ENTREPRENEUR AND ENTREPRENEURSHIP

INTRODUCTIONDo you know that there are millions of unemployed youth in the country and bythe time you graduate, this number would have increased substantially? Do youwant to be part of that group which keeps knocking from pillar to post, checkingwith employment exchanges, relatives, friends, and neighbours and still not ableto get a job to their liking and then settle for a second or third rate job?You can also choose to be like Mr. Patel of Nirma who was a chemist’s assistanceand has a Rs. 2500 crore company today. Did you know that the original Mr.Bata was a cobbler? And now has stores in more than 30 countries all over theworld. Or you could be like Dhiru bhai Ambani who started life as a clerk in aFrench company in Aden. He was not born into a business family nor did hepossess an MBA degree and yet, he is a household name in India and figures in2the Forbes list of the richest Asians. Lakshmi Mittal, the steel giant, Satbir Bhatiaof Hotmail fame and Narayan Murthy of Infosys are some other names in theendless list you could choose from.If your answer is yes then you can definitely opt for a career in entrepreneurship.This book will help you to understand the process of setting up a small business,running it successfully and seeing it grow. And let us remind you that this careeropportunity is not only for boys but also for girls - all those girls who think smart,are ready to act and script the story of their own life - like Shehnaz Hussain orRitu Kumar or Kiran Majumdar Shaw.

1.1 OBJECTIVESAfter going through this lesson you should be able to:Inculcate the Desire to take up Entrepreneurship as a CareerDifferentiate between Wage employment, Self-employment andEntrepreneurshipDefine and know the Meaning of the terms Entrepreneur,Entrepreneurship and EnterpriseLearn about the Functions performed by an EntrepreneurUnderstand the Role of Entrepreneurship in Economic DevelopmentDifferentiate the roles of an Entrepreneur and a Manager

ENTREPRENEURSHIP AS A CAREEROPTIONAfter finishing your graduation you will be at the crossroads of life. You will facethe dilemma of choosing what you have to do in life. The vast majority of humanbeings direct their activities towards earning a living, generating wealth andimproving their standard of living. You can choose your career from two broadcategories of options – Wage Employment or Entrepreneurship. The term ‘career’signifies a continuous, ever evolving, ever expanding opportunity for personal aswell as business growth and development. We may define entrepreneurship as acareer in your own business [YOB] rather than wage employment [JOB] .If youopt for a job then you will work for others. In case you opt for entrepreneurshipyou will be your own boss.In case of wage employment one is engaged in routine work carried on for othersfor which he receives salary or wages. He has to follow instructions and executeplans laid down by his superior. One can choose to be employed in GovernmentService or the Public Sector or the Private sector. Some of the main differencesbetween entrepreneurship and wage employment career options are as under3

What Makes Someone an Entrepreneur?Who can become an entrepreneur? There is no one definitive profile. Successful entrepreneurs come in various ages, income levels, gender, and race. They differ in education and experience. But research indicates that most successful entrepreneurs share certain personal attributes, including: creativity, dedication, determination, flexibility, leadership, passion, self-confidence, and “smarts.”

Creativity is the spark that drives the development • of new products or services or ways to do business. It is the push for innovation and improvement. It is continuous learning, questioning, and thinking outside of prescribed formulas.

Dedication is what motivates the entrepreneur to • work hard, 12 hours a day or more, even seven days a week, especially in the beginning, to get the endeavor off the ground. Planning and ideas must be joined by hard work to succeed. Dedication makes it happen.

Determination is the extremely strong desire to • achieve success. It includes persistence and the ability to bounce back after rough times. It persuades the entrepreneur to make the 10th phone call, after nine have yielded nothing. For the true entrepreneur, money is not the motivation. Success is the motivator; money is the reward.

Flexibility is the ability to move quickly in response • to changing market needs. It is being true to a dream while also being mindful of market realities. A story is told about an entrepreneur who started a fancy shop selling only French pastries. But customers wanted to buy muffins as well. Rather than risking the loss of these customers, the entrepreneur modified her vision to accommodate these needs.

