UNIT-I

ENTREPRENEURSHIP
 INTRODUCTION
• Entrepreneur plays a vital role in the economic
development of a country.
• Economic development of a country refers steady
growth in the income levels.
• This growth mainly depends on its entrepreneur.
• An entrepreneur is an individual with adequate
knowledge, skills, drive and spirit of innovation who
aims at achieving new ideas.
• Entrepreneurship is a dynamic activity which helps
the entrepreneur to bring changes in the process of
production, innovation in production, new usage of
materials, creator of materials, creator of market,
etc
EVOLUTION OF THE CONCEPT OF
ENTREPRENEUR
• The word 'Entrepreneur' has derived from the
French: language where it originally meant to
designate an organiser of musical (or) other
entertainments.
• In the early 16th Century, it was applied to
those who were engaged in military
expeditions.
• After 1700 it was applied to civil engineering
like the construction of roads, bridges,
harbours and buildings.
• According to Richard Cartillor, an Irishman living in France,
was the first person to use the term 'Entrepreneur' refer to
economic activation.
• He defined an entrepreneur as a person who buys the
product at certain prices and sell its product at uncertain
prices in the future.
• He an entrepreneur as a bearer of non-insurable risk.
• F.H. Knight (Risk uncertainly and profit, Houghton Miffinco,
Boston, 1921) propounded the theory that entrepreneurs are
a specialised group of persons who bear risks and deal with
uncertainty.
• According to him, entrepreneur is the economic functioning
who undertakes such responsibility which cannot be insured
nor salaried.
• He also guarantees specified sums to others in return for
assignments made to them.
• The supply of entrepreneurship involves three factors. namely
ability, willingness and power to extend guarantees about
returns to others. Knight also identified the economic, social
and psychological factors which govern the supply of
entrepreneurship.
• Jean-Baptiste Say, an aristocratic industrialist, with his
unpleasant practical experiences developed the concept of
entrepreneur a little further which survived for almost two
centuries.
• His definition associates entrepreneur with the functions of co-
ordination, organisation and supervision.
• According to him, an entrepreneur is one who combines the
land of one, the 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 labourers and what remains is
his/her profit.
• Thus, Say has made a clear distinction between
the role of the capitalist as a finance and the
entrepreneur as an organiser. He further
elaborates that in the course of undertaking a
number ug of complex operations like obstacles to
be surmounted, anxieties to be suppressed,
misfortunes to be repaired and expedients to be
devised, three more implicit factor. They are
 Moral qualities for the work consisting of
judgement.
 Effective super intendance and administration to
overcome uncertainly of profits, and
 Command on sufficient capital resources.
• According to Joseph Schumepter, "An entrepreneur is an advanced
economist, 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)
new markets and the like".
• The introduction of new combination of factors of production,
according to him, may occur in anyone of the following five ways.
1. Introduction of a new product..
2. Introduction of methods of production.
3. Adopting new market.
4. Searching fresh source of raw materials.
5. Carrying of new organisation of any industry.
• Thus, 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 enterprises.
WHO IS AN ENTREPRENEUR?
• Oxford English Dictionary (1933) defined entrepreneur
as "One who undertakes an enterprise, especially (or)
contractor acting as intermediary between capital and
labour"
• Undertaking of an enterprise involves combining
capital and labour for the purpose of production.
• According to J.B. Say, "The entrepreneur is the
economic agent who unites all means of production
the labour of the one, agent the capital (or) the land of
the other and who finds in the value of products which
result from their employment, reconstitutions of the
entire capital that he utilises and the value of the
wages, the interest and the rent which he pays as well
as profits belonging to himself".
• In other words of Evans "entrepreneurs are
persons who initiate, organise, manage and
control the affairs of a business unit that
combines the factors of production to supply
goods and services, whether the business
partners to agriculture, industry, trade (or)
profession".
• The term 'entrepreneur' has been defined in
various ways such as, an innovator, a risk taker,
a resource assembler and so on. In simple
word, an entrepreneur is the combination of
all the factors.
CHARACTERISTICS OF AN ENTREPRENEUR
• An entrepreneur is an individual, who has following
characteristics.
1. Risk Bearer
Entrepreneurs accept risk. They select a moderate risk
situation, rather than gambling (or) avoiding risk, they
understand and manage risk.
2. Hard Work
Willingness to work hard distinguishes a successful
entrepreneur from unsuccessful one. The entrepreneur with
his tedious, sweat-filled hour and perseverance revive their
business even from the verge of failure. In a nutshell, most
of the successful entrepreneurs work hard endlessly,
especially in the beginning and it becomes their routine
throughout.
3. Clear Objectives
• An entrepreneur should have a clear objective as to the. exact
nature of the business, the nature of the goods to be produced
and subsidiary activities to be undertaken.
• A successful entrepreneur may have the objective to establish the
product, to make profit (or) to render social services.
4. Success and Achievement
• The entrepreneurs are aimed to achieve high goals in business,
