Unit 1 The Entrepreneur

Entrepreneurship (HML 312)

Dr. Nirupma Gupta
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Entrepreneur
Raises Capital Any individual that sees and acts upon an opportunity. Innovates This includes introducing a new product or service, Welcomes Change

identifying new markets, or putting a twist on an existing product, process or service. Also, includes the raising of capital, taking the risk and Motivated controlling the new venture. Embodies creativity, Acts upon Opportunities aggressiveness, and determination. By assembling various resources, s/he takes risks and creates a venture from an idea, hobby, or simply a dream
Takes Decisions Undertakes RISK Plans

Entrepreneur
Person who undertakes the risk of a new venture Derived from French words,
Entre meaning between Prendre meaning to take Originally used to describe people who take on the risk between buyers and sellers or who undertake a task such as starting a new venture

An entrepreneur assembles and integrates all the resources needed, the business model, the strategy, and the risk bearing ability to transform an invention into a viable business
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Definition(s)
An entrepreneur is an agent who buys factors of production at certain prices in order to combine them into a product with a view to selling it at uncertain prices in future - Cantillon An economic agent who units all means of production land of one, the labor of another and the capital of yet another and thus produces a product. By selling the product in the market he pays rent on land, wages to labor, interest on capital and what remains is his profit - J. B. Say

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Definition(s) Contd
Person who is ingenious and creative in finding ways that add to their own wealth, power and prestige (Bauman's 1990) Person conducting own business (Webster) Person who sets up business deals in order to make profits (Collins Cobuild) Organizer of an economic venture, one who owns, organizes, manages, and assumes the risks of the business (Chandrashekhar)

An Entrepreneur need not necessarily be an Inventor ( who creates a new product or a process, previously unknown), but he is the one who may be exploiting an invention to reform or revolutionalise the pattern of production or commercialisation, by opening up of a new source of supply or new method or a new outlet.
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Invention and Innovation

INVENTION Means creating something new. Creative persons conceives an idea, work on it, collects the related information. Then test the idea to prove its importance. By passing through various stages of inventions, the creative persons become inventors e.g., Edison invented the bulbs. Invention is creating not only products rather new ways or methods of production, new technologies, new processes, new designs etc, an invention when made up open new markets. As consumers tastes and preferences go on changing day by day, they demand new things every time. They want something different, which is not in use by others. INNOVATION is to put the ideas of inventors in action. Innovators transforms the ideas into useful application and resultant is new products, methods procedures, services etc. innovation requires analytical ability to work. Entrepreneurs are innovators, to exploit the ideas entrepreneurs makes the arrangement of materials, staff, site etc. and establish an enterprise. Entrepreneurs are gifted with some competencies, talents and qualities which make them different Dr. Nirupma Gupta 6 from others.

 E: xamine needs, wants, and problems to see how they can improve the way needs and wants are met and problems overcome. N: arrow the possible opportunities to one specific "best" opportunity. T: hink of innovative ideas and narrow them to the "best" idea. R: esearch the opportunity and idea thoroughly. E: nlist the best sources of advice and assistance that they can find. P: lan their ventures (Project) and look for possible problems that might arise.

Who is an Entrepreneur ?

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Who is an Entrepreneur ?
R: ank the risks and the possible rewards. E: valuate the risks and possible rewards and make their
decision to act or not to act. N: ever hang on to an idea, no matter how much they may love it, if research shows it won't work.

E: mploy the resources necessary for the venture to succeed. U: nderstand that they will have to work long and hard to

make their venture succeed. R: ealize a sense of satisfaction from their successful ventures and learn from their failures

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Traits (Characteristics) of Entrepreneurs

1. 2. 3. 4. 5. 6. 7. 8. Mental Ability (Intelligence & Creativity) Technical Knowledge Administrative & Organizing Skills Vision & Clarity Business Secrecy Effective Communication Human Relations Ability PR Skills
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Must haves for Any Entrepreneur

