Define Entrepreneurship

 Entrepreneurship is the creation or extraction of value

 According to Schumpeter, an entrepreneur is a person who is willing and able to convert
a new idea or invention into a successful innovation.
 Economist Joseph Schumpeter (1883–1950) saw the role of the entrepreneur in the
economy as "creative destruction" – launching innovations that simultaneously destroy
old industries
 The entrepreneur is commonly seen as an innovator—a designer of new ideas and
business process
 Peter Drucker defined entrepreneurship in terms of risk-taking.

Characteristics of Successful Entrepreneurship

1. They start strong: Some 84% of respondents in a poll by Kabbage of 500 successful
entrepreneurs say their companies became profitable within their first four years, and more
than two-thirds turned a profit in their first year. In contrast, just 8% became profitable after
their fifth year.

2. They continually seek new customers: Don’t rest on your laurels. Stay focused on
generating new leads and closing new sales.

3. They invest in their businesses: Successful small business owners put their business first.

4. They work hard: 86% of entrepreneurs work on the weekends; 23% take fewer than two
vacation days per year; and of those who do take vacations, 75% work while on vacation.

Creativity Passion Motivation

Product or service knowledge Optimism Ability to network
Self-confidence Vision Goal mindset
Risk-taking Persuasiveness Decision-making
Money management Adaptability Ability to take Risk
Role of Entrepreneurs in Economic Development

1. Employment opportunities
2. Balanced Regional Development
3. Mobilization Of Local Resources
4. Optimization Of Capital
5. Promotion of Exports
6. Consumer Demands
7. Social Advantage
8. Increase per capita income
9. Capital formation
10. Growth of capital market
11. Growth of infrastructure
12. Development of Trader
13. Economic Integration
14. Inflow of Foreign Capital

1. Employment opportunities Entrepreneurs employ labour for managing their business

activities and provides employment opportunities to a large number of people. They remove
unemployment problem.

2. Balanced Regional Development

Government promotes decentralized development of industries as most of the incentives are
granted for establishing industries in backward and rural areas. Thus, the entrepreneurs to avail
the benefits establish industries in backward and rural areas.

They remove regional disparities and bring balanced regional development. They also help to
reduce the problems of congestion, slums, sanitation and pollution in cities by providing
employment and income to people living in rural areas. They help in improving the standard
of living of the people residing in suburban and rural areas.

3. Mobilization Of Local Resources

Entrepreneurs help to mobilize and utilize local resources like small savings and talents of
relatives and friends, which might otherwise remain idle and unutilized. Thus they help in
effective utilization of resources.

4. Optimization Of Capital
Entrepreneurs aim to get quick return on investment. They act as a stabilizing force by
providing high output capital ratio as well as high employment capital ratio.

5. Promotion of Exports
Entrepreneurs reduce the pressure on the country’s balance of payments by exporting their
goods they earn valuable foreign exchange through exports.
6. Consumer Demands
Entrepreneurs produce a wide range of products required by consumers. They meet the demand
of the consumers without creating a shortage for goods.

7. Social Advantage
Entrepreneurs help in the development of the society by providing employment to people and
paves for independent living They encourage democracy and self-governance. They are adept
in distributing national income in more efficient and equitable manner among the various
participants of the society.

8. Increase per capita income

Entrepreneurs help to increase the per capita income of the country in various ways and
facilitate development of backward areas and weaker sections of the society.

9. Capital formation
A country can attain economic development only when there is more amount of investment
and production. Entrepreneurs help in channelizing their savings and savings of the public to
productive resources by establishing enterprises. They promote capital formation by
channelizing the savings of public to productive resources.

10. Growth of capital market

Entrepreneurs raises money for running their business through shares and debentures. Trading
of shares and debentures by the public with the help of financial services sector leads to capital
market growth.

11. Growth of infrastructure

The infrastructure development of any country determines the economic development of a
country, Entrepreneurs by establishing their enterprises in rural and backward areas influence
the government to develop the infrastructure of those areas.

12. Development of Trader

Entrepreneurs play an important role in the promotion of domestic trade and foreign trade.
They avail assistance from various financial institutions in the form of cash credit, trade credit,
overdraft, short term loans, secured loans and unsecured loans and lead to the development of
the trade in the country.

13. Economic Integration

Entrepreneur reduces the concentration of power in a few hands by creating employment
opportunities and through equitable distribution of income. Entrepreneurs promote economic
integration in the country by adopting certain economic policies and laws framed by the
government. They help in removing the disparity between the rich and the poor by adopting
the rules and regulation framed by the government for the effective functioning of business in
the country.

