Entrepreneurship is defined as the various functions performed by an entrepreneur in establishing, managing and growing an enterprise. Entrepreneurship can be in a for profit business sector, non-profit social sector, political arena or in public service.
Entrepreneurship is the marriage between profitability and growth. It is the recognition of opportunities (needs, wants, problems, and challenges) and the use of resources to implement innovative ideas for new, thoughtfully planned ventures.
Learn about: 1. Introduction to Entrepreneurship 2. Definitions 3. Characteristics 4. Types 5. Views of Specialists 6. Elements 7. Factors Affecting 8. Importance 9. Myths 10. Theories 11. Role of Advisor 12. Benefits 13. Problems or Barriers.
What is Entrepreneurship: Introduction, Definitions, Importance, Theories, Characteristics, Benefits, Problems and Factors
What is Entrepreneurship – Introduction to Entrepreneurship
Introduction to Entrepreneurship:
Entrepreneurship is defined as the various functions performed by an entrepreneur in establishing, managing and growing an enterprise. Entrepreneurship can be in a for profit business sector, non-profit social sector, political arena or in public service.
Entrepreneurship can be seen as an act that involves:
i. The enhancement of value
ii. Application of resources
iii. Innovation underpinning the starting up of a business
iv. Intelligent risk taking for seeking gains
v. Wealth Creation and so on.
It was always considered that entrepreneurs are born and not made. People only look at top class, legendary entrepreneurs such as Steve Jobs, Dhirubhai Ambani or Narayan Murthy as examples of entrepreneurs. However research has shown entrepreneurship can also be practiced successfully by common man as an alternative career option.
It is important to understand the evolution of the Indian entrepreneurial ecosystem over a period of time.
India’s Trials over Centuries:
Over the centuries, India has witnessed numerous changes— politically, socially and culturally. In early times, our country was the cradle of civilization making good economic progress. Even as early as 2000 B.C., shipping routes were established. Textile printing was in vogue as early as 3000 B.C. The society was structured on the basis of trade and professions, and one segment of the society was engaged in commerce.
Due to this flourishing economic situation, India was eyed with envy by invaders such as the Turks, the Huns, the Mongols and Mughals even in the medieval times. Trading in spices, woollen shawls, muslin, etc., resulted in the growth of wealth within the country triggering foreign invasions.
The 17th century India witnessed the colonization by the British East India Company. After the British stepped in, healthy economic activities began to decline. The aim of the British was to curtail economic activities and channelize them so as to benefit the Crown. Trade with Britain alone was encouraged; trade with other countries was stifled.
The handicrafts industry which earlier flourished in India, was given a severe blow by the advent of products of mechanization- woven textiles. One may say that the only significant favourable development of the British occupation was that the seeds for a proper infrastructure and administration were sown.
The Mindset in Post-Independence India:
Post-independent India was not favourable for entrepreneurship. The country had lost its self-confidence under the suppressive rule of the British. To strengthen the economy, the statesmen paid greater emphasis on state control of enterprises.
An approach of governing a national state seemed much better than encouraging free entrepreneurial spirit.
Risk-taking was not encouraged or supported. The focus was on stability. The entrepreneurial quotient was very low during these years.
Impact of Liberalization:
India continued to stagnate in terms of economic development for about four decades following Independence. Some business and industry leaders such as the Tatas and Birlas did make a mark during the early years after Independence, later to be followed by the likes of Dhirubhai Ambani, Rahul Bajaj, etc. However, till the year 1991, creation of enterprises was in the hands of few influential and wealthy individuals. The common man could not dream of starting his own enterprise, so discouraging was the external environment!
The policy of liberalization adopted by the Indian government post 1991 changed the entire business and commerce landscape. It gave birth to a host of first-generation entrepreneurs. The flood-gates of opportunity were opened to every Indian who had a dream and passion.
On the landscape of Indian businesses, there was another welcome feature. Companies grew rapidly much to the astonishment of Indians and overseas observers alike! The success stories of a number of entrepreneurs became inspirational tools for future generations.
Information Technology Revolution:
One could say that the giant status of India on the world stage today is due to the efforts made by innumerable businesses in the information technology domain. Knowledge industry in India has taken big strides, and this industry has helped the country reach heights that no other industry has. India today stands tall as far as leadership in this domain is concerned.
Individuals who founded companies such as Infosys created immense wealth not only for themselves but also for the community in terms of creating jobs for thousands. There was one thing to note- the privilege of creating large enterprises was restricted to not only the influential, moneyed members of society. Anyone with a strong entrepreneurial spirit could script a success story.
The Phoenix-Like Avatar:
India has risen like the proverbial Phoenix- the country has made an iconic come-back, not only because of its size or wealth but also because of its tremendous human capital, its people who dare to be different from the run-of-the-mill.
A study by McKinsey with a projection for the year 2025 indicates that India’s middle class will grow to a size of 583 million in that year with incomes eleven times that of what it was in 2007.
The environment in India today is very promising for entrepreneurship. At both the governmental and nongovernmental levels, there are tremendous efforts to encourage the creation of entrepreneurs. Also, groups that can influence entrepreneurship, such as parents of individuals, educators and industry associations, to name a few, have fully realized the need to encourage entrepreneurial traits and practices. These groups are giving the entrepreneurial initiative a new meaning.
Today, it is common to come across engineering graduates from premier institutions preferring to be entrepreneurs rather than employees of large organizations. On the other hand, there are also a number of uneducated young men creating a silent revolution in the field of entrepreneurship actively supported by governmental and non-governmental bodies.
Even within large enterprises, there is the emergence of the corporate entrepreneur or ‘intrapreneur’, an individual working for a salary within the confines, of an enterprise, who is given the mandate to think entrepreneurially and come up with an innovative business design or model that will help sustain the growth of the enterprise.
