ENTREPRENEURSHIP DEVELOPMENT AND PROJECT MANAGEMENT

UNIT I
FOUNDATIONS OF ENTREPRENEURSHIP
Definition, Scope and Importance – Characteristics of entrepreneur - The Cultural and social
Environment–– Functions of Entrepreneur, Types of Entrepreneurship, Role of entrepreneurship in
economic development, Theories of Entrepreneurship, Innovation and Entrepreneurship; managing for
innovation –“Design Thinking”, Entrepreneurship as a career, Women Entrepreneurs: Challenges to
Woman Entrepreneurs, Achievements of woman Entrepreneurs, role Models of Woman
Entrepreneurs.

Introduction: Historical Perspectives on Entrepreneurship

The definition of entrepreneurship involves creation ofvalue through fusion of capital, risk taking,
technology and human talent. It is a multidimensional concept. The distinctive features of
entrepreneurship over the years are:
 Innovation,

 A Function of high achievement,

 Organisation building,

 Group level activities,

 Managerial skills and leadership,

 Gap filling activity

 Entrepreneurship – An emerging class.

For Scientist, ‘theory’ refers to the relationships between facts. In another words, theory is some
ordering principles. There are various theories of entrepreneurship which may be explained from the
viewpoints of economists, sociologists and psychologists. These theories have been supported and given
by variousthinkers over a period of more than two and half centuries. Let’s understand the
Historical perspective of Entrepreneurship in Figure 2.1:
 Early 1700s Richard Cantillon (economist)coined term entrepreneur (“go-between

EighteenthCentury
Eighteenth
Century

Late 1700s Entrepreneur bears risks and plans, supervises organizes and owns fact

Jean Baptiste Say (economist) proposed that the profits of entrepreneurship were separate from profi
1803 ownership

Nineteenth Century

Distinction made Late

between
1800sthose who supplied funds and earned interest and those who profited from entrepr

Joseph schumpeter (economist) described entrepreneur as someone who is an innovator and someone who “cr
1934
Eighteenth
Eighteenth
CenturyCentury

Peter Drucker (Management author) described the entrepreneur as someone who

1964 maximizes opportunity

As technology changes and global connectivity improves, entrepreneurship m

Twenty First Century

2004-10

Figure 2.1: Time table of the Development of Entrepreneurship Theory

Although the current popularity of entrepreneurial exploits would tend to make you think that it isa
twentieth or twenty first century phenomenon, but it’s not like this. Early in the eighteenth century,
the French term entrepreneur was first used to describe a “go-between” or a “between-taker.”
Richard Cantillon, a noted economist and reknowned author in the 1700s, is regarded by many as
the originator of the
 term entrepreneur. Cantillon used the term to refer to a person who took an active risk-bearing role
in pursuing opportunities.
Late in the eighteenth century, the concept of entrepreneurship was expanded to include not only
thebearing of risks but also the planning, supervising, organizing, and even owning the factors of
production. The nineteenth century was a fertile time for entrepreneurial activity because
technological advances during the industrial revolution provided the impetus for continued inventions
and innovations. Then, toward the end of the nineteen century, the concept of entrepreneurship
changed slightly again to distinguish betweenthose who supplied funds and earned interest and those
who profited from entrepreneurial abilities.
During the early part of the twentieth century, entrepreneurship was still believed to be distinct and
different from the management of organizations. However, in the mid-1930s the concept of
entrepreneurship expanded. That’s when economist Joseph Schumpeter proposed that entrepreneurship
involved innovations and untried technologies or what he called creative destruction, which is defined as
the process wherebyexisting products, processes, ideas, and businesses are replaced with better ones.
Schumpeter believed that through the process of creative destruction, old and outdated approaches
and products were replaced with better ones. Through the destruction of the old came the creation of
the new. He also believed that entrepreneurs were the driving forces behind this process of creative
destruction. They were the ones who took the breakthrough ideas and innovations into the
marketplace. Schumpeter’s description of the process ofcreative destruction served to highlight further
the important role that innovation plays in entrepreneurship. As our earlier definition of
entrepreneurship showed, the concepts of innovation and uniqueness are (and always have been)
integral parts of entrepreneurial activity.
The final development from the twentieth century we’ll look at is Peter Drucker’s contention that
entrepreneurship involves maximizing opportunities. Drucker is a well known and prolific writer ona
wide variety of management issues. What his perspective added to the concept of entrepreneurship
is that entrepreneurs recognize and act on opportunities. Drucker proposed that entrepreneurship
doesn’t just happen out of the blue but arises in response to what the entrepreneur sees as untapped
and undeveloped opportunities.
Although .we’ve looked at only a small portion of entrepreneurship’s long and colourful past, keep in
mind that the history of entrepreneurship continues to unfold. Its history is still being written today.
In the early years of the twenty-first century, researchers continue to study entrepreneurs and
entrepreneurship.Although no generally accepted theory of entrepreneurship has emerged from these
studies.

Different Opinion on Emergence of Entrepreneurship

The concept of entrepreneurship has undergone major changes over more than two and half centuries.
Yet the concept of entrepreneurship is not clear. As the concept of entrepreneurship is complex in its
content, it is influenced by not only economical aspects, but also by sociological, psychological,
ethical, religious and cultural values. Over the years the social scientists have interpreted the
phenomenon of entrepreneurship differently in accordance with their perception and economic
environment. We can identify five stages in the evolution of Entrepreneurship as shown in figure
2.2:
 The concept was vague, wide and not clear.
Entrepreneurs was looked as adventurer
First Stage

Entrepreneurship was looked as speculative activity

Second Stage

Thrid Stage

It this stage Entrepreneurship was looked as

co-ordinator of protective resources

Entrepreneurship was more inclined towards innovative and creative prac

Entrepreneurship become an act of visionary leaders, high achievers towards social decision making

Fifth Stage

Figure 2.2 : Stage in Evolution of Entrepreneurship

Joseph Massie observes, “However, because of the diversity of approaches to the study of
entrepreneurship, there is difficulty in defining just what entrepreneurship is and identifying just who is
an entrepreneur.” There are different opinions on the emergence of entrepreneurship. These opinions
may be classified into three categories:
A. Economist’s view
B. Sociologist’s view
C. Psychologist’s view

A. Economist’s View

Entrepreneur and entrepreneurship have been a point of interest to economics as early as 1755. The
term entrepreneur seems to have been introduced into economics by Cantillon, but the entrepreneur
was first accorded prominence by Say. It was variously translated into English as ‘merchant’,
‘adventurer’ and ‘employer’, though the precise meaning is ‘the undertaker of a project.’ James
Stuart Mill popularised the term in England.
According to economists entrepreneurship and economic growth will take place in those situations
where particular economic conditions are most favourable. Economic incentives are the main
drive for the entrepreneurial activities. They firmly believe that a well development market and efficient
economic policies foster entrepreneurship a big way. G.F. Papanek and J.R. Harris are the main
advocates of this theory. According to them, economic incentives are the main drive for the
entrepreneurial activities. In some cases, it not so evident, but the persons inner drives have always
been associated with economic gains. Therefore, these incentives and gains are regards as the
sufficient conditions for the emergence of industrial entrepreneurship. When an individual recognizes
that the market for a product or service is out of equilibrium, he may purchase or produce at the
prevailing price and sell to those who are prepared to but at thehighest price. Lack of
entrepreneurship is due to various kinds of market imperfections and inefficient economic policies.
B. Sociologist’s View