this achievement motive strengthened them to remove the
obstacles, repair misopportunities and desire expedients, to him a
successful business.
5. Independence
• One of the common characteristics of the successful
entrepreneurs has been that they do not like to be guided by
others and to follow their routine.
• They like to be independent in the matters of their business. They
always want to make one man decision.
6. Self Confidence Entrepreneur directs his
abilities towards the accomplishment of goals
with the help of his strength and weakness.
7. Innovative An entrepreneur is meant for
Innovation.
In the present world the taste of the customer
keeps on changing so the entrepreneurs initiate
research and innovative activities to produce
goods t satisfy the customers changing demands
for the products.
FUNCTIONS OF AN ENTREPRENEUR
• Kilby has enumerated about 13 functions of an
entrepreneur, which included some of the
managerial functions also.
• These functions are as follows.
Searching market opportunities.
Obtaining the available resources.
Purchasing inputs.
 Marketing of the products and overcome competition.
 Dealing on getting licenses and other formalities.
 Recruitment of persons.
 Managing customer and supplier relations.
 Raising necessary funds.
 Managing production.
 Acquiring and overseeing assembly of the factory.
 Industrial Engineering
 Upgrading process and product quality.
 Adopting new production techniques and methods.
We may classify the functions of an entrepreneur into three broad
categories.
 Risk Bearing.
 Organisation.
 Innovation.
1. Risk Bearing
• An entrepreneur undertakes the responsibility
for loss that may arise due to unforeseen
contingencies in future. He guarantees
interest to creditors, wages to labour and rent
to the land lord and risk can be insured.
2. Organisation
• An entrepreneur organise the combination of
land, labour. and capital during the beginning
stage and at the performance stage, for
optimum utilisation of the resources.
• Efficient expansion and growth of the enterprise largely
depends on the efficiency of the organisational network
employed and monitored by the entrepreneur.
3. Innovation:
• Implies "doing of new things (or) doing of things that are
already being done in a new way".
• Schumepeter considered economic development as a
desired dynamic change brought by entrepreneur by instituting
new combinations of production.
 According to him innovation may occur in any one of the
following five forms:
 Launching of new product.
 Creation of new market.
 Introduction of new technology and method of production.
 Creation of complete possession (or) control of the supply of a
product (or) service.
DISTRIBUTION BETWEEN AN ENTREPRENEUR AND MANAGER
Nature Entrepreneur A Manager
1. Goal An entrepreneur starts a venture by setting But the main aim of a
Management up a new enterprise for his personal goal manager is to render his
achievement. service to an enterprise
already that exists.
2.Status An entrepreneur is the owner of the A manager is the employee
enterprise. of an enter prise owned by
the entrepreneur.
3.Risk Taking An entrepreneur bears all the risks and A manager being a
uncertainity involved in the enterprise employee does not take any
risk involved in the
enterprise.
4.Rewards An entrepreneur is motivated by profit. A manager receives salary
The profit of an entrepreneur is un- certain as reward for The profit of
and irregular. an ent-service rendered
which is fixed and regular.
5.Skills An entrepreneur needs creative thinking A manager depends more
and innovative ability among other skills. on human rela tion and
conceptual abilities.
6.Innovation Entrepreneur him- self thinks over what But, a manager executes the
and how to produce goods to meet the plans pre pared by the
changing demands of the customers. entrepre neur.
Hence he acts as an innovator.
TYPES OF ENTREPRENEURS
Danhof has classified entrepreneurs into four types.
1. Innovating Entrepreneurs
 Innovative entrepreneurship is characterized by aggressive
assemblage of information and the analysis of results derives
from sound combination of factors.
 Persons of this types are generally aggressive in
experimentation and cleverly put attractive possibilities in
practice. An Innovating entrepreneur sees the opportunity for
introducing a new technique (or) new methods (or) a new
product (or) a new market.
 Innovating entrepreneurs are very commonly found in
developed countries.
 Innovating entrepreneurs played the key role in the rise of
modern capitalism, through their enterprising spirit, of money
making, ability to recognise and exploit opportunities etc.
2. Imitative Entrepreneurs
 Imitative entrepreneurs do not innovate the
changes themselves, they only imitate
techniques and technology innovated by
others.
 This type of entrepreneurs are particularly
suitable for the under-developed regions for
bringing a mushroom drive of imitation of new
combinations of factors of production already
available in developed regions.
3. Fabian Entrepreneurs
• Entrepreneurs of this type are very cautious
and skeptical while practising any change.
• They have neither the will to introduce new
changes nor the desire to adopt new methods
innovated by the most enterprising
entrepreneurs.
• This type of entrepreneur will not be interested
in taking risk and they try to follow the
footsteps of their predecessor.
4. Drone Entrepreneur:
• This type of entrepreneurs refuse to adopt
opportunities to make changes in production
formula even at the cost of severely reduced
returns, relative to other like producers.
• They even suffer from losses but they are not
ready to make changes in their existing
production methods.
Some other types of entrepreneurs are

