What is defined as the process of creating a new enterprise and taking on the financial risks in the hopes of making a profit?

Table of Contents:

1. Understanding the Meaning an Entrepreneur

2. Entrepreneurship – Meaning, Nature & Concept

3. Functions of Entrepreneurship

4. Entrepreneurship in Indian Society

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1. Understanding the Meaning an Entrepreneur

Before the concept of entrepreneurship is explored, it is important to, first, understand the meaning of ‘entrepreneur’ & also know who can be an entrepreneur. An entrepreneur is someone who exercises initiative by organizing a venture to take benefit of an opportunity and, as the decision maker, decides what, how, and how much of a good or service will be produced. An entrepreneur supplies risk capital as a risk taker, and monitors and controls the business activities. The entrepreneur is usually a sole proprietor, a partner, or the one who owns the majority of shares in an incorporated venture. If one desires to be an entrepreneur, the given equation is what describes, what an entrepreneur actually is

Entrepreneur + Capital = Products + Customers = Business.

1.1 Definitions

Let us now consider some definitions to understand who an entrepreneur is:

(i) According to Oxford Dictionary an entrepreneur is “A person who sets up a business or businesses, taking on financial risks in the hope of profit”.

(ii) According to the International Encyclopaedia, an entrepreneur is “An individual who bears the risk of operating a business in the face of uncertainty about the future conditions”.

(iii) Schumpeter’s Definition – The entrepreneur, in an advanced economy is an individual who introduces something new in the economy – a method of production not yet tested by experience in the branch of manufacturing, a product with which consumers are not yet familiar, a new source of raw material or of new markets and the like”.

(iv) Adam Smith’s definition – “The entrepreneur is an individual, who forms an organization for commercial purpose. She/he is proprietary capitalist, a supplier of capital and at the same time a manager who intervenes between the labour and the consumer. “Entrepreneur is an employer, master, merchant but explicitly considered as a capitalist”.

(v) Peter F. Drucker’s Views on Entrepreneur – “An entrepreneur is the one who always searches for change, responds to it and exploits it as an opportunity. Innovation is the specific tool of entrepreneurs, the means by which they exploit changes as an opportunity for a different business or different service”.

(vi) In the 20th century the theorist Arthur H. Cole defined an entrepreneur as an ‘organization builder’.

1.2 History of the term ‘Entrepreneur’

The term entrepreneur is a French word, and is derived from the French word “enterprendre”. It means “to undertake”. It is commonly used to describe an individual who organizes and operates a business or businesses, taking on financial risk to do so.

Around 1700 A.D. the term was used for architects and contractor of public works. In many countries, the term entrepreneur is often associated with a person who starts his/her own new business.

1.3 Characteristics/Qualities of an Entrepreneur

Entrepreneurs have many of the same character traits as leaders, similar to the Great Man Theory of Leadership. Entrepreneurs possess several qualities, which according to Napoleon are 90 attributes. Some of those have been listed below.

*IQ- Intelligence Quotient, EQ -Emotional Quotient, SQ – Spiritual Quotient

An entrepreneur must possess a combination of all the three, in order to be successful.

However, there are some negative characteristics as well, some of which have also been listed below :

If you identify some of or all of these traits in your SWOT analysis, consider yourself to be an entrepreneur in making

1.4 Types of Entrepreneurs

Depending upon the level of willingness to create innovative ideas, there can be the following types of entrepreneurs:

(i) Innovative Entrepreneurs – These entrepreneurs have the ability to think newer, better and more economical ideas of business organisation and management. They are the business leaders and contributors to the economic development of a country. Inventions like the introduction of a small car ‘Nano’ by Ratan Tata, organised retailing by Kishore Biyani, making mobile phones available to the common man by Anil Ambani are the works of innovative entrepreneurs.