14. Inflow of Foreign Capital

Entrepreneurs help to attract funds from individuals and institutions residing in foreign
countries for their businesses.
Forms of Business Organizations: Advantages and Disadvantages
1. Sole Proprietorship
2. Partnership
3. Corporation
4. Limited Liability Company (LLC)

1. Sole Proprietorship
The simplest and most common form of business ownership, sole proprietorship is a business
owned and run by someone for their own benefit. The business’ existence is entirely dependent
on the owner’s decisions, so when the owner dies, so does the business.

Advantages of sole proprietorship:

 All profits are subject to the owner

 There is very little regulation for proprietorships
 Owners have total flexibility when running the business
 Very few requirements for starting—often only a business license

Disadvantages:

 Owner is 100% liable for business debts

 Equity is limited to the owner’s personal resources
 Ownership of proprietorship is difficult to transfer
 No distinction between personal and business income
2. Partnership
These come in two types: general and limited. In general partnerships, both owners invest their
money, property, labor, etc. to the business and are both 100% liable for business debts. In
other words, even if you invest a little into a general partnership, you are still potentially
responsible for all its debt. General partnerships do not require a formal agreement—
partnerships can be verbal or even implied between the two business owners.
Limited partnerships require a formal agreement between the partners. They must also file a
certificate of partnership with the state. Limited partnerships allow partners to limit their own
liability for business debts according to their portion of ownership or investment.

Advantages of partnerships:

 Shared resources provides more capital for the business

 Each partner shares the total profits of the company
 Similar flexibility and simple design of a proprietorship
 Inexpensive to establish a business partnership, formal or informal
Disadvantages:

 Each partner is 100% responsible for debts and losses

 Selling the business is difficult—requires finding new partner
 Partnership ends when any partner decides to end it
E.g: Hewlett-Packard (HP) is an example of an incredibly successful and famous partnership.
Like eBay, as they grew, they eventually incorporated in 1947. However, the company began
as a business partnership between two friends.

Corporation
Corporations are, for tax purposes, separate entities and are considered a legal person. This
means, among other things, that the profits generated by a corporation are taxed as the
“personal income” of the company. Then, any income distributed to the shareholders as
dividends or profits are taxed again as the personal income of the owners.

Advantages of a corporation:

 Limits liability of the owner to debts or losses

 Profits and losses belong to the corporation
 Can be transferred to new owners fairly easily
 Personal assets cannot be seized to pay for business debts

Disadvantages:

 Corporate operations are costly

 Establishing a corporation is costly
 Start a corporate business requires complex paperwork
 With some exceptions, corporate income is taxed twice

Limited Liability Company (LLC)

Similar to a limited partnership, an LLC provides owners with limited liability while providing
some of the income advantages of a partnership. Essentially, the advantages of partnerships
and corporations are combined in an LLC, mitigating some of the disadvantages of each.

Advantages of an LLC:

 Limits liability to the company owners for debts or losses

 The profits of the LLC are shared by the owners without double-taxation

Disadvantages:

 Ownership is limited by certain state laws

 Agreements must be comprehensive and complex
 Beginning an LLC has high costs due to legal and filing fees
E.g: Chrysler is one of the largest automobile manufacturers in the United States. Since its
inception, Chrysler has maintained its status as a limited liability corporation (LLC)
 Are Successful Entrepreneurs Born Or Made?
 Entrepreneurs are not naturally born, but nurturally made. Entrepreneurship is actually
not a destiny, but a qualification.
Are Entrepreneurs Born? Are Entrepreneurs Made?
To some extent, there is truth in this statement that
Many such individuals shape themselves to own
an entrepreneur is born. There are two types of a business. Who dares to dream big, and this is
entrepreneurs born. because they have a powerful burning desire to
be self-employed. Such individuals also go to
First is the one who is born into a family that any extent to take up risks.
already owns a business.
Yes, Entrepreneurs are made. These are
The second type of entrepreneur is the one who has individuals who are positive and with powerful
no resources and no knowledge when it comes to self-confidence. They want to be admired as a
investment, but he or she is full of ideas. self-made man or woman.