• 1. Individual Operators

• 2. Inheritance

• 3. Challengers
1. Individual Operators
• These are the entrepreneurs who essentially work
individually and if at all needed, employ a work few
employees. In the beginning, most of the entrepreneurs
start their enterprises like them.
2. Inheritance
• Entrepreneurs by inheritance (i.e.) family business carry
out their family business from one generation to another.
• In India, there are a large number of family controlled
business houses.
3. Challengers
• These are the entrepreneurs who plunge into industry
because of the challenges it presents. When one challenge
seems to be met, they begin to look for new challenges.
DIFFERENCE BETWEEN ENTREPRENEURS AND
INTRAPRENEUR:
Intrapreneur:
• The term 'intrapreneur' was coined in America in the
late 1970's, a new entrepreneur coming from a large
industrial organisation is called intrapreneurs.
• Several senior executives of big corporations in America
left their jobs to start their own small business because
the top bosses in their corporation will not be receptive
to their innovative ideas.
• These executives turned as entrepreneur to achieve
phenomenal success in their new ventures.
• Recently the concept of intrapreneurship has become
very popular in developed countries like America.
 Entrepreneur Vs Intrapreneur
Difference Entrepreneurs Intrapreneur

1. Independence An entrepreneur is an But an intrapreneur is semi-

independent independent businessman
businessman.

2. Risk Barrier An entrepreneur bears the An intrapreneur does not

risk fully. bear the risk of the business
he develops and operates.

3. Raising Funds An entrepreneur himself In this case, the intrapreneur

raises funds required for the will not raise fund by
business. himself.

