Entrepreneurship and Small Business Management

Chapter One
The Concepts of Entrepreneur
Main objectives of the chapter
 To define what entrepreneur and its characteristics.
 To define entrepreneurship and its main features.
 To distinguish between entrepreneur and entrepreneurship.
 To identify the conceptual framework/model of
entrepreneurship and its contribution to the economy.
 The Concepts of Entrepreneur

1.1 Definition and History

 The term ‘entrepreneur’ is derived from the French word

‘Entrepredre’ meaning ‘to undertake’ or “go-between”
 In the 16th century, the Frenchmen who undertook military
expeditions were referred to as ‘Entrepreneurs.’ It was extended to
cover construction and other civil engineering activities in 17 th
century. But the 21th century scholars define entrepreneurs as follows:
 Richard Cantillon define the term ‘Entrepreneur’ as risk taking
function of establishing a new venture.
 The term ‘entrepreneur’ is very much related to the term
‘entrepreneurship.’ Both these terms are often used interchangeably.
 Cont…..
 But, they are conceptually different. Hence before dealing at length
about an entrepreneurship, it is better to have an exposure to the
term entrepreneur.

 Definition: Entrepreneur refers to a person who establishes his own

business or industrial undertaking with a view to making profit. An
entrepreneur is considered to be an originator of a business venture.
He takes the role of an organizer in the process of production.

 Definition: An entrepreneur is one of the important segments of

economic growth. Basically an entrepreneur is a person who has the
initiative, skill for innovation and who looks for high achievements.
He/she is a catalytic agent of change and works for the good of
people.
 Cont…….

Discussion
 Is an entrepreneurs are same in developing and
developed countries? Why?
 Cont…………
 Entrepreneurs have different approaches in developed and
developing countries. Entrepreneurs in developing countries is
not expected to be innovators but need to be imitators.
Because private capital is shy, skill and technological
knowledge is highly deficient and socio economic
infrastructure do not have many innovators, such countries
need ‘imitators’ who can implement the invasions made in
developed countries.
Kinds of Entrepreneurs
 There are various ways by which entrepreneurs have been
classified. According Clarence Danhof’s classification, there
are four kinds of entrepreneurs.
 Cont……………..

1. Innovating entrepreneurs
 Characterized by aggressive assemblage of information and
the analysis of results derived from sound combination of
factors.
 An innovating entrepreneur is one who introduces new goods,
inaugurates new method of production, discovers new market
and reorganizes the enterprise.
 It is important to note that such entrepreneurs can work only
when a certain level of development is already achieved, and
people look forward to change and improvement. Generally,
they are typical of developed countries.
 Cont……………..
2. Adaptive or imitative entrepreneurs
 These are characterized by readiness to adopt successful
innovations inaugurated by successful innovating entrepreneurs.
They lap up innovations originated by innovating entrepreneurs.
 Imitative entrepreneurs do not innovate the changes themselves,
they only imitate techniques and technology innovated by
others.
 Such type of entrepreneurs are practically suitable for the
developing countries for bringing a mushroom drive of imitation
of new combinations of factors of production already available
in developed regions.
 Imitative entrepreneurs face lesser risks and uncertainty than
innovative entrepreneurs.
 Cont………………
3. Fabian entrepreneurs
 Entrepreneurs of this type are very cautious and skeptical while
practicing any change. They have neither the will to introduce
new changes nor the desire to adopt new methods innovated by
the most enterprising entrepreneurs. They imitate only when it
becomes perfectly clear that failure to do so would result in a loss
of the relative position in the enterprise.

 They are lazy and shy and lack the will to adopt to new methods
of production. Their dealing are determined or dominated more
by customs, religion, and past practices.
 They are not much interested in taking risk and try to follow the
footsteps of their predecessors.
 Cont………….
4. Drone entrepreneurs
 Drone entrepreneurs are characterized by a refusal to adopt
and use opportunities to make changes in production formulae
even at the cost of several reduced returns relative to other like
producers. Such entrepreneurs may even suffer losses but they
are not ready to make changes in their existing production
methods.

 They struggle to exist, not to grow. Thus, they are laggards as

they continue to operate in their traditional way and resist
changes. They blind follow traditional methods of production
even when it causes loss to him.
 Characteristics of Entrepreneurs

 A common stereotype of the entrepreneur emphasizes such

characteristics:
1. Need for achievement:
 Harvard psychologist McClelland discovered a positive
correlation between the need for achievement and entrepreneurial
activity. According to him, those who become entrepreneurs
have, on average, a higher need for achievement than do
members of the general population.