Entrepreneurship is inhibited by the social system, which denies opportunities for creative facilities:
The forces of custom, values, the rigidity of status and the district of new ideas and of the exercise of
intellectual curiosity, combine to create an atmosphere inimical to experiment and innovation.
Sociologists argue that entrepreneurship is most likely to emerge under a specific socialculture.
According to them socialsanctions, cultural values and role expectations are responsible for the
emergence of entrepreneurship. Social-cultural values channel economic action that gives birth to
entrepreneurship. The theories of Weber and Cocharan in this context are mainly sociological in
nature and worth mention.
According to Cochran the entrepreneur represents society’s model personality. His performance
depends upon his own attitudes towards his occupation, the role expectations ofsanctioning groups and
the occupational requirements of the job. Society’s values are the most important determinant of the
attitudes and role expectation. According to Weber religious beliefs produce intensive exertion in·
occupational pursuits, the systematic ordering of means to end, and the accumulation on assets. It is
these beliefs, which generate a drive for entrepreneurial growth. Hoselitz suggests that culturally
marginal groups promote entrepreneurship and economic development. Such groups, because of their
ambiguous position are peculiarly suited to make creative adjustments and thereby develop genuine
innovations. In several countries entrepreneurs have emerged from particular socio-economic class.
According to Stokes socio-cultural values channel economic action. He suggests that personal and
social opportunity and the presence of the requisite psychological distributions may be seen as
conditions for an individual’s movement into industrial entrepreneurship.
C. Psychologist’s View

The phenomenon of entrepreneurship development has been viewed, explained and interpreted
differently. Among those who have stressed on the psychological aspects as contributing to
entrepreneurial success are Joseph Schumpeter, McClelland, Hagen and Kunkal. The main focus of
these theories is as follows:
Schumpeter believes that entrepreneurs are primarily motivated by an atavistic will to power, will to
found a private kingdom or will to conquer. According to McClelland it is the high need for
achievement which drives people towards entrepreneurial activities. This achievement motive is
inculcated through child rearing practices, which stress standards of excellence, material warmth,
self-reliance training and low father dominance. Individuals with high achievement motive tend to
take keen interest in situations of highrest, desire for responsibility and a desire for a concrete measure
of task performance. Hagen considers withdrawal of status respect as the trigger mechanism for
changes is personality formation. Status withdrawal is the perception on the part of the members of
some social group that their purposes and values on life are not
 respected by groups in the society whom they respect Hagen identifies four types of
events that coven produce status withdrawal: (a) displacement by force, (b) denigration of
valued symbols; (c) inconsistency of status symbols with a changing distribution of
economic power, and (d) non acceptance of expected status on migration to a new
society.
Kunkel’s behavioural modelis concerned with the overtly expressed activities of individuals
and their relations to the previously and presently surrounding social structures and
physical conditions. Behavioural patterns in this model are determined by reinforcing and
aversive stimuli present in the social context. Hence, entrepreneurial behaviour is a
function of the surrounding social structure both past and present and can be- readily
influenced by the manipulative economic and social incentives.
According to Psychologists, entrepreneurship is most likely to emerge when a society has
sufficient supply of individuals possessing particular psychological characteristics. The main
characteristics are:
 an institutional capacity to see things in new way (vision),
 energy of will and mind to overcome fixed habits of thought,
 an urge to do something,
 to fulfil a dream,
 he capacity to withstand social opposition; and
 the high need for achievement.
Each of the above view point is incomplete and none of themis right or wrong.
Entrepreneurship is influenced by a multitude factors and, therefore, no single factor by
itself can generate entrepreneurship. Thus, entrepreneurship is the outcome of complex
and varying combination of socio-economic, psychological and other factors.

Definition
“Entrepreneurship is the propensity of mind to take calculated risks with
confidence to achieve a pre- determined business or industrial objective. In substance, it is
the risk-taking ability of the individual, broadly coupled with correct decision-making.”
In another view “Entrepreneurship refers to an action process of entrepreneur
towards establishing an enterprise. It is a creative and innovative process and adapting
response to environment. This concept can be seen in Figure 1.1
 Entrepreneur Entrepreneurship Enterprise Creation

Individual/Person An Action Process Object

Figure 1.1: Concept of Entrepreneurship

Entrepreneurship has long been described by researchers and writers with terms such
as new, innovative, flexible, dynamic, creative, and risk-taking. Many authors have said that
identifying and pursuing opportunities are an important part of entrepreneurship.
According to Frank Knight, “It involves a specialized group or persons who bear
‘risks’ and meet the uncertainty”.

According to Musselman and Jackson, “Entrepreneurship is the investing and

risking of time, money and effort to start a business and make it successful.”

According to Franklin Lindsay, “Entrepreneurship is defined as anticipating the

future requirements of society and successfullymeeting these needs with new, creative and
imaginative combinations of resources”.
According to Richma and Copen, “Entrepreneurship implies more creative,
external or open systems orientation. It involves risk-bearing and relatively dynamic
leadership.”
Schumpeter defines, “Entrepreneurship is an innovative function. It is a leadership
rather than an ownership.” Other authors have said that entrepreneurship involves the
creation of value, the process of starting or growing a new profit-making business, the
process of providing a new product or service, and the intentional creation of value through
organization by an individual contributor or a small group of partners.
According to Rao and Mehta, “Entrepreneurship can be described as creative and
innovative response to the environment”.

According to Howard W. Johnson, “Entrepreneurship is a composite of three basic

elements-invention, innovation and adaptation”.

“Some think of entrepreneurs primarily as innovators, some chiefly as managers of

enterprise, some as bearers of risks and others place major emphasis on their function as
mobilizes and allocators of capital.”
Nature and Characteristics of Entrepreneurship
The main characteristics of entrepreneurship are given below:

1. Economic Activity: Entrepreneurship is primarily an economic activity because

it involves the creation and operation of an enterprise. It is basically concerned with
the production and distribution of goods and services and optimally utilizes the
resource towards productive use.
2. Entrepreneurship Involves Innovation: Entrepreneurship involves changing,
revolutionizing, transforming, and introducing new approaches. Entrepreneurship
is an innovative function as it involves doing things in a new and better way.
Innovation may take several forms, such as a new product, a new source of raw
material a new market, a new method of -production, not yet applied in a
particular branch or, manufacturing etc. Drucker says, “Innovation is the specific
instrument of entrepreneurship”. Entrepreneur is a change agent.
3. Goal-oriented Activity: The entrepreneur who creates and operates enterprises
seeks to earn profits through satisfaction of needs ofconsumers; hence,
entrepreneurship is a goal-oriented activity. Entrepreneurship emphasizes results,
achievements and targets achieved. It is work done not imaginary plans or paper
decisions. Hence entrepreneurship is a goal oriented activity.
4. Value Creation: Next, we find that the process of creating value is a
characteristic in describing entrepreneurship. Through entrepreneurship, new
products, services, transactions, approaches, resources, technologies, and markets
are created that contribute some value to a community or marketplace. We can
also see value created when, through entrepreneurship, resources are
transformed into outputs such as products or services. During this transformation
process, value is created because the entrepreneur is fashioning something
worthwhile and useful. Drucker says, “Until entrepreneurial act, every plant is a
seed and every mineral just another rock”.
5. Enterprise Creation: The next characteristic of entrepreneurship is enterprise
creation. In order to pursue the perceived opportunities for innovation and to
create value, there must be organized efforts and actions. Someone must take the
initiative to do something – take action to get the entrepreneurial venture up and
running. Entrepreneurship is a creative response to changes in the environment. It
involves innovation or introduction of something new or improved. An entrepreneur
is an agent to effect change.
6. A Function of Risk Bearing: Risk is an inherent and inseparable element of
 entrepreneurship. An entrepreneur works under uncertainties and he assumes the
uncertainty of future. In the pursuit of profit, there is possibility of loss also.
7. Entrepreneurship Implies Growth: The next characteristic in entrepreneurship
is growth. One major difference between entrepreneurial ventures and other small
businesses is the emphasis on growth. Entrepreneurship is about growing a
business and pursuing opportunities as they arise. It’s not about standing still or
being content to stay in one market or with one product.
8. Managerial Skill and Leadership Function: Managerial skill and leadership
are the most important facets of entrepreneurship. An entrepreneur must have the
ability to lead and manage. He provides direction, create work culture, and build
teamwork and cohesiveness among employees.
9. Recognition that it is a process: The characteristics commonly found in
entrepreneurship is the recognition that it is a process, very simply, is a set of
ongoing decisions and actions. Entrepreneurship is not a one-time phenomenon; it
occurs over time. It involves a series of decisions and actions from initial start-up
to managing the entrepreneurial venture.
10. Gap Filling Function: The gap between human needs and the available
products and services filled by entrepreneurship. An entrepreneur determines the
needs of people and combines resources to produce goods and services of
requirements. He introduces new products andservices, new methods of
production and distribution, new sources of inputs and new market s for this
purpose.
11. Dynamic Process: Entrepreneurship is a dynamic function. Entrepreneur thrives on
changes in the environment, which bring useful opportunities for business. An
entrepreneur deals proactively with changing markets and environment. He looks
at the changes as the source of market advantages, not as a problem. Uncertainties
are market opportunities for him. He capitalizes on fleeting market anomalies.
12. Uniqueness: Other characteristic found in entrepreneurship is that of uniqueness.
Entrepreneurship involves new combinations and new approaches with which
entrepreneurs are willing to experiment. Through Entrepreneurship unique
products are created and unique approaches are tried. Entrepreneurship isn’t
merely imitating what others have done. It’s doing something new, something
untested and untried – something unique.
13. Organizing Function: It is the ability to bring together productive resources of
society. Entrepreneur coordinates and control the efforts of all the persons engaged
 in his enterprises. He harnesses land, labour, capital and other resources of for the
benefits of mankind. Therefore, an entrepreneur is called as an organization
builder.
14. Essential in Every Activity: Entrepreneurship is required in all types of
businesses – small or big, trading or manufacturing or service industry. It is
essential for every business to exist and grow. Drucker says, “Entrepreneurship is
by no means confined solely to economic institutions.”
15. Knowledge-based Practice: Drucker writes, “Entrepreneurship is neither a
science nor an art. It is a practice. It has a knowledge base. He uses his experiences
for high achievements. The enterprising quality is generated after a long practice of
risk-bearing behaviour.”
16. Another Characteristics of entrepreneurship is a recognition that
entrepreneurship can take place in both profit and not-for-profit
environments. Although we tend to assume that entrepreneurial activity is geared
at making a profit (and we agree that much of it is), entrepreneurship also occurs in
social service agencies, in community arts organizations, or in other types of not-
for- profit settings.
17. Entrepreneurship and Management: Management is the agent through which all
entrepreneurial decisions and plans are implemented. The entrepreneur brings
new changes and improvements through management. To survive and win, the
managers must become entrepreneurial in their approach and tasks.
18. Other Characteristics:

(1) It relates to updating of knowledge relating to entrepreneurship promotion on a

regular basis.
(2) It aims at development of skills ad capabilities in identifying latent
entrepreneurial traits of entrepreneurs.
(3) It is a means of rapid economic development which is likely to result in
creation of gainful
Employment in society.
(4) It believes in the fact that entrepreneurs are not born, they can be created. In
the light of this, large numbers of Entrepreneurship Development Programmes
are conducted to promote entrepreneurship in the country.
(5) It optimizes the use of resources by arriving at the most productive combination
that will provide the society the need goods and services.
 Thus, entrepreneurship is multi-dimensional concept. It is both the science as well as
art. But is more an art than science as there are very few ground rules or principles that
can be used to create and run business enterprises in a fat changing and heterogeneous
environment.
ENTREPRENEURSHIP AS A CAREER
Have you always strived to do something differently and never loved
working as a subordinate or employee?If you have, entrepreneurship may be the
right choice for you. Entrepreneurship has been gaining popularity due to lack of
opportunities in the formal sector. With the economy booming, the environment is
conducive to entrepreneurship. Virtually anyone can become an entrepreneur as it
does not require any formal qualification. History is full of success stories by
entrepreneurs who have successfully spotted an opportunity and capitalized on it.
Entrepreneurs are playing constructive roles in fields as diverse as education, in
the government sector and in the social sector.
Prominent factors that attract or distract individuals
towards choosing entrepreneurship as a career option are:
a. Push Factors: These factors push
individuals away from entrepreneurship.
1. Culture

2. Individual preference for alternate source of employment

3. Individual capabilities

b. Pull Factors: These factors make individuals

choose entrepreneurship as a career.
1. Frustration or dissatisfaction in the present job

2. Displacement form a job

3. Not getting a job of choice or difficulty in finding a job

4. Realizing the present job is in jeopardy

due to moving towards closure
5. Desire to start own business due to new business opportunity

6. Conducive atmosphere including family

history of entrepreneurship, financial
 stability, availability of infrastructure.

TYPES OF ENTREPRENEURSHIP
Let us take a look at different types of entrepreneurs.
All forms of entrepreneurship are essential and
complementary forces of economic development.
Based on Risk
(a) Innovative Entrepreneurship Entrepreneur
comes up with new ideas and turns them into
viable business and find new ways to market the
products that make their business stand out from
the crowd and sometimes create a new crowd.
Examples are Steve Jobs and Bill Gates.
(b) Imitative Entrepreneurship implements
current techniques from which they copy certain
business ideas and improve upon them as to gain
an upper hand in the market. Imitative
entrepreneurship is characterized by the
adoption of exogenously changing technologies.
Examples are development of small shopping
complexes and small car manufacturers.
(c) Fabian Entrepreneurship is concerned with
such business organizations in which the
individual owner does not take initiative in
visualizing and implementing new ideas and
innovation. Dealings are determined by customs,
religion, trading and past practices. They are not
too interested in taking risks or changes and they
try to follow the beaten track created by their
predecessors.
(d) Drone Entrepreneurship is concerned with
such businesses in which owners are satisfied
with the existing mode and speed of business
activity and show no inclination in gaining
market leadership. They refuse to make any
modification in the existing production methods
 inspite of incurring recurring losses.
Based on type of Business
(a) Agricultural Entrepreneurship covers a wide
spectrum of agricultural activities like
cultivation, marketing of agricultural produce,
irrigation, mechanization and agricultural
technology.
(b) Manufacturing Entrepreneurship identifies
needs of customers and then explores the
resources and technology to be used to
manufacture the products to satisfy those needs
by converting raw materials into finished
products.
(c) Trading Entrepreneurship procures finished
products from manufacturers and sells these to
customers either directly or through middlemen
such as wholesalers, dealers, and retailers. These
middlemen act as a link between the
manufacturer and customer.
Based on use of Technology
(a) Technical Entrepreneurship deals with establishing and running
industry based on science and technology. They use innovative
methods of production.
(b) Non-Technical Entrepreneurship is concerned with the use of
alternative and imitative methods of marketing and distribution
strategies to make their business survive and thrive in a competitive
market.
Based on Ownership
(a) Corporate entrepreneurship was pioneered by Burgelman.
Corporate ownership is where an individual through innovation and
skill organises, manages and controls a corporate undertaking
efficiently.
(b) Private Entrepreneurship is where an individual sets up a business
as a sole owner of the business and bears the entire risk involved in
it.
 (c) State Entrepreneurship is where trading or industrial venture is
undertaken by the State or the Government.
(d) Joint Entrepreneurship implies a joint business endeavor between a
private entrepreneur and the Government.
Based on size of Enterprise
1. Micro Enterprises: Any business with a turnover of up to Rupees
five crore.
2. Small-Scale Entrepreneurship: A small enterprise has an annual
turnover of more than Rupees five crore but not more than Rs 75
crore.
3. Medium-Scale Entrepreneurship: A business with a turnover over
Rs 75 crore and upto Rs 250 crore
4. Large-Scale Entrepreneurship: Business with turnover over Rs
250 crore.