Great idea Leadership skills Strong Vision Good team spirit Determination to succeed A good mentor (Teacher) Accept failure as the stepping stone to success Belief in oneself Passion and commitment Self-confident and self-reliant Goal-oriented Hardworking and energetic
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Characteristics of an Entrepreneur
Innovation Tries to develop new technology, products, markets by using creativity Risk taking Entrepreneurs assumes risk & is prepared for losses and minimize risk through research, planning, and skill development. - Production risk - Market risk - Financial risk - Social risk Decision making - Takes decisions to launch the enterprise for production, purchase, sale of goods & services - engage human resource - procure raw materials, machines from suppliers - raise capital from various sources - distribute the products through various channels Dr. Nirupma Gupta

Characteristics of an Entrepreneur contd

Perceptive Entrepreneurs view problems as opportunities and challenges. Curious Entrepreneurs like to know how things work. They take the time and initiative to pursue the unknown. Imaginative Entrepreneurs are creative. They imagine solutions to problems that encourage them to create new products and generate ideas. Persistent True entrepreneurs face bureaucracy, make mistakes, receive criticism, and deal with money, family, or stress problems. But they still stick to their dreams of seeing the venture succeed. Leadership Plans, organises, directs and controls the activities of business.While leading the workers, he coordinates their operations & motivates team.
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Characteristics of an Entrepreneur contd

Goal-setting

Entrepreneurs are motivated by the excitement of staring a new business. Once achieved, they seek out new goals or ventures to try. Hardworking Entrepreneurs need a great deal of energy to see a venture start and succeed. Yet they are not deterred by the long hours to achieve their goal. Self-confident Entrepreneurs believe in themselves. Their selfconfidence takes care of any doubts they may have. Flexible Entrepreneurs must be flexible in order to adapt to changing trends, markets, technologies, rules, and economic environments. Independent An entrepreneurs desire for control and the ability to make decisions often makes it difficult for them to work in a controlled environment. Dr. Nirupma Gupta

Characteristics of an Entrepreneur contd

Marketability Analyst

Entrepreneur need to ask himself the following questions about his/her product, service : Does the target market want this product? Prove it. What is the competition? How much of the market do they own already? How will I take it away from them? Am I competitively priced? Is this a short-term venture? How long will it last? What does I offer that no other product, service, or charity offers? Why would a customer pay money for what I provide?

Profitability achiever To expect a profit, an entrepreneur must ensure that revenue exceeds all costs. Listing expected revenue and expenses can help toDr.achieve this. Nirupma Gupta

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Functions of an Entrepreneur
Innovation Risk Taking Organization As per Peter Kilby: 1. Perceiving market opportunities 2. Gaining command over scarce resources 3. Purchasing inputs 4. Marketing products 5. Dealing with bureaucrats 6. Managing human relations within the firm 7. Managing customer and supplier relations

Functions of an Entrepreneur (Contd.)

As per Peter Kilby (Contd.): 8. Managing finance 9. Managing production 10. Acquiring and overseeing assembly of the factory 11. Industrial engineering 12. Upgrading process and product 13. Introducing new production techniques & products

Functions of an Entrepreneur
Planning of the project: He is the organizer to conceive the idea of launching the project and to program the structure of business. Management: The entrepreneur is also responsible for the management of business. He tries to have a least cost combination of factors of production. To Face Risks: He faces uncertainly and bears risks in his business uncertainly comprising those risks against which it is not possible to insure. He also faces the risk of other producers may enter the market. Distribution of Rewards: He is responsible of distributing the rewards to all factors of production. He pays the reward in the shape of rent, wage, and interest and bears the risk of profit or loss himself. Sale of Products: An entrepreneur is also responsible of marketing, advertising. He wants to maximize his profits by selling his product in the market. Scale of Production: He decides the scale of business in according with the provision of capital. Then, he takes the decision of what, where and how to produce goods. Dr. Nirupma Gupta 17

Functions of an Entrepreneur
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 informativeness. 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. 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'.

