DEVELOPMENT OF

ENTREPRENEURIAL

UNIT –I

Meaning of Entrepreneur:
AnEntrepreneurisapersonwhoperceivesaneedand then brings together manpower,
material and capital required to meet that need. In other words an entrepreneur is an
individual or team that identifies the opportunity, gathers the necessary resources,
creates and ultimately responsible for the performance of the organization.
An entrepreneur is a person who is able to express and execute the urge, skill,
motivationandinnovativeabilitytoestablishabusinessorindustryofhisown,eitheralone or in
collaboration with his friends. His motive is to earn profit through the production or
distributionofgoodsorservices.Adventurism,willingnesstofacerisks,innovativeurgeand
creative power are the inborn qualities of entrepreneurship. Entrepreneurship can also
be explainedasaprocessofexecutingaworkinanewandbetterway.

Organisation

Urg Inovation
Vision Enterprise
Growth
Skill Diagram : Basics of An Entrepreneur Risk

Management

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Definition of Entrepreneur :
According to Harbison
"Anentrepreneurisnotaninnovationbutanorganizationbuilderoronewhohasthe skill to
build an organization and who must be able to harness the new ideas of different
innovatorstothebestoftheorganization."
Peter F. Drucker defines an entrepreneur as one who always searches for change,
responds to it and exploits it as an opportunity. Innovation is the specific tool of
entrepreneurs, the means by which they exploit change as an opportunity for a different
business or service.
Characteristics of an Entrepreneur :
(1) Vision : An entrepreneur has a dream and he visualizes the ways and means to
achievedream.Indoingsohevisualizes:
 MarketDemands
 Soicio-Economic
 TechnologicalEnvironment
And then based on these dynamic, he visualizes a future for his business venture.
(2) Knowledge : An entrepreneur has full knowledge about all the technicalities of his
business-beittechnological,operational,financialormatketdynamic.
(3) Desire to succeed : An entrepreneur has a strong desire to succeed in life. Their
dreams are not just limited to achieving one single goal but they constantly work to
achieve highergoals.
(4) Independence:Anentrepreneurneedsindependenceinworkanddecision-making.
Theydon'tfollowtherulesofthumbbutmaketheirownrulesanddestiny.
(5) Optimism:Entrepreneursarehighlyoptimisticaboutachievingtheirvision.
(6) Value Addition : Entrepreneurs do not follow the conventional rules of thumb.They
have a constant desire to introduce something new to the existing business. They
create,innovateorevenaddvaluetotheexistingproducts/services.
(7) Leadership:Anentrepreneurexhibitsthequalitiesofleader.Theyaregoodplanner,
organizers, have good communication skill, good decision0makers, take initiative to
implementplansandareresult-oriented.
(8) Hardworking : At times they are called workaholics. Work is worship for then.They
put in continuous efforts to achieve success and know that there is no substitute for
harkwork.
(9) Risk-Taking Ability : Risk is an inherent and inseparable elementof
entrepreneurship.Heassumestheuncertaintyoffuture.Anentrepreneurguarantees
rent to the landlord, wages to employees and interest to the investor in the hope of
earningmorethantheexpenses.

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Meaning of Entrepreneurship : Entrepreneurship refers to a
process of action an
entrepreneurundertakestoestablishhisenterprise.Itisacreativeandinnovativeresponse
totheenvironment.Inotherwordsentrepreneurshipcanbedefinedasanabilitytodiscover,
create or invent opportunities and exploit them to the benefit of the society, which in turn
bringsprosperitytotheinnovatorandhisorganization.
Definition:
B.Higgins,inhisbook"TheeconomicDevelopment"hassaid."Entrepreneurshipismeant
thefunctionofseekinginvestmentandproductionopportunity,organizinganenterpriseto
undertake a new production process, raising capital, hiring labour, arranging the supplyof
rawmaterials,findingsite,introducinganewtechniqueandcommodities,discoveringnew
sources of raw materials and selecting top managers of day to day operations of the
enterprise."
Concept of Entrepreneurship : Concept of entrepreneurship can be explained with the
help of following diagram

Entrepreneu Entrepreneurshi Enterpris

Person Process
Concept of
of Entrepreneurship Object

Characteristics of Entrepreneurship : The characteristics of

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entrepreneurship are:

Decision Strong desire to

Construction reapbenefits
Skill

Innovative Economic
Urge Activity
Entrepreneurship

Management
Gap-Filing Skill
Function

Dyn
Risk-Bearing amic
Proc
ess
LeadershipQuality

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Entrepreneurship Traits : Asuccessful entrepreneur must possess the
following traits:
(1) Mental Ability : Mental ability consists of intelligence and creativethinking. An
entrepreneurshouldbeintelligentandmusthaveananalyticalmine.Heshouldhave the
capacity to analyse the problem and able to study the various situation under
whichdecisionhavetobemade.
(2) ClearObjectives:Anentrepreneurshouldhaveaclearobjective.Withoutobjective an
entrepreneur cannot success. So a successful entrepreneur must have the
objective to establish his product in the market, make profit and also render social
service.
(3) Business Secrecy : An entrepreneur must be able to guard business secrets.
Leakage of business secrets to trade competitors is a serious matter. So the
entrepreneurshouldbeabletomakeaproperselectionofhissubordinates.
(4) Human Relations Ability : An entrepreneur must have good relations with his
customerstoearnprofitandwintheirconfidenceinhisproduct.Hemustalsomaintain
goodrelationwithhisemployees.
(5) EffectiveCommunication:Goodcommunicationalsomeansthattheentrepreneur
hastheabilitytoputhispointeffectivelyandwithclarity.Communicationabilityisthe
secretofthesuccessofmostentrepreneurs.
(6) Technical Knowledge : The entrepreneurs are dealing with situationswhere
sophisticatedtechnologyisinvolved.Theentrepreneurmusthaveareasonablelevel of
technicalknowledge.
(7) Decision-Making:Runningabusinessrequirestakinganumberofdecision.Hence an
entrepreneur should have the capacity to analyse the various aspects of the
businessforarrivingatadecision.
(8) Risk-Bearing : 'No risk, no business' or 'no risk, no gains'. Risk is an inherent and
inseparableelementofentrepreneurship.Heassumestheuncertaintyoffuture.
(9) Self-Confidence:Entrepreneursmusthavethementalcapacitytofaceanysituation.
They should also have the ability to inspire other. They must have the confidence
in themselvesandthedeterminationtoachievetheirgoals.
Entrepreneurial Traits can be explained with the help of following diagram:

Technical Self Human

Knowledge Confidence Relation Abilitv

Business
Clear Objectives Secrecy
Enterpreneurial
Traits

Effective
Decision Risk Mental Communication
Making Bearing Ability

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Types of Entrepreneur : Types of entrepreneur are:
(A) ClassificationontheBasisofOwnership:
(1) Founder or "Pure Entrepreneurs" : Those individuals who are the founder of the
business.Theyaretheoneswhoconceptualizeabusinessplanandthenputinefforts
tomaketheplanasuccess.
Example : Dhirubhai Ambani of the Reliance Group.
(2) Second-generation operators of family-owned business : They are individuals
whohaveinheritedthebusinessfromtheirfathersandforefathers.
Example : Like Mukesh Ambani and Anil Ambani sons of Dhirubhai Ambani of the
Reliance Group now split into two: Reliance Industries Limited and Reliance-Anil
Dhirubhai Ambani Group.
(3) Franchisees:Itisamethodofdoingbusinesswhereintheparentownerlicenseshis
trademarks and tried and proves methods of doing business to a franchisee in
exchangeforarecurringpayment.
Example : NIIT has given its franchisee operations to local players after thorough
scrutiny and proper training.
(4) Owner-Manager:Whenapersonbuysabusinessfromthefounderandtheninvests
histimeandresourcesinitheiscalledtheowner-manager.
Example : Like Sabeer Bhatia is the founder entrepreneur of Hotmail.
(B) Classification on the basis of Personality Traits and their style of running the
business:
(1) The Achiever : These types of entrepreneurs have personal desires to excel. The
only drive that pushes them is the desire to achieve something in life, the desire to
make a mark in society, the desire to prove their excellence. They do not need any
externalstimulusbutareself-driven.
(2) The Induced Entrepreneur : These types of entrepreneurs are induced by some
externalfactorstostartabusiness.Theexternalfactorscouldbelike:
 GovernmentPolicies
 Unemployment
 FamilySupport
 FacilitatingInstitutionalSupportetc.