Leadership is the ability to create rules and to set • goals. It is the capacity to follow through to see that rules are followed and goals are accomplished.

Passion is what gets entrepreneurs started and • keeps them there. It gives entrepreneurs the ability to convince others to believe in their vision. It can’t substitute for planning, but it will help them to stay focused and to get others to look at their plans.

Self-confidence comes from thorough planning, • which reduces uncertainty and the level of risk. It also comes from expertise. Self-confidence gives the entrepreneur the ability to listen without being easily swayed or intimidated.

“Smarts” consists of common sense joined with • knowledge or experience in a related business or endeavor. The former gives a person good instincts, the latter, expertise. Many people have smarts they don’t recognize. A person who successfully keeps a household on a budget has organizational and financial skills. Employment, education, and life experiences all contribute to smarts..Every entrepreneur has these qualities in different degrees. But what if a person lacks one or more? Many skills can be learned. Or, someone can be hired who has strengths that the entrepreneur lacks. The most important strategy is to be aware of strengths and to build on them.

Why Become an Entrepreneur?What leads a person to strike out on his own and start a business? Perhaps a person has been laid off once or more. Sometimes a person is frustrated with his or her current job and doesn’t see any better career prospects on the horizon. Sometimes a person realizes that his or her job is in jeopardy. A firm may be contemplating cutbacks that could end a job or limit career or salary prospects. Perhaps a person already has been passed over for promotion. Perhaps a person sees no opportunities in existing businesses for someone with his or her interests and skills.

Some people are actually repulsed by the idea of working for someone else. They object to a system where reward is often based on seniority rather than accomplishment, or where they have to conform to a corporate culture.Other people decide to become entrepreneurs because they are disillusioned by the bureaucracy or politics involved in getting ahead in an established business or profession. Some are tired of trying to promote a product, service, or way of doing business that is outside the mainstream operations of a large company.In contrast, some people are attracted to entrepreneurship by the advantages of starting a business. These include:

Entrepreneurs are their own bosses. They make • the decisions. They choose whom to do business with and what work they will do. They decide what hours to work, as well as what to pay and whether to take vacations.

Entrepreneurship offers a greater possibility of • achieving significant financial rewards than working for someone else.

It provides the ability to be involved in the total • operation of the business, from concept to design and creation, from sales to business operations and customer response.It offers the prestige of being the person in • charge.

It gives an individual the opportunity to build eq• uity, which can be kept, sold, or passed on to the next generation.

Entrepreneurship creates an opportunity for a • person to make a contribution. Most new entrepreneurs help the local economy. A few—through their innovations—contribute to society as a whole. One example is entrepreneur Steve Jobs, who co-founded Apple in 1976, and the subsequent revolution in desktop computers.

Some people evaluate the possibilities for jobs and careers where they live and make a conscious decision to pursue entrepreneurship.

No one reason is more valid than another; none guarantee success. However, a strong desire to start a business, combined with a good idea, careful planning, and hard work, can lead to a very engaging and profitable endeavor.

Wage Employment EntrepreneurshipWork for Others Own BossFollow Instructions Make own plansRoutine Job Creative activityEarning is fixed, never Can be negative sometimes,Negative generally surplusDoes not create wealth Creates Wealth, contributes to GDPCan choose from- Can choose from-Government service IndustryPublic Sector Trade orPrivate Sector Service Enterprise

Decisions and Downfalls

Through careful analysis of entrepreneurs’ successes and failures, economists have identified key factors for up-and-coming business owners to consider closely. Taking them into account can reduce risk. In contrast, paying them no attention can precipitate the downfall of a new enterprise.

Motivation:• What is the incentive for starting a business? Is it money alone? True, many entrepreneurs achieve great wealth. However, money is almost always tight in the startup and early phases of a new business. Many entrepreneurs do not even take a salary until they can do so and still leave the firm with a positive cash flow.

