Entrepreneurship: Characteristics, Importance, Types, and

Functions of Entrepreneurship
Entrepreneurial development today has become very significant; in view of its being a key to
economic development. The objectives of industrial development, regional growth, and
employment generation depend upon entrepreneurial development
Entrepreneurs are, thus, the seeds of industrial development and the fruits of industrial
development are greater employment opportunities to unemployed youth, increase in per capita
income, higher standard of living and increased individual saving, revenue to the government in
the form of income tax, sales tax, export duties, import duties, and balanced regional
development.

Concept of Entrepreneurship
The word entrepreneur is derived from the French verb enterprendre, which means to
undertake. This refers to those who undertake the risk of new enterprises. An enterprise is
created by an entrepreneur. The process of creation is called entrepreneurship.
Entrepreneurship is a process of actions of an entrepreneur who is a person always in search of
something new and exploits such ideas into gainful opportunities by accepting the risk and
uncertainty with the enterprise.

Characteristics of Entrepreneurship
Entrepreneurship is characterized by the following features:

1. Economic and dynamic activity: Entrepreneurship is an economic activity because it

involves the creation and operation of an enterprise with a view to creating value or wealth by
ensuring optimum utilisation of scarce resources. Since this value creation activity is performed
continuously in the midst of uncertain business environment, therefore, entrepreneurship is
regarded as a dynamic force.
2. Related to innovation: Entrepreneurship involves a continuous search for new ideas.
Entrepreneurship compels an individual to continuously evaluate the existing modes of business
operations so that more efficient and effective systems can be evolved and adopted. In other
words, entrepreneurship is a continuous effort for synergy (optimization of performance) in
organizations.
3. Profit potential: Profit potential is the likely level of return or compensation to the
entrepreneur for taking on the risk of developing an idea into an actual business venture.
Without profit potential, the efforts of entrepreneurs would remain only an abstract and a
theoretical leisure activity.
4. Risk bearing: The essence of entrepreneurship is the willingness to assume risk arising out
of the creation and implementation of new ideas. New ideas are always tentative and their results
may not be instantaneous and positive.
An entrepreneur has to have patience to see his efforts bear fruit. In the intervening period (time
gap between the conception and implementation of an idea and its results), an entrepreneur has to
assume risk. If an entrepreneur does not have the willingness to assume risk, entrepreneurship
would never succeed.

Entrepreneurial Process:
Entrepreneurship is a process, a journey, not the destination; a means, not an end. All the
successful entrepreneurs like Bill Gates (Microsoft), Warren Buffet (Hathaway), Gordon Moore

(Intel) Steve Jobs (Apple Computers), Jack Welch (GE) GD Birla, Jamshedji Tata and others all
went through this process.
To establish and run an enterprise it is divided into three parts the entrepreneurial job, the
promotion, and the operation. Entrepreneurial job is restricted to two steps, i.e., generation of an
idea and preparation of feasibility report. In this article, we shall restrict ourselves to only these
two aspects of entrepreneurial process.

The Entrepreneurial Process

1. Idea Generation: To generate an idea, the entrepreneurial process has to pass through three
stages:
a. Germination: This is like seeding process, not like planting seed. It is more like the natural
seeding. Most creative ideas can be linked to an individuals interest or curiosity about a specific
problem or area of study.
b. Preparation: Once the seed of interest curiosity has taken the shape of a focused idea, creative
people start a search for answers to the problems. Inventors will go on for setting up laboratories;
designers will think of engineering new product ideas and marketers will study consumer buying
habits.
c. Incubation: This is a stage where the entrepreneurial process enters the subconscious
intellectualization. The sub-conscious mind joins the unrelated ideas so as to find a resolution.
2. Feasibility study: Feasibility study is done to see if the idea can be commercially viable. It
passes through two steps:
a. Illumination: After the generation of idea, this is the stage when the idea is thought of as a
realistic creation. The stage of idea blossoming is critical because ideas by themselves have no
meaning.

b. Verification: This is the last thing to verify the idea as realistic and useful for application.
Verification is concerned about practicality to implement an idea and explore its usefulness to the
society and the entrepreneur.