Such individuals do not grow overnight, but they

It is not necessary that an entrepreneur’s son or grow with time. It could be a dream or a vision
daughter has to become an entrepreneur. However, that they have always wanted to achieve since
it becomes easy for an individual who is born in a their childhood.
family that already runs a business venture to get
into the family business. It is because Over the years, they have successfully observed
entrepreneurship runs in the family. the surrounding environment. Maneuvered
through many obstacles and experiences in life
Entrepreneurs require resources like capital, land, which has helped them to become an
and labor. It is usually not that difficult to achieve entrepreneur.
these since these resources are already available in
the family business. It is their passion to create something new which
makes them an entrepreneur. It can also be said
In such situations, the drawback is that the that an entrepreneur is created through education.
entrepreneur born in a business family shy’s away With the knowledge that he or she receives
from starting their own business. He or she focuses through lessons which help the individual to be
only on running the family business and to carry exposed to new ideas.
forward the name attached to the business for
generations to come. Education helps individuals discover the skills
and the natural talents that they already possess.
It helps them to successfully use those skills in
becoming an entrepreneur.

However, there is one thing that education cannot

teach, and that is to take risks. A self-made
entrepreneur can bear risks and take up new
challenges.
 SOURCES OF NEW BUSINES IDEAS
 Customers
 Existing organization
 Distribution channels
 Government
 Financial institutions and Development Agencies
 Research and Development
 Trade Shows, Fairs aid Exhibitions
 Focus Groups
 Brainstorming
 Collective Notebook Method
 Heuristics Method
 Value analysis Method:
 Checklist Method
 Synectics Method
 Dream Approach
 Market Gap Analysis
 Life-style analysis Method
Customers

 Prospective customers know best what they want and the habits/tastes which are going
to be popular shortly.

 New product or service ideas may come from customers’ reactions to the present
product and the expected product idea.

 Contacts with prospective consumers can also reveal the features that should be built
into a product or service.

 The attention to the customers can take the form of informally monitoring potential
ideas and needs or formally arranging surveys among prospective customers.

 Care needs to be taken to ensure that the idea or need represents a large enough market
to support a new venture.
Existing organization

 Competing products and services of existing organization and evaluation thereof is a

successful source of new ideas.
 Frequently, this analysis uncovers ways to improve on these offerings, resulting in a
new product that has more market appeal.
 The analysis of profitability and break-even level of various industries or organizations
indicate promising investment opportunities which are profitable and relatively risk-
free.
 An examination of the capacity utilization of various industries provides information
about the potential for further investment.

Distribution channels

 Member of the distribution channels; middlemen, transient customer preference and

possible expectations which may be a good business idea.
 Not only do channel members frequently have suggestions for completely new
products; they can also help in marketing the entrepreneur’s newly developed products.

Government
The government can be a source of new product ideas in many ways.

 First, the files of the Patent Office contain numerous new product possibilities. They
can suggest other more marketable new product ideas.
 Secondly, new product ideas can come in response to government regulations,
industrial policy, investment guidelines, annual plan, Five-year plan, etc.
 Thirdly, several government agencies nowadays assist entrepreneurs in discovering
evaluating business ideas.
 Fourthly, government publications on trade and industry can also help set new venture
ideas.

Financial institutions and Development Agencies

These organizations also provide ready projects and offer suggestions to potential
entrepreneurs which help identify promising projects.
Community Development Financial Institutions Fund, Small Business Administration, Office
of Advocacy, United States Chamber of Commerce, Economic Development Administration,
Small Business and Entrepreneurship Council, House Committee on Small Business and many
others bodies in the USA are working to improve entrepreneurship and small businesses.
Research and Development

 The entrepreneur’s own “research and development” is the largest source of new ideas.
It may be a more formal endeavor connected with one’s current employment or an
informal laboratory in the private premise.

 Formal institutional, research and development are often better equipped, enabling the
entrepreneur to conceptualize and develop successful new product ideas.

 But many amazing product ideas have come from informal research endeavors at the
private level.

Trade Shows, Fairs aid Exhibitions

 These sources display new products and innovations in processes and services.
 An innovative entrepreneur can get product ideas from here which they can adapt or
modify and produce with indigenous materials and technology.

Focus Groups

 Focus groups are good sources of product ideas.

 A moderator leads a group of people through an open, in-depth discussion rather than
simply asking questions to solicit participant response; for a new product area, the
moderator focuses the discussion of the group is either a directive or a nondirective
manner.
 The group of 8 to 14 participants is stimulated by comments from other group members
in creaturely conceptualizing and developing a new product idea to fulfill market needs.
 This is an excellent method for initially screening ideas and concepts too.