What is Entrepreneurship – Definitions
Entrepreneurship is the marriage between profitability and growth. It is the recognition of opportunities (needs, wants, problems, and challenges) and the use of resources to implement innovative ideas for new, thoughtfully planned ventures.
Following are the few definitions of entrepreneurship:
Entrepreneurship involves bringing about change to achieve some benefit. This benefit may be financial but it also involves the satisfaction of knowing you have changed something for the better. — Lily Kretchman et. al, Toronto
Entrepreneurship is essentially the act of creation requiring the ability to recognize an opportunity, shape a goal, and take advantage of a situation. Entrepreneurs plan, persuade, raise resources, and give birth to new ventures. –Richard Bodell et. al., Toronto
Entrepreneurs innovate. Innovation is the specific instrument of entrepreneurship. It is the act that endows resources with a new capacity to create wealth. Innovation, indeed, creates a resource. -Drucker, 1985
What is Entrepreneurship – Top 8 Characteristics
The main characteristics of entrepreneurship are given below:
1. Economic Activity – Entrepreneurship is primarily an economic function because it involves the creation and operation of an enterprise. It is basically concerned with the production and distribution of goods and services. However, social entrepreneurship is equally important.
2. Creative Activity – Entrepreneurship is a creative response to changes in the environment. It involves innovation or introduction of something new or different and better. An entrepreneur is a change agent, and a creator of value.
3. Purposeful Activity – The entrepreneur who creates and operates an enterprise seeks to earn profits through satisfaction of needs of customers. Therefore, entrepreneurship is a goal- oriented activity.
4. A Function of Risk bearing – Risk is an inherent and inseparable element of entrepreneurship. An entrepreneur guarantees rent to the landlord, wages to employees, and interest to investors in the hope of earning more than the expenses. He assumes the uncertainty of future. In the pursuit of profits there is every possibility of loss.
5. An Organising Function – An entrepreneur brings together various factors of production. He coordinates and controls the efforts of all the persons engaged in his enterprise. He harnesses land, labour, capital and other resources for the benefit of mankind. Therefore, an entrepreneur is an organisation builder.
6. Gap Filling Function – The gap between human needs and the available products and services gives rise to entrepreneurship. An entrepreneur identifies this gap and takes necessary steps to fill the gap. He introduces new products and services, new methods of production or distribution, new sources of inputs and new markets for this purpose.
7. Dynamic Process – Entrepreneurship is a dynamic function. Entrepreneurs thrive on changes in the environment which bring useful opportunities for business. Flexibility is the hallmark of a successful entrepreneur.
8. Innovative Function – Entrepreneurship is an innovative function as it involves doing things in a new and better way. Innovation may take several forms, e.g., a new product, a new source of raw material, a new market, a new method of production, not yet applied in a particular branch of manufacturing, etc.
Thus, entrepreneurship is a multi-dimensional concept. It is both an art as well as a science. But it is more an art than science. There are very few ground rules or principles that can be used to create and run business enterprises in a fast changing and heterogeneous environment. Entrepreneurship is a behavioural characteristic rather than a personal trait.
What is Entrepreneurship – 7 Types
Entrepreneurship has dimensional nature and their types are as follows:
Type # A. On the Basis of Capital Ownership:
1. Private Entrepreneurship.
2. State/Public Entrepreneurship.
3. Joint Entrepreneurship.
4. Cooperative Entrepreneurship.
1. Private Entrepreneurship:
It is started by a person and he is the single risk bearer such as a sole proprietor.
The following features of private entrepreneurship are as follows:
(i) It is started with limited capital.
(ii) All responsibilities regarding loss or profit is borne by the owner.
(iii) A person who is a single decision maker, programmer and strategy maker.
(iv) Individual profit earning tendency.
2. Public Entrepreneurship:
When Govt. starts any venture for public welfare all decisions, planning, programmes, policies & risk borne by the govt. is termed as public entrepreneurship.
The following features of public entrepreneurship are as follows:
(a) All policies are made by government.
(b) All decisions are taken by government.
(c) Large size of capital and large production.
(d) Advanced technology is used by public sector in venture.
(e) More emphasis on public welfare.
(f) Uninterrupted supply of goods/services to consumer at reasonable price.
3. Joint Entrepreneurship:
It is the combination of private and govt. ownership. It is started by private and govt. sector jointly including monetary investments also.
The following features of joint entrepreneurship are as follows:
(a) Govt. is more effective in comparison to private sector.
(b) The main motive is to control centralisation.
(c) Encouragement to new entrepreneurs.
(d) Industrial development is helpful in achieving the goals of industrialisation.
4. Co-Operative Entrepreneurship:
It is started by two or more than two persons and they bear all risk and follow govt. rules and regulations. For example – Dairy federation- Amul, Parag Dairy, Handloom Sector, Rationing Shop, Textile, etc.
Type # B. On the Basis of Attitude towards Changes & Development:
1. Traditional entrepreneurship
2. Modern entrepreneurship
1. Traditional Entrepreneurship:
When the change in venture is very slow, production system is traditional, less (emphasis) attention towards research work is known as traditional or evolutionary entrepreneurship.
The following features of traditional entrepreneurship are as follows:
(a) Small production system
(b) Less capital
(c) Less risk
(d) Lack of innovation and start up new venture.
2. Modern Entrepreneurship:
When the new techniques and advanced technology is used in venture and entrepreneur takes more risk it is known as modern or evolutionary entrepreneurship.
The following features of modern entrepreneurship are as follows:
(a) More attention towards innovation.
(b) Business expansion.
(c) Emphasis on Industrialisation.
(d) Large size of capital and investment.
(e) Advanced technology and new techniques.
(f) More production and more risk.
(g) Attention towards research & survey programmes.
