : ON THE
BASIS OF FUNCTIONAL CHARACTERISTICS

 Innovative Entrepreneurs
 Entrepreneurs who continuously strive to introduce new products in
the market, new technologies, and new markets to do business.
 Imitative Entrepreneurs
 Entrepreneurs who imitate techniques and technologies innovated by
others to start their own enterprise.
 Fabian Entrepreneurs
 Entrepreneurs who are cautious and skeptic about bringing any
change in their modus operandi or enterprises.
 Drone Entrepreneurs
 Entrepreneurs who believe in status per quo.

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 T YPES OF ENTREPRENEURS: ON THE
BASIS OF NATURE OF BUSINESS
 Manufacturing Entrepreneurs
 Entrepreneurs who are involved in producing goods, and mobilizing
resources and supplies to sell those products.
 Ser vice Entrepreneurs
 Entrepreneurs who are involved in producing and rendering services.
 Trading Entrepreneurs
 Entrepreneurs who are involved in trading activities only.
 Private Entrepreneurs
 Entrepreneurs who establish and operate private enterprises free from the
control of the government.
 State or Public Entrepreneurs
 Entrepreneurs who are involved in enterprises that are owned and
controlled by the state government.
 Joint Entrepreneurs
 Entrepreneurs who establish and operate enterprises in partnership.
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 T YPES OF ENTREPRENEURS: ON THE
BASIS OF DEVELOPMENTAL ANGLE
 Large-Scale Entrepreneurs
 Entrepreneurs who are involved in entrepreneurial activities at large
scale.
 Small-Scale Entrepreneurs
 Entrepreneurs whose activities are limited to local markets only.
 Satellites
 Entrepreneurs who start as suppliers and moves towards a productive
enterprise.
 Managers
 Entrepreneurs who do not initiate expansion and are satisfied just in
managing and staying in business.
 Minor Innovators
 Entrepreneurs who participate in the economic progress by finding
the making the better use of the existing resources.
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 T YPES OF ENTREPRENEURS: ON THE
BASIS OF PERSONALIT Y TRAITS
 Advisors
 Entrepreneurs who provide an extremely high level of assistance and
advice to customers.
 Administrators or Organizers
 Entrepreneurs who manage various events and processes.
 Builders or Creators
 Entrepreneurs who are involved in building or creative works.
 Communicators or Trainers
 Entrepreneurs who provide information services.
 Caretakers
 Entrepreneurs who have helping personalities and are involved in
taking care of people and property.

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 T YPES OF ENTREPRENEURS: SOME
OTHERS
 Entertainers/Hosts
 The entrepreneurs who thrive on being with people and are involved
in hospitality or service industries.
 Investors/Owners
 The entrepreneurs, who invest money to generate profits. They invest
their capital in stocks, real estate, or businesses.
 Sellers
 The entrepreneurs who make profits in the form of commissions
acquired on purchases by customers.
 Technologists
 The entrepreneurs who provide technological services. For example,
software developers and engineers.

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FACTORS INFLUENCING ENTREPRENEURS

 Internal Factors
 The factors that take place inside the organization and affect the way
the entrepreneur operates.
 External Factors
 The factors that take place outside the organization and are beyond
the control of entrepreneurs.

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 PROFESSIONAL VS. FAMILY
ENTREPRENEURS
Professional Family
They are usually involved in firms that They are engaged in family-owned
are larger in size. businesses that are comparatively of
small size.
They are open to new ideas and They lack open mindedness.
thoughts.
They are ready to adopt new things. They avoid experimenting on new things.
They do not show partiality in managing They employ their relatives or friends in
the human resource. responsible positions.
They are organization oriented. They give first priority to their family
concerns and interests.
The decision making process involves They make the decisions themselves or
the participation of all the employees. with the help of family members.

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 ENTREPRENEURIAL LEADERS VS.
MANAGERS
Entrepreneurial Leaders Managers
They are their own bosses. They are salaried employees.
They bear all the risks and the They need not bear any risk.
uncertainties involved in the business.
Their objective is to introduce innovations Their objective is to supervise and create
and act as change agents. routines as well as implement
entrepreneur’s plans and ideas.

Their income is not fixed and depends on They get fixed salaries and rewards for
the performance of the enterprise performing well
They believe in experimenting new ideas. They put efforts to avoid mistakes.
They take own decisions. They execute the decision of the owner.