Strategy:• What is the strategy for distinguishing the product or service? Is the plan to compete solely on the basis of selling price? Price is important, but most economists agree that it is extremely risky to compete on price alone. Large firms that produce huge quantities have the advantage in lowering costs.

Realistic Vision:• Is there a realistic vision of the enterprise’s potential? Insufficient operating funds are the cause of many failed businesses. Entrepreneurs often underestimate start-up costs and overestimate sales revenues in their business plans. Some analysts advise adding 50 percent to final cost estimates and reducing sales projections. Only then can the entrepreneur examine cash flow projections and decide if he or she is ready to launch a new business.

Difference between Wage Employment and EntrepreneurshipIn the context of employment generation the three terms- Income generation, Selfemploymentand Entrepreneurship are often used interchangeably.Income generation is the initial stage in the entrepreneurial process in which onetries to generate surplus or profit. They are often taken on part- time or casualbasis to supplement income e.g. a man with some surplus money might put hismoney in a fixed deposit account in a bank or a chit -fund to earn some interest.Self-employment is the second stage in the entrepreneurial process and refers toan individual’s fulltime involvement in his own occupation. e.g. a person whostarts a tea shop and remains happy and satisfied and has no plans to add on anyother items like samosas, buns, soft drinks etc. or to grow in any othermanner[e.g. supplying tea/coffee/sandwiches to others in the vicinity].Entrepreneurship is the terminal stage of the entrepreneurial process whereinafter setting up a venture one looks for diversification and growth. We will learnmore about entrepreneurship a little latter in the lesson. An entrepreneur isalways in search of new challenges. An entrepreneur is not a routine businessmanhe might not have resources but he will have ideas. He is innovative and creative.He can convert a threat into an opportunity. Small businessmen might shut-downor change his business if he anticipates losses but an entrepreneur will try againafter analyzing the situation. On the other hand an entrepreneur can leave aperfectly running business to start another venture if he so desires.Functionally all entrepreneurs are self-employed and income generating personsbut the reverse is not true- all self-employed and income generating persons are4not entrepreneurs. If seen on a continuum, income generation, self-employmentand entrepreneurship can be considered as the initial, middle and final stages ofthe entrepreneurial growth process. Income generating experience encouragesself-employment, which in turn facilitates graduating into entrepreneurship.Income generation Self-EmploymentEntrepreneurshipInitial stage Middle stageFinal stage

ENTREPRENEURAn entrepreneur is a person who starts an enterprise. He searches for change andresponds to it. A number of definitions have been given of an entrepreneur-The economists view him as a fourth factor of production along with land labourand capital.The sociologists feel that certain communities and cultures promoteentrepreneurship like for example in India we say that Gujaratis and Sindhis arevery enterprising.Still others feel that entrepreneurs are innovators who come up with new ideas forproducts, markets or techniques.To put it very simply an entrepreneur is someone who perceives opportunity,organizes resources needed for exploiting that opportunity and exploits it.Computers, mobile phones, washing machines, ATMs, Credit Cards, CourierService, and Ready to eat Foods are all examples of entrepreneurial ideas that gotconverted into products or services.Some definitions of an entrepreneur are listed below:Definitions of an entrepreneurStems: from the French word ‘entrependre’ meaning one who undertakes or onewho is a ‘go-between’1725: Richard Cantillon: An entrepreneur is a person who pays a certain pricefor a product to resell it at an uncertain price, thereby making decisions aboutobtaining and using the resources while consequently admitting the risk ofenterprise.1803: J.B. Say: An entrepreneur is an economic agent who unites all means ofproduction- land of one, the labour of another and the capital of yet another andthus produces a product. By selling the product in the market he pays rent of land,wages to labour, interest on capital and what remains is his profit. He shiftseconomic resources out of an area of lower and into an area of higher productivityand greater yield.61934: Schumpeter: According to him entrepreneurs are innovators who use aprocess of shattering the status quo of the existing products and services, to set upnew products, new services.1961: David McClleland: An entrepreneur is a person with a high need forachievement [N-Ach]. He is energetic and a moderate risk taker.1964: Peter Drucker: An entrepreneur searches for change, responds to it andexploits opportunities. Innovation is a specific tool of an entrepreneur hence aneffective entrepreneur converts a source into a resource.1971: Kilby: Emphasizes the role of an imitator entrepreneur who does notinnovate but imitates technologies innovated by others. Are very important indeveloping economies.1975: Albert Shapero: Entrepreneurs take initiative, accept risk of failure andhave an internal locus of control.1983: G. Pinchot: Intrapreneur is an entrepreneur within an already establishedorganization.Check your progressCan you identify 3 enterprising ideas, which can be explored?