Type # C. On the Basis of Centralisation:
1. Centralised Entrepreneurship
2. Decentralised Entrepreneurship.
1. Centralised Entrepreneurship:
When the maximum industries or the ventures are established in a specific area due to some specific facilities such as electricity supply, water supply, easily availability of raw material, market and banking facilities, is called centralized entrepreneurship.
The following features of centralised entrepreneurship are as follows:
(b) Lack of Decentralisation
(c) Limited at specific area.
2. Decentralised Entrepreneurship:
This type of entrepreneurship is situated in different places & areas. The main motive behind their establishment is to develop the backward areas, generation of employment, reducing inequalities of income & wealth.
1. Large Entrepreneurship
2. Small Entrepreneurship.
1. Large Entrepreneurship – When capital is invested in venture or business in large scale, production volume is large, plants & machinery are more utilized, production system is very critical and direction, controlling & management functions are done by a professionalist. E.g., Chemical industries, cement industry, steel & iron industries and all medium and heavy sized industries.
2. Small Entrepreneurship – The size of venture is very small; small capital invested; less labour/man power; simple production system and direction, operation management function, policy making, controlling are done by an individual. E.g., Handlooms, small and cottage industries.
Type # E. On the Basis of Entrepreneurial Function:
1. Routine Entrepreneurship
2. New type Entrepreneurship
1. Routine Entrepreneurship – This type of entrepreneurship is related to managerial function of business. The main function of entrepreneur is to make sound planning, programme for smooth operation of venture and conducting business at minimum cost and risk for the success of the venture.
2. New Type Entrepreneurship – This type of entrepreneurship is related to innovation and creation. The main objective is to create innovative ideas, to search for new production system, new product, new techniques and technology, new market and various beneficial opportunities.
Type # F. On the Basis of Leadership:
1. Individual Entrepreneurship
2. Group level Entrepreneurship
1. Individual Entrepreneurship:
In this type of entrepreneurship, all matters of venture/business is looked after by an individual such as all the management function, direction function, controlling function, decision making function, production & distribution are taken by an entrepreneur and the respective person has the right of ownership and management and he provides leadership to entire venture. Individualistic entrepreneurship is only possible in context to small business.
2. Group Level Entrepreneurship:
Group level entrepreneurship is based on techno structure of society. It is a result of large production, labour division, mechanisation and complexity of business. Entrepreneur transfer or delegate their power and duty to some other person who is an expert in the respective field and they are not the owner of business, they are promoters.
In group level entrepreneurship, an entrepreneur divides any industry in various department for running a smooth business, e.g., selling section, management section, policy making section, production department, advertisement department, office section etc.
Type # G. On the Basis of Other Entrepreneurship:
1. Urban Entrepreneurship
2. Rural Entrepreneurship
3. Systematic Entrepreneurship
1. Urban Entrepreneurship – Those industries which are established in urban areas. The size of population is more, large production system, branded product available, skilled manpower, division of labour etc. all are the characteristics of urban entrepreneurship.
2. Rural Entrepreneurship – Those industries which are established in rural areas having less production and less investment. In it, production system is based on the traditional system.
Handicraft work, less population, lack of branded product are the characteristics of rural entrepreneurship.
3. Systematic Entrepreneurship – When an entrepreneur establishes industry in a systematic way, follows the rules and regulation or it is started by an entrepreneur with the help of certain rules, regulations and principles. The main motive behind systematic entrepreneurship is to search new market, new opportunities, new customers, techniques and technology.
What is Entrepreneurship – Valuable Views of Eminent Specialists
Valuable views on entrepreneurship have been provided by eminent specialists as theoretical supplements to entrepreneurship.
The views of these specialists/experts are as follows:
i. Walker on entrepreneurship
ii. Harbison on entrepreneurship
iii. Drucker on entrepreneurship
iv. Peter Kilby on entrepreneurship
i. Walker, entrepreneur is a person who organizes and coordinates the various agents of production. He points out that the true entrepreneur is one who is in possession of above average ability for organizing and coordinating the resources. But in a country, the supply of true entrepreneur is limited.
Entrepreneurs are endowed with different levels of organizational skill and coordinating capacity. Thus entrepreneurs with higher level of competency are more successful and effective in earning superior rewards in terms of profit in comparison to their counterparts.
ii. Harbison did not propound any theory of entrepreneurship but he has made very interesting observations relating to entrepreneurship as a factor of economic development. He viewed organization- building as the most critical skill needed for economic development as it facilitates the use of other innovations.
He laid emphasis on the individual’s organizational skill, creativity and ability to plan and initiate changes. He suggested that entrepreneurship should be treated as a resource which has both qualitative and quantitative dimensions.
Harbison categorized the functions of modern entrepreneurs in the following ways:
a. Under-taking and managing of risk and the handling of economic activity.
b. Planning and innovation.
c. Coordination, administration, time control.
d. Routine supervision.
In small enterprises, the above functions are performed by a single individual. But according to Harbison, all the persons who perform entrepreneurial function in a large organization are characterised as Managerial Resources.
He pointed out that the efficacy of business organization, depends upon the following factors:
a. Dynamic and innovative entrepreneurs.
b. Dynamic organization with creative thinkers who can plan and initiate changes.
Thus, the organization builder must be able “to harness the new ideas to select and develop persons who can properly manage enthusiasm in the accomplishment of objectives, multiply himself by efficiently delegating responsibilities.”
However, Harbison emphasized that organization is more than a summation of particular abilities of certain individuals. It is more than the statistical aggregate of managerial personnel. Organization connotes a constellation of functions in a common undertaking.
Keeping in view the organizational importance, Harbison stated a few tentative hypotheses on entrepreneurship and organisation.