Importance of Entrepreneurship:
Entrepreneurship offers the following benefits to an Organisation:
1. Development of managerial capabilities: The biggest significance of entrepreneurship lies in
the fact that it helps in identifying and developing managerial capabilities of entrepreneurs. An
entrepreneur studies a problem, identifies its alternatives, compares the alternatives in terms of
cost and benefits implications, and finally chooses the best alternative.
This exercise helps in sharpening the decision making skills of an entrepreneur. Besides, these
managerial capabilities are used by entrepreneurs in creating new technologies and products in
place of older technologies and products resulting in higher performance.
2. Creation of organisations: Entrepreneurship results into creation of organisations when
entrepreneurs assemble and coordinate physical, human and financial resources and direct them
towards achievement of objectives through managerial skills.
3. Improving standards of living: By creating productive organisations, entrepreneurship helps
in making a wide variety of goods and services available to the society which results into higher
standards of living for the people.
Possession of luxury cars, computers, mobile phones, rapid growth of shopping malls, etc. are
pointers to the rising living standards of people, and all this is due to the efforts of entrepreneurs.
4. Means of economic development: Entrepreneurship involves creation and use of innovative
ideas, maximisation of output from given resources, development of managerial skills, etc., and
all these factors are so essential for the economic development of a country.

Factors affecting Entrepreneurship:

Entrepreneurship is a complex phenomenon influenced by the interplay of a wide variety of
factors.
Some of the important factors are listed below:
1. Personality Factors: Personal factors, becoming core competencies of entrepreneurs, include:
(a) Initiative (does things before being asked for)
(b) Proactive (identification and utilisation of opportunities)
(c) Perseverance (working against all odds to overcome obstacles and never complacent with
success)
(d) Problem-solver (conceives new ideas and achieves innovative solutions)
(e) Persuasion (to customers and financiers for patronisation of his business and develops &
maintains relationships)
(f) Self-confidence (takes and sticks to his decisions)
(g) Self-critical (learning from his mistakes and experiences of others)
(h) A Planner (collects information, prepares a plan, and monitors performance)
(i) Risk-taker (the basic quality).
2. Environmental factors: These factors relate to the conditions in which an entrepreneur has to
work. Environmental factors such as political climate, legal system, economic and social
conditions,

market

situations,

etc.

contribute

significantly

towards

the

growth

of

entrepreneurship. For example, political stability in a country is absolutely essential for smooth
economic activity.
Frequent political protests, bandhs, strikes, etc. hinder economic activity and entrepreneurship.
Unfair trade practices, irrational monetary and fiscal policies, etc. are a roadblock to the growth
of entrepreneurship. Higher income levels of people, desire for new products and sophisticated

technology, need for faster means of transport and communication, etc. are the factors that
stimulate entrepreneurship.
Thus, it is a combination of both personal and environmental factors that influence
entrepreneurship and brings in desired results for the individual, the organisation and the society.

Types of Entrepreneurs:
Depending upon the level of willingness to create innovative ideas, there can be the following
types of entrepreneurs:
1. Innovative entrepreneurs: These entrepreneurs have the ability to think newer, better and
more economical ideas of business organisation and management. They are the business leaders
and contributors to the economic development of a country.
Inventions like the introduction of a small car Nano by Ratan Tata, organised retailing by
Kishore Biyani, making mobile phones available to the common may by Anil Ambani are the
works of innovative entrepreneurs.
2. Imitating entrepreneurs: These entrepreneurs are people who follow the path shown by
innovative entrepreneurs. They imitate innovative entrepreneurs because the environment in
which they operate is such that it does not permit them to have creative and innovative ideas on
their own.
Such entrepreneurs are found in countries and situations marked with weak industrial and
institutional base which creates difficulties in initiating innovative ideas.

In our country also, a large number of such entrepreneurs are found in every field of business
activity and they fulfill their need for achievement by imitating the ideas introduced by
innovative entrepreneurs.

Development of small shopping complexes is the work of imitating entrepreneurs. All the small
car manufacturers now are the imitating entrepreneurs.
3. Fabian entrepreneurs: The dictionary meaning of the term fabian is a person seeking
victory by delay rather than by a decisive battle. Fabian entrepreneurs are those individuals who
do not show initiative in visualising and implementing new ideas and innovations wait for some
development which would motivate them to initiate unless there is an imminent threat to their
very existence.
4. Drone entrepreneurs: The dictionary meaning of the term drone is a person who lives on
the labor of others. Drone entrepreneurs are those individuals who are satisfied with the existing
mode and speed of business activity and show no inclination in gaining market leadership. In
other words, drone entrepreneurs are die-hard conservatives and even ready to suffer the loss of
business.
5. Social Entrepreneur: Social entrepreneurs drive social innovation and transformation in
various fields including education, health, human rights, workers rights, environment and
enterprise development.
They undertake poverty alleviation objectives with the zeal of an entrepreneur, business practices
and dare to overcome traditional practices and to innovate. Dr Mohammed Yunus of Bangladesh
who started Gramin Bank is a case of social entrepreneur.