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Functions of an Entrepreneur
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. Setting up of the Enterprise For setting up an enterprise the entrepreneur may need to fulfill some legal formalities. He also tries to find out a suitable location, design the premises, install machinery and do many other things. Managing the enterprise One of the important function of an entrepreneur is to run the enterprise. He has to manage men, material, finance and organize production of goods 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.
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Entrepreneur Process
Finding the required resources Using networks extensively

Motivation to make a difference

Spotting & Exploiting Opportunities

Overcoming Obstacles

Controlling the Business

Start Getting Good return

Showing determination in the face of adversity

Managing Risk

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Myths About Entrepreneur

Entrepreneurs are motivated primarily by money Entrepreneurs are gamblers Entrepreneurs should be young and energetic

Entrepreneurs are born not made

Common Myths

Entrepreneurs love the spotlight

Myths About Entrepreneur contd..

Myth 1- Entrepreneurs are born not made False. Although there are correlations between certain types of behaviour and psychological traits and entrepreneurship, it seems that as many successful entrepreneurs learn these skills and acquire these attributes as are born with them. Myth 2-Entrepreneurs are gamblers They are not gamblers. Instead, entrepreneurs know when to take risks, whether to try again, or cut their losses and move on. Myth 3- Entrepreneurs are motivated primarily by money False. Most entrepreneurs are motivated by desire to work for themselves, and a passion for solving problems-particularly difficult human problems.
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Myths About Entrepreneur contd..

Myth 4- Entrepreneurs should be young and energetic False. The average age of a first-time entrepreneur starting a technology business is 39. And since this is an average, that means just as many start-up founders are older as are younger. Myth 5-Entrepreneurs love the spotlight Some do love the spotlight but for every famous entrepreneur, we can name ,there are hundreds, that we cant name because many of these people are working on proprietary products or services and would prefer to be out of the spotlight. Entrepreneurs are primarily motivated by passion for the business and not fame and fortune

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 Entrepreneurship refers to a process of actions an entrepreneur undertake to establish his business. It is a creative and innovative response to the environment and an ability to recognize, initiate and exploit an economic opportunity . Entrepreneurship is the ability to foresee or ascertain the various opportunities related with investment and then to evaluate these various opportunities and forming enterprise, the purpose of which is to give the maximum contribution in the nationals growth. When we combine these activities performed by entrepreneurs the resultant is known as entrepreneurship.
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 Process of identifying opportunities in the market place, marshalling the resources required to pursue these opportunities and investing the resources required to pursue these opportunities for long term gains.

Creating wealth by bringing together resources in new ways to start and operate an enterprise.
Entrepreneurship is the purposeful activity of an individual or a group of associated individuals undertaken to initiate, maintain and aggrandize(increase) profit by production and/or distribution of economic goods and services. - Arthor H. Cole

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Concept (Contd.)
Entrepreneurship is meant the function of seeking investment and production opportunity, organizing an enterprise to undertake a new production process, raising capital, hiring labor, arranging the supply of raw materials, finding site, introducing a new technique, discovering new sources of raw materials and selecting top managers or day to day operations of the enterprise. - B. Higgings

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Nature & Characteristics

1. Economic Activity 2. Creative Activity 3. Purposeful (Goal Oriented) 4. Risk-bearing Function 5. Organizing Function 6. Gap Filling Function 7. Dynamic Process 8. Innovative Function 9. Managerial function 10. Decision making function 11. Function of high achievement Dr. Nirupma Gupta

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Nature & Characteristics

1. Economic activity. Entrepreneurship is an economic activity as it is concerned with creation and operation of an enterprise and earning more and more profits. 2. Creative activity-It is a creative response to environment by recognizing the need for change and initiating it. 3. Goal oriented. Entrepreneurship is a goal oriented activity. It is undertaken to achieve the predetermined goals of the entrepreneur. 4. Risk bearing. Risk bearing is also an important function of entrepreneurship. Prof knight in his theory RISK UNCERTAINTY AND PROFITS DEFINES there are two types of risk; Foreseeable risk is the risk which can be insured and capable of being calculated. Unforeseeable risk.- is the risk which cant be insured and it is Dr. Nirupma Gupta 28 tough to calculate it.