Based on Gender
Women Entrepreneurship
The Government of India defines women
entrepreneurship as, “a business enterprise
which is owned, managed and controlled by
women having a minimum financial interest of
51 per cent of the capital and giving at least 51
per cent of employment generated in the
enterprises to women.”
Schumpeter defines women entrepreneurship as,
“based on women’s participation in equity and
employment of a business enterprise.”

Based on Social Problems

Social Entrepreneurship
The concept of social entrepreneurship came
around the 1960s but the establishment of
Grameen Bank by Muhammad Yunus in
Bangladesh was the first instance where it was
 thoroughly used. Social entrepreneurship
focuses on social problems and environmental
problems aiming at bringing about
transformation. This obligation of contribution
to social well-being is primary and in a way,
profit takes a back seat or is more or less
secondary but essential to the survival.
Based on Other types
Copreneurs
Copreneurs are entrepreneurial couples who work together as co-owners of their
business. They are creating a division of labour that is based on expertise as opposed to
gender studies show that companies co-owned by spouses represent one of the fastest
growing business sectors. Marcia sherrill with her husband william kleinberg (usa) runs
kleinberg sherrills, a leather goods and accessories business. She says, “there is nothing
more exciting than nurturing a business and watching it grow with someone you love.”
Intrapreneurs
The term intrapreneur was coined in usa in the late seventies. Many senior
executives of Big companies in america left their jobs and started small business of their
own. They left the organisation because they did not get any opportunity to apply their own
ideas and innovative ability. These entrepreneurs become successful in their own ventures.
Some of them caused a threat to the corporations they left. This type if entrepreneurs have
come to be called intrapreneurs. They believe strongly in their own talents. They have
desire to create something of their own. They want responsibility and have a strong drive
for individual expression and more freedom in their present organisational structure. When
this freedom is not forthcoming, they become less productive or even leave the organisation
to achieve self actualisation elsewhere.
Ultrapreneurs
Now-a-days, new products and services are conceived, create, tested, produced and
marketed very quickly and with great speed. Therefore, today’s entrepreneur needs to have
a different mindset about establishing and operating a business. This mindset is called
ULTRAPRENEURING. An entrepreneur with this mind set is known as Ultrapreneur. The
concept of Ultrapreneuring is to identify a business opportunity, determine its viability and
form a company. It requires assembling a super competent management team, who then
develop, produce and markets the product or service in the shortest optimum time period.
They create business and then sell out, merge or combine
ROLE OF ENTREPRENEURSHIP IN ECONOMIC DEVELOPMENT

The entrepreneurship has been identified by many economists as a vital

 force in the process of industrialisation in particular and economic development in
general. Economic development essentially means a change. But, at the same time,
it is very difficult to define precisely the pharse economic development’. One
should realise that the term economic development does not convey the idea of
total development of the society. It only focuses itself on one aspect and one
dimension of general development. Economic development can be defined as a
move towards even more efficient and differentiated methods of supplying people
with the requirements for survival and improvement.
Many a times economic development is interpreted as synonymous with
industrialisation because it is viewed by the poor regions as a superior way of life.
But economic development cannot be equated with industrialisation. When
economic development is anlaysed with the yard stick of extent of
industrialisation, it implicitly undermines the importance of primary sector like
agriculture. The high dependency ratio of people on the primary sector is not the
cause of underdevelopment but the consequence of it. These two sectors are
complementary to each other in the development process. Moreover, economic
development is much more than industrialisation, it is an upward movement of
the’ entire social system. Economic development includes increase in productivity,
social and economic equalization, improved institutions, and attitudes, and a
rationally coordinated system of policy measures, and removal of undesirable
conditions and systems that perpetuated a state of underdevelopment.

It appears that economic development involves something more than economic

growth and it includes both growth and change. Moreover, economic development is
not only a quantitative phenomenon but has qualitative dimensions too.
The criterion of per capita income can be considered as a good indicator of
regional variations in economic development. As the economic development is
essentially a process the increase in per capita income should not appear as a
temporary or short sustained phenomenon. Of course, the increase in per capita
income can be considered as the primary criterion for measuring the extent of
development in an area. There are other sub-criteria which have to be considered along
with the primary criterion. The nature of distribution of income in the society is an
integral part of the development. The secondary objectives like level of consumption,
level of employment, diversification against concentration of the economy are also
important.
Economic development is not to be considered as an end in itself, but is a means
to an end. Economic development is concerned, ultimately, with the achievement of
better nourishment, better education, better health, better living conditions and an
expanded range of opportunities in work and leisure for the people. Therefore, a rise in
real per capita income is a relevant criterion to judge the extent of development in a
region as it is a means for the attainment of desired standards in nourishment,
education, health, and living conditions.
The entrepreneur is the key to the creation of new enterprises that energise the
economy and rejuvenate the established enterprises that make up the economic
structure. Entrepreneurs initiate and sustain the process of economic development in
the following ways :

1. Capital formation : Entrepreneurs mobilise the idle savings of the public

through the issues of industrial securities. Investment of public savings in industry
results in productive utilisation of national resources. Rate of capital formation
increases which is essential for rapid economic growth. Thus, an entrepreneur is
the creator of wealth.
2. Improvement in per capita income : Entrepreneurs locate and exploit
opportunities. They convert the talent and idle resources like land, labour and
capital into national income and wealth in the form of goods and services. They
help to increase net national product and per capita income in the country, which
are important yardsticks for measuring economic growth.

3. Improvement in living standards : Entrepreneurs set up industries which

remove scarcity of essential commodities and introduce new products. Production
of goods on mass scale and manufacture of handicrafts, etc., in the small scale
sector help to improve the standard of life of a common man. These offer goods at
lower costs and increase variety in consumption.

4. Economic independence : Entrepreneurship is essential for national self-

reliance. Industrialists help to manufacture indigenous substitutes of hitherto
imported products thereby reducing dependence on foreign countries.
Businessmen also export goods and services on a large scale and thereby earn the
scarce foreign exchange for the country. Such import substitution and export
promotion help to ensure the economic independence of the country without
which political independence has little meaning.

5. Backward and forward linkages: An entrepreneur initiates change

which has a chain reaction. Setting up of an enterprise has several backward and
forward linkages. For example, the establishment of a steel plant generates several
ancillary units and expands the demand for iron ore, coal, etc. These are backward
linkages. By increasing the supply of steel, the plant facilitates the growth of
machine building, tube making, utensil manufacturing and such other units.
Entrepreneurs create an atmosphere of enthusiasm and convey a sense of purpose.
They give an organisation its momentum. Entrepreneurial behaviour is critical to
the long term vitality of every economy. The practice of entrepreneurship is an
important to established firms as it is to new ones.

