Chapter I- Entrepreneurship and Free Enterprise

1.1 INTRODUCTION

The word ‘entrepreneur’ is widely used, both in everyday conversation

as a technical term in management and economics.
Its origin lies in seventieth century France, where an entrepreneur was an individual commissioned to
undertake a particular commercial project.
A number of concepts have been derived from the idea of the entrepreneur such as entrepreneurial,
entrepreneurship and entrepreneurial process.
The idea that the entrepreneur is someone who undertakes certain projects offers an opening to
developing an understanding of the nature of entrepreneurship.
Entrepreneurial is an adjective describing how the entrepreneur undertakes what he or she does. The
entrepreneurial process in which the entrepreneur engages is the means through which new value is
created as a result of the project: the entrepreneurial venture.

1.2 ENTREPRENEURSHIP – HISTORICAL PERSPECTIVE

During the ancient period the word entrepreneur was used to refer to a person managing large commercial
projects through the resources provided to him.

In the 17th Century a person who has signed a contractual agreement with the government to provide
stipulated products or to perform service was considered as entrepreneur.
In the 18th Century the first theory of entrepreneur has been developed by Richard Cantillon.
He said that an entrepreneur is a risk taker. If we consider the merchant, farmers and /or the professionals
they all operate at risk. For example, the merchants buy products at a known price and sell it at unknown
price and this shows that they are operating at risk.

The other development during the 18th Century is the differentiation of the entrepreneurial role from
capital providing role. The later role is the base for today’s venture capitalist.

In the late 19th and early 20th Century an entrepreneur was viewed from an economic perspectives. The
entrepreneur organizes and operates an enterprise for personal gain.

In the middle of the 20th Century the notion of an entrepreneur as an inventor as established.
“The function of the entrepreneur is to reform or revolutionize the pattern of production by exploiting an
invention or more generally untried technological possibility for producing new commodities or
producing an old one in a new way or opening a new outlet for products by reorganizing a new industry.”
1.3 DEFINITION OF ENTREPRENEURSHIP

Here we will see at least three definition of entrepreneurship because a single definition is likely to result,
in some cases at least, in a mismatch without expectations. Intuitively, we know that entrepreneurship is
the process and entrepreneur is the person undertaking entrepreneurial activity. Finally we will see the
common attributes of the definitions of entrepreneurship.
1. Entrepreneurship is the process of creating incremental wealth. The wealth is created by those
individuals who assume the major risk in terms of equity and time or providing value for others.
2. Entrepreneurship can also be defined as the process of creating something different and better with
value by devoting the necessary time and effort by assuming the accompanying financial, psychic
and social risks and receiving the resulting monetary reward and personal satisfaction. In this case
an individual should come up with something different and better in order to the named as
entrepreneur.
3. Our third definition views the term from three perspectives; i.e. from the economist, psychologist
and capitalist philosophers point of view.

To an economist an entrepreneur is one who brings resource, labor, materials, and other assets into
combination that makes their value greater than before and also one who introduces changes innovations.
To a psychologist an entrepreneur is a person typically driven by certain forces need to obtain or attain
something, to experiment, to accomplish or perhaps to escape the authority of others.
For the capitalist philosopher an entrepreneur is one who creates wealth for others as well, who finds
better way to utilize resources and reduce waste and who produce job others are glad to get.

Based on the above concepts of entrepreneurship, an entrepreneur can be defined as follows:

An entrepreneur is someone who perceives an opportunity and creates an organization to pursue it with
the intention of being profitable.