The propositions are explained below:
a. Large expenditures for equipment and machinery are likely to be quite unproductive unless there is a corresponding investment in organization.
b. Organization is probably the principal factor determining the productivity of labour, assuming that capital and natural resources are constant.
c. “Because of non-economic factors (managerial, persons may be guided in their decision making by consideration other than profits such as power, social prestige, ability to help friends and relatives which the success brings) which determine in part the behaviour of human beings as managerial resources, all organizations are probably inefficient in effecting the optimum of combination of economic’ resources which is theoretically possible”.
All the same, the ability to build organization is perhaps the most precious of all entrepreneurial skills and thus, those who can achieve success in this very critical area, may be the ones who ‘most nearly fulfill the role of true entrepreneur.
iii. Peter F. Drucker opined that “an entrepreneur is one who always searches for change, responds to it and exploits it- as an opportunity.” He laid emphasis on two important factors-innovation and resource that led to emergence of entrepreneurship.
According to him innovation is the real hub of entrepreneurship which creates resource. A thing is regarded as resource when its economic value is recognized. For example, mineral oil was considered worthless until the discovery of its use. Similarly, purchasing power was considered an important resource by an American innovative entrepreneur who invented installment buying.
According to Drucker, successful entrepreneurship involves the following things:
a. Value and satisfaction obtained from resources by the consumer are increased.
b. New values are created.
d. Material is converted into a resource or existing resources are combined in a new or more productive configuration.
e. Entrepreneurship is the practice that has a knowledge base.
f. Entrepreneurship is not confined to big business and economic institutions, it is equally important to small business and non-economic institutions.
g. Entrepreneurship behaviour rather than personality trait is more important to enhance entrepreneurship.
h. The foundation of entrepreneurship lies in concept and theory rather than in intuition.
Thus, Drucker has given his views that an entrepreneur need not be a capitalist or an owner. A banker who mobilizes other’s money and allocates it in areas of higher yield is very much an entrepreneur though he is not the owner of the money.
iv. Peter Kilby is a famous author on entrepreneurship. In his book Entrepreneurship and Economic Development, he has attempted to study the entrepreneur in greater detail and gave a comprehensive list of activities critical to entrepreneurial success in -the context of an underdeveloped country.
1. Exchange Relationship:
a. Perception of market opportunities,
b. Obtaining control of scarce resources,
c. Purchasing inputs,
d. Marketing the product and responding to competition.
2. Political Administration:
a. Dealing with bureaucracies (concessions licenses, etc.),
b. Management of human relations within the firm,
c. Management of customer-supplier relationship management and control,
d. Financial management,
e. Production management (control by written- records, supervision, coordinating input flows with orders, maintenance).
a. Acquiring and overseeing assembly of the factory,
b. Industrial engineering (minimizing inputs with a given production process),
c. Upgrading product and product quality,
d. Introduction of new production techniques and products.
Peter Kilby proceeds to empirically assess the differential role performance of entrepreneurs on the basis of evidence from contemporary underdeveloped countries. He draws evidence from the studies made by himself, J.J. Bema, J.J. Carole, T.C. Cochran, J.R. Harris, GF. Papamek, A.P Alexander, ILO missions and others. The evidence led him to the following findings.
According to him – “Entrepreneurial performance in those roles involving exchange relationships and political administration is vigorous and effective. On the other hand, entrepreneurs typically do not apply themselves with equal intensity or skill to their task in the realms of management control and technology. Deficiencies in these latter areas represent, in many instances, the operational bottleneck to indigenous industrial development”.
What is Entrepreneurship – 5 Main Elements
Entrepreneurship primarily consists of five main elements:
1. Key part of entrepreneurship is to identify opportunities that no one has earlier noticed. Such opportunities need not be large; these can even be small ones. Creativity and innovation from the core of entrepreneurship that enables the entrepreneur to think entirely new ways of working. Creative people are receptive to new ideas generated by others.
2. The entrepreneurs have an ability to apply the creativity to business problems. They understand the people and environment around them. They can effectively material resources for the same. It is not enough to think creatively to think creatively, successful entrepreneurship demands that thoughts be translated into action and result. They need an ability of getting things done.
3. Entrepreneur always takes rise. Their main task is evaluating rise for cutting across accepted boundaries, breaking rules and doing things in a different manner.
4. Thus entrepreneur focus on creating value by doing things in a cheaper, better and faster manner.
5. They have a sound belief in their ability to change the status quo- the way the things are being done presently. With their drive and passion to achieve success they change the way things are being performed.
What is Entrepreneurship – 6 Factors: Social, Cultural, Facilitating, Psychological, Economic and Competitive Structure of Industries
The various factors that contribute to entrepreneurship are varied and many.
However, such factors can be broadly classified into the broad areas as listed below:
1. Social Factors:
Social factors strongly affect the entrepreneurial behaviour which contributes to entrepreneurial growth.
The social factors can be:
(a) Family background
(b) Social status
(d) Social mobility
(e) Social marginality
(a) Family Background:
Family background greatly affects the entrepreneurial environment and maintenance of social systems. Joint family or nuclear families have their own benefits and disadvantages. The environment of the family influences the entrepreneurship. If the father is a professional or a businessman, the son is more likely to adopt the same occupation because of certain inherent advantages by virtue of his father being in the similar line.
(b) Social Status:
Social status has its own role to play. Every human being aspires for high social status and once he achieves a reasonable level, his aspirations and desires for it start getting multiplies. Chester Barnard said that the desire for improvement of status and especially the desire to protect status appear to be the basis of a sense of general responsibilities. People work hard to maintain their status as is also contributes to their entrepreneurial growth.
Caste and religion of entrepreneur are the contributory factors of entrepreneurial growth. For example- Parsis of Maharashtra, Jains of Rajasthan and Gujarat have been the mainsprings of entrepreneurial activity.