6. Generation of Employment : At the beginning of seventh five year plan

the backlog of unemployment was estimated to be around 44 million
 persons. At present, the number of unemployed in the country is far greater
than what it was during 1985. Emphasis on modernisation which usually
results in automation, use of high technology, and technology up gradation
initiated during 1980s and structural changes introduced by the Government
during 1990’s are likely to give much rise to capital-intensive rather than labour
intensive industry. It is feared that there will be very little additional job
opportunities within the fold of organised public and private sectors. Most of
the job opportunities in future are likely to be emerging from informal and
unorganised sectors of economy. Entrepreneurship development training
which helps in strengthening informal and unorganised sector is expected to
motivate enterprising people to opt for self employment and entrepreneurial
career. It will therefore, help in solving the problem of increasing
unemployment to some extent.

7. Harnessing Locally Available Resources and Entrepreneurship : India

is considered to be very rich in natural resources. In spite of about five decades of
planned development a large number of states have remained economically
backward. A few large scale industries started by entrepreneurs from outside the
state in an economically backward areas may help as model of pioneering efforts,
but ultimately the real strength of industrialisation in backward areas depend upon
the involvement of local entrepreneurship in such activities : Increased activities of
local entrepreneurs will also result in making. use of abundantly available local
resources.

8. Balanced Regional Growth : Medium and large scale industries can only
be started with huge investment which is either available with well established
industrial houses or need to be drawn from public exchequer. Also, promotion of
such industries does not help in reducing disparities of income and wealth. On the
other hand, an important advantage of small scale enterprises is that they can be
started with meager financial ‘resources and little or no previous experience or
entrepreneurial background.
 9. Reducing Unrest and Social Tension Amongst Youth : Many problems associated
with youth unrest and social tension are rightly considered to be due to youth not being
engaged in productive work. In the changing environment where we are faced with the
problem of recession in wage employment opportunities, alternative to wage career is 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 amongst youth.

10. Innovations in Enterprises : Business enterprises need to be innovative for their

survival and better performance. It is believed that smaller firms have relatively higher
necessity and capability to innovate. The smaller firms do not face the constraints imposed by
large investment in existing technology. Thus they are both free and compelled to innovate:
The National Science Foundation, an organisation in USA found that small companies
produce four time more innovations per research dollar than do bigger companies.
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 compete in international market.
Innovation and Entrepreneurship

If creativity is the seed that inspires entrepreneurship, innovation is the process of

entrepreneurship. This was Schumpeter’s conclusion when he wrote about the economic
foundations of free enterprise and entrepreneurship. According to him innovation does not happen as
a random event. Central to the process is the entrepreneur. It is they who introduce and then exploit
the new innovations. For Schumpeter, ‘the entrepreneur initiates change and generates new
opportunities. Until imitators force prices and costs into conformity, the innovator is able to reap
profits and disturb equilibrium’. Sometimes innovation involves generating something from nothing.
However, innovation is more likely to result from elaborating on the present, from putting old things
together in new ways, or from taking something away to create something simpler or better.
Peter Drucker believes that innovation is the specific tool of entrepreneurs, the means bywhich
they exploit change as an opportunity for a different business or a different service. It is capable of
being presented as a discipline, capable of being learned and capable of being practiced.
Entrepreneurs need to search purposefully for the sources of innovation, the changes and their
symptoms that indicate opportunities for successful innovation. And they need to know and to apply
the principles of successful innovation.
Drucker, therefore, believes innovation can be practiced systematically. Firms that practice
innovation systematically search for change then carefullyevaluate its potential for an economic or
social return. Change provides the opportunity for innovation to make an economic return.
Mintzberg (1983) defines innovation as ‘the means to break away from established patterns’, in
other words doing things reallydifferently. Therefore, simplyintroducing a new product or service that has
customer’s willing to buy it, is not necessarily innovation. Innovations have to break the mould of how
things are done. To really innovate Mintzberg says that ‘one engages in divergent thinking aimed at
innovation; theother is convergent thinking aimed at perfection’.
The innovation can, of course, be of varying degrees of uniqueness. Most innovations introduced to
the market are ordinary innovations, that is, with little uniqueness or technology. As expected, there
are fewer technological innovations and breakthrough innovations with the number of actual
innovations decreasing as the technology involved increases. Regardless of its level of uniqueness or
technology, each innovation (particularly the latter two types) evolves into and develops toward
commercialization through one of three mechanisms: the government, intrapreneurship, or entre-
preneurship.
Innovation means “doing new things or the doing of things that is already being done in a new
way.” It includes new processes of production, introduction of new products, and creation of new
markets, discovery of a new and better form of industrial organization.
Earlier, we defined innovation as the process of doing new things. It is important to recognize
theinnovation more focus on action not conceiving new ideas only. When people have passed through
the Realizationand Validation stages of creativity process, they may have become inventors, but they
are not yet innovators. The difference between creativity and innovation is shown in Figure 1.6

Creating something new Results in new knowledge

Creativity

The transformation of an ideaResults in new products,

and resources services,
into actual processes and market places
useful way
Innovation

Figure 1.6: Invention Versus Innovation

To innovate effectively, therefore, requires insight - into customers and markets, into what is possible
and what is not, and into how to make things happen. It is also helped by good luck. What is more,
innovation may be a necessary condition for establishing a growth
business, but it is not a sufficient condition. To exploit an innovation successfully requires strength of
personal character, managerial ability and often money, which bring us back to the central role of the
entrepreneur.
Theories of Entrepreneurship
A coordinated and comprehensive theory of entrepreneurship is yet to come. Mean while lets try to
understand the following theories of entrepreneurship propounded by the different eminent social
thinkers:
1. Innovation Theory of Schumpeter
2. Need for Achievement Theory of McClelland
3. Leibenstein’s X-efficiency Theory
4. Risk Bearing Theory of knight.
5. Max Weber’s Theory of Entrepreneurial Growth
6. Hagen’s Theory of Entrepreneurship
7. Thomas Cochran’s Theory of Cultural Values
8. Theory of Change in Group Level Pattern
9. Economic Theory of Entrepreneurship
10. Exposure Theory of Entrepreneurship.
11. Political System Theory for Entrepreneurial Growth.

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 introduced a concept of innovation as key factor in entrepreneurship in addition to
assuming risks and organising factor of production. 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’, He sees the opportunity for introducing new products, new markets, new
sources of supply, new forms of industrial organization or for the development of newly discovered
resources. 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 organisation of any industry.
 Schumpeter is the first major theorist to put the human agent at the centre of the process of
economic development. He is very explicit about the economic function of the entrepreneur. The
entrepreneur is the prime mover in economic development; his function, to innovate or carry out new
combinations. Schumpeter makes a distinction between an innovator and an inventor. An inventor
discovers new methods and new materials. On the contrary, an innovator is one who utilises or applies
inventions and discoveries in order to make new combinations. An inventor is concerned with his
technical work of invention whereas an entrepreneur converts the technical work into economic
performance. An innovator is more than an inventor because he does not only originate as the
inventor does but goes much farther in exploiting the invention commercially.

New Product New Method Innovation

Exploiting profitable business opportunities
New Market
Innovation
Source of su Carries out a
Newpply

new organization Creativity

Entrepreneurship

Sustainable Economic Development

Figure 2.3: Innovation Theory of Entrepreneurship

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.