Brainstorming

 The brainstorming method for generating new product ideas is based on the fact that
people can be stimulated to greater creativity by meeting with others and participating
in organized group experiences.
 This method would be effective if the effort focuses on a specific product or market
area. The following four rules should be followed when using this method:
 No criticism is allowed by anyone in the group – no negative comments.
 Freewheeling is encouraged- the wilder the idea the better.
 Quantity of ideas is desired- the greater the number of ideas, the greater the likelihood
of useful ideas emerging.
 Combinations and improvements of ideas are encouraged – ideas of others can be used
to produce still another new idea.
 The brainstorming session should be fun, with no one dominating or instituting the
discussion.
Collective Notebook Method

 In the collective notebook method, a small notebook that easily it’s in a pocket,
containing a statement of the problem, blank pages, and any pertinent background data,
is distributed.

 Participants consider the problem and its possible solutions, recording ideas at least
once but preferably three times a day.
 At the end of the month, a list of the best ideas is developed, along with any suggestions.

Heuristics Method

 Heuristics relies on the entrepreneur’s ability to discover through a progression of

thoughts, insights, and learning.
 The technique is probably used more than imagined because entrepreneurs frequently
must settle for an estimated outcome of a decision rather than a certainty.
 One specific heuristic approach is called the heuristic ideation technique (HTT).
 The technique involves locating all relevant concerts – that could be associated with a
given product area and generating a set of all possible combinations of ideas.

Value analysis Method: The value analysis technique develops methods for maximizing value
to the entrepreneur and the new venture. It is a method for developing a new idea by evaluating
the worth of aspects of ideas.

Under this technique, regularly scheduled times are established to develop, evaluate, and refine
ideas.

Checklist Method
A new idea is developed through a lot of related issues or suggestions.
The entrepreneur can use the list of questions or statements to guide the direction of developing
entirely new ideas or concentrating on specific “idea” areas. The checklist may take any form
and be of any length.

One general checklist is :

 Put to other’ uses? New ways to use as is? Other uses if modified?
 Adapt? What else is like this? What other ideas does this ‘ suggest? Does the past offer
parallel? What could I copy?
 Modify? New twist? Change meaning, sour, motion, odor, form, shape? Other changes?
  Magnify? What lo add? More time? Greater frequency? Stronger? Larger? Thicker?
Extra value? Plus ingredient? Duplicate? Multiply? Exaggerate?
 Minify? What substitute? Smaller? Condensed? Miniature? Lower? Shorter? Lighter?
Omit? Streamline? Split up? Understated?
 Substitute? Who else instead? What else instead? Another ingredient? Other material?
Another process? Other power? Other places? Other approaches? Other tones of voice?
 Rearrange? Interchange components? Other Pattern? Other layouts’.’ Other sequences?
Transpose cause and effect? Change pact? Change schedule?
 Reverse? Transpose positive and negative? How about opposites? Turn it backward?
Turn it upside-down? Reverse roles? Change shoes? Turntables? Turn other cheeks?
 Combine? How about a bend, an alloy, an assortment, an ensemble? Combine units?
Combine purposes? Combine /appeals? Combine ideas?

Synectics Method
Synectic is a creative process that forced individuals to solve problems through one of four
analogy mechanisms: ‘
o personal,
o direct,
o symbolic, and
o fantasy.
A group works through a two-step process.
The first step is to make the strange familiar.

 Thus involves, through generalizations or models, consciously reversing the order of

things and putting the problem into a readily acceptable or familiar perspective, thereby
eliminating the strangeness.
 Once the strangeness is eliminated, participants engage in the second step, making the
familiar strange through personal, direct, or. symbolic analogy, which ideally results in
a unique solution being developed.

Dream Approach

 The big dream approach to coming up with a new idea requires that the entrepreneur
dreams about the problem and. its solution- thinking big.
 Every possibility should be recorded and investigated without regard to all the negatives
involved or the resources required.
 In other words, ideas should be conceptualized without any constraints until an idea is
developed into a workable form.
Market Gap Analysis

 Market gap analysis is a powerful method used to uncover areas in the market in which
the needs and wants far exceed the supply.
 This method has a hopper or gathering effect of converting everyday information into
bunches of lucrative product and service gaps that few have thought of before.

Life-style analysis Method

 Entrepreneurs can use life-style analysis effusively for product-service ideas. Lifestyle
is a person’s pattern of living as expressed in his or her psychographics (Kotler and
Armstrong. 181:2001).

 It involves measuring consumers’ major activities (work, hobbies, shopping, sports,

social events), interests (food, fashion, family, recreation), and opinions (about
themselves, social issues, business, products).

 The lifestyle analysis will help entrepreneurs understand new needs-and wants under
the changed conditions. It will also reflect the changing consumer values that may be a
good source of product-service ideas