(d) Social Mobility:
Social mobility involves the degree of social and geographical mobility and the nature of mobility channels within a system.
(e) Social Marginality:
Social marginality also positively influences entrepreneurship. Stauworth and Curran stress that a person belonging to a social group traditionally constrained to enter economic activity and barred from many other activities by the society is expected to choose the owner manage role in small industry.
2. Cultural Factors:
Max Weber emphasizes that cultural factors have a crippling effect on entrepreneurial growth.
Culture consists of:
(a) Tangible man-made objects like furniture, building etc.
(b) Intangible concepts like laws, morals, knowledge etc.
(c) Values and behaviour acceptable within the society.
America is a capitalist country, Russia followed a socialist pattern. Democracy has no touch in China, but Indian culture encourages democracy and accepts mixed economy.
3. Facilitating Factors:
There is lot of reluctance from the elders when an inexperienced young fellow declares his decision to become an entrepreneur. The elders are resistant to permit due to various reasons.
(a) Lack of experience.
(b) Difference between present occupation and prospective occupation.
(c) Uncertainty about the prospects of entrepreneur.
(d) Fear of losing money and esteem.
(e) Arrangement of finance.
(f) Fear of occupational and geographical mobility.
(g) Publicity of entrepreneurial failures.
(h) Sacrificing the lucrative job, if already in service.
(i) Under-estimation of capabilities and talents of the child.
(j) Fear of giving freedom.
(k) Fear of getting deceived in a new business.
(l) Lack of training.
4. Psychological Factors:
Theory of achievement motivation has been developed by Harvard Psychologist David, C. McClelland. Achievement motivation means a drive to overcome challenges. It is a personality characteristic which is major determinant of entrepreneurship development.
McClelland says that average level of achievement motivation existing in a society ensures a relatively high amount of entrepreneurship in the society. The trait of need for achievement is not born but it can be developed through various training programmes.
5. Economic Factors:
(a) Financial assistance from institutional sources
(b) Accommodation in industrial estate
(c) Attitude of the Government
(d) Encouragement from large business
(e) Machinery on hire-purchase
(f) Labour conditions
(g) Raw Materials
6. Competitive Structure of Industries:
Identification of forces affecting the competitive dynamics of an industry will be very useful in formulating strategies.
According to Michael Porter’s model of structural analysis of industries, the state of competition in an industry depends upon five basic competitive forces, viz.:
(a) Rivalry among Existing Competitors – Factors which influence the intensity of rivalry –
(i) No. of firms and their Relative market share, strengths.
(ii) State of growth of industry (slow etc.).
(iii) Storage cost.
(iv) Product standardisation.
(v) Exit barriers.
(vi) Diverse competitors.
(b) Threat of Entry—Entry barriers-
(i) Government Policy
(ii) Product differentiation (brand image, customer loyalty)
(iii) Monopoly Elements
(iv) Capital requirements
(c) Threat of Substitutes – Firms in same industries face competition from those marketing substitute Products.
(d) Bargaining Power of Buyers – Buyers are Potential competitors.
Important Determinants of Buyer Power-
(i) The volume of purchase
(ii) The important of the product to the buyer
(iii) Profitability of the buyer
(iv) Extent of buyer’s information
(e) Bargaining Power of Suppliers – Determinants-
(i) Extent of concentration/domination in the supplier industry.
(ii) Importance of the product to the buyer.
(iii) Importance of the buyer to the supplier.
(iv) Extent of substitutability of the product.
What is Entrepreneurship – Importance and Significance
The following points highlight the importance of entrepreneurship:
1. Achievement of Entrepreneurial Goals:
It is the entrepreneurship which makes the entrepreneurs realise the objectives of the enterprise and directs their efforts towards the achievement of these objectives. It brings the human and material resources together to mobilize the people for the achievement of the goals of the enterprise.
2. Optimum Use of Resources:
No entrepreneurial activity can be undertaken without the factors production i.e. land labour, capital and entrepreneurship. The three factors may prove ineffective in the absence of the fourth the entrepreneurship. The entrepreneurship which makes optimum utilisation of resources possible.
3. Minimisation of Cost:
In the present days of increasing competition, only those enterprises can survive which can produce quality goods at the lowest of costs. Through better planning, sound organisation and effective control, entrepreneur enables enterprise to reduce costs and enables an enterprise to face cut throat competition.
4. Increased Profits:
Profits can be increased in any enterprise either by increasing the sales revenue or reducing cost. To increase the sales revenue is beyond the control of an enterprise. Entrepreneurship by reducing costs increases its profit’s and provides opportunities for future growth and development.
5. Smooth Running of Enterprise:
Entrepreneurship ensures efficient and smooth running of enterprise through better planning, sound organisation, effective control and various tools of entrepreneurship.
6. Provides Innovation:
Entrepreneurship provides new ideas, imagination and visions to the enterprise.
7. Change of Growth:
An enterprise operates in an changing environment. Entrepreneur moulds the enterprise in such a changing environment. It moulds not only the enterprise but also alters the environment itself to ensure the success of the enterprise. In order to meet the challenge of automation and the complexities of advanced technology also there is a need for the development of entrepreneurship.
8. Social Benefits:
Entrepreneurship is beneficial not only to the business enterprises but to the society as a whole. It raises the standard of living of the people by providing good quality products and services at the lowest possible cost. It also makes the optimum use of scarce resources and promotes peace and prosperity in the society.
9. Employment Opportunities:
Entrepreneurship and its activities provide maximum employment potential. Large number of persons is employed in entrepreneurial activities in the country. The growth entrepreneurial activities bring more and more employment opportunities.
10. Life-Line of Nation:
No country can progress without the development of entrepreneurship. Every country is trying to promote its trade so that it is able to share the benefits of development. Therefore, entrepreneurship is the yardstick to measure the level of development of a country.