To Schumpeter, entrepreneurs are individuals motivated by a will for power; their special
characteristic being an inherent capacity to select correct answers, energy, will and mind to
overcome fixed talents of thoughts, and a capacity to withstand social opposition. The factors that
contribute to the development of entrepreneurship would essentially be a suitable environment in
grasping the essential facts.
It can be noted that this theory’s main figure, the “innovating entrepreneur” has played an important
role in the rise of modem capitalism. The entrepreneur has been the prime mover - for economic
development process. On the criticism side, this theory seems one-sided as it puts too much
emphasis on innovative functions. It ignores the risk taking and organizing aspects of
entrepreneurship. An entrepreneur has not only to innovate but also assemble the resources and put
them to optimum use.
While stressing upon the innovative function of the entrepreneur, Schumpeter ignoredthe risk-taking
function, which is equally important. When an entrepreneur develops a new combination of factors
of production, there is enough risk involved.
In spite of these lacking, the theory supports the “enterprising spirit” of entrepreneur to innovate. It is
the act that endows resources with a new capacity to create wealth. Drucker says, “Innovation,
indeed, creates a resource. It endows it with economic value.” Schumpeter’s views are particularly
relevant to developing countries where innovations need to be encouraged. The transformation of an
agrarian economyinto an industrial economy required a great deal of initiative and changes on the part
of businessmen and managers.
2. Need for Achievement Theory of McClelland:

According to McClelland the characteristics of entrepreneur has two features - first doing things ina
new and better way and second decision making under uncertainty. McClelland emphasises
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. Profit and incentives are merely yardsticks of measurement of success of entrepreneurs
with high achievement orientation. People withhigh 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.
Professor David McClelland, in his book The Achieving Society, has propounded a theory based on
his research that entrepreneurship ultimately depends on motivation. It is the need for achievement
(N-Ach), the sense of doing and getting things done, that promote entrepreneurship. According to
him, N-Ach is a relatively stable personality characteristic rooted inexperiences in middle childhood
through family socialisation and child-learning practices which stress standards of excellence, material
warmth, self-reliance training and
low father dominance. 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.

McClelland found that certain societies tended to produce a large percentage of people with high
achievement. He pointed out that individuals, indeed whole societies that possess N-ach will have higher
levels of economic well-being than those that do not. McClelland’s work indicated that there are five
major components to the N-ach trait: (a) responsibility for problem solving, (b) setting goals, (c)
reaching goals through one’s own effort, (d) the need for and use of feedback, and (e) a preference
for moderate levels of risk-taking.
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.
According to McClelland, motivation, abilities and congenial environment, all combine to
promote entrepreneurship. Since entrepreneurialmotivation and abilities are long run sociological
issues; he opined it is better to make political, Social and economic environments congenial for the
growth of entrepreneurship in underdeveloped and developing countries.
3. Leibenstein’s X-Efficiency Theory:

This theory, originally developed for another purpose, has recently been applied to analyse the role
of the entrepreneur. Basically, 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 realise 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. Leibenstein identifies two main roles for the entrepreneur: (i) agap-
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 ofproduction are marketed or if there are imperfections inmarkets,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 theefficiency 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.

Imperfect competition/not well established market

Gap filler role of entrepreneur

Fill the gap in imperfect marketTransforming availableininputs

to put the enterprise that improve the efficiency of the existing produ-
motion
-ction method

Figure 2.4: Leibenstein X- efficiency Theory

The theory concludes that an entrepreneur has to act as gap filler and an input completer if there
are imperfections in markets. For using there unusual skills, he gets profits as well as a variety of
non-peculiar advantages. According to him there are two types of entrepreneurship.
(i) Routine entrepreneurship – deals with normal business functions like co-ordinating
the business activities.
(ii) Innovative entrepreneurship – wherein an entrepreneur is innovative in his approach.
It includes the activities necessary to create an enterprise where not all the markets are well-
established or clearly defined.
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. Some important features of this theoryare as follows:
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: He identifies uncertainty with a situation where
the probabilities of alterative outcomes cannot be determined either by a priori reasoning or by
statistical inference. Apriori reasoning is simply irrelevant to economic situation involving a
unique event. 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. Knight argues that business enterprises the
level of uncertainty can be reduced through ‘consolidation’. Consolidation is to uncertainty is
what insurance is to risk; it is a method of reducing total uncertaintyby pooling individual
instance. The elasticity of the supply of self confidence is the single most important determinant
of the level of profit and the number of entrepreneurs.
5. Max Weber’s Theory of Entrepreneurial Growth:

Max Weber in his theory says religion has a large impact on entrepreneurial development.
According to Weber some religions have basic beliefs to earn and acquire money and some have less
of it. He calls them a ‘spirit of capitalism’ and ‘adventurous spirit’. The spirit of capitalism will be
generated when mental attitude in the society is favourable to capitalism. According to Max Weber,
driving entrepreneurialenergies are generated by the adoption of exogenously-supplied religious
beliefs. It is these beliefs which produce intensive exertion in occupational pursuits, the systematic
ordering of means to ends, and the accumulation of assets. His theory suggests the belief systems of
Hinduism, Buddhism ad Islam do not encourage entrepreneurship. His stand has been challenged by
many sociologists. Max Weber’s Theory is shown in Figure 2.5
 Figure 2.5: Max Weber’s Theory

Max Weber’s theory suited the colonial rulers who wanted to encourage European entrepreneurship
in India. But it has been criticised by subsequent researchers. The theory is based on the invalid
assumptions, which are:
(a) There is a single system of Hindu value,
(b) The Indian community internalised those values and translated them to day-to-day behaviour,
and
(c) These values remained immune to and insulated against external pressures and change. The
rapid growth of entrepreneurship in India since independence proves that Hinduism is not
averse to the spirit of capitalism and to adventurous spirit.
Many thinkers have accepted the Weber’s analysis of linkage between religious belief and
entrepreneurial growth. But this view is not accepted universally. Samuelson criticised Weber’s view
on the ground that capitalism also developed in those societies where protestant ethic was ‘not
prevalent. Hoselitz argued that Protestant could not develop industries in France because they were
not given political security. It can be concluded in the words of Carroll that “ethical values have
some effect on entrepreneurial growth but to consider them all in all would be unrealistic.”

6. Hagen’s Theory of Entrepreneurship:

One important theory of entrepreneurial behaviour has been propounded by Hagen which is referred
to as the withdrawal of status respect. Hagen has attributed the withdrawal of status respect of a group
to genesis of entrepreneurship. Hagen considers the withdrawal of status, of respect, as the trigger
mechanism for changes in personality formation. Status withdrawal occurs when members of some
social group perceive that their purposes and values in life are not respected by the groups in the
society they respect, and whose esteem they value. Hagen postulates four types of events which can
produce status withdrawal:
 Displacement of a traditional elite group fromits previous status by another traditional supply
physical force.
 Denigration of valued symbols through some change in the attitude of the superior group.
 Inconsistency of status symbols with a changing’ distribution of economic power.
 Non-acceptance of expected status on migration to a new society.
Hagen further postulates that withdrawal of status respect would give to four possible reactions
andcreate four different personality types:
(a)Retreatist: Entrepreneur who continues to work in society but remains indifferent to his
work or status.
(b)Ritualist: One who works as per the norms in the society hut with no hope of improvement
in the working conditions or his status.
(c)Reformist: One who is a rebellion and tries to bring in new ways of working and new
society.
(d)Innovator: An entrepreneur who is creative and try to achieve his goals set by himself.

