UNIT 1: Introduction to Service

Marketing

1
Definition, Concept of
ENTREPRENEUR &
Entrepreneurship
 Meaning & Definition of Entrepreneur

Meaning: The word entrepreneur is derived from the

French verb ‘enterprendre’ it means to undertake.

Definition: According to Evans “entrepreneur are person

who initiate, organize, managed and control the affairs
of a business unit that combines the factors of
production to supply goods and services whether
business pertains to agriculture, industry trade or
profession.”

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 Entrepreneurs

– Recognize opportunities where others

see chaos or confusion
– Are aggressive catalysts for change
within the marketplace
– Challenge the unknown and
continuously create the future

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 Entrepreneur
1. Entrepreneur is an organizer of a business firm
central to its distributive and productive function.
2. Entrepreneur are specialized group of persons who
bear risk and deal with uncertainties
3. Entrepreneur is an economic man who tries to
maximize his profits by innovations. Innovation involves
problem solving and entrepreneur gets satisfaction from
using capabilities in attacking problems.

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 Misconceptions about Entrepreneurship

1. Entrepreneurs are born

2. Successful
entrepreneurship needs only
a great idea
3. Entrepreneurship is easy
4. Entrepreneurship is a risky
gamble
5. Entrepreneurship is found
only in small businesses
6. Entrepreneurial ventures
and small businesses are the
same thing
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 Entrepreneurship: A Mindset

• Entrepreneurship is more than the mere creation of

business:
–Seeking opportunities
–Taking risks beyond security
–Having the tenacity to push an idea through to reality
• Entrepreneurship is an integrated concept that
permeates an individual’s business in an innovative
manner.

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 The Evolution of Entrepreneurship

Entrepreneur is derived from the

French entreprendre, meaning “to
undertake.”
–The entrepreneur is one who
undertakes to organize, manage,
and assume the risks of a business.
–Although no single definition of
entrepreneur exists and no one
profile can represent today’s
entrepreneur, research is providing
an increasingly sharper focus on
the subject.
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Entrepreneurship (Robert C. Ronstadt) :

A dynamic process of vision, change, and creation for

Incremental Wealth.
–This wealth is created by individuals who assume major risks in
terms of equity, time, and/or career commitment of providing
value for a product or service.
–The product or service itself may or may not be new or unique
but the entrepreneur must somehow infuse value by securing
and allocating the necessary skills and resources.
–Requires an application of energy and passion towards the
creation and implementation of new ideas and creative
solutions

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 Entrepreneurship : Essential ingredients include:

The willingness to take calculated risks—in terms of

time, equity, or career.
•The ability to formulate an effective venture team;
the creative skill to marshal needed resources.
•The fundamental skills of building a solid business
plan.
•The vision to recognize opportunity where others
see chaos, contradiction, and confusion.

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 FUNCTIONS OF ENTREPRENEUR
1. Risk measurement and risk taking : risk taking and risk
measurement is the primary function of entrepreneur. Risk are
not only related to success or failure of business but also involve
personal and professional career forgone for the sake of
opportunity.
2. Innovate/ create/ discover : entrepreneurship is innovativeness
of individual and does not involve ownership. Principal function of
the entrepreneur is to carry out new combinations of means of
production.
3. Analyze opportunities : entrepreneur has to have opportunity
seeking style where he has to evaluate credibility of various
alternatives and choose suitable alternative which will prove to be
profitable in future.
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 FUNCTIONS OF ENTREPRENEUR (Contd.)

4. Strategies for venture : entrepreneur has to strategize long

term plan for starting venture. He has to analyze the market and
devise effective strategies to face present and future competition.
5. Develop business plan : business plan is written document
containing details about every aspect of proposed business
venture. It provides roadmap to employees working in company
to attain objectives and is capable of convincing potential
customers they are share holders and investors of company.
6. Acquire resources : Entrepreneur has to acquire various types
of resources such as men, money, material, machinery to start
venture. Entrepreneur has to have suitable skills to line up
required resources for the company.
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FUNCTIONS OF ENTREPRENEUR (Contd.)

7. Organize and start venture : entrepreneur should

be a good organizer, he should deploy suitable
resources at right place in right time required to for
the company to ensure effective working of
organization.
8. Develop and grow venture : it is not only
important to start a venture but also company should
be able to respond to changes happening in the
business market which is crucial factor deciding
existence of company.
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FUNCTIONS OF ENTREPRENEUR (Contd.)

9. Delegate, direct and lead the plan : during the

growth stage of the company entrepreneur should
provide required resources for the company and
during later stage entrepreneur should come up with
effective strategies to face competition and guide
employees in company performing role of leader.
10. Supervise and control : for success of business it
is important to have suitable mechanism in place so
that entrepreneur can track overall success of the
company.
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UNIT 1: Introduction to Service
Marketing

2
ENTREPRENEUR MOTIVATION &
BARIERS; INTERNAL & EXTERNAL
 What is Motivation?

 Motivation is an indispensable function of

management.
 Motivation refers to the process that initiates,
guides and maintains goal oriented behavior.

