Entrepreneurship Subject: Entrepreneurship Open Elective Book lending scheme: HD Nandan Department: ECM Section A & B Faculty: S.Sreekanth.

Entrepreneurship

Subject: EntrepreneurshipOpen ElectiveBook lending scheme: HD NandanDepartment: ECM Section A & BFaculty: S.Sreekanth

Outline of the LectureMeaning of Entrepreneur

Different thoughts by Different authors

Qualities and Pre-requisites to become an Entrepreneur.

Meaning of Entrepreneur

The word “Entrepreneur” has been taken from the French Language

Enterprendre which means “ to undertake “ and meant to organize

musical or other entertainment programs.

Oxford Dictionary (1897) also defined entrepreneur as the director or

manager of a public musical institution

Evolution of the concept of entrepreneur

Period Connotations and meanings

Early 16th century Referred to persons engaged in military expeditions

17th century Extended to persons engaged in engineering activities such as constructions

Beginning of 18th century Used to refer to persons engaged in economic aspects of human activities

Meaning of Entrepreneur

Richard Cantillon (1725) an Irishman living in France was the first

who introduced the term “ entrepreneur “.

He defined entrepreneur as an agent who buys factors of production at

certain prices in order to combine them into product with a view to

selling it at uncertain prices in future.

Entrepreneur as organizer or coordinator

• Jean-Baptiste (1825) the French political economist defined

entrepreneur as one who combines the land of one, the labor of another

and the capital of yet another and thus produces the product.

• By selling the produce in the market he pays interest on capital, rent to

the landlord and wages to the laborers and what remains is his profit.

Entrepreneur as an innovator

• Joseph Schumpeter (1934). He considered economic development as a

discrete dynamic change brought by entrepreneur by instituting new

combinations of factors of production which he called innovation

Introduction of new product

Introduction of new method of production

Opening of new market

Joseph Schumpeter

• In the 20th century, economist Joseph Schumpeter (1883-1950) focused on how the

entrepreneur’s drive for innovation and improvement creates upheaval and change.

Schumpeter viewed entrepreneurship as a force of “creative destruction.” The

entrepreneur carries out “new combinations,” thereby helping render old industries

obsolete. Established ways of doing business are destroyed by the creation of new

and better ways to do them.

Peter Drucker’s Definition

Business expert Peter Drucker (1909-2005) took this idea further,

describing the entrepreneur as someone who actually searches for

change, responds to it, and exploits change as an opportunity. A quick

look at changes in communications—from typewriters to personal

computers to the Internet

National Knowledge commission (NKC)

• NKC (2008) has defined entrepreneurship as the professional

application of knowledge skills, and competencies of monetizing a

new idea, by an individual or a set of people by launching an enterprise

or diversifying from an existing one thus to pursue growth while

generating wealth employment and social good.

Advantages of Entrepreneurship over Employment

Employment Entrepreneurship

Work for others Own boss

Follow Instructions Makes own plans

Routine Job Creative activity

Earning is Fixed not negative Earnings range from maximum to minimum

Does not create wealth Does create wealth

Difference between Entrepreneurship and Entrepreneur

Entrepreneurship can be described as a process of setting up an enterprise.

Entrepreneurship is a creative activity.

Entrepreneurship is the attitude of mind to seek opportunities, take calculated risks

and derive benefits by setting up a venture.

Entrepreneurship is a process

Idea Generation

Availability of raw materials and Technology

Purchase of Machinery

Corpus fund Creation

Registration of SSI

Obtaining of No Objection Certificate

Difference contd…

Entrepreneur is a person who starts an enterprise. The process of creation is called entrepreneurship. The entrepreneur is the actor and entrepreneurship is the

act.The outcome of the actor and the act is called the enterprise.

Characteristics of a successful entrepreneur

Hard Work Perseverance

Desire for achievement Team Spirit

Highly optimistic

Independence

Foresight

Good organizer

Innovative

Categories of Entrepreneurs or Types

• Based on the Type of business:

Trading Entrepreneurs:

Manufacturing Entrepreneurs:

Agricultural Entrepreneur:

Based on ownership

Sole Trader (Single Owner Entity)Partnership ( Two or More Owned Entity)Private Entrepreneur: ( Capital Investor)State Entrepreneur: (SOE,State Owned Entity)Joint Entrepreneur:PPP (Public Private

Partnership)

Based on GenderMen Entrepreneurs:

Women Entrepreneurs:

Based on the size of the enterprise

Small scale : Investment from 25 Lakh up to 1 crore Rs on plant and

machinery

Medium Scale: above 1crore to below 5 crore Rs

Large Scale: anything above 5 crore Rs

Based on Clarence Danhof classification

Innovating Entrepreneurs:

Imitative Entrepreneurs:

Fabian Entrepreneurs:

Drone Entrepreneurs:

Intrapreneur

Intrapreneur is an entrepreneur within an already established

organization.(Dr.Radhakrishnan Chairman of ISRO

In big organizations the top executives are encouraged to catch hold of

new ideas and then convert these into products through research and

development

Difference between Intrapreneur and Entrepreneur

Bases of Difference Entrepreneur Intrapreneur

Dependency An Entrepreneur is independent in his operations

But an intrapreneur is dependent on the entrepreneur or owner

Raising of Funds An Entrepreneur himself raises funds required for the enterprise

Funds are not raised by the intrapreneur

Risk Entrepreneur bears the risk involved in the business

An intrapreneur does not fully bear the risk involved in the enterprise

Functions of an Entrepreneur

Identifying new venture opportunity (Think about a new idea ,carry

out a market research, know the competitors strengths and weaknesses.