Entrepreneurs and entrepreneurship play a significant role in the socio-economic development of a nation. Entrepreneurs set up enterprises and generate employment for people in their enterprises. This helps in reducing unemployment, which is the main cause of all socio-economic problems as well as results in increasing the total income of a country.
Moreover, goods and services produced by entrepreneurs, after meeting the domestic demand, are exported to foreign countries to earn foreign exchange. In this way, entrepreneurs play a significant role in the country’s growth and prosperity in terms of production, employment generation, and export.
The significance of entrepreneurship is explained in the following points:
i. Raises productivity through technical and other forms of innovation
ii. Generates employment opportunities by establishing new enterprises
iii. Facilitates the transfer of technology
iv. Plays a strategic role in commercializing new inventions and products
v. Facilitates the proper utilization of resources
vi. Improves the standard of living
vii. Plays a crucial role in the restructuring and transforming economy
viii. Facilitates a balanced economic development
ix. Brings dynamism in industries by launching innovative products and services
x. Creates new markets and facilitates expansion into international markets
What is Entrepreneurship – 6 Famous Myths
Listed below are some of the famous myths about entrepreneurship.
Myth # 1. Entrepreneurship is All about Passion:
True, entrepreneurship is chosen as a route fuelled by passion. But apart from the passion aspect of entrepreneurship, there are millions of small businesses run by entrepreneurs who take a fair measure of risk, grab opportunities, come up with creative solutions, or carry out innovations, etc. But these are done for reasons that go beyond just passion. While passion is one of the reasons for starting an enterprise, there are also other motivators.
Myth # 2. Entrepreneurship is a Sure Way to Riches:
There is a lot of aura around successful, wealthy entrepreneurs. These entrepreneurs are only a few, when compared to the number of entrepreneurs who have failed in their ventures. Whereas the successful entrepreneurs grab headlines, there is almost no talk about entrepreneurs who fail. So Entrepreneurship does not guarantee wealth creation.
Myth # 3. Entrepreneurship Succeeds with Financial Backing:
Availability of abundant capital is not always the prime reason for starting an enterprise. Many of today’s successful enterprises did not enjoy a strong financial backing at the time of their start. There are reasons beyond availability of funds for starting a business.
Myth # 4. Entrepreneurship is for the Moneyed Class:
There is a common notion that entrepreneurship is for people with money. An individual who belongs to the working class or the middle class believes that without enough capital it is not possible to start an enterprise.
Capital to start an enterprise can be got from outside sources such as banks, or as grants from government bodies, private bodies, etc. New models of financing are becoming available today which effectively should remove the fear of lack of personal finance as a deterrent to start the venture.
Myth # 5. Entrepreneurship is for Influential People:
This view supports the belief that having a network with the right people who can ‘pull strings’ makes it easy for the practice of entrepreneurship. Definitely having a strong network is good for entrepreneurship, but it cannot be the prime reason for starting an enterprise. This myth discourages many competent individuals, who do not have good industry connections, from starting up.
Myth # 6. Depends Only on the Entrepreneur for Success:
A successful enterprise does not hinge on just the personality of the entrepreneur who founded the enterprise. Reality tells us that no enterprise can be run successfully by just one individual; there is a team created in the enterprise which works for its success. The over-emphasis on the individual strength of an entrepreneur at times discourages many from giving entrepreneurship a fair consideration.
What is Entrepreneurship – 4 Theories: Sociological, Economic, Culture and Psychological Theories
Various writers have developed various theories on entrepreneurship and popularized the concept among the common people.
The theories propounded by them can be categorized as under:
1. Sociological Theories
2. Economic Theories
3. Culture Theories
4. Psychological Theories
1. Sociological Theories:
The following theories explain how sociological factors accelerate the growth of entrepreneurship:
i. Theory of religious belief — Weber
ii. Theory of entrepreneurial supply — Cochran
iii. Theory of social change — Hagen
iv. Theory of group level pattern — Young
i. Theory of Religious Belief Max Weber:
Max Weber has propounded the theory of religious belief. According to him, entrepreneurism is a function of religious belief and the impact of religion shapes the entrepreneurial culture. The central feature of weberian theory of social change, therefore, consists in his treatment of the protestant ethic and the spirit of capitalism. However, the important elements of Weber’s theory are explained further.
a. Spirit of Capitalism:
In the weberian theory, sprit of capitalism is highlighted. Sprit of capitalism is the guiding factor which guides the entrepreneur to get engaged in activities that can bring about more and more profit.
b. Adventurous Spirit:
Weber also made a distinction between spirit of capitalism and adventurous spirit. According to him, the former is influenced by the strict discipline whereas the latter is affected by the free force of impulse.
c. Protestant Ethic:
According to Max Weber, the spirit of capitalism can be grown only when mental attitude in the society is favorable to capitalism. This attitude can be provided by protestant ethic irrespective of the cultural background, personality type of the individual and the experiences in the society. According to Max Weber, Hinduism lacks this sort of mental attitude which acts as a stumbling block in their way to entrepreneurship.
d. Inducement of Profit:
The principle of low prices and large turnovers was the mechanism of the entrepreneurs to reap profit. So this motive of profit guided the protestant ethic to become entrepreneurial which was not found among the Hindus.
ii. Theory of Entrepreneurial Supply — Thomas Cochran:
The theory, propounded by Thomas Cochran, centres round the sociological aspect of entrepreneurial supply. Beginning with the premise that fundamental problems of Economic Development ‘are non- economic, he emphasizes on the cultural values role expectation and Social sanctions as the key elements that determine the supply of entrepreneurs. The basic elements of Thomas Cochran’s theory are depicted further.