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 ENTREPRENEURS VS. INTRAPRENEURS

Entrepreneurs Intrapreneurs
They work inside as well as outside the They are bound to perform within the
enterprise. enterprise.
They generate ideas. They adopt the idea generated.
They employ intrapreneurs and pays They are paid for using their creative
them in exchange of their services. thinking.
They work overtime to run his/her own They work overtime helping to run
business. someone’s else business.
The rewards of entrepreneurs depend on An intrapreneur is a person employed by
the success and profit margins of the an organization whose compensation is
enterprise. fixed.
They work inside as well as outside the They are bound to perform within the
enterprise. enterprise.

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 ENTREPRENEURIAL PROCESS

• Deciding to become an entrepreneur

1

• Identifying and evaluating the opportunity

2

• Developing a business plan

3

• Determining the required resources

4

• Converting the idea to an enterprise

5

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 ENTREPRENEURIAL MOTIVATION

 Need for Achievement (nAch)

 An independent motive of an individual to gain excellence, beat
competition, achieve personal goals, and overcome problems.
 Need for Power (N-Pow)
 The motivation of an authority oriented individual.
 Need for Affiliation (N- Aff)
 The interpersonal need of an individual.

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 ENTREPRENEURIAL MOTIVATIONAL
FACTORS

 Risk-Taking Ability
 Tolerance for Ambiguity
 Locus of Control
 Self-Efficacy
 Goal Setting
 Independence
 Egoistic Passion

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 ENTREPRENEURIAL BARRIERS

 Economic Barriers
 Capital
 Labor
 Raw Materials
 Non-Economic Barriers
 Social
 Social Norms
 Practical Values
 Emotional Blocks
 Personal
 Lack of Sustained Motivation
 Unclear or Ambiguous Ideas
 Lack of Vision
 Lack of Clear Perception
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 WOMEN AS AN ENTREPRENEUR

 A woman entrepreneur can be defined as a confident,

innovative, and creative woman capable of achieving self-
economic independence individually or in collaboration,
generates employment opportunities for others through
initiating, establishing, and running the enterprise by keeping
pace with the personal, family, and social life . --- Kamal Singh

 When women moves forward, the family moves, the village

moves, and the nation moves. --- Pandit Jawaharlal Nehru

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BARRIERS TO WOMEN ENTREPRENEURS

 Financial Barriers
 An women entrepreneur have difficulty in mobilizing enough fund to
run and grow the enterprise.
 Marketing Barriers
 An women entrepreneur have difficulty in marketing the products or
services.
 Socio-Cultural Barriers
 There are number of constraints and barriers imposed on women
entrepreneurs by the society.
 Lack of Confidence
 There are multiple personal problem of women entrepreneurs.

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 RECAP

 Entrepreneurship is an act of bearing risks, bringing

innovation, generating employment, and mobilizing resources.
 The development of entrepreneurship requires proper
attention and supervision by the entrepreneur.
 An entrepreneur is a person, who undertakes risks, mobilizes
resources, and generates employment by establishing and
running an enterprise.
 An entrepreneur alone cannot make the enterprise successful;
he/she needs a number of individuals to make the enterprise
run smoothly.
 Women entrepreneurship has been recognized as an
important, untapped source of economic growth.

© 2011, Dreamtech Press :: Chapter 1 25

 CHAPTER-2

ESTABLISHING A NEW
ENTERPRISE
A U T H O R : A L PA N A T R E H A N

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 DEVELOPING A BUSINESS IDEA

 The first step taken by an entrepreneur to establish an

enterprise.
 It involves recognizing opportunities and shaping them into
feasible business concepts.
 While developing a business idea, an entrepreneur should
consider the following questions:
 How to create value for customers?
 How the products produced by the enterprise would be different from
that of its competitors?
 What would be the business strategies (sales, marketing, and
distribution)?
 The requirements for the development of business idea:
 Business opportunity
 Methods for idea generation
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 BUSINESS OPPORTUNIT Y

 It refers to the desired conditions for staring up a new

business or venture or new product.

 The methods for searching an opportunity are as follows:

 Analyzing market trends
 Economic factors
 Social factors
 Technological factors
 Political and regulatory factors
 Problem identification

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 METHODS FOR GENERATING IDEAS

 Idea generation involves exploring ideas to develop a new

business.
 The methods for generating ideas are:
 Brainstorming: Refers to the method that aims at creating a pool of
ideas based on four general rules.
 Focus Group: Refers to the formation of groups by an entrepreneur to
generate business ideas with the help of people who are experienced
in that field.
 Surveys: Refers to the method in which an entrepreneur tries to seek
out information from people about their needs and desires.