Development of an idea

Planning a new venture( Prepare Project Report , estimate technical

know-how, know legal requirements for setting up a unit, plant

location


Organizing a new venture(Choose the form of ownership, determine

organizational structure, ensure proper maintenance of records, obtain

clearance from all the boards. Obtain permit licenses , secure patent,

trademarks arrange for insurance and negotiate with the suppliers of

machinery and raw materials.


Managing production Operations( Formulating purchasing policy and

inventory control.

Managing finance( Arrange own or borrowed capital, avail grants and

subsidies from Govt prepare financial budgets maintain proper books

of accounts prepare annual profit and loss statements and balance

sheets.


Managing Work force( Arrange systematic man power planning ,

prepare job descriptions, select the right person for the right job.

Managing the Market( Market the product with the available

marketing techniques with right combination of 4p’s Product price

promotion and the place

Entrepreneurial Propensity

• Entrepreneurial Propensity is defined as Individual’s

favorable predisposition( Inclination or tendency) towards

new venture creation.

Individual Decision to start a business is influenced by the

personality of the individual who want to become an

entrepreneur and start up environment

Opportunity driven entrepreneurs (pull factors)

want to exploit a perceived business opportunity

strive for independence, self-actualisation, recognition and

profit maximization

on average they rise higher than necessity driven entrepreneurs

Necessity driven entrepreneurs (push factors)

Means of Second Resort

are pushed into entrepreneurship because all other options for work

are either absent or unsatisfactory dissatisfaction with working

conditions, contents and time pursue entrepreneurship to secure their

own existence

Impediments of Entrepreneurial Propensity in transition economies remnants of socialist attitude

Apathy

In Socialist Economies doing entrepreneurship is understood to counter social

norms.

Corruption

Red-tapism

Complications in the procedures

Risk taking Propensity

• Taking decisions and acting on an uncertainty is understood as a risk-

taking activity. Risk taking propensity is undoubtedly the most widely

discussed entrepreneurial trait. Although it has not been empirically

established that Risk taking is a distinguishing characteristic of

entrepreneurs there is almost universal agreement on the fact that it is

an essential trait found among entrepreneurs all over the world.

(Hisrich & Peters, 1998


• In Western economies the entrepreneurial environment is “nutrient

rich” (shapero 1985) including access to information, knowledge

besides tangible resources such as capital . The legal framework is

designed to stimulate entrepreneurship and from a social cultural

perspective entrepreneurs possess an almost hero-like status (Welter

and smallbone ,2003)

Factors contributing to favorable Entrepreneurial Propensity

Individual Personality Traits have bearing on the entrepreneurial propensity.

Social Institutions or codes of conduct, values and norms that come from socially transmitted information is called as culture are important to the entrepreneurial spirit.


• If there is any change in the social values and systems that

also modifies the individual’s value system in terms of

individualism, power distance, Masculinity and uncertainty

avoidance.

Locus of Control

• Locus of control in social psychology refers to the extent to

which individuals believe that they can control the events

that affect them

Locus of Control

Internal locus of control is defined as the personal belief that one has

influence over outcomes through ability, effort, or skills, whereas

external locus of control is the belief that external forces control

outcomes

External locus of control can be explained by people’s beliefs about

powerful others that influence their lives, as well as the influence of

blind fate, luck or chance.

Types of Locus of ControlInternal Locus of control in social psychology refers to the extent to

which individuals believe that they can tend to attribute outcomes of events to their own control the events that affect them

External locus of control attribute outcomes of events to external circumstances

Effect of Locus of Control

• Someone with an external locus of control is more likely to lose faith in their own

ability to change the environment than someone with an internal locus of control. As

a result, they are more likely to experience learned helplessness.

Difference between ILOC and ELOC

Individuals with a high internal locus of control believe that they

control their lives and that events result primarily from their own

behavior and actions. Individuals with a high external locus of control

believe that their environment, some higher power, fate, chance or

powerful others control their decisions and determine events.


• Those with a high internal locus of control have better control of their

behavior, tend to exhibit more political behaviors, and are more likely

to attempt to influence other people than those with a high external (or

low internal) locus of control.


• Those with a high internal locus of control are also more likely to

assume that their efforts will be successful and are more active in

seeking information and knowledge concerning their situation.