(ii) Imitating Entrepreneurs – These entrepreneurs are people who follow the path shown by innovative entrepreneurs. They imitate innovative entrepreneurs because the environment in which they operate is such that it does not permit them to have creative and innovative ideas on their own. In our country also, a large number of such entrepreneurs are found in every field of business activity. Development of small shopping complexes is the work of imitating entrepreneurs. All the small car manufacturers now are the imitating entrepreneurs.

(iii) Fabian Entrepreneurs – Fabian entrepreneurs are those individuals who do not show initiative in visualising and implementing new ideas and innovations. On the contrary, they like to wait for some development, which would motivate them to initiate unless there is an imminent threat to their very existence.

Meaning of ‘Fabian’- He/she is ‘a person seeking victory by delay rather than by a decisive battle’ & ‘Drone’ is ‘a person who lives on the labour of others’

(iv) Drone Entrepreneurs – Drone entrepreneurs are those individuals who are satisfied with the existing mode and speed of business activity and show no inclination in gaining market leadership. In other words, drone entrepreneurs are ‘die-hard conservatives’ and even ready to suffer the loss of business.

(v) Social Entrepreneurs – Social entrepreneurs drive social innovation and transformation in various fields including education, health, human rights, workers’ rights, environment and enterprise development. Dr. Mohammed Yunus of Bangladesh who started Gramin Bank is a case of social entrepreneur.

(vi) Agricultural Entrepreneur – The entrepreneurs who undertake agricultural pursuits are called Agricultural Entrepreneurs. They cover a wide spectrum of agricultural activities like cultivation, marketing of agricultural produce, irrigation, mechanization and technology.

(vii) Trading Entrepreneur – As the name itself suggests, the trading entrepreneur undertakes the trading activities. He/she procures the finished products from the manufacturers and sells these to the customers directly or through a retailer. These serve as the middlemen as wholesalers, dealers, and retailers between the manufacturers and customers.

(viii) Manufacturing Entrepreneur – The manufacturing entrepreneurs manufacture products. They identify the needs of the customers and, then, explore the resources and technology to be used to manufacture the products to satisfy the customers’ needs.

(ix) Women Entrepreneurs – Women entrepreneurship is defined as the enterprises owned and controlled by a woman/women having a minimum financial stake of 51 per cent of the capital and giving at least 51 per cent of employment generated in the enterprises to women.

(x) Inventors & Challenger Entrepreneurs – Inventor entrepreneurs with their competence and inventiveness invent new products. Their basic interest lies in research and innovative activities & Challenger entrepreneurs plunge into industry because of the challenges it presents. When one challenge seems to be met, they begin to look for new challenges.

(xi) Life-Timer Entrepreneurs – These entrepreneurs take business as an integral part to their life. Usually, the family enterprise and businesses which mainly depend on exercise of personal skill fall in this type/category of entrepreneurs.

2. Entrepreneurship – Meaning, Nature & Concept

After learning about the Entrepreneurs, in depth. Let us now understand the meaning of entrepreneurship. Entrepreneurship is the dynamic process of creating incremental wealth. This wealth is created by individuals who assume the major risks in terms of equity, time, and/or career commitment of providing value for some product or service. The product or service itself may or may not be new or unique but value must somehow be infused by the entrepreneur by securing and allocating the necessary skills and resources. Also, it was generally recognized that entrepreneurs serve as agents of change, provide creative, innovative ideas for business enterprises and help businesses grow and become profitable. Whatever the specific activity they engage in, entrepreneurs in the twenty-first century are considered the heroes of free enterprise. Many of them have used innovation and creativity to build huge enterprises. Entrepreneurship is now regarded as “Pioneer ship” of business. The history of the early industrial development and trade and subsequent innovation in any country is largely the history of its entrepreneurs. It describes people with the pioneering spirit, intuitive and inspiration and a willingness to work hard and take risks. They are the energetic self-starters who make it their mission to meet business challenges, independently and are restless in working for someone else, for a salary.

In a nutshell, concept of entrepreneurship can be understood as under:

(i) Entrepreneurship involves decision making, innovation, implementation, forecasting of the future, independency, and success.