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PROCESS OF SETTING UP A NEW
ENTERPRISE
Financing the
Creating a Pricing the
Startup
Business Plan Product
Business

Selecting the Fulfilling the Procuring

Form of Regularity Physical
Organization Requirements Resources

Making a Naming and

Hiring Human
Product Registering a
Resource
Choice Business

Selecting the
Setting up
Location of
Infrastructure
Industry

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 DIFFERENT FORMS OF ORGANIZATION

 Sole Proprietorship
 Partnership Firm
 Private Limited Company
 Public Limited Company
 Co-operative
 Joint Hindu Family Business
 Limited Liability Partnership (LLP)

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 SOLE PROPRIETORSHIP

 It is a one-man organization-owned, managed, and controlled

by a single individual.
 The proprietor is held responsible for the liabilities and profits
generated.
 It does not require going through complicated legal
formalities except acquiring license specific to the line of
business.
 It involves capital supplied completely by the owner
himself/herself.
 The drawbacks of Sole Proprietorship are:
 Limited capital and unlimited liability
 Limited span of life

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 PARTNERSHIP FIRM

 It is owned by two or more partners.

 It requires an oral or written agreement among the partners.
 A Partnership deed is the written form of the agreement
among partners that is stamped and registered.
 It involves no legal formalities. However, the firm can be
registered to avail certain legal benefits.
 It carries equal right and authority for all the partners to
participate in business activities.
 The drawbacks of Partnership Firm are:
 Lacks in ultimate authority and Includes unlimited liability for the
partners
 Involves liability for the actions of other partners
 Enjoys limited span of life

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 PRIVATE LIMITED COMPANY

 It is a voluntary association of minimum two and maximum

50 members.
 It contains a different identity from its members legally.
 The Directors are shareholders of the company and the shares
are distributed in the ratio of their capital investment.
 It involves a limited liability of the members.
 It enjoys unlimited life.
 The drawbacks of Private Limited Company are:
 Allows no free transfer of shares
 Does not allow public to subscribe to its shares
 Represents undemocratic control

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 PUBLIC LIMITED COMPANY

 The shares are freely traded in the stock market.

 It requires minimum seven members for its startup.
 It is a separate legal identity that is different from the people
who have incorporated it.
 It contains legal rules and regulations for the entry, working,
and exit of a company.
 The drawbacks of Public Limited Company are:
 Provides scope for directors for personal profit
 Represents undemocratic control

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 CO-OPERATIVE

 It is a voluntary association of ten or more members residing

or working in the same locality with the aim of fulfilling their
economic or business interest.
 It provides a right to members to leave the co-operative and
pull out their capital at any time, after giving a notice.
 It requires a compulsory registration with the Registrar of Co-
operatives Societies.
 It involves liability of the members, which is limited to the
extent of their capital contribution.
 The primary motive of co-operatives is to serve its members
rather than profit making.
 The drawbacks of Co-operative are:
 Shows inability to collect sufficient capital
 Includes organizational limitations
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 JOINT HINDU FAMILY BUSINESS

 It is owned and maintained by the members of a family.

 It involves unlimited number of members.
 It involves no compulsory registration, but can file a suit
against third parties for claims of debt.
 It enjoys continuity of operations.
 The drawbacks of Joint Hindu Family Business are:
 Confines to Indian families only
 Involves relatively limited capital

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 LIMITED LIABILIT Y PARTNERSHIP

 It has merits of Limited Liability Company and flexibility of

partnership firm with a low agreement cost.
 It involves no liability of any partner on account of
independent or unofficial actions of other partners.
 It involves minimum two partners and at least two individuals
as designated partners, of whom at least one has to be the
resident of India.
 It enjoys continuity of operations.
 The drawback of Limited Liability Partnership are:
 Involves an obligation that an LLP can be winded up either voluntary
or by the tribunal established under the Companies Act, 1956

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FACTORS INFLUENCING THE SELECTION
OF FORM OF ORGANIZATION

Nature of Business

Scale of Operations

Degree of Control Desired by the Owner

Amount of Capital Required

Degree of Risks and Liabilities

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 DETERMINATION OF SIZE OF NEW
ENTERPRISE

 Target customers
 Location of target customers
 Number of customers
 Consumption rate of product/service
 Seasonal demand
 Competitors
 Expected market share
 Finance
 Quality standards