ENTREPRENEURSHIPEntrepreneurship can be described as a process of action an entrepreneurundertakes to establish his enterprise.Entrepreneurship is a creative activity. It is the ability to create and buildsomething from practically nothing. It is a knack of sensing opportunity whereothers see chaos, contradiction and confusion. Entrepreneurship is the attitude ofmind to seek opportunities, take calculated risks and derive benefits by setting upa venture. It comprises of numerous activities involved in conception, creationand running an enterprise.According to Peter Drucker Entrepreneurship is defined as ‘a systematicinnovation, which consists in the purposeful and organized search for changes,and it is the systematic analysis of the opportunities such changes might offer foreconomic and social innovation.’7Entrepreneurship is a discipline with a knowledge base theory. It is an outcome ofcomplex socio-economic, psychological, technological, legal and other factors. Itis a dynamic and risky process. It involves a fusion of capital, technology andhuman talent. Entrepreneurship is equally applicable to big and small businesses,to economic and non-economic activities. Different entrepreneurs might havesome common traits but all of them will have some different and unique features.If we just concentrate on the entrepreneurs then there will be as many models asthere are ventures and we will not be able to predict or plan, how and where, andwhen these entrepreneurs will start their ventures.Entrepreneurship is a process. It is not a combination of some stray incidents. It isthe purposeful and organized search for change, conducted after systematicanalysis of opportunities in the environment. Entrepreneurship is a philosophy- itis the way one thinks, one acts and therefore it can exist in any situation be itbusiness or government or in the field of education, science and technology orpoverty alleviation or any others.

ENTERPRISEEntrepreneur is a person who starts an enterprise. The process of creation is calledentrepreneurship. The entrepreneur is the actor and entrepreneurship is the act.The outcome of the actor and the act is called the enterprise. An enterprise is thebusiness organization that is formed and which provides goods and services,creates jobs, contributes to national income, exports and over all economicdevelopment.

DIFFERENCE BETWEEN ENTREPRENEUR ANDENTREPRENEURSHIPThe term entrepreneur is used to describe men and women who establish andmanage their own business. The process involved is called entrepreneurship.Entrepreneurship is an abstraction whereas entrepreneurs are tangible people.Entrepreneurship is a process and an entrepreneur is a person. Entrepreneurship isthe outcome of complex socio-economic, psychological and other factors.Entrepreneur is the key individual central to entrepreneurship who makes thingshappen. Entrepreneur is the actor, entrepreneurship is the act. Entrepreneurship is

the most effective way of bridging the gap between science and the market placeby creating new enterprises. An entrepreneur is the catalyst who brings about thischange.