(ii) Entrepreneurship is a discipline with a knowledge base theory and is an outcome of complex socio-economic, psychological, technological, legal and other factors.

(iii) It is a dynamic and risky process.

(iv) It involves a fusion of capital, technology and human talent.

(v) Entrepreneurship is equally applicable to big and small businesses, to economic and non-economic activities.

(vi) Different entrepreneurs might have some common traits but all of them will have some different and unique qualities.

(vii) Entrepreneurship is a process. It is not a combination of some stray incidents.

(viii) It is the purposeful and organized search for change, conducted after systematic analysis of opportunities in the environment.

(ix) Entrepreneurship is a philosophy and is the way one thinks, one acts and therefore it can exist in any situation, be it business or government or in the field of education, science & technology.

(x) Entrepreneurship is a creative activity.

(xi) It is the ability to create and build something from practically nothing.

(xii) It is a knack of sensing opportunity where others see chaos and confusion.

(xiii) Entrepreneurship is the attitude of mind to seek opportunities, take calculated risks and derive benefits by setting up a venture.

(xiv) It is made up of activities to conceive, create and run an enterprise.

(xv) Entrepreneurship is a dynamic process of vision, change and creation.

To sum up, “Entrepreneurship is a dynamic process of vision, change and creation. It requires an application of energy and passion towards the creation and implementation of new ideas and creative solutions. Essential ingredients include the willingness to take calculated risks-in terms of time, equity, or career, ability to formulate an effective venture team, creative skill to organize needed resources, the fundamental skill of building a solid business plan and, above all, the vision to recognize opportunity where others see chaos, contradiction, and confusion.’’

2.1 History of Entrepreneurship

The term “entrepreneurship” can be traced back to as early as the Middle Ages, when the “entrepreneur” was simply someone who carried out tasks, such as buildings and construction projects by applying all the resources at his disposal. However, it was during the 16th century when “business” was used as a common term, and the “entrepreneur’’ came into focus, as a person, who is responsible for undertaking a business venture.

Entrepreneurship as a term can be traced back to the economists of the eighteenth century, and it continued to attract the interest of economists in the nineteenth century. In the twentieth century, the word became synonymous with free enterprise and capitalism.

During the 20th century, within the last two decades, the concept of entrepreneurship has evolved from being a single individual to an entire organization or a corporation.

2.2 Definitions of Entrepreneurship

(i) According to Peter F. Drucker “Entrepreneurship is defined as a systematic innovation, which consists in the purposeful and organized search for changes, and it is the systematic analysis of the opportunities such changes might offer for economic and social innovation”.

(ii) According to Ricardo Cantillon “Entrepreneurship entails bearing the risk of buying at a certain price and selling at uncertain prices.”

(iii) In the words of Joseph A. Schumpeter “Entrepreneurship is any kind of innovative function that could have a bearing on the welfare of an entrepreneur.”

(iv) According to Robert K. Lamb “Entrepreneurship is that form of social decision making performed by economic innovators.”

(v) As per A.H.Cole “Entrepreneurship is the purposeful activity of an individual or a group of associated individuals, undertaken to initiate, maintain or aggrandize profit by production or distribution of economic goods and services.”

(vi) The concept of Entrepreneurship has also been defined as “a special skill or ability to mobilize the factors of production – Land, labour & capital and use them to produce new goods and services”.

(vii) Entrepreneurship can also be described as a process of action, which an entrepreneur undertakes to establish his/her enterprise.

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3. Functions of Entrepreneurship

The various functions of entrepreneurship are Innovation and creativity, Risk taking and achievement and organization and management, Catalyst of Economic Development, Overcoming Resistance to Change and Research. These have been depicted, at a glance, with the help of the given Figure and are being discussed, in brief, below.

According to Bill Bernbach, co-founder of Doyle Dane Bernbach – “an idea can turn to dust or magic, depending on the talent that rubs against it’’.