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 LOCATION OF A STARTUP ENTERPRISE

 The location affects the present and future requirements of

an enterprise.
 It influences the arrangement of machinery and equipment
and production process of the enterprise.
 The ideal location is one that facilitates minimum unit cost of
production and generates maximum revenue.
 An entrepreneur makes the following two selections to
determine the location of his/her enterprise:
 Selection of the region
 Selection of the appropriate site

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 FEASIBILIT Y STUDY OF NEW
ENTERPRISE
 It helps in assessing the viability of a new venture and
provides information to make decisions.
 Feasibility analysis involves the following question:
 Whether the idea generated in first stage is viable or not?
 Should the enterprise proceed with the proposed idea?
 Is it feasible to start a business or not?
 The different type of feasibility analysis for a new enterprise
are:
 Market Feasibility
 Financial Feasibility
 Organizational Feasibility
 Project Feasibility

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 PEST ANALYSIS

 It acts as a tool for understanding the

environment/surroundings in which a business operates.
 The components of PEST analysis are:

"P" Political "E" Economic

factors factors

"S" Socio- "T"

Cultural Technological
factors factors

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 SWOT ANALYSIS

 This analysis helps in knowing and assessing the strengths,

weaknesses, opportunities, and threats of an enterprise.
 The various elements are:
 Strengths: Refer to inherent capacities that an enterprise can use to
gain strategic advantage.
 Weaknesses: Imply an inherent inadequacy, which creates strategic
disadvantages for an enterprise.
 Opportunities: Imply favorable conditions in the environment of an
enterprise, which might strengthen the position of the enterprise.
 Threats: Refer to unfavorable conditions that exist in the environment
of an enterprise.

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 SWOT STRATEGY

S-O Strategies

• Involves maximizing the strengths and using them as an opportunity to grow

further

W-O Strategies

• Involves minimizing the weaknesses and maximizing the opportunities by

taking advantage of opportunities to mitigate weaknesses

S-T Strategies

• Involves using strengths to deal with threats

W-T Strategies

• Involves minimizing weaknesses and avoiding threats

© 2011, Dreamtech Press :: Chapter 2 45

 PORTER’S MODEL

 It is a tool used for industry analysis.

 The profitability in an industry depends on the level of
competition in that industry.
 The Porter`s Five Forces Model is shown in the following
figure:

© 2011, Dreamtech Press :: Chapter 2 46

 BUSINESS PLAN

 A business plan refers to a formal statement of plans of an

enterprise. It explains business goals of the enterprise and
means to achieve those goals.
 If you are failing to plan, you are planning to fail. --- Tariq
Siddique
 It’s a document that convincingly demonstrates that your
business can sell enough of its product or services to make a
satisfactory profit and to be attractive to potential backers. ---
David Gumper t

© 2011, Dreamtech Press :: Chapter 2 47

NATURE AND SCOPE OF BUSINESS PLAN

 If you are inclined to view the business plan as just another

piece of useless paperwork, it’s time for an attitude change.
When you are starting out, investors will justifiably want to
know a lot about you and your qualification for running a
business and will want to see a step-by -step plan for how you
intend to make it success. --- Mark Steven

© 2011, Dreamtech Press :: Chapter 2 48

 USERS OF A BUSINESS PLAN

Entrepreneur/Management
Team

Insiders

Employees

Business Plan
Suppliers

Outsiders Customers

Investors

© 2011, Dreamtech Press :: Chapter 2 49

 ELEMENTS OF A BUSINESS PLAN

 Title Page
 Table of Contents
 Executive Summary
 Description of the Business
 Market Plan
 Equipment and Material Description
 Management and Organizational Plan
 Financial Plan
 Contingency Plan

© 2011, Dreamtech Press :: Chapter 2 50

 RECAP

 The first step in setting up a new enterprise is to generate a

number of ideas regarding the core business of the enterprise.
 Business opportunity refers to the desired conditions for
staring up a new business or venture or new product.
 Establishing an enterprise involves various activities, such as
financing, organizing, and promoting, which are under taken by
an entrepreneur.
 Feasibility analysis helps in assessing the viability of a new
venture and provides information needed to make critical
decision regarding going forward and starting the new venture.
 A business plan differs from enterprise to enterprise depending
on various factors, such as complexity in organizational
structure, types of products and services, and demand for the
product.
© 2011, Dreamtech Press :: Chapter 2 51