RISK

FORESEEABLE RISK
EARTHQUAKE

UNFORESEEABLE RISK
BUSINESS RISK GOVT POLICY RISK COMPETATIVE RISK

THEFT
FLOODS

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Nature & Characteristics

5. Organizing function-entrepreneurship can also be defined as an organizing function. Organization means organizing all the factors of production and directing them towards the attainment of the goal of organization. 6. Resource Mobilization: Gap filling is the most significant feature of entrepreneurship. The job of entrepreneur is to fill the gap or make up the deficiencies which always exist in the need and production function. He has to perform the functions of input completing and gap filling. 7. Dynamic Process: Entrepreneurs thrive on the changing environment which brings new opportunities for business. Flexibility is the hallmark of a successful entrepreneur.

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Nature & Characteristics

8. Innovative Function: Innovation is an important function of entrepreneurship . Innovation means doing something new or doing old things in new or different way . It is the introduction of new methods and ways of doing the work. An entrepreneur should be innovative. According to Drucker, innovation is the means by which entrepreneur either creates new wealth producing resources or endows existing resources with new products, services, ideas, and information 9. Management skills. Entrepreneur must posses managerial skills like motivation and leadership. Motivation is inner urge that emerges the behaviour towards achievement of goals. It can be positive and negative, financial and non-financial and leadership is to direct the people to do what you want your men to do.
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Nature & Characteristics

10. Decision Making: Entrepreneur takes decisions regarding activities of enterprise. He decides about the type of business to be done and the ways of doing it. An entrepreneur has to make decisions to take actions with unknown and unpredictable results. 11. Function of High Achievement: People for high need for achievement are more likely to succeed as entrepreneur.

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OBJECTIVES OF ENTREPRENEURSHIP
Economic Objectives
Profit Earning Production of Goods Creating Market Technological Improvement

Human Objectives
Welfare of Employees Satisfaction of Consumers

Social Objectives
Availability of Goods Supply of Quality goods Co-Operation with government

Personal Objective
Growth

National Objectives
Helping National efforts Development of Small Entrepreneur National Self Sufficiency Development of Skilled Personal

Survival
Earning Prestige

Creation of More Employment

Utilising Natural Resources Properly
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Entrepreneurship Significance
Balanced regional development Capital formation Improvement in per capita income Generation of employment Improvement in living standards Provides self sufficiency Economic independence Backward and forward linkages Contributes towards R&D Creates wealth for nation and individuals Challenging opportunity for people
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The role of Entrepreneurship in development of an economy in discussed from the following points; 1. Entrepreneurship and balanced regional development. Imbalanced regional development means a few sectors of an economy are developed and others remained undeveloped. This is a major problem faced by an under developing country. These sectors remain backward because entrepreneurs are not willing to invest in these sectors due to lack of availability of infrastructural facilities. It is the government who can encourage entrepreneurs to invest in these sectors by giving then subsidies and concessions. So the balanced regional development can be ensured with the help of entrepreneurs. 2 Increase in per capita income. due to over population in developing countries per capita income is low as compared to the other developed nations. Per capita income can be increased either by reducing population or by increasing national income. Entrepreneurs play an important role in the growth of national income by utilizing the resources land, labour and capital. As they are innovators they can device new methods and techniques with minimum of cost and maximum profits which leads to increase in national income , increase in Dr. Nirupma Gupta 35 per capita income.

3.Generation of employment. Entrepreneurs offer solution of the grave unemployment problem confronting the economy. Entrepreneurs firstly generate self employment and secondly be employing others in their enterprise , solve unemployment problem of others. Small scale units need less investment and absorb a large number of unemployed persons. 4.Raise standards of living. Entrepreneurship help in rising the standard of living of people of the country. As entrepreneurs invest in small scale and large scale industries which leads to industrial growth in the country and industrial growth in turn leads to availability of abundance of goods for the consumers. As supply of goods increase it will lower the price of commodities become accessible to every walk of people in order developed countries and improves their standard of living.
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5. Self Sufficiency

Self sufficiency means a stage where a country is not dependent on world economy for its needs. Tools of self sufficiency are export promotion and import substitution. With the help of developed entrepreneurial structure a nation can increase its production. When the production of goods in the country is increased, the surplus which will left over after satisfying the domestic consumption can be exported, and with this we can earn foreign currency.