 Entrepreneurs are driven by a need to achieve. What they need

to achieve varies, but it is often recognition rather than money.
They set themselves goals and targets, are self motivated and
take pleasure in achieving these goals.
 Cont………………..
2. Willingness to Take risks
 The risks that entrepreneurs take in starting and/or operating their
own business are varied. By investing their own money, they
assume a financial risk. If they leave secured jobs, they risk their
careers.
 The stress and time required in starting and running a business
may also place their families at risk. And entrepreneurs who
identify closely with particular business venture assume psychic
risk as they face the possibility of business failure.

 Running your own firm is risky. All to many may go out of

business quickly. To succeed you need to take measured risks.
Often the successful entrepreneur exhibits an incremental approach
to risk taking, at each stage exposing him self to only a limited,
measured amount of personal risk moving from one stage to
another as each decision is proved.
 Cont…….
3. Self Confidence:
 Individuals who posses self confidence feel they can meet the
challenges that confront them. They have a sense of mastery over
the type s of problems they might encounter.
 Studies shows that successful entrepreneurs tend to be self reliant
individuals who see the problem in launching a new venture but
believe in their own ability to overcome these problems.
4. Innovation:
 Innovation activity is a hallmark of entrepreneurship, but not
necessarily of the owner manager. according to many
commentators innovative behavior is key to the entrepreneurial
personality.
 Cont………….
5. Total commitment:
 hard work, energy, and single mindedness are all essential
elements in the entrepreneurial profile, such as running your own
business in a 24 hours a day, 7 days a week commitment.
6. All rounder's:
 At least in the early stages of the business, entrepreneurs need to
be able to ‘ make the product, market it and count money’.
7. A need to seek refuge:
 Most people go into business to obtain the rewards of
entrepreneurship (benefits of entrepreneurship), there are some
who became entrepreneurs to escape from environmental factors.
 In thinking about these kind of “refugees”, we should recognize
that many entrepreneurs are motivated as much or more by
entrepreneurial rewards (advantages) than by an “escapist”
mindset.
 Success Factors of Entrepreneurs
 Several success factors are apparent from research on innovation and
entrepreneurship.
1. The Entrepreneurial Team: more often entrepreneurs do not start
business by them selves; they have teams, partners, close associates, or
intensive networks of advisors.

2. Venture product or service: nearly all successful ventures start small

and grow incrementally; few “gear up” with substantial organizations for
a big bang start. Incremental expansion of products and services also tend
to say with the bounds of positive cash flaw. Products tend to have
strong profit potential with high initial margins rather than small margins
that require a substantial volume of sales to meet profit objectives.

3. Market and Timing: successful entrepreneurs tend to have a clear vision

of both existing and potential customers. A crucial aspect of planning is
to have a well documented forecast of sales based on sensible projection
at each stage of incremental growth.
 Cont…………………
4. Business Ideology: from an entrepreneur’s perspective, every venture
has an ideology or rationale for existing. Business ideology is defined as
a system of beliefs about how one conducts an enterprise. These beliefs
include a commitment to providing customers with value, the ability to
take calculated risks, the determination to grow and to control the fate of
the business, and the propensity to elicit cooperation among team
members, and perspective of creating wealth realistically.
we have also others like
5. Know the terrain: 10. Give something back:
6. Seize the Opportunity: 11. Radiate zeal:
7. Work with tenacity: 12. Give mind boggling service:
8. Notch it upward and downward: 13. Get more from less
9. Find a mentor:
Desirable and acquirable attitudes and behaviors for
the success of entrepreneurs (Six Themes)

 Commitment and determination

 Leadership

 Opportunity obsession

 Tolerance of risk, ambiguity, and uncertainty

 Creativity, self-reliance, and ability to adapt

 Motivation to excel
 The Concept of Entrepreneurship
The term ‘entrepreneur’ and ‘entrepreneurship’ the two sides of the same
coin, conceptually they are different. While ‘entrepreneur’ refers to a person,
‘entrepreneurship’ refers to the function. Basically entrepreneur is a business
leader and the functions performed by him in relation to that business is
entrepreneurship.

Entrepreneurship is the process of creating and building something of value

from practically nothing. This is, entrepreneurship is the process of creating or
seizing an opportunity and pursuing it regardless of the resources currently
controlled.

Fundamentally, entrepreneurship is a human creative act. It involves finding

personal energy by initiating and building an enterprise or organization, rather
than by just watching, analyzing, or describing one. Entrepreneurship usually
requires a vision and the passion, commitment and motivation to transmit this
vision to other stakeholders.
 Cont……………………

Entrepreneurship involves building a team of people with

complementary skills and talents: of sensing an opportunity where
others see chaos, contradiction, and confusion; and of finding,
marshaling, and controlling resources (often owned by others) to pursue
the opportunity.