4. Operation An entrepreneur operate

from out-operates from An intrapreneur the
within side. organisation itself.
 ENTREPRENEURSHIP IN ECONOMIC GROWTH
Definition:
According to Higgins, "Entrepreneurship is meant
by the function of seeking investment and
production opportunity, organising an enterprise
to undertake a new production process, raising
capital, hiring labour, arranging the supply of raw
materials, finding site, introducing a new
technique and commodities, discovering new
sources of raw material selecting top managers of
day to day operations of the enterprise.
• According to Schumpeter, "Entrepreneurship is
based on purposeful and systematic innovation.
It included not only the on independent
businessman but also company directors and
managers who actually carry out innovative
functions".

• According to Cole, "Entrepreneurship is the

purposeful activity of an individual (or) a group
of associated individuals undertaken to initiate,
maintain and aggrandise profit by production
(or) distribution of economic goods and services.
• According to Diamond, "Entrepreneurship is
equivalent to enterprise which involves the
willingness to assume risks in undertaking an
activity particularly a new one. It may involve
an innovation but not necessarily so.

• It always involves risk-taking and decision

making although neither risk nor decision
making may be of great significance.
• In a conference on Entrepreneurship held in United
States, the term "entrepreneurship' was defined as
follows. "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 mobilise human, financial and
material resources necessary to bring a project to
function".
• In şimple term, entrepreneurship is a set of
activities performed by an entrepreneur. Thus,
entrepreneur proceeds from entrepreneurship.
Relationship between Entrepreneur and Entrepreneurship