a. Entrepreneur as a Society’s Modal Personality:
According to T. Cochran, entrepreneur is neither a supernormal individual nor a deviant person but is a role model of the society representing modal personality. This personality is a composite of the person his skills, styles and motives.
b. Modal Personality as a Derivative of Social Conditioning:
The entrepreneur, being the Chief Executive of his business, plays a social role. The role is partly shaped by the modal personality that is a derivative of social conditioning of his generation. Further, innovation and invention go together with the type of conditioning in the society.
c. Role Expectations and Entrepreneurial Role:
Cochran pointed out that in corporate organizations, senior officers or the Board of Directors have well-defined expectations. They are known as defining groups and entrepreneurial role is closely defined by them. According to him, “Primary cultural factors operating on the personality of the executive and the defining of his role by those involved must accommodate to some degree to the necessities of the operation to be carried out”.
d. The Type of Childrearing and Schooling and its Influence on Intrinsic Character of the Executive:
According to Cochran, the executive’s ‘inner character’ is conditioned by the childrearing and schooling common to the cultural legacies. He contemplated, “This relatively simple framework of an entrepreneurial role defined by personality of the actor, the expectations of the groups with power to sanction deviations from expected behaviour and the operational needs of the function to be performed subsumes all the social or cultural factors”.
e. Dynamics of Entrepreneurs and Thrust upon the Social Factors for the Major Changes:
According to Cochran, the demonstration of this model, of dynamics of entrepreneurs gives thrust upon the social factors for the major changes. He pointed out that the model is based upon the American Economic History which proves that American economy has experienced major changes during 19th century due to entrepreneurial dynamism.
The changes are described to the following factors:
(a) Quick adoption of mechanical devices in the first half of the 19th century.
(b) Growth of professional management in the corporate sector that started in the second half of the 19th century.
(c) Widespread application of mass production techniques’ in the 19th century.
In each of these major transformation, the social factors operating through entrepreneur appear to be well marked. Under the above backdrop Cochran pointed out that individual’s performance as entrepreneur is governed by the following elements.
(a) Attitude of the entrepreneur towards his own occupation;
(b) The role expectation held by sanctioning groups;
(c) The operational requirements of the job;
In fact, both the first and the second elements are determined by the societal values whereas the last element is governed the changes over a period of time in extraneous parameters such as population, technology, consumer demand, tastes, and preferences of the ‘customers’, etc.
iii. Theory of Social Change — E.E. Hagen:
Everett E. Hagen, in his theory of social change, propounded how a traditional society becomes one in which continuing technical progress takes place. The theory exhorts the following features which presume the entrepreneur’s creativity as the key element of social transformation and economic growth.
a. Presentation of the General Model of the Society:
The theory reveals a general model of the society which considers interrelationship among physical environment, social structure, personality and culture.
b. Economic Growth:
Product of Social Change and Political Change- According to Hagen, most of the economic theories of underdevelopment are inadequate. He viewed entrepreneur as a creative problem-shooter who brings about’ economic development which is mingled with political and social changes.
c. Rejection of Follower’s Syndrome:
Hagen rejected the idea that the solution to economic development lies in imitating western technology. So the follower’s syndrome on the part of the entrepreneur is discouraged. This is because the technology is an integral part of sociocultural- complex, and super-imposition of the same into different sociocultural set-up may not’ deliver the goods.
d. Historic Shift as a Factor of Initiating Change:
Hagen, in his book How Economic Growth Begins, depicts historic shift as the crucial force which has brought about social change and technological progress thereby leading to the emergence of entrepreneurial class from different. Castes and communities. The historic shift caused some groups of the lesser elite, who previously held commanding position in the social hierarchy, feel that they were no longer valued and regarded. As a result of this, their inner urge was kindled to take up entrepreneurial venture through personality formation and thus they become competent enough to take up any kind of venture.
e. Withdrawal of Status Respects as the Mechanism for Rigorous Entrepreneurial Activity:
Closely consistent with the historic shift it is the social group that plunges into rigorous entrepreneurism which experiences the status withdrawal or ‘withdrawal of status respect’. According to Hagen, they are a group of individuals, creative and alienated ‘from traditional values, driven by a gnawing burning drive to prove themselves, (to themselves as well as to their fellows) seeking for an area in which they can gain power and in some symbolic way they can vent their rage at the elites who have caused their troubles.
Their inner urge will culminate into entrepreneurism disregarding their traditional values and turning to innovative entrepreneurship. The role of lesser Samurai as innovators and entrepreneur in Japan’s industrial revolution is a glaring example of status withdrawal.
iv. Theory of Group Level Pattern—F. Young:
Frank Young, in his theory, A Micro-sociological Interpretation of Entrepreneurship, points out that entrepreneurial initiative is a function of group level pattern. Young has elaborately analysed the shortcomings of psycho generic interpretation of entrepreneurship and suggested a causal sequence where transformation codes are developed by the solidarity groups to improve their symbolic position in their larger structure and thus become entrepreneurs.
Entrepreneurship and Economic Development are interdependent. Economic development takes place when a country’s real rational income increases over a period of time wherein the role of entrepreneurship is an integral part.
The following theories propounded by eminent economists explain how economic development and entrepreneurship are complementary and supplementary to each other:
i. Schumpeter’s theory of innovation
ii. Leibenstein’s theory X-efficiency
iii. Mark Casson’s theory
iv. Papanek and Hari’s’ theory
v. Harvard School theory
vi. M. Kirzner’s theory
vii. David McClelland’s theory of achievement
viii. Knight’s theory of profit
ix. Hayek’s theory of market equilibrium
i. Schumpeter’s Theory of Entrepreneurship:
It is a pioneering work of Economic Development. Development in his sense, implies that carrying out of new combinations of entrepreneurship is basically a creative activity. According to Schumpeter an entrepreneur is one who perceives the opportunities to innovate, i.e. to carry out new combinations or enterprise. Innovation involves problem solving and the entrepreneur is a problem solver.