(i) Innovation and Creativity – Innovation generally refers to changing processes or creating more effective processes, products and ideas. For businesses, this could mean implementing new ideas, creating dynamic products or improving your existing services. Creativity is defined as “the tendency to generate or recognize ideas, alternatives, or possibilities that may be useful in solving problems, communicating with others. Creativity and innovation have always been recognized as a sure path to success. Entrepreneurs think outside of the box and explore new areas for cost-effective business solutions.

(ii) Risk taking and Achievement – Entrepreneurship is a process in which the entrepreneur establishes new jobs and firms, new Creative and growing organization which is associated with risk, new opportunities and achievement. It results in introducing a new product or service to society. In general, entrepreneurs accept four types of risks namely Financial Risk, Job Risk, Social & Family Risk & Mental & Health Risk, which are as follows:

                 (a) Financial Risk – Most of entrepreneurs begin by using their own savings and personal effects and if they fail, they have the fear of losing it. They take risk of failure.

                 (b) Job Risk – Entrepreneurs, not only follow the ideas as working situations, but also consider the current risks of giving up the job & starting a venture. Several entrepreneurs have the history of having a good job, but gave it up, as they thought that they were not cut out for a job.

                 (c) Social and Family Risk – The beginning of entrepreneurial job needs a high energy which is time consuming. Because of these undertakings, he/she may confront some social and family damages like family and marital problems resulting on account of absence from home and not being able to give adequate time to family.

                 (d) Mental Health Risk – Perhaps the biggest risk that an entrepreneur takes it is, the risk of mental health. The risk of money, home, spouse, child, and friends could be adjusted but mental tensions, stress, anxiety and the other mental factors have many destructive influences because of the beginning and continuing of entrepreneurial activity. This can even lead to depression, when faced with failure.

(iii) Organization and Management – The entrepreneurial organization is a simple organizational form that includes, one large operational unit, with one or a few individuals in top management. Entrepreneurial management means the skills necessary to successfully develop and manage a business enterprise. A small business start-up under an owner-manager is an example of an entrepreneurial organization. Here, the owner-manager generally maintains strict control over business operations. This includes directing the enterprise’s core management functions. According to Mintzberg, these include the interpersonal roles, informational roles and decision-making roles. The smaller the organization, the more concentrated these roles are in the hands of the owner-manager. The entrepreneurial organization is generally unstructured.

(iv) Research – An entrepreneur is a practical dreamer and does a lot of ground-work before taking a leap in his/her ventures. In other words, an entrepreneur finalizes an idea only after considering a variety of options, analysing their strengths and weaknesses by applying analytical techniques, testing their applicability, supplementing them with empirical findings, and then choosing the best alternative. It is then that he/she applies the ideas in practice. The selection of an idea, thus, involves the application of research methodology.

(v) Overcoming Resistance to Change – New innovations are generally opposed by people because it makes them change their existing behaviour patterns. An entrepreneur always first tries new ideas at his/her level. It is only after the successful implementation of these ideas that an entrepreneur makes these ideas available to others for their benefit. His/her will power, enthusiasm and energy help him/her in overcoming the society’s resistance to change.

(vi) Catalyst of Economic Development – An entrepreneur plays an important role in accelerating the pace of economic development of a country, by discovering new uses of available resources and maximizing their utilization. Today, when India is a fast developing economy, the contribution of entrepreneurs has increased multi-fold.

3.1 Process/Steps involved in Entrepreneurship

Entrepreneurship is the act and art of being an entrepreneur or one who undertakes innovations or introducing new things, finance and business acumen in an effort to transform innovations into economic goods. The most obvious form of entrepreneurship is that of starting new businesses. In more recent times, the term entrepreneurship has been extended to include elements not necessarily related to business formation activity, but it also includes specific forms of social entrepreneurship, political entrepreneurship, or knowledge entrepreneurship.