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Entrepreneur vs. Entrepreneurship

Entrepreneur
Refers to a person Visualizer Organizer Initiator Innovator Imitator Motivator Planner Decision maker Risk bearer

Entrepreneurship
Refers to a process Vision Organization Initiative Innovation Imitation Motivation Planning Decision making Risk-bearing
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Barriers to Entrepreneurship
Lack of a viable concept Lack of market knowledge Lack of technical skills Lack of seed capital Lack of business know-how Complacency- lack of motivation Social stigma Time presences and distractions Legal constraints and regulations, etc.
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Entrepreneurship vs. Management

Basis
Motive
Status Risk bearing Rewards

Entrepreneur
Initiate a venture Owner Bears Profit

Manager
Render services Servant Does not bear Salary

Innovation
Qualifications

Change-agent
No minimum qualification

Implements changes
Management theory & practice

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ENTREPRENEURSHIP THEORIES
Economic Theory Sociological Theory Psychological Theory McClellands Theory of Achievement Motivation Innovation Theory Kakinada Experiment

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Entrepreneurship Theories
1. Economic Theory
Entrepreneurship and economic growth take place when the economic conditions are favorable Economic incentives are the main motivators for entrepreneurial activities Economic incentives include taxation policy, industrial policy, sources of finance and raw material, infrastructure availability, investment and marketing opportunities, access to information about market conditions, technology etc.
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Economic Theory contd

Capital Availability of capital facilitates for the entrepreneur to bring together the land of one, machine of another and raw material of yet another to combine them to produce goods. Capital is therefore, regarded as lubricant to the process of production. Labor Easy availability of right type of workers also effect entrepreneurship

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Economic Theory contd..

Raw material It is one of the basic ingredients required for production. Shortage of raw material can adversely affect entrepreneurial environment. Market The role and importance of market and marketing is very important for the growth of entrepreneurship. In modern competitive world no entrepreneur can think of surviving in the absence of latest knowledge about market and various marketing techniques. The potential of the market constitutes the major determinant of probable rewards from entrepreneurial function
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Economic Theory contd..

Infrastructure Expansion of entrepreneurship presupposes properly developed communication and transportation facilities. It not only helps to enlarge the market, but expand the horizons of business too.
Apart from the above factors, institutions like trade/ business associations, business schools, libraries, etc. also make valuable contribution towards promoting and sustaining entrepreneurship in the economy. You can gather all the information you want from these bodies. They also act as a forum for communication and joint action.

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Entrepreneurship Theories
2. Sociological Theory
Entrepreneurship is likely to get a boost in a particular social culture Societys values, religious beliefs, customs, taboos influence the behavior of individuals in a society. The entrepreneur is a role performer according to the role expectations by the society

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Sociological Theory contd

The main components of social environment are as follows: 1. Caste Factor Caste system among the Hindus in India has divided the population into four division. The Brahmana (priest), the Kshatriya (warrior), the Vaishya (trade) and the Shudra (artisan). Commercial activities were the monopoly of the Vaishyas. Members of the three other Hindu Varnas did not become interested in trade and commence. 2. Family Background This factor includes size of family, type of family and economic status of family. In a study by Hadimani, it has been revealed that Zamindar family helped to gain access to political power and exhibit higher level of entrepreneurship. Background of a family in manufacturing provided a source of Dr. Nirupma Gupta 47 industrial entrepreneurship.

Sociological Theory contd

3. Attitude of the Society Certain societies encourage innovations and novelties, and thus approve entrepreneurs actions and rewards like profits. Certain others do not tolerate changes and in such circumstances, entrepreneurship cannot take root and grow. 4. Cultural Value Entrepreneurial growth requires proper motives like profitmaking, acquisition of prestige and attainment of social status. The strength of these motives depends upon the culture of the society. If the culture is economically or monetarily oriented, entrepreneurship would be applauded and praised; wealth accumulation as a way of life would be appreciated. In the less developed countries, people are not economically motivated. Dr. Nirupma Gupta 48 Monetary incentives have relatively less attraction.