1.4 ROLE OF ENTREPRENEURSHIP INECONOMIC DEVELOPMENT.The industrial health of a society depends on the level of entrepreneurshipexisting in it. A country might remain backward not because of lack of naturalresources or dearth of capital [as it is many times believed] but because of lack ofentrepreneurial talents or it inability to tap the latent entrepreneurial talentsexisting in that society. Entrepreneurs historically have altered the direction ofnational economies, industry or markets- Japan, Singapore, Korea, Taiwan toname a few.1.4.1 ENTREPRENEURSHIP AND ECONOMICDEVELOPMENTEntrepreneurship is basically concerned with creating wealth through productionof goods and services. This results in a process of upward change whereby thereal per capita income of a country rises overtime or in other words economicdevelopment takes place. Thus entrepreneurial development is the key toeconomic development. In fact it is one of the most critical inputs in the economicdevelopment of a region. It speeds up the process of activating factors ofproduction leading to a higher rate of economic growth, dispersal of economicactivities and development of backward regions. If a region is unable to throw upa sufficient number of entrepreneurs then alien entrepreneurs usually step in toprovide goods and services needed by the people. However the profits earned bythese entrepreneurs are usually not ploughed back but repatriated to their place oforigin. As a result development in that region cannot take place. Dr. M.M.9

Akhori refers to this practice as ‘The Leech Effect’. The above reiterates theimportance of entrepreneurship development for fuelling economic growth of aregion.Entrepreneurship begets and also injects entrepreneurship by starting a chainreaction when the entrepreneur continuously tries to improve the quality ofexisting goods and services and add new ones. E.g. when computers came into themarket there was continuous improvement in the models, their functions etc. likefirst generation computers, personal computers, laptops, palmtops etc. Not onlyhad this fostered the development of the software industry, computer educationinstitutes, computer maintenance and stationery units etc. but also other industrieslike banking, railways, education, travel, films, medical and legal transcriptions,business process outsourcing [BPOs] etc. In this manner by harnessing theentrepreneurial talent a society comes out of traditional lethargy to modernindustrial culture. India needs entrepreneurs to capitalize on new opportunitiesand to create wealth and new jobs.1.4.2 ENTREPRENEURSHIP AND EDUCATIONTowards the end of the sixties, two significant contributions were made in thefield of entrepreneurship .One was that there is a positive linkage betweenentrepreneurship and economic development and the other was regarding theemergence of a strong hypothesis that entrepreneurship can be developed throughplanned efforts1. Consequently planners realized that absence of a strongentrepreneurial base acts as a serious handicap in the industrial development of aregion. The identification and development of first generation entrepreneurs

through Entrepreneurial Development Programmes is an important strategy.There is a growing realization that presence of resources and favourablegovernment policies cannot automatically manufacture economic development. Itis the entrepreneurial spirit of the people, which can transform the economy ofthat region. Both the quantity and quality of entrepreneurs are of utmostsignificance for achieving the goal of economic development. The myth thatentrepreneurs are born with some innate traits is fortunately no longer held. Youwill learn more about this in the lesson on motivation. Many research studies havebrought out that entrepreneurship can be taught and learned. Entrepreneurship is adiscipline and like all disciplines it has models, processes and case studies, whichcan help an individual to study this subject. The necessary competencies requiredof a successful entrepreneur can be acquired through training and development.Numerous courses in entrepreneurship are being taught all over the world inschools and colleges, seminars and conferences are being organized and EDPs are being conducted. The thinking today is why just create managers why not createpeople who can absorb managers. One can acquire the traits and learn the skillsfor becoming an entrepreneur e.g. a person can learn to be achievement oriented,self- confident, perseverant etc. which are all part of the characteristics of asuccessful entrepreneur.Usually the model used for entrepreneurial education has three phases:Stimulatory Phase- This phase involves planned publicity for opportunities,motivation training and help and guidance in selection of product or service.Support Phase- This provides help in registration of units, arrangement offinance as well as land, sheds, power, water, common facility centres etc. Help isalso provided in marketing of products.Sustenance Phase- Once the enterprise is set up then help is provided formodernization, diversification, additional finance etc.