Following are the steps involved in the entrepreneurial process. This entrepreneurial process is to be followed, again and again, whenever any new venture is taken up by an entrepreneur, therefore, it is an ever ending process.

(i) Search for a new Idea – An entrepreneurial process begins with the idea generation, wherein the entrepreneur identifies and evaluates the business opportunities before him/her.

(ii) Preliminary assessment of Idea – The identification and the evaluation of opportunities is a difficult task, therefore, an entrepreneur seeks inputs from all the persons including employees, consumers, channel partners, technical people, etc. to reach to an optimum business opportunity. Once the opportunity is decided, the next step is to evaluate it.

(iii) Detailed analysis of promising Idea – An entrepreneur can evaluate the efficiency of an opportunity by continuously asking certain questions such as, whether the opportunity is worthy of investing, its attractiveness, proposed solutions feasibility, chances of competitive advantage & various risks associated with it etc. Above all, an entrepreneur must analyse his/her personal skills & capabilities to ensure realisation of entrepreneurial Goals.

(iv) Selection of the most promising Idea – Once the analysis is done at both macro & micro level, then the entrepreneur selects the best possible option amongst the chosen few, on the basis of the key factors identified by him/her before idea generation.

(v) Assembling the Resource and Personnel – The next step in the process is resourcing, wherein, the entrepreneur identifies the sources from where the finance and the human resource can be arranged. Here, the entrepreneur finds the investors for its new venture and the personnel to carry out the business activities.

(vi) Determining size of unit – On the basis of the ability to manage resources, the entrepreneur determines the initial size of the business and the possibilities of expansion.

(vii) Deciding location of Business & Planning Layout – This is a significant decision. Entrepreneur should ideally decide the location where there are Tax holidays & cheap labour & material are available in abundance.

(viii) Sound Financial Planning – Once the funds are raised and the employees are hired, business location and layout have been finalised, then efforts are made to do sound financial planning with the available financial resource in order to put it to optimum use.

(ix) Launching the Enterprise – Launching the enterprise by an entrepreneur can be a daunting adventure as the entrepreneur needs to stay focused and should always be open to suggestions. If he/she is mission-driven entrepreneur, it must be remembered that building a truly great company is a marathon, not a sprint.

(x) Managing the Company – Once the funds are raised and the employees are hired, the next step is to initiate the business operations to achieve the set goals. First of all, an entrepreneur must decide the management structure or the hierarchy, which is required to solve the operational problems, as and when they arise.

(xi) Harvesting – The final step in the entrepreneurial process is harvesting, wherein, an entrepreneur decides on the future prospects of the business, such as its growth and development. Here, the actual growth is compared against the planned growth and then the decision regarding the stability or the expansion of business operations are taken.

4. Entrepreneurship in Indian Society

In India, there is a peculiar Joint Family Structure, which has been a source of success of many Indian businesses. But that success has been possible due to economic liberalization in India. That success will continue, only if the reforms continue and if the risks that could derail the growth due to terrorism, political corruption, stalled reforms and growth that focuses only on the urban rich, are tackled well by the Government.

(i) The pre 1990 period – For the old business houses, success had come from the close-knit joint family structure that fosters family values, teamwork, tenacity and continuity. Under this structure, generations lived and worked together under one roof. Wealth from the businesses supported the joint family by providing a social safety net for members. In the structure, businesses and families were intertwined though they were also distinct entities with separate rules. Hence, survival of the family became synonymous with the survival of the business. Prior to the decade of 90s, Indian business success was a function of ambition, licenses, government contacts, and an understanding of the bureaucratic system. Decisions were based on connections, rather than the market or competition. During this era, entrepreneurship was subdued, capital was limited and India had very few success stories.

(ii) The post 1990 period – In 1991, the Indian government liberalized the economy, thus changing the competitive landscape. Family businesses, which dominated Indian markets, then faced competition from multinationals, which boasted of superior technology, financial strength and deeper managerial resources. Thus, Indian businesses had to change

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