Internals are also more likely to work for achievements, to delay

gratification, and to plan for long-term goals, whereas externals are

more likely to lower their goals.


• There is also evidence in clinical research that internality correlates negatively with

anxiety, and that internals may be less prone to depression than externals, as well as

less prone to learned helplessness.

IPC locus of control I Internal locus of controlP powerful others C ChanceIPC is coined by Levenson (1974)

The values-locus control entrepreneurship model

Personal ValuesMasculinityCollectivism

Power distance Uncertainty avoidance

Locus of ControlInternal

Powerful otherChance

Entrepreneurial propensity

Power distance

• Power distance is the extent of respect for authority. Those who have a

higher power distance would have high tolerance for lack of autonomy

and show more tolerance in accepting power hierarchy. In large power

distance societies authoritarian and coercive power strategies perform

well.

Powerful others

• The greater an individual’s power distance, the greater the powerful

others locus of control.

Uncertainty Avoidance

• Uncertainty avoidance is defined as the extent to which members of a

culture feel threatened by uncertain or unknown situations. People with

high uncertainty avoidance have a low tolerance for uncertain

situations because of fear of indeterminate outcomes.


• Shane (2003) surveys various personality traits which have been identified to

promote entrepreneurial activity. These include, i.e.., imagination and creativity,

internal locus of control and self-efficacy, extraversion, and need for achievement.

On the other hand, traits such as risk aversion and agreeableness are typical non-

entrepreneurial ones.

Entrepreneurship Traits

Entrepreneurial skills and qualities

Imagination and creativity

Need for achievement

Risk Taking Propensity

Leadership

Communication Skills

Interpersonal Skills

Social Responsibility

Key skills of an Entrepreneur

Schools of Entrepreneurship

The French Classical School (Richard Cantillon)

The British Classical School (Adam Smith’s ‘The Wealth of Nations)

Austrian and Neo-Austrian School of Thought (Kirzner)

Schumpeterian School of Thought (Schumpeter)

The French Classical School

• Most readers will notice that the word entrepreneur has a French

origin. Hoselitz (1960) suggests that it originated during the Middle

Ages when the term entrepreneur was applied to “..the man in charge

of the great architectural works: castles and fortifications, public

buildings,

French School

• In most entrepreneurship texts Cantillon is recognized as the first to

use the term ‘entrepreneurship’ Cantillon introduced an economic

system based on classes There are ‘landowners’ who are financially

independent aristocracy. ‘Hirelings’ and ‘entrepreneurs’ were viewed

to be financially dependent on others. Hirelings earned fixed incomes

while entrepreneurs were “…set up with a capital to conduct their

enterprise, or are undertakers of their own labor without capital, and

they may be regarded as living off uncertainty

French School

• For Cantillon individuals who purchased a good at a certain price, used

that good to produce a product and then sold that product at an

uncertain price could be considered ‘entrepreneurs’. Risk and

uncertainty

The British Classical School

• In France there was a clear distinction between the ownership of

capital or land and the ownership of property and business. Whereas in

England a capitalist was not only a creditor receiving interest on their

capital, but an active partner, sharing in the gains and losses of a

business (Tuttle, 1927).

Austrian and Neo-Austrian School of Thought

• These theorists regard uncertainty and risk as important

features of economic systems that allow entrepreneurs the

opportunity to make profit .


• Knight argued against much of mainstream economics and explained that supply and

demand cannot be in equilibrium because in reality other forces change the

conditions of the market. In this situation of ‘disequilibrium’, Knight points out, that

a market must be in a constant state of uncertainty and entrepreneurship becomes the

skilful interpretation of market changes.


• ‘Entrepreneurship’ is not only the propensity to pursue goals

efficiently, when the ends and means of those goals have

been identified but also the drive and alertness required to

identify which goals to pursue in the first place


• It is the acquisition of market information and knowledge, from market

participation that helps provide this alertness to opportunity. But it is

also individual capacity to ‘envisage’ future opportunities that makes

‘correct’ perception of the market possible. ‘


• Kirzner defines this ‘pure entrepreneur’ as a “decision-maker whose

entire role arises out of his alertness to hitherto unnoticed opportunities

Schumpeterian School of Thought

• Schumpeter introduced a concept of entrepreneurship which is quite

different from the others discussed so far. His theory is focused on

economic development


• The function of the entrepreneur in this new theory was the person who

innovates or makes ‘new combinations’ of production possible. The

concept of ‘new combinations’ covered five potential cases:


The introduction of a new good or a new quality of a good; The introduction of a new method of production; The opening of a new market;

The development of a new source of supply or raw-materials or half manufactured goods;

The carrying out of a new organization of any industry

End Of Unit-I

Entrepreneurship Subject: Entrepreneurship Open Elective Book lending scheme: HD Nandan Department: ECM Section A & B Faculty: S.Sreekanth.

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