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(3) The Idea Generator : These kinds of entrepreneurs are highly creative people who
are always in search of innovative ideas for setting up new business ventures.They
enjoytheFirstMovers'Advantageandareabletoskimhigherprofitsfromthemarket.
(4) The Real Manager : The real managers run the business in a systematic
manner.They analyse business situation, assess the demands of future, both in
terms of
opportunitiesandthreatsandthentakeactionsbasedontheaboveassessments.
(5) The Real Achievers : The real achievers are full of life. They are looking for the
achievementofnoteventheirgoalsbutalsoofpeopleassociatedwiththemselveslike
employees,suppliersanddistributors.
(C) ClassificationbasedonthetypeofBusiness:
(1) Industrial Entrepreneur : Industrial entrepreneur is an entrepreneur who is
intomanufacturing of a product. He identifies the needs and wants of customers
and accordinglymanufacturesproductstosatisfytheseneedsandwants.
(2) Trading Entrepreneurs : Trading entrepreneur is one who undertakestrading
activities and is not concerned with the manufacturing of products. He identifies
potential markets, stimulates demands and generates interest among buyers to
purchase a product.
(3) CorporateEntrepreneur:Corporateentrepreneurisapersonwhodemonstrateshis
innovative skill in organizing and managing a corporate undertaking which is
registeredundersomeactthatgivenitaseparatelegalentity.
(4) AgriculturalEntrepreneur:Agriculturalentrepreneursarethoseentrepreneurswho
undertakebusinessrelatedtoagriculturalactivities.Likefarmequipments,fertilizers
andotherinputsofagriculture.
(D) ClassificationontheStagesofDevelopment:
(1) FirstGenerationEntrepreneur:Afirst-generationentrepreneurisonewhostartsan
industrialunitbymeansofaninnovativeskill.Heisessentiallyaninnovatorcombining
differenttechnologiestoproduceamarketableproductorservice.
(2) Modern Entrepreneur : A modern entrepreneur is one who undertakes businessto
satisfy the contemporary demands of the market. They undertake those ventures
whichsuitthecurrentsocio-culturaltrends.
(3) ClassicalEntrepreneur:Aclassicalentrepreneurastereo-typeentrepreneurisone
whoseaimistomaximizetheeconomicreturnsatalevelconsistentwiththesurvival
ofthefirm,withorwithoutelementofgrowth.
(E) Other:
(1) Innovative Entrepreneur : Innovative entrepreneurs are full of creative ideas and
offerinnovateproductstothesociety.Itisbecauseoftheseinnovativeentrepreneurs
thatmanyimportantchangesoccurinoursociety.

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(2) Imitative Entrepreneurs : Imitative entrepreneur adapt a successful innovation.
Theyarerisk-aversiveandsotheydonottryoutnewideasorproducts.
(3) DroneEntrepreneurs:Droneentrepreneursarenotopentocreativityandchange.
Theydonotlikechangingtheworkingoforganizationswiththechangingtimes.
(4) Copreneurs:Whenbothhusbandandwifetogetherstartandrunabusinessventure
thentheyarecalledcopreneurs.

Qualities of An Entrepreneur:
Anentrepreneurisapersonwhotakesriskofsettinguphis
ownventureforperceivedreward.Heisapersonwhoinitiatestheidea,formulatestheplan,
organizes resources and puts the plan into action to achieve his goals. The entrepreneur
musthavefollowingqualities:-
1. Planner : Entrepreneur has a strong desire to achieve a higher goal and maketheir
dreamscometrue.Sotheentrepreneurmusthavethesequalitytoachievethetarget
anentrepreneurcannotachievethetarget.
2. Technician : An entrepreneur must have the technical knowledge. He should know
thathowtousetheresourcesandachievethetarget.
3. Risk Bearing Ability : Risk is very important element. An entrepreneur must have
capacitytobearingriskanentrepreneurcannotsuccess.
4. DecisionMaker:Decisionmakingistheprocessofchoosingbestalternativeamong
various alternatives. An entrepreneur must have these qualities because decision
makingaffecttheprofitabilityandreputationoftheenterprise.
5. Ability to Find and Explore Opportunities : Entrepreneurial persons are quick to
see and seize opportunities. They show an innovative turn of mind and convert
difficultiesintoopportunities.
6. Motivator : An entrepreneur must have a motivator. He inspires the employees to
achieving the target. Without motivation an entrepreneur cannot achieve the target.
Somotivationisverynecessaryforachievingthetarget.
7. FutureOriented:Entrepreneurshowsahighleveloffutureorientation.Theydonot
allowthepasttoobsessthem.Theyareorientedtowardspresentandfuture.
8. Interpersonal Skills : An entrepreneur is a person who during the course of his
activities he should be a person who likes working with people and who has skillsof
dealing withpeople.