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 What is Entrepreneurship?
 It provides numerous opportunities for self
expression and realization of one’s passion for
doing something new and different.
 Entrepreneurship leads to increase in the
national income of the country and enhance its
economic development.

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Need framework for entrepreneurial motivation

 People certainly don’t work for money alone

 Money is required not for its own sake, but the
sake of the needs of the personal fulfillment
 McClelland may be regarded as the father of
the study of entrepreneurial motivation

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Factors motivating the entrepreneurs

Internal factor External factor

 Desire to do something  Government assistance
new and support
 Education background  Availability of raw
 Business experience in material and labour
same or related line  Encouragement from
big business houses
 Promising demand for
the product
 Profit margins
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 Entrepreneurial motivation factors can further
be classified into 3 categories

Entrepreneurial ambition Compelling Reason Facilitating Factor

 To make money  Unemployment/  Success stories of
 To continue family Dissatisfaction with entrepreneurship
business job  Experience in
 To secure self  Make use of idle same or other line
employment funds of activation
 To gain social prestige  Revival of sick units  Previous
 To do something started by father employment in
creative  Make use of same or other line
technical\professiona of activation
l skills

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Entrepreneurial Performance & Rewards

 Entrepreneurial performance may refer to

measure of business success.
 Reward may refer to the recompense financial or
psychic accruing to the entrepreneur
 The convergence is attained when and where the
success of the venture itself is perceived as a
personal reward

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UNIT 1: Introduction to Service
Marketing

3+4
Types & CLASSIFICATION of
entrepreneurs
 TYPES OF ENTREPRENEURS
Clarence Danhof carried out a study on
American agriculture and on the basis of his
study classified entrepreneurs into four
categories, viz. Innovative entrepreneurs,
initiative entrepreneurs, Fabian entrepreneur
and drone entrepreneur.

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 TYPES & CLASSIFICATION OF ENTREPRENEURS

1. Based on functional characteristics :

a. Innovative entrepreneur : Such entrepreneurs
introduce new goods or new methods of production or
discover new markets or new organize their enterprise.
Entrepreneurs in this groups are
characterized by aggressive assembly of information for
trying new combination of factors.
b. Imitative or adoptive entrepreneur : These people
imitate techniques and technology innovated by others.
Entrepreneurs of this trait are reactive in nature and
are ready to adopt to innovation happening around.
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 TYPES OF ENTREPRENEURS (Contd.)

c. Fabian entrepreneur : Accept change only when they

feel threatened that failure to do so would result in
losses. They are imitative by nature but not
determinant and also lack in power.
d. Drone entrepreneur : These are entrepreneur who
refuse to accept to adopt to changes adopted by the
competitors. When competition increases they are
pushed out of the market as it becomes uneconomical
for them to carry their business further due to financial
crisis.
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 CLASSIFICATION OF ENTREPRENEURS (Contd.)
2. Based on development :
a. Prime mover : he is a person who moves in powerful
sequence of development, expansion and diversification of
business.
b. Manager : these kind of entrepreneur do not initiate
expansion or innovation but believe in utilizing available
resource in organization and performing assigned activities to
them.
c. Minor innovator : these set of entrepreneurs contribute to
economic progress by finding better use for existing resources.
d. Satellite : these are set of suppliers who provide business with
required resources and then move towards productive
enterprise.
e. Local trading : these entrepreneur limit their products or
service to local market. 25
CLASSIFICATION OF ENTREPRENEURS (Contd.)

3. Based on entrepreneur business :

a. Manufacturing : these are set of entrepreneurs who are into
production of products that will be sold in market using
resources and suppliers. E.g. Apparel, textile products.
b. Whole selling : these are set of entrepreneur who prove to be
supporting hand for producers they sell in goods produced in
production centre to middlemen in market.
c. Retailing : he is kind of entrepreneur one who sells goods
produced by companies directly to consumers.
d. Service : these are set of qualified entrepreneurs who are
specialized in particular field and render service to customers