FUNCTIONS OF AN ENTREPRENEURAn entrepreneur frequently has to wear many hats. He has to perceiveopportunity, plan, organize resources, and oversee production, marketing, andliaison with officials. Most importantly he has to innovate and bear risk. The mainfunctions of an entrepreneur are as follows:1. Innovation: Innovation is one of the most important functions of anentrepreneur according to Schumpeter. An entrepreneur uses information,knowledge and intuition to come up with new products, new methods ofreducing costs of a product, improvement in design or function of a product,discovering new markets or new ways of organization of industry. Throughinnovation, an entrepreneur converts a material into a resource or combinesexisting resources into new and more productive configurations. It is thecreativity of an entrepreneur that results in invention [creation of newknowledge] and innovation [application of knowledge to create new products,services or processes.]Systematic innovation means monitoring the following for innovativeopportunity:11i. The unexpected success or failure or any unexpected outside event,(e.g. when the IT bubble burst the ITES sector started growing.)ii. Innovation based on process need [e.g. plate based cameras, film based

cameras, digital cameras]iii. Changes in industry and market structure [e.g. video cassette VCD,DVD, Blue ray disc]iv. Demographics changes (e.g. increasing number of working women andnuclear families in most metropolitan cities)v. New knowledge (e.g. Pentium chip)2. Risk and uncertainty bearing: According to Hozelist an entrepreneurperforms the function of risk and uncertainty bearing. Every decisionpertaining to development of new products, adapting new technologies,opening up new markets involves risk. Decision-making in an environment ofuncertainty requires anticipation of risk. Profit is said to be the reward foranticipating and taking such risks. However it is pertinent to mention that theentrepreneur is not a gambler, he only takes calculated risks. An entrepreneurdevelops the art of decision-making under conditions of uncertainty as amatter of survival.3. Organization building: An entrepreneur has to organize men, material andother resources. He has to perform the functions of planning, co-ordinationand control. He has to use his leadership qualities to build a team, generateresources and solve problems. With his organizational skills an entrepreneurbuilds an enterprise from scratch, nurtures it and makes it grow. His visionsows the seeds for a sound and vibrant organization and synergies are built inthe enterprise.According to Kilby in a developing country even the imitator entrepreneurs arevery important and the entrepreneurial role encompasses the following:i. Perception of market opportunitiesii. Gaining command over scarce resourcesiii. Purchasing inputsiv. Marketing the productsv. Dealing with bureaucratsvi. Managing human relations within the firmvii. Managing customer and supplier relations

viii. Managing financeix. Managing productionx. Acquiring and overseeing assembly of the factoryxi. Industrial engineeringxii. Upgrading process and productxiii. Introducing new production techniques and products

ENTREPRENEUR vs. MANAGERRELATIONSHIPAre all small entrepreneurs managers? Are all small business managersentrepreneurs? The terms entrepreneur and manager are many times usedinterchangeably yet they are different. An entrepreneur starts a venture then amanager takes over to organize and co-ordinate continuous production. Anentrepreneur is being enterprising as long as he starts something new then theroutine day-to-day management of the business is passed on to the manager. Themain differences between the two are summed up below:

Entrepreneur An entrepreneur is involved with thestart-up processAn entrepreneur assumes financial,material and psychological risksAn entrepreneur is driven by perceptionof opportunityAn entrepreneur initiates changeAn entrepreneur is his own bossAn entrepreneur gets uncertain rewards

ManagerA manager with running the businessover a long period of timeA manager does not have to bear risksA manager by the resources hecurrently possessesA manager follows rules & proceduresA manager is a hired employeeA manager gets fixed rewards andsalary

Differences between Entrepreneur and ManagerPeter Drucker claims that the process of entrepreneurship is directing the use ofresources to progressive activities rather than for “administrative efficiencies”.This really clarifies the role of an entrepreneur from that of a manager. Pleasenote that in most small businesses the entrepreneur who starts the venture also has to perform the role of a manager in nurturing it and making it grow and managersfrequently have to think of new ways to capture markets, face competition etc