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 9. FacingUncertainty:Anentrepreneurisapersonwhofacesuncertainty.Thefutureis
uncertain.Sothedecisionofentrepreneuraffectstheprofitabilityandreputationofthe
enterprise.
10. Coordination:Anentrepreneurmusthaveacoordinator.Heallocatestheresources and
utilizes the resources for achieving the target. Without coordination an
entrepreneurcannotachievethetarget.

Functions of Entrepreneur : An entrepreneur has to perform the

following function:
1. Risk taking and Uncertainty Bearing : The future isunpredictable. The
entrepreneur has to take risks in these circumstances. If the venture succeeds, the
entrepreneurprofits;ifitdoenot,lossesoccur.Thus,takingrisksformsanimportant
entrepreneurialfunction.
2. Taking Business Decisions : All decision concerning business are taken by the
entrepreneur.Hehastoformulateanactionplanregardingtheproductandqualityof
theproducttobeproduced.Hehastoevolvethebestpossiblemethodofproduction
whichwouldearnhimasizeableprofit.
3. Managerial Functions : The entrepreneur performs various managerial functions.
Theentrepreneurarrangesfinance,purchaserawmaterials,providesthenecessary
infrastructureforproduction.Theentrepreneurhasamultifacedpersonalitywhenhe
undertakes managerialfunctions.
4. Innovation : The most important function of an entrepreneur is innovation. He
introduces far-reaching improvements in the quantity and quality of production line.
Heconsiderstheeconomicviabilityandtechnicalfeasibilityofaninvention.
5. Coordination : The entrepreneur coordinates the other factors ofproduction.
Coordinationinvolvesselectionoftherighttypeoffactors,employmentofeachfactor
intherightquantity,useofthebesttechnicaldevices,divisionoflabour,reductionof
wasteetc.
6. Maintain Good-Relations : An entrepreneur must have good relations with his
customertoearnprofitandwintheirconfidenceinhisproduct.Hemustalsomaintain
goodrelationswithhisemployees.
7. Analysis the Environment:Anentrepreneuranalysistheenvironment.Environment
arethosefactorwhichaffectthebusiness.Therearetwotypeofenvironment:
 InternalEnvironment:Internalenvironmentarecontrollable
 External Environment : External environment are beyond the control of the
business.
8. Planning : Planning is the first function of the management. Planning is deciding in
advancewhatistobedone,howistobedone,whichistobedone,bywhomistobe
done.Itisverynecessaryfunctionofentrepreneur.Withoutplanninganentrepreneur

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cannotachievethetarget.
9. Utilizes the Resources : An entrepreneur allocates the resources and utilizes the
resources. An entrepreneur must utilize the resources for the achievement of the
objectives. If the entrepreneur doe not utilizes the resources he cannot become a
successfulentrepreneur.

Role of Entrepreneur in Economic Growth :

The position of the entrepreneur in modern
production is like that of the director of a play. Modern economic development is closely
linked with production. Modern production is higher complex. The entrepreneur directs
production and he must do whatever is necessary for its success. His role in modern
economic development has at least three aspects:
(1) Theentrepreneurco-ordinatestheotherfactorsofproduction.Thisinvolvesnotonly
assembling the factors, but also to see that the best combination of factors is made
availablefortheproductionprocess.
(2) The entrepreneur takes risks. This is the important function of the entrepreneur and
thequantumofprofithereceivesisdirectlyproportionatetotheriskshetakes.Risks
aregenerallybasedontheanticipationofdemand.
(3) Finallytheentrepreneurinnovates.Innovationisdifferentfrominvention.Inventionis
theworkofscientists.Innovationimpliesthecommercialapplicationofaninvention. As an
innovator the entrepreneur assumes the role of a pioneer and an industrial
leader.Theentrepreneurcanundertakeanyonetypeofthefollowingfivecategoriesof
innovation:
(i) Theintroductionofanewgoodoranewqualityofagood
(ii) Theintroductionofanewmethodofproduction
(iii) Theopeningofanewmarket
(iv) Theconquestofanewsourceofsupplyofrawmaterials
(v) Thecarryingoutofaneworganizationofanyindustry.