1.4 THE ROLE OF THE ENTREPRENEUR WITHIN THE ECONOMY

Entrepreneurs play a critical role in maintaining and developing the economic order we live under. Some
important economic effects of entrepreneurial activity are listed below.
1.4.1 Combination of economic factors
All the products bought and sold in an economy are a mix of three primary economic factors (the raw
materials, nature offers up, the physical and mental labor people provide and capital (money). Now value
is created by combing these three things together in a way which satisfies human needs.
 1.4.2 Providing Market efficiency
Efficient means resources are distributed in an optimal way, that is the satisfaction that people can gain
from them is maximized. An economic system can only reach this state if there is competition between
different suppliers. If a supplier is not using competition then they will tend to demand profit in excess of
what the market would allow and reduce the overall efficiency of the system.
1.4.3 Accepting Risk
Risk is the potential variation in terms of future outcomes. We do not know exactly what the future will
bring. This lack of knowledge creates uncertainty. No matter how we plan there is always a possibility of
adverse deviation from what we expect or hoped for. Here the primary function of the entrepreneur is to
accept risk on behalf of other people.
1.4.4 Maximizing investor’s return
Entrepreneurs create and run organizations which maximize long-term profit on behalf of the investors
which in turn generates overall economic efficiency.
1.4.5 Processing of market information
The entrepreneur keeps an eye out for information that is not being exploited. By taking advantage of this
information they make markets more efficient and are rewarded out of the revenue generated. This
information is information about opportunities.

1.5 ENTREPRENEURSHIP, INNOVATION AND CREATIVITY

1.5.1 FORMS OF ENTREPRENEURSHIP

Entrepreneurship can take three different forms. They are:

1. The individual entrepreneur
An individual entrepreneur is someone who started, acquired or franchised his/her own independent
organization. The major portion of this text is also devoted to describe the basic features and
activities of the individual entrepreneur.
2. Entrepreneur
An Entrepreneur is a person who does entrepreneurial work within large organization. The process
by which an entrepreneur affects change is called Entrepreneurship.
 There are two facts about entrepreneurship
a. The Entrepreneur’s context is often large and bureaucratic organization where as the
individual entrepreneur operates in the broader, more flexible economic market place.
b. Entrepreneurs are individuals who often engage in the entrepreneurial actions in large
organizations without the blessing of their organizations.
3. The Entrepreneurial Organization
The entrepreneurial function need not be embodied in a physical person. Every social environment
has its own way of filling the entrepreneurial function.
Individuals working in organizations have the potential for being, as do those working
independently to start their own business. An organization can create an environment in which all of
its members can contribute in some function to the entrepreneurial function.

1.5.2 CHARACTERISTICS OF THE SUCCESSFUL ENTREPRENEUR

Although there does not seem to be a single entrepreneurial type there is a great deal of consistency in the
way in which entrepreneurs approach their task. Some of the characteristics, which are exhibited by the
successful entrepreneur, are discuss below. However, distinction should be made between personality
characteristics and the character somebody displays when working. Some of these characteristics are
discussed as follows:

1. Hard Work
Entrepreneur put a lot of physical and mental effort in to developing their venture. They often work
long and anti-social hours. Balancing the needs of the venture with other life commitments such as
family and friends is one of the great challenges which face the entrepreneur.
2. Self Starting
Entrepreneurs do not need to be told what to do. They identify tasks for themselves and then follow
them through without looking for encouragement or direction from others.
3. Setting of Personal Goals
Entrepreneurs tend to set themselves clear, and demanding, goals. They benchmark their achievement
against these personal goals. As a result, entrepreneur tend to work to internal standards rather than
look to others for assessment of their performance.
4. Resilience (Readily recovering from shock or depression)
Not everything goes right all the time. In fact, failure may be experienced more often success. Must
not only pick themselves up after things have gone wrong but must learn positively from the
experience and use that learning to increase the chances of success the next time around.
5. Confidence
The entrepreneur must demonstrate that they not only believe in themselves but also in the venture
they are pursuing. After all if they don’t, who will?
6. Receptiveness to New Ideas
The entrepreneur must not be overly confident. They must recognize their own limitations and the
possibilities that they have to improve their skills. They must be willing to revise their ideas in the
light of new experience.
7. Assertiveness
Entrepreneurs are usually clear as to what they want to gain from a situation and are not frightened to
express their wishes. Being assertive does not mean being aggressive. Assertiveness means a
commitment to outcomes, not means. True assertiveness relies on mutual understanding and is
founded on good communication skills.
8. Information Seeking
Entrepreneurs are not on average are more intelligent than any other group. They are however
characterized by inquisitiveness. They are never satisfied by the information they have at any one
time and constantly seek more. Good entrepreneurs tend to question more than they make statements
when communicating.
9. Eager to Learn
Good entrepreneurs are always aware that they could do things better. They are aware of both the
skills they have and their limitations, and are always receptive to a chance to improve their skills and
to develop new ones.
10. Attuned to Opportunity
The good entrepreneur is constantly searching for new opportunities. In effect, this means that he or
she is never really satisfied with the way things are any moment in time.