According to Hagen (1962), the creativity of a disadvantaged minority group is the main source of
entrepreneurship. He developed this thesis from the case of the samurai community of Japan.
Traditionally, this community had enjoyed a high status of which it was deprived later. To regain
this lost prestige, it became more active and vigorous and gave rise to many entrepreneurs.
McClelland supported this thesis by admitting that a suppressed community had more creativity. He
said that Jains could be successful entrepreneurs because of their consciousness of their majority and
superiority complexes. McClelland had modified Hagen’s thesis slightly in order to explain such
cases. He stated that the subordination ofminority group could arouse achievement motivation in its
members but its extent depended upon the initial level of motivation and the means available to the
group to active its achievement motivations.
7. Thomas Cochran’s Theory of Cultural Values

The key proportions in Thomas Cochran’s theory are cultural values, role expectations and social
sanctions. According to him, the entrepreneur represents society’s model personality. His performance
is influenced by the factors of his own attitudes towards his occupation, the role expectations held by
sanctioning groups, and the operational requirements of the job. The determinants for the first two
factors are the society’s values. Changes over time in such variables as population, technology, and
institutional drift willimpinge on the role structure by creating new operational needs. In most
countries, entrepreneurs have emerged from a particular socio-economic class. The Protestant ethic
of the West is said to have contributed to the emergence of a new class of industrialists. It can be
noted that various communities and castes likesamurai in Japan, family pattern in France, Yoruba in
Nigeria, Kikuya in Kenya, Christians in Lebanon, HalaiMemon industrialists in Pakistan, Parsees,
Marwaries and Gujaratis in India have been the sources of entrepreneurship.

8. Theory of Change in Group Level Pattern:

Young defines entrepreneurs as that the entrepreneur characteristics are found in small groups
wherein individuals develop as entrepreneurs. Young arrived at the group level pattern behaviour
entrepreneurs based on his studies known as Thematic Appreciation Test (TAT) on groups of
entrepreneurs. The test revealed’ the tendency to describe the situation as a problem to be solved, an
awareness of pragmatic effort required, confidence in their own ability to solve the problem and a
tendency to take the viewpoint of each individual in turn and analyse the situation as he might see it
before suggesting an outcome. Young’s theory is a theory of change based on society’s incorporation
of reactive subgroups. A group becomes reactive when the following three conditions coincide:
 When denied of access to important social networks;
 When a group experiences low ‘status recognition; and
  When the group has better institutional resources than other groups in the society at
the same level.
9. Economic Theory of Entrepreneurship

Many economists revealed that entrepreneurship and economic growth will take place in those
circumstances where particular economic conditions are in favour 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: பாபனெக் மற்றும்
ஹாரிஸ்

(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

Economic development was the result of rationalization of technology and accounting systems and
the acquisition of capital and its productive use was the main theme of the Weberian thesis. Some
scholars have tried to explain the growth of entrepreneurship in terms of regional economic factors,
e.i., industrial support to environment in these regions. A question which was analysed by a researcher
is: “Since Jains andVaisyas were in every corner of India, why was it that only Marwari ad Gujarati
Vaisyas and Jains gave lead in entrepreneurship, mostly in Gujarat”. This analysis revealed that
Gujarat had environment favourable to business and industry. Thus, it can be concluded that the
industrial climate may have a very significant impact on the response of entrepreneurs. However, the
group factors, as emphasized by various studies, cannot be ignored altogether.
10. Exposure Theory of Entrepreneurship:

Many studies have shown that it is the exposure to new ideas and opportunities towards creativity
ad innovation which leads to create a new venture. There is adequate empirical evidence to prove its
validity. ‘Tripathi has observed that exposure to new ideas and values were the common factor
between Parsi and Hindu entrepreneurs, which led them to entrepreneurship. Education have played
very significant role in exposing the Indian entrepreneurs to Western ideas leading them to
entrepreneurship. It is also thedifferential responses of the social groups to opportunities provided by
the commitment of the political system to industrialisation that has led the process of entrepreneurial
spread. This concept is illustrated inFigure 2.6 as under:
 Risk bearing capacity Religious belief Need for achievement

Motivation Economic factors

Cultural Values
Entrepreneur Education

Exposure Towards

New idea and opportunities

creativity and innovation

New venture Creation

Figure 2.6 : Exposure Theory of Entrepreneurship

11. Political System Theory of Entrepreneurial Growth:

Political systemcan crate adequate infrastructure, favourable laws, favourable taxation system
andprocedures, provide incentives and subsides, security to entrepreneurs, create promoting policies
and can encourage people towards entrepreneurship. Government can also build supporting system for
potential entrepreneurs. Thus, the commitment of political system can contribute significantly towards
entrepreneurial development.

Figure 2.7: Political System Theory of Entrepreneurial Growth

According to Hoselitz, Japanese entrepreneurs could flourish because their political system was able
to properly integrate with various sectors such as the industrial and agricultural, large, small and
handicraft industries, labour intensive and capital intensive technology, traditional and modem social
structure. Also, there was no colonial disruption. According to Boulding “political structure was the
decisive factor in entrepreneurial growth of France and Russia. But before 1917 it did not flourish
 because the creative ability of masses could not find expression. Hoselitz argued that France lagged
behind entrepreneurially, because his political system did not provide sufficient incentives and security
to entrepreneurs.

Functions of Entrepreneurs

Entrepreneur is an opportunity seeker and organizer and coordinator of the factor of production. He not only
perceives the business opportunities but also mobilizes the other resources like – man, money, machine, materials
and methods. According to some economists, the functions of an entrepreneur are establishing co- ordination. In
business enterprise, risk-taking, controlling the enterprise, innovation for change, motivation and other related
activities. In reality, an entrepreneur has to carry out a combination of these functions in keeping withtime and
environment. Truly, he has to consider new ideas, demands and exploit the opportunities, and thereby contribute to
technical progress. Asuccessful entrepreneur recognizes the potential ofa product or service, design operating
policies in marketing, production, product development and the organisational structure. He carries out the whole
set of activities of the business. He has a high capacity for taking calculated risks and has faith in his own
capabilities.
Figure 4.2 : Functions of Entrepreneurs
 ·Gathering information
Assessing the potential for the entrepreneurial venture
·Identifying potential opportunities

·Assessing possible competitive advantages

Researching venture feasibility

·Uncovering business idea

·Competitor analysis

·Exploring financial options

·Organizational vision and mission

Planning the venture (Planning issues)
·Creation strong and effective business plan

Organizing the venture (start-up activities)

·Choosing legal form of business

·Legal Issue: patents & copyright

·Structuring organizational design

Launch the venture

·Setting goal & strategies

·Working on technology operational methods

·Working on marketing plans

Managing the venture
·Designing information systems

·Designing financial accounting system like: cash flow mgt.