Functions of an Entrepreneur: The important functions performed by an entrepreneur are

listed below:
1. Innovation: An entrepreneur is basically an innovator who tries to develop new technology,
products, markets, etc. Innovation may involve doing new things or doing existing things

differently. An entrepreneur uses his creative faculties to do new things and exploit opportunities
in the market. He does not believe in status quo and is always in search of change.
2. Assumption of Risk: An entrepreneur, by definition, is risk taker and not risk shirker. He is
always prepared for assuming losses that may arise on account of new ideas and projects
undertaken by him. This willingness to take risks allows an entrepreneur to take initiatives in
doing new things and marching ahead in his efforts.
3. Research: An entrepreneur is a practical dreamer and does a lot of ground-work before taking
a leap in his ventures. In other words, an entrepreneur finalizes an idea only after considering a
variety of options, analyzing their strengths and weaknesses by applying analytical techniques,
testing their applicability, supplementing them with empirical findings, and then choosing the
best alternative. It is then that he applies his ideas in practice. The selection of an idea, thus,
involves the application of research methodology by an entrepreneur.
4. Development of Management Skills: The work of an entrepreneur involves the use of
managerial skills which he develops while planning, organizing, staffing, directing, controlling
and coordinating the activities of business. His managerial skills get further strengthened when
he engages himself in establishing equilibrium between his organization and its environment.
However, when the size of business grows considerably, an entrepreneur can employ
professional managers for the effective management of business operations.
5. Overcoming Resistance to Change: New innovations are generally opposed by people
because it makes them change their existing behavior patterns. An entrepreneur always first tries
new ideas at his level.
It is only after the successful implementation of these ideas that an entrepreneur makes these
ideas available to others for their benefit. In this manner, an entrepreneur paves the way for the
acceptance of his ideas by others. This is a reflection of his will power, enthusiasm and energy
which helps him in overcoming the societys resistance to change.

6. Catalyst of Economic Development: An entrepreneur plays an important role in accelerating

the pace of economic development of a country by discovering new uses of available resources
and maximizing their utilization.
To better appreciate the concept of an entrepreneur, it is desirable to distinguish him from an
entrepreneur and promoter. Table 4.1 outlines the distinction between an entrepreneur and
entrepreneurs, and Table 4.2 portrays basic points of distinction between an entrepreneur and
promoter.
Table 4.1: Distinction between Entrepreneur and Intrapreneur
Basis

Entrepreneur

Intrapreneur

Capacity

Owner

An manager

Status

Own boss

Salaried employee

Decisions

Takes own decisions

Executes decisions with the concurrence of owner

Reward

Uncertain and unlimited

Fixed rewards and salary

Table 4.2: Distinction between Entrepreneur and Promoter:

Basis
Stage of business

Entrepreneur
From conception to continuation

Promoter
To bring a business into existence

Owning business

Owns the enterprise

May or may not own

Nature of job

Includes everything

Highly specialized

Example

Any business

A consultant or a chartered account

and offering services

Some Myths about Entrepreneurship: Over the years, a few myths about entrepreneurship
have developed. These are as under:

(i) Entrepreneurs, like leaders, are born, not made: The fact does not hold true for the simple
reason that entrepreneurship is a discipline comprising of models, processes and case studies.
One can learn about entrepreneurship by studying the discipline.
(ii) Entrepreneurs are academic and socially misfits: Dhirubai Ambani had no formal
education. Bill Gates has been a School drop-out. Therefore, this description does not apply to
everyone. Education makes an entrepreneur a true entrepreneur. Mr Anand Mahindra, Mr Kumar
Mangalam Birla, for example, is educated entrepreneurs and that is why they are heroes.
(iii) To be an entrepreneur, one needs money only: Finance is the life-blood of an enterprise to
survive and grow. But for a good idea whose time has come, money is not a problem.
(iv) To be an entrepreneur, a great idea is the only ingredient: A good or great idea shall
remain an idea unless there is proper combination of all the resources including management.
(v) One wants to be an entrepreneur as having no boss is great fun: It is not only the boss
who is demanding; even an entrepreneur faces demanding vendors, investors, bankers and above
all customers.
An entrepreneurs life will be much simpler, since he works for himself. The truth is working for
others are simpler than working for ones own self. One thinks 24 hours a day to make his
venture successful and thus, there would be a punishing schedule.