S.no. Entrepreneur Entrepreneurship

1. Person Process
2. Organiser Organisation
3. Innovator Innovation
4. Risk Bearer Risk Bearing
5. Decision Maker Decision Making
6. Motivator Motivation
7. Creator Creation
8. Visualiser Vision
9. Leader Leadership
10. Imitator Imitation
11. Administrator Administration
Nature and Characteristics of Entrepreneurship
as Follows:
The nature and characteristics of
Entrepreneurship are as
1. Innovative Function:
Entrepreneurship is a creative activity.
Entrepreneurial role involves doing things in a
new and better way. A businessman, who simply
behaves in traditional ways, cannot be an
entrepreneur.
• An entrepreneur has to make decisions under
uncertainity and he has to take actions with
unknown and unpredictable results.
• An entrepreneur is not simply an innovator. He
also assumes risk and organises human efforts.
2. Organising Function:
• An entrepreneur brings together various factors
of production for an economic use. He co-
ordinates and controls the factors of
production, efforts of the persons engaged in
his enterprise.
3. A Function of Group Level Pattern:
• Entrepreneur characteristics are found in
clusters, which may qualify themselves as
entrepreneurial groups.
• Entrepreneurial activity is generated by the
particular family background, experience as a
member of certain groups and as a reflection
of general values.
A group becomes reactive when the following three
conditions coincide.
• When a group overcome low status recognition.
• When accepts to access the important social
networks and
• When the group has better institutional resources
than other groups in the society at the same level.
4. Managerial and Leadership Functions:
• An individual entrepreneur should have additional
personality skill such as leadership and
managerial skill.
• Both skills are predominant orientation in the direction of
productivity, working relation and creative integration
along with desire to make profit.
• Entrepreneurship demands tactful, handling of risk and
uncertainties because new commodity and its
acceptability is uncertain.
5. Gap Filling Function
• The most important feature of entrepreneurship is gap
filling. The main aspects of the entrepreneur is to fill the
gap (or) make up the deficiencies which always exist in
the knowledge about the production function.
• An entrepreneur has to shell out all the inputs to realise
final products. Thus entrepreneurship is a function of
input completing and gap filling.
 Schumpeter Views on Entrepreneurship
• According to Joseph Schumpeter entrepreneurship
is essentially a creative activity.
• An entrepreneur is one who innovates, i.e., carries
out new combinations (or) enterprise.
• They foresee the potentially profitable opportunity
and try to exploit it.
• Innovations involve problem solving and the
entrepreneur is a problem solver.
Innovation may occur in the following ways:
 Introduction of a new product.
 Introduction of a new method of production.
 Opening of a new market.
 Acquiring new source of raw material supply.
• Schumpeter makes a distinction between an innovator and an
inventor.
• An inventor discovers new methods and new materials.
• An innovator is one who utilises (or) applies invention and
discoveries in order to make new combination and thus produces
newer and better goods which yield both satisfaction and profits.
• Schumpeter stressed the role of the entrepreneurial function in
economic development.
• Development requires basic changes and entrepreneurs carry out
the required changes.
• Entrepreneurial growth brings economic development.
• Schumpeter's innovating entrepreneur represents
the most vigorous type of enterprise.
• But this type of entrepreneur is a rare species in
developing countries.
• This type of entrepreneur who exploits possibilities
as they present themselves within a limited time
horizon and mostly on a small scale can only
produce limited results.
• Society must produce innovation with a long time
horizon and who are capable of achieving
substantial transformations.
• Schumpeters entrepreneur is a large scale
businessman who creates something new.
• But an entrepreneur cannot have large scale
operations from the very beginning. In case of
under developed countries people who can adopt
the existing technology are needed.
• Such countries need more 'imitation' than
'innovation'.
• They have to launch on small scale due to
imperfect market, shortage of capital and scarcity
of skilled labour.
• An individual is said to be an entrepreneur when
he carries out new combination and ceases to be
an entrepreneur the moment he settles down to
running the established business.
 Role of Entrepreneurship In Economic Growth
• The word development means changes.
Economic development means an increase in
per capital income of a country over a long
period of time.
• Adam Smith, the foremost classical economist,
assigned no changes to entrepreneurial role in
economic development in his monumental
work ‘An Enquiry into the Nature and causes
of the wealth of Nation', Published in 1776.
• Smith states the rate of capital formation is an
important case for economic development.
• The problem of economic development was ergo
therefore largely the ability of the people to save
more and invest more in any country.
• According to Smith, ability to save is governed by
improvement in productivity to the increase in the
dexterity of every worker due to division of labour.
• According to him, each individual is led by an invisible
hand in pushing his/her interest.
• David Ricardo in his theory of economic development
identified only three factors of production. Namely,
machinery, capital and labour to whom the entire
production is distributed as rent, profit and wages.
• Then in both the classical theories of economic
development there is no room for entrepreneurship.
• But presently in developed countries entrepreneurship
plays a major role in economic development.
• So, now people have begin to realize that for achieving
the goal of economic development, it is necessary to
increase entrepreneurship both qualitatively and
quantitatively in the country.
• It is only the entrepreneurs who fully explore the
available resources of a country.
• The resources like labour, technology and capital.
• Schumpeter says entrepreneur as the key factor in
economic development because of his role in
introducing innovations.
• Parson and Smelser described entrepreneurship as one the two
necessary conditions for economic development, the other being
the increased output of capital.
• The entrepreneur is the person who identifies the psychological
needs of the people.
• To fulfill those needs he brings together the man power, material
and capital.
• The role of entrepreneurship in economic development changes
from economy to economy based on available materials
resources, industrial climate and the responsiveness of the
political system to the entrepreneurial function.
• The entrepreneurs contribute more in favourable opportunity
condition than in the economy with relatively less favourable
opportunity conditions.
• India is an under-developed country which aims at decentralised
industrial structure to have a regional imbalance for economic
development.
• Small-scale entrepreneurship in such industrial
structure plays an important role to achieve
balanced regional development.
• The small-scale industries provide immediate
large-scale employment, national income and
facilitate effective resource mobilization of
capital and skill.
• The establishment of Entrepreneurship
Development Institutes and the like by the
Indian Government during the last decades is a
sign to realise about the premium mobile role of
entrepreneurship played in economic
development.
• The entrepreneurship plays a major role in the
economic development of a country which may be
specified in a more systematic and orderly manner
as follows.
✓ Entrepreneurship converts the idle saving of the
public into capital formation.
✔It provides large-scale employment.
✓ It promotes balanced regional development.
✓ It stimulates the equal distribution of wealth. ✔It
induces backward areas.