11. Receptive to Change

The entrepreneur is always willing to embrace change in a positive fashion, that is, to actively
embrace the possibilities presented by change rather than resist them.
12. Commitment to Others
Good entrepreneurs are not selfish. They cannot afford to be! they recognize the value that other
people bring to their venture and the importance of motivating those people to make the best effort
they can on its behalf. This means showing a commitment to them.

Leadership is not just about giving people jobs to do, it is also about offering them the support they
need in order to do those jobs
13. Comfort with Power
Entrepreneurs can become very powerful figures. They can have a great impact on the life of other
people. Power can be one of the great motivations for the entrepreneur. Effective entrepreneurs are
aware of the power they possess and recognize it as an asset. They are not afraid to use it and never
let themselves be intimidated by it. However, the true entrepreneur uses power responsibility as a
means to an end and not as an end in itself.
1.5.3 INNOVATION
Innovation is a way of doing something differently and better. That is, it is a means of exploiting a
business opportunity. It is also a new combination of three things (land, labor and capital). In short
innovation is invention (act of creating something) plus commercialization (putting the new creativity into
the market place.
The relationship between business idea and innovation is only new and modified ideas are innovative. An
old idea is not innovative because it is an imitation of existing business concept.
1.5.3.1 AREAS OF INNOVATION 
INNOVATION 
The following are some of the major areas in which valuable innovation might be made.
1) New product: A new product can be developed through new or existing technology. The new product
may offer a radically new way of doing something or it may simply be an improvement on an existing
item. The new product must offer the customer an advantage if it is to be successful.
2) New Services: A service is an act which is offered to undertake a particular task or solve a particular
problem.
3) New Production Techniques: Innovation can be made in the way in which a product is to be
manufactured. A new production technique should allow the end user to obtain the product at a lower
cost, or a product of higher quality or better service in the supply of the product.
4) New Way of Delivering the Product /Service to Customer: Customer can only use product/service
they can access. A common innovation is to take a more direct routine by cutting out distributors or
middlemen.
5) New Operating Practices: As with innovations in the production of physical products, innovation in
service delivery must address customers need and offer them improved benefits, for example easier
access to the service, a higher quality service, a more consistent service, a faster or less time consuming
service etc.
6) New Means of Informing the Customer about the Product: People will only use a product or
service if they know about it. Demand will not exist if the offering is not properly promoted to them.
Promotion consists of two parts; a message what is said and a means – the route by which that message is
delivered.
7) New Means of Managing Relationship within the Organization: Any organization has a wide
variety of communication channels running through it. The performance of the organization will depend
to a great extent on the effectiveness of its internal communication channels. These communication
channels are guided by the organization’s structure.
8) New Ways of Managing Relationships between Organizations: Organizations sit in a complex web
of relationships to each other. The way they communicate and relate to each other is very important.
1.5.4 CREATIVITY AND INNOVATION
Creativity, like innovation, has been recognized as important contributors to a nation’s economic growth.
Creativity is the natural result of applying basic mental operations to existing knowledge structures to
form a new product or service. The difference between creativity and innovation lies in this notion. That
is, creativity is generating a new product or service that has not been seen before but innovation can be
improving existing products or services.

There have been many debates over definitions of creativity, its forms, possible effects, and its relation to
the firm. It is generally accepted that creativity describes ideas that are novel and of value. Therefore,
creativity is the capacity to produce novel or original work that fits with task constraints (Lubart 1994)
or the development of appropriate and novel solutions (Ward, Finke & Smith 1995). Creativity has been
described as a combination of 6 distinct but interrelated resources - intellectual abilities, knowledge,
styles of thinking, personality, motivation and environment.
environment.
The intellectual skills required for creativity include 3 particular skills:
 A synthetic skill to see problems in a new way and to escape the bounds of conventional thinking;
 An analytical skill to recognize which of one’s ideas is worth pursuing; and
 Practical-contextual skill of how to persuade others of the value of one’s ideas.