Managing processes Managing growth

Managing people
 ·Establishing action plan

·SWOT analysis

·Evaluating performance

·Stimulated change which are needed

·Developing growth strategies

·Dealing with crises

·Exploring ways to finance growth

·Selecting, appraising, training, motivating

·Managing conflicts

·Delegation of authority

Kilby identify thirteen functions of an entrepreneur, which included some of the managerial functions
also. Kilby has classified these functions into four groups. These are as follows:
A. Exchange Relationship:
1. Perceiving market opportunities.
2. Gaining command over scarce resources.
3. Purchasing inputs.
4. Marketing of the products and responding to competition.
B. Political Administration:
1. Dealing with the public bureaucracy (concession, licenses & taxes)
2. Managing human relation within the firm.
3. Managing customer and supplier relations.
C. Management Control:
1. Managing finance
2. Managing production
D. Technology:
1. Acquiring and overseeing assembly of the factory.
2. Industrial engineering
3. Upgrading process and product quality.
4. Introducing new production techniques and products.
Kilby suggested these functions may vary according to the size, type and setting of an enterprise and
could be augmented through training and education. By summing up we can say that Entrepreneurs
perform the following functions:
1. Innovation: Avery important function performed by entrepreneur is that of innovation. Theyanalyze
the existing state of company’s affairs and try to reach a new level of equilibrium by trying new and
productive combinations of existing resources. They think of creative ideas and use their managerial
and innovative skills to put those ideas into reality. They combine the productive factors, bring them
together andhelp in the economic development of a nation.
According to Schumpeter, innovation can occur in the following forms:
  Introduction of new goods ;
 The use of new method of production ;
 The opening of a new market ;
 The conquest of a new source of supply of raw materials ; and
 The reorganization of any industry.
According to Robert Wilken entrepreneurs contribute change that can be categorized into five types:
1. Initial Expansion: the original production of goods.
2. Subsequent Expansion: the subsequent change in the amount of goods produced.
3. Factor Innovation: the increase in supply or productivity of the factors of production.
(a) Financial: the procurement of capital from new sources or in new form.
(b) Labour: the procurement of labour from a new source or of a new type; the
upgrading of existing labour.
(c) Material: the procurement of old material from a new source or the use of a new material.
 4. Production Innovations: changes in the production process.
(a) Technological: the use of a new production technique.
(b) Organizational: change in the form of structure of relationships among people.
5. Market Innovation: changes in the size or composition of the market.
(a) Product: the production of a new good or the change in quality or cost of existing goods.
(b) Market: the discovery of a new market.
Innovation involves imagination and creativity. It is so basic that a person cannot be called an
entrepreneur unless’ he creates something new and something different in his venture.
2. Assumption of Risk: An idea that is put to reality does not guarantee success. Entrepreneurs
assume the risk of success or failure of the enterprise that they wish to launch. Such risks are not
insurable. If they materialize, the entrepreneur has to bear the loss himself. Thus, risk-bearing or
uncertainty-bearing still remains the most important function of an entrepreneur which he tries to
reduce by his initiative, skill and good judgement.
3. Idea Generation: Entrepreneurs do not immediately think of ideas and put them into practice.
Ideas can be generated through environmental scanning and market survey. It is the function of the
entrepreneurs to generate as many ideas as he can for the purpose of selecting the best business
opportunities whichcan subsequently be taken up by him as a commercially - viable business
venture. They think of a varietyof ideas, apply quantitative techniques to test their applicability,
supplement them with empirical findings, arrive at the best alternative and apply it in practice. The
selection of an idea, thus, involves the application of research methodology by the entrepreneurs,
vision, insight, observation, experience, education, training and exposure of the entrepreneur. Idea
generation precisely implies product selection and project identification.
4. Organizing and Management: An entrepreneur brings together various resources of
production, organizes them properly and converts them into a productive unit. As regards the
proposed projects, an entrepreneur manages the following activities:
 Scanning of the business environment (SWOT Analysis)
 Measuring the suitability of business idea.
 Market Research and Selection of Product Line: The next important function of the
entrepreneur is market research and product market research is the systematic collection of
data regarding the product which the entrepreneur wants to manufacture. Entrepreneur has
to undertake market research persistently in order to know the details of the intending
product, i.e., the demand for the product, selection of product line, the price of the substitute
product, the size of the customer, etc. while starting an enterprise.
 Studying the government rules, regulation and policies.
 Performing government formalities.

 Determination of Objectives: The next function of the entrepreneur is to determine and lay
down the mission, vision, objectives and goals of the business, which should be spelt out on
clear terms. In other words, entrepreneur should be very much clear about future prospect of
the venture.
 Determination of Form of the Venture: The function of an entrepreneur in determining the
form of enterprise is also important. Entrepreneur has to decide the form of enterprise based
upon the nature of the product, volume of investment, nature of activities, types of product,
quality of product,
 quality of human resources, etc. The major forms of ownership organizations are sole
proprietorship, partnership, joint stock company and cooperative society.
 Managing of Funds: Fund raising is the most important function of an entrepreneur. All the
activities of a business depend upon the finance and its proper management. It is the
responsibility of the entrepreneur to raise funds internally as well as externally.
 Selection of Location:
 Procurement of Raw Material Entrepreneur has to identify the cheap and regular sources
of supply of raw materials, which will help him to reduce the cost of production and face the
competition.
 Procurement of Machinery: The next function of the entrepreneurs is to procure the
machineries and equipments for establishment of the venture. While procuring the machineries,
he should specify the following details:
(a) The details of technology
(b) Installed capacity of the machines
(c) After sales service facilities
 Recruitment Selection and Placement of Manpower : Entrepreneur has to perform the
following activities while undertaking this function :
(a) Estimating manpower need of the organization
(b) Laying down of selection procedure
(c) Placing the employee
Another important function of entrepreneur is ‘financial planning’, which translates all other activities
into monetary terms. Though an entrepreneur is more than a manager, he combines in him some
managerial functions. He deals with day-to-day affairs of a going concern by directing and controlling
the employees.
5. Decision Making: Arther H. Cole has described the entrepreneur as a ‘decision maker’. He
takes various decisions regarding following matters:
 The determination of these objectives of the enterprise and the change of those objectives as
conditions required or made advantageous;
 The development ofan organisation, including efficient relations with subordinates and all
employees;
 Securing adequate financial resources, and maintaining good relations with the existing and
potential investors ;
 The requisition of efficient technological equipment and the revision of it as new machinery
appeared
;

 The development of a market for the products and the devising of new products to meet or
anticipate consumer’s demand: and
 The maintenance of good relations with public authorities and with the society at large.

6. Leading: As an entrepreneurial venture florish, an entrepreneur takes on a new role of a leader. He

acts as a visionary leader. The entrepreneur’s leading function is drawing the best out of his human
resources. He must create teamwork, motivation among employees. As a leader, entrepreneurs must
shift from the command-and-control style of managing to a coach-and-collaboration style.
7. Managing Growth: The entrepreneur must manage the enterprise’s growth. It includes such
activities as developing and designing appropriate growth strategies, dealing with crises, exploring
various ways for financing growth and placing a value on the venture.
8. Support to Social Environment: Social environment is characterized by social customs, culture,
values and beliefs. Changes are not easily acceptable in a given socio-economic environment of a
country. Entrepreneurs discover new sources of materials, new markets, and new opportunities and
establish new and more lucrative forms of organizations. This is a reflection of their will power,
enthusiasm andenergy and helps in overcoming the society’s resistance to change.
9. Economic Development: Entrepreneurs play an important role in accelerating the rate of
economic development of developed and under-developed countries. They exploit the country’s
resources (land, labour, capital and technology) and optimize their utilization to result in development
of that country.

Idea Generation Organizing and Managing Decision Making

Assumption of Risk Visionary Leadership

Innovation Managing Growth

Support to Social Environment Entrepreneur Economic Development

Figure 4.3 : Functions of an Entrepreneur

An entrepreneur performs many useful functions. He undertakes a venture, assumes risk and earns
profit. He is the man having a strong motivation to achieve success. He is self-confident in his
entrepreneurial abilities. He exploits opportunities wherever and whenever they arise.
As you can tell from the above descriptions, being an entrepreneur is an exciting proposition!
Entrepreneurs do a variety of things and deal with a multitude of challenges. In fact, we can say that
entrepreneurial behaviour is complex, intentional, and passionate. Yet, it’s primarily because or
these qualities that it is prudent for you to know, from the start, the rewards and challenges of being
an entrepreneur.
The Rewards and Challenges of Being an Entrepreneur
Rewards:

– High degree of independence – freedom from constraints

– Get to use a variety of skills and talents
– Freedom to make decisions
– Accountable to only yourself
– Opportunity to tackle challenges
– Feeling of achievement and pride
– Potential for greater financial rewards
Challenges:
– Must be comfortable with change and uncertainty
– Must make a bewildering number of decisions
– May face tough economic choices
– Must be comfortable with taking risks
– Need many different skills and talents
– Must be comfortable with the potential of failure