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 CLASSIFICATION OF ENTREPRENEURS (Contd.)
4. Based on nine personality types of entrepreneurs
a. Improver : when entrepreneur continuously focuses on
development of business then he tends to improve overall
economy through development in business process.
b. Advisor : these are entrepreneurs who provide high level
assistance to customers in market. Main motto of these
entrepreneur is to provide value addition/information required by
customers.
c. Superstar : he is kind of person who tends to attract attention
through his charismatic features example CEO, MD of organization.
d. Artist : these kind of entrepreneurs are reserve by nature but
are suitable for the jobs which require creativity such as web
designer.
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 CLASSIFICATION OF ENTREPRENEURS (Contd.)
e. Visionary : Visionary entrepreneur are futuristic in nature, they
will have high degree of curiosity to understand changes happening
in world. They prefer taking initiative and like to be in line with
competitive environment.
f. Analyst : Analyst entrepreneur is a person one who believes in
analyzing the existing and tries to maintain status quo and bring
improvement.
g. Fireball : Entrepreneur running business which is composed of
life, energy, optimism and one who believes in bringing change by
changing mindset of customers. E.g. Ad agency.
h. Hero : these are kind of entrepreneurs who have ability to lead
and run their business through challenges.
i. Healer : these are entrepreneur one who believe harmony in
healing and bring in harmony to business.
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CLASSIFICATION OF ENTREPRENEURS (Contd.)
5. According to use of technology :
a. Technical entrepreneur : Strength of technical entrepreneur is
the technical knowledge of person. He possesses craftsmen skill
in him which he develops to apply and implements to develop
technical aspect of product.
b. Non-technical entrepreneur : These entrepreneurs believe in
coming up with new strategies rather then concentrating
technical aspect of the product. His target is not to change the
technology related to the product but rather increase demand for
product with effective strategies by attracting customers.
c. Professional entrepreneurs : Are the ones who are interested
in floating a business rather then managing or operating the
same.
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CLASSIFICATION OF ENTREPRENEURS (Contd.)
6. According to stages of development :
a. First generation entrepreneur : Are those who do not possess
any entrepreneurial background. They start industrial unit by the
means of their own innovative skill.
b. Second generation entrepreneur : Are those entrepreneur
who inherit family business firm and pass it from one generation
to other.
c. Classical entrepreneur : Is a stereotype entrepreneur who
aims to maximize his economic returns at every level consistent
with the survival of the unit but with or without element of
growth.

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CLASSIFICATION OF ENTREPRENEURS (Contd.)
7. According to capital ownership :
a. Private entrepreneur : When an individual or group of people
together set up enterprise collectively bear profit and loss of
company, and adopting latest techniques in business are known
as private entrepreneur.
b. State entrepreneur : Refers to trading or industrial venture
undertaken by the state or the government.
c. Joint entrepreneur : Refers to combination of private and
state enterprise running the business by sharing resources with
each other.

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UNIT 1: Introduction to Service
Marketing

5
THEORIES of ENTREPRENEUR
Innovation Theory of Schumpeter

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 1. Innovation Theory of Schumpeter
 A dynamic theory of entrepreneurship was first advocated by
Schumpeter (1949) who considered entrepreneurship as the
catalyst that disrupts the stationary circular flow of the economy
and thereby initiates and sustains the process of development.
 Embarking upon ‘new combinations’ of the factors of production
- which he succinctly terms, innovation - the entrepreneur
activates the economy to a new level of development.
 Schumpeter defines entrepreneurship as “a creative activity”. An
innovator who brings new products or services into economy is
given the status of an entrepreneur. He regards innovation as a
tool of entrepreneur, The entrepreneur is viewed as the ‘engine
of growth’,

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 The concept of innovation and its corollary
development embraces five functions:
 The introduction of a new product with which consumers are not yet
familiar or introduction of a new quality of an existing product.
 The introduction of new method of production that is not yet tested
by experience in the branch of manufacture concerned, which need by
no means be founded upon a discovery scientifically new and can also
exist in a new way of handling a commodity commercially.
 The opening of new market that is a market on to which the particular
branch of manufacturer of the country in question has not previously
entered, whether or not this market has existed before.
 Conquest of a new source of supply of raw material and
 The carrying out of the new organization of any industry

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Innovation theory of Entrepreneurship

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Influencing factors of the entrepreneurship for the
Innovation

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 Wilken had added the concept of the
changes that an entrepreneur brings:
• Expansion of goods, products.
• Productivity of factors of production such as
finance, labour, material.
• Innovation in production such as, technology,
process changes and increase in human
resource productivity.
• Innovation in marketing area such as the
composition of the market, size of the market
and new markets.
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2. Need for Achievement Theory of
McClelland

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 Need for Achievement Theory of McClelland
• According to McClelland the characteristics of entrepreneur has two
features:
– Doing things in a new and better way
– Decision making under uncertainty
• McClelland emphasizes achievement orientation as most important
factor for entrepreneurs.
• Individuals with high. achievement orientation are not influenced by
considerations of money or any other external incentives. People with
high achievement (N-Ach) are not influenced by money rewards as
compared to people with low achievement. The latter types are
prepared to work harder for money or such other external incentives.
On the contrary, profit is merely a measure of success and
competency for people with high achievement need.

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 Need for Achievement Theory of
McClelland (Contd.)