Entrepreneurship is the process of identifying opportunities in the

market place, marshalling the resources required to pursue there
opportunities and investing the resources to exploit the opportunities for
long term gains. It involves creating wealth by bringing together
resources in new ways to start and operate an enterprise.

Entrepreneurship is the set of activities performed by an entrepreneur.

 Entrepreneur Vs Entrepreneurship
Entrepreneur Entrepreneurship
Refers to person: Refers to process:
Visualizer Vision
Creator Creation
Organizer Organization
Innovator Innovation
Technician Technology
Initiator Initiative
Decision maker Decision
Planner Planning
Leader Leadership
Motivator Motivation
Programmer Action
Risk taker(bearer) Risk taking(bearing)
Communicator Communication
Administrator Administration
Nature and Characteristics of entrepreneurship
 The distinctive features of entrepreneurship are summarized as below:
1. Innovative functions: Entrepreneurship is an innovative function as
it involves doing things in a new and better way.
2. Function of risk bearing: Risk is an inherent and inseparable
element of entrepreneurship. An entrepreneur guarantees rent to the
landlord, wages to employees, and interest to investors in the hope of
earning more than the expenses. He assumes the uncertainty of
future. In the pursuit of profit there is every possible of loss.
3. A function of high achievement:
4. Economic activity: Entrepreneurship is primarily an economic
function because it involves the creation and operation of an
enterprise. It is basically concerned with the production of goods and
services.
5. Purposeful activity: The entrepreneur who creates and operates an
enterprise seeks to earn profit through satisfaction and of needs of
customers. Therefore, entrepreneurship is a goal oriented activity.
 Cont………..
6. An organizing function: An entrepreneur brings together
various factors of production. He coordinates and controls the
efforts of all the persons engaged in his enterprise. He harnesses
land, labor, capital and other resources for the benefit of
mankind. Therefore, an entrepreneur is an organization builder.
7. Gap filling function: The gap between human needs and the
available products and services gives rise to entrepreneurship. An
entrepreneur identifies this gap and takes necessary steps to fill
the gap. He introduces new products and services, new methods
of production or distribution, new resource of inputs and new
markets for this purpose.
8. Dynamic process: Entrepreneurship is a dynamic function.
Entrepreneurs thrive on changes in the environment, which bring
useful opportunities for business. Flexibility is the hallmark of a
successful entrepreneur.
 Conceptual Model of Entrepreneurship
The person
Personality, skill, experience,
motives, and psychological
preferences

The organization The task

Structure, rules, policies, Entrepreneurship Perceiving opportunity,
culture, human resource marshalling resources,
system, communication providing leadership

The environment
Availability of resource,
infrastructure, competitive
pressures, social values, rules
and regulations, technology
Role of Entrepreneurship in Economic Development

• Every country is very keen in promoting its economic development.

Economic development essentially means the process of upward
change whereby the real per capital income of a country increases
over a period of time.
• Entrepreneurship plays a vital role in economic development.
Entrepreneurs serve as the catalysts in the process of
industrialization and economic growth. According to Joseph
Schumpeter, the rate of economic progress of a nation depends upon
its rate of innovation, which return depends upon the distribution of
entrepreneurial talent in the population.
• The entrepreneur is the key to the creation of new enterprises that
recognize the economy and rejuvenate the established enterprises
that makeup the economic structure.
 Cont………………..
• The entrepreneurs initiate and sustain the process of economic
development in the following ways:
1. Capital formation:
2. Improvement in per capital income:
3. Generation of employment:
4. Balanced regional development:
5. Improvement in living standards:
6. Economic independency:
7. Backward and forward linkage:
8. Agent role:
9. Role of innovation:
10. Imitating role:
 Management Tips

 Challenging the myths about entrepreneurs

• Entrepreneurs are born, not made.

Not true! Talent gained and enhanced by experience is a foundation for entrepreneurial
success.
• Entrepreneurs are gamblers.
Not true! Entrepreneurs are risk takers, but the risks are informed and calculated.
• Money is the key to entrepreneurial success.
Not true! Money is no guarantee of success. There’s a lot more to it than that; many
entrepreneurs start with very little.
• You have to be young to be an entrepreneur.
Not true! Age is no barrier to entrepreneurship; with age often come experience,
contacts, and other useful resources.
• You have to have a degree in business to be an entrepreneur.
Not true! But, it helps to study and understand business fundamentals.