Entrepreneurship Theories
3. Psychological Theory
Many entrepreneurial theorists have propounded theories of entrepreneurship that concentrate especially upon psychological factors . Entrepreneurship gets a boost when society has sufficient supply of individuals with necessary psychological characteristics The psychological characteristics include need for high achievement, a vision or foresight, ability to face opposition These characteristics are formed during the individuals upbringing which stress on standards of excellence, self reliance and low father dominance.
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Entrepreneurship Theories
4. Theory of Achievement Motivation by McClleland According to McClelland, a person has three types of needs at any given time, which are:
Need for achievement (get success with ones own efforts) Need for power (to dominate, influence others) Need for affiliation (maintain friendly relations with others)

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Theory of Achievement Motivation by McClleland contd.

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Theory of Achievement Motivation by McClleland contd.

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Theory of Achievement Motivation by McClleland contd.

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Theory of Achievement Motivation by McClleland contd.

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Theory of Achievement Motivation by McClleland contd

McClelland identified entrepreneurship

characteristics

of

Doing things in a new and better way Decision making under uncertainty

He stressed that people with high achievement orientation (need to succeed) were more likely to become entrepreneurs i.e. the need for achievement is the highest for entrepreneurs. People with high need-achievement are distinctive in several ways. They like to take risks and these risks stimulate them to greater effort. Such people are not influenced by money or 55 external incentives Dr. Nirupma Gupta

Theory of Achievement Motivation by McClleland contd.

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Theory of Achievement Motivation by McClleland contd.

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Theory of Achievement Motivation by McClleland contd.

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Entrepreneurship Theories
Others Thomas Begley and David P. Boyd studied in detail the psychological roots of entrepreneurship in the mid-1980s. They came to the conclusion that entrepreneurial attitudes based on psychological considerations have five dimensions: First came need-achievement as described by McClelland. In all studies of successful entrepreneurs a high achievement orientation is invariably present. The second dimension that Begley and Boyd call locus of control. This means that the entrepreneur follows the idea that he can control his own life and is not influenced by factors like luck, fate and so on.
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Entrepreneurship Theories
The third dimension is the willingness to take risks. These two researchers have come to the conclusion that entrepreneurs who take moderate risks earn higher returns on their assets than those who take no risks at all or who take extravagant risks. Tolerance is the next dimension of this study. Very few decisions are made with complete information. So all business executives must, have a certain amount of tolerance for ambiguity. Finally, here is what psychologists call Type A behavior. This is nothing but a chronic, incessant struggle to achieve more and more in less and less of time Entrepreneurs are characterize by the presence of Type A behavior in all their endeavors
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Entrepreneurship Theories
5. Entrepreneurship Innovation Theory
Theory by Joseph Schumpeter who believes that entrepreneur helps the process of development in an economy He says that an entrepreneur is the one who is innovative, creative and has a foresight According to him, innovation occurs when the entrepreneur
Introduces a new product Introduces a new production method Opens up a new market Finds out a new source of raw material supply Introduces new organization in any industry

The theory emphasizes on innovation, ignoring the risk taking and organizing abilities of an entrepreneur Schumpeters entrepreneur is a large scale businessman, who is rarely found in developing countries, where entrepreneurs are small scale businessmen who need to imitate rather than innovate
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Entrepreneurship Theories
6. Kakinada Experiment
Conducted by McClelland in America, Mexico and Mumbai Under this experiment, young adults were selected and put through a three month training programme The training aimed at inducing the achievement motivation The course contents were
Trainees were asked to control their thinking and talk to themselves, positively They imagined themselves in need of challenges and success for which they had to set planned and achievable goals They strived to get concrete and frequent feedback They tried to imitate their role models/those who performed well
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Kakinada Experiment contd

Kakinada Experiment
Conclusions of the experiment:
Traditional beliefs do not inhibit an entrepreneur Suitable training can provide necessary motivation to an entrepreneur The achievement motivation had a positive impact on the performance of the participants

It was the Kakinada experiment that made people realize the importance of Entrepreneurship Development Programmes to induce motivation and competence in young, prospective entrepreneurs and made them understand that entrepreneurs are not only born but can be made also.
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