In his views, the concept of new combination leading to innovation covers the following five cases:
a. The introduction of new goods that is the one with which consumers are not yet familiar.
b. The introduction of new method of production, that is yet to be tested by experience in the branch of manufacture concerned which need, by no means, to be founded upon a scientifically new discovery and can also exist in a new way of handling a commodity commercially.
c. The opening of a new market that is a market into which the particular branch of manufacture of the country in question has not previously entered, whether or not this market has existed before.
d. The conquest of a new source of supply of a raw material or semi-manufactured goods, again irrespective of whether this source already exists or whether it has first to be created.
e. The carrying out of the new organization, of any industry like the creation of monopoly position through breaking up of a monopoly position.
ii. Leibenstein’s Theory of X-Efficiency:
Harvey Leibenstein propounded the theory of X-efficiency which is popularly called Gap filling theory. According to Leibenstein, entrepreneurial functions are determined, by the. X efficiency which means the degree of inefficiency on the use of resources within the firm.
The theory has got the following features:
a. Routine Entrepreneurship:
While propounding the theory, Leibeinstein identified two broad types of entrepreneurship. First type of entrepreneurship is known as routine entrepreneurship, which is intertwined with the important functions of management of the business.
b. New Entrepreneurship:
The second type of entrepreneurship new entrepreneurship, which presumes innovative entrepreneurship. This entrepreneurship is characterized by aggressive assemblage of information and the analysis of results derived from sound combination of factors.
c. Twin Roles of Entrepreneur:
Harvey Leibenstein pointed out that there always exists some deficiencies in the production function or input-output relationship. These deficiencies or gaps exist because all the inputs in the production function cannot be marketed.
d. X-Efficiency Factor:
X-efficiency is the degree of inefficiency in the use of inputs within the firm. It is the measuring rod to know the extent of deficiencies the firm incurs in its production function. X-efficiency arises because either the resources of the firm are not properly utilized or they are wasted.
According to Leibenstein, the supply of entrepreneurship is governed by input completing ability and inadequate motivational state.
iii. Mark Casson’s Theory:
Mark was a renowned economist who propagated a functional definition of entrepreneur in his book, The Entrepreneur—An Economic Theory. He stated that now a-days it is quite fashionable to be an entrepreneur. Most of the studies of entrepreneur make no attempt at proper. It may be said quite categorically that at the present moment, there is no established economic theory of entrepreneur.
The subject area has been surrendered by economists to sociologists, psychologists and social scientists. However, his theory of entrepreneurship deals with the functional behaviour of entrepreneur and his qualities which crucial for his success.
His theory has got the following features:
a. Demand-Supply Relationship:
He has explained the theory using the economic jargons like demand and supply. These twin market forces act as the crucial parameters for entrepreneurial activities. According to M. Casson, the demand for entrepreneurship stems from the need to adjust to change and the supply of entrepreneurship is limited by the scarcity of the desired personal qualities.
b. Identification of Qualities:
To become a successful entrepreneur, Mark Casson identified some important qualities. According to him, qualities of a person drive him to take up entrepreneurial initiative and these qualities are-mostly innate. He gives example of a quality which is crucial for a successful entrepreneur the quality of imagination.
The theory reveals that in the development of successful entrepreneurship the following things are to be followed:
(a) The demand for entrepreneurship need to be adjusted as per the changing needs of the time.
(b) The deficient qualities of the entrepreneur should be made good by personal care.
Thus, according to Mark Casson, an entrepreneur is a person, who specializes in taking judgemental decisions about the coordination of scarce resources.
iv. Papanek and Harris Theory:
Economists like Papanek and Harris have propounded that when certain economic conditions are favourable, entrepreneurship and economic growth will take place. According to these two economists, economic incentives are the integral factors that have induced entrepreneurial initiatives.
v. Harvard School Theory:
Harvard School contemplated that entrepreneurship involves any deliberate activity that initiates, maintains and grows a profit-oriented enterprise for production or distribution of economic goods or services, which is inconsistent with internal and external forces.
vi. Israel M. Kirzner’s Theory of Adjustment:
Israel M. Kirzner, the noted economist, has coined the theory of adjustment of price. According to him, the essential entrepreneurial element is the alertness to information rather than its possession alone. He contends that those entrepreneurs who have the superior telescopic faculty keep themselves all the while alert to confront any disequilibrium in the market.
His theory has got the following features:
a. Adjustment of Price:
The chief role of entrepreneur is based upon the adjustment of price in the market. He contemplates that prevalence of wrong price in the market may reduce the profit of the entrepreneur. In this case, the buyer may pay higher price or seller may accept a lower price which may give rise to opportunities for profit.
Further, if different prices prevail in the same market, there is the opportunity for profitable arbitrage between the two segments of the market. Thus, adjustment of price is the chief role of the entrepreneur.
b. Alertness to Disequilibrium:
According to M. Kirzner, entrepreneur possessing superior foresight are alert to disequilibrium. Alertness enables the entrepreneur to intervene in the market by changing the price. Thus, economy in purchase and profitable selling results in economic gains.
vii. Theory of David McClelland’s Theory of Achievement Motivation:
In the late 1940s David McClelland and his associates developed the theory of achievement motivation, which was regarded as one of the best economic theories of entrepreneurial development.
They concentrated mainly on following three aspects:
a. Need for achievement
b. Need for power
c. Need for affiliation
Twin Characteristics of Entrepreneurship:
McClelland pointed out the twin important characteristics of entrepreneurship that govern the economic behaviour of a person to become entrepreneurial.
(i) Doing things in a novel and excellent manner
(ii) Decision making under uncertainty
a. Belief in Personal Accomplishment:
According to this