Importance of Entrepreneur in Economic

Development:
Everycountrytriestoachieve
maximumeconomicdevelopment.Theeconomicdevelopmentofacountrytoalargeextent
depends on human resources. But human resource alone will not produce economic
development-there must be dynamic entrepreneurs. Importances of entrepreneurs in
economic developmentare:

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(1) Employment Generation : Growing unemployment particularlyeducated
unemployment is an acute problem of the nation. If a hundred persons become
entrepreneur they not only create a hundred jobs for themselves but also provide
employment to many more. These enterprises grow providing direct and indirect
employmenttomanymore.Thusentrepreneurshipisthebestwaytofighttheevilof
unemployment.
(2) National Income : National Income consists of goods & services produced in the
country and those imported. The goods & services produced are for consumption
within the country as well as to meet the demand of exports. The domestic demand
increaseswitheverincreasingpopulationandstandardofliving.Theexportdemand also
increases to meet the needs of growing import due to various reasons. An
increasingnumberofentrepreneursarerequiredtomeetthisincreasingdemandfor
goodsandservices.Thusentrepreneurshipincreasesthenationalincome.
(3) DispersalofEconomicPower:Whenasocietyproducesasmallnumberof
entrepreneurstheenterpriseduetolackofcompetitiongrowintoafewbigbusiness
houses. This results in concentration of wealth in a few families. This can have a
serioussocialandnationalimplication.Whenthenumberofentrepreneursincreases,
alargeamountofnationalwealthisalsosharedbyalargenumberofentrepreneurs, thus
dispersing wealth. This dispersal of wealth promotes the real socialism and
makestheeconomyhealthy.
(4) Balance Regional Development : The growth of industry and business leads to a
largenumberofpublicbenefitslikeroad,transport,health,education,entertainment etc.
A rapid development of entrepreneurship ensures a balanced regional
development. When the new entrepreneurs grow at a faster pace, in view of the
increasing competition in and around the cities, they are forced to set up their
enterpriseinthesmallertownsawayfrombigcities.Thishelpsinthedevelopmentof the
backwardregions.
(5) Economic Independence : Entrepreneurship is essential for national self-reliance.
Businessmanexportgoodsandservicesonalargescaleandearnthescarceforeign
exchange for the country. Such import substitution and export promotion help to
ensuretheeconomicindependenceofthecountry.
(6) ReducingUnrestandSocialTensionAmongstYouth:Manyproblemsassociated
with youth and social tensions are rightly considered to be due to youth not being
engagedinproductivework.Inthechangingenvironmentwherewearefacedwiththe
problemofrecessioninwageemploymentopportunities,alternativetowagecareeris the
only viable option. The country is required to divert the youth with latent
entrepreneurial traits from wage career to self employment career. Such alternate
path through entrepreneurship could help the country in defusing social tension
and unrest amongstyouth.

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(7) ImprovementinLivingStandards:Entrepreneurssetupindustrieswhichremove
scarcityofessentialcommoditiesandintroducenewproducts.Productionofgoodson
massscaleandmanufacturehandicraftsetc.inthesmallscalesectorhelptoimprove
thestandardoflifeofacommonman.Theseoffergoodsatlowercostsandincrease variety
inconsumption.
(8) HarnessingLocallyAvailableResourcesandEntrepreneurship:Indiais
consideredtobeveryrichinnaturalresources.Afewlargescaleindustriesstartedby
entrepreneurs from outside the state in economically backward areas may help as
models of pioneering efforts, but ultimately the real strength of industrialization in
backward areas depends upon the involvement of local entrepreneurship in such
activities. Increased activities of local entrepreneurs will also result in making use
of abundantlyavailablelocalresources.
(9) Innovations in Enterprises : Business enterprises need to be innovative for their
survival and better performance. Entrepreneurship development programmes are
aimed at accelerating the pace of small firms' growth in India. Increased number of
small firms is expected to result in more innovations and make the Indian industry
competeininternationalmarket.

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