Thus, entrepreneurship plays a major role in economic

development of a country.
 Barriers of Entrepreneurship
Vasper has identified the following barriers of
Entrepreneurship.
• Lack of a Viable Concept
• Lack of Market Knowledge
• Lack of Technical Skill
• Lack of Initial Capital
• Lack of Business Know How
• Complacency-Lack of Motivation
• Social Stigma
• Time Pressures and Distractions
• Legal Constraints and Regulations
• Inhibitions due to Patents
 FACTORS AFFECTING ENTREPRENEURIAL GROWTH
• The development of entrepreneurship is not a
spontaneous one but a dependent phenomenon of
economic, social, political, and psychological factors
often nomenclatures as supporting conditions to
entrepreneurship development. These conditions may
have both positive and negative influences on the
emergence of entrepreneurship.
• Following are the factors of environment affecting
entrepreneurial growth. These conditions are grouped
under three categories.
 Economic Factors
 Non-Economic Factors
 Government Action
1. Economic Factors
• The economic factors that affects entrepreneurial growth
are,
✓Capital
✓Labour.
✓ Raw Material
✓ Market
(a) Capital
• Capital is one of the most important prerequisites to
establish an enterprise. Availability of capital facilitates the
entrepreneur to bring together the land of one, machine of
another and raw materials of yet another to combine them
to produce goods.
• Therefore capital is a lubricant which smoothens the working
of vehicle called enterprise.
• Increased capital investment and capital output ratio, results in
profit, which ultimately goes up. As capital supply increases,
entrepreneurship also increases.
(b) Labour
• The quality rather than quantity of labour is another factor
which influence the emergence of entrepreneurship. It is
noticed that cheap labour is often less mobile (or) even
immobile.
• According to-Adam Smith, division of labour as an important
element in Economic development, which itself depends upon
the size of the market which leads to improvement in the
productive capacities of labour due to an increase in the
dexterity of labour.
• For example, the problem of low-cost immobile labour can be
circumvented by plunging ahead with capital-intensive
technologies, as Germany did.
• It can be dealt by utilizing labour-intensive methods
like Japan, for example:
• By contrast the disadvantages of high cost-labour
can be modified by introduction of labour saving
innovations as was done in the U.S.A.
(c) Raw Material
• The necessity of raw materials hardly needs any
emphasis for establishing any industrial activity and
therefore, its influence in the emergence of
entrepreneurship is worth while.
• In the absence of raw materials, neither any
enterprise can be established nor an entrepreneur
can be emerged.
• In fact, the supply of raw material clearly does not
influencer by themselves but becomes influential
depending upon other opportunity conditions.
(d) Market
• The fact remains that the potential of the market
constitutes the major determinant of probable rewards
from entrepreneurial function. The size and composition of
market both influence entrepreneurship in their own ways.
• Practically in a monopoly product, a market becomes more
influential for entrepreneurship than a competitive market.
However, the disadvantages of a competitive market can be
cancelled, to some extent, by improvement in
transportation system facilitating the movement of raw
material and finished goods and increasing the demand for
produced goods.
2. Non-Economic Factors
• Some of the major non-economic factors that influence
the emerging entrepreneurship has been listed below.
✓ Legitimacy of Entrepreneurship.
✓ Social Mobility.
✓ Marginality
✓ Security
✔ Psychological Factor
(a) Legitimacy of Entrepreneurship
• The proponents of non-economic factors give emphasis
the relevance of a system of norms and values within a
socio cultural setting for the emergence of
entrepreneurship.