According to him a person acquires three types

of needs as a result of one’s life experience.
These three needs are:
– Need for Achievement. A drive to excel, advance
and grow.
– Need for Power. A drive to dominate or influence
others and situations.
– Need for Affiliation. A drive for friendly and close
inter-personal relationships.

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Need for Achievement Theory of
McClelland (Contd.)

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 Need for Achievement Theory of McClelland
(Contd.)

The individual with high levels of need achievement is a

potential entrepreneur. The specific characteristics of a high
achiever (entrepreneur) can be summarized as follows:
(i) They set moderate realistic and attainable goals for them.
(ii) They take calculated risks.
(iii) They prefer situations wherein they can take personal
responsibility for solving problems.
(iv) They need concrete feedback on how well they are doing.
(v) Their need for achievement exist not merely for the sake of
economic rewards or social recognition rather personal
accomplishment is intrinsically more satisfying to them.

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3. Harvey Leibenstein’s X-Efficiency Theory
• X-efficiency is the degree of inefficiency in the
use of resources within the firm: it measures
the extent to which the firm fails to realize its
productive potential. According to Leibenstein,
When an input is not used effectively the
difference between the actual output and the
maximum output attributable to that input is a
measure of the degree of X-efficiency.
• X-efficiency arises either because the firm’s
resources are used in the wrong way or
because they are wasted, that is, not used at all

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Leibenstein’s X-Efficiency Theory (Contd.)

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 Leibenstein’s X-Efficiency Theory (Contd.)
• Leibenstein identifies two main roles for the entrepreneur: (i) a gap
filler and (ii) an input completer.
• These functions arise from the basic assumptions of X-efficiency
theory. Thus it is clear that “if not all factors of production are
marketed or if there are imperfections in markets, the entrepreneur
has to fill the gaps in the market. To put the enterprise in motion, the
entrepreneur should fill enough of gaps.”
• The second role is input completion, which involves making available
inputs that improve the efficiency of existing production methods or
facilitate the introduction of new ones. The role of the entrepreneur is
to improve the flow of information in the market.

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 4. Risk Bearing Theory of Knight
• A key element of entrepreneurship is risk
bearing. Prof. Knight and John Staurt Mill saw
risk bearing as the important function of
entrepreneurs.

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 Features of Risk Bearing Theory of Knight
1. Risk creates Profit: According to the risk-bearing theory, the entrepreneur
earns profits because he undertakes risks.
2. More Risk More Gain: The degree of risk varies in different industries.
Entrepreneurs undertake different degrees of risk according to their ability
ad inclination. The risk theory proposes that the more risky the nature of
business, the greater must be the profit earned by it.
3. Profit as Reward and Cost: Profit is the reward of entrepreneur for
assuming risks. Hence, it is also treated as a part of the normal cost of
production.
4. Entrepreneur’s Income is Uncertain: This theory summarizes that profit is
the reward of an entrepreneur effort which arises for bearing non
insurable risks and uncertainties and the amount of profit earned depends
upon the degree of uncertainty bearing.

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5. Economic Theory of Entrepreneurship
Many economists revealed that entrepreneurship and economic growth
will take place in those circumstances where particular economic
conditions are in favor of the business environment. The main advocates
of this theory were Papanek and Harris. According to them economic
incentives are the main forces for entrepreneurial activities in any
country. There are a lot of economic factors which promote or demote
entrepreneurship in a country.
These factors are:
(a) The availability of bank credit
(b) High capital formation with a good flow of savings and investments
(c) Supply for loanable funds with a lower rate of interest.
(d) Increased demand for consumer goods ad services
(e) Availability of productive resources.
(f) Efficient economic policies like fiscal ad monetary policies
(g) Communication and transportation facilities
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UNIT 1: Introduction to Service
Marketing

6
Difference between
Entrepreneur and
Entrepreneurship
 Difference between Entrepreneur and
Entrepreneurship

The person who starts and operates a business

enterprise is an entrepreneur. The process in
which an entrepreneur starts and operates his
business enterprise is entrepreneurship. ... The
person who innovates something
new is an entrepreneur. The
innovation of something new or the
process of innovation is entrepreneurship.

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 BASIS FOR
ENTREPRENEUR
COMPARISON
Meaning An entrepreneur is an individual or
a team thereof, having an
innovative idea, and takes every
step to turn the idea into reality,
while bearing the risks.
ENTREPRENEURSHIP
Entrepreneurship is a risky activity of
commencing a business usually a start
up company, offering distinct products
and services to the target customers,
which may or may not get success.

What is it? Person who has an idea and gives Process which gives shape to the idea.
shape to it.

Represents An innovator, who chased the A procedure through which an

dream, till it becomes true. innovation is done.

Business Venture He/She is the one who sets up the It is the activity, which an entrepreneur
business venture, to turn a concept undertakes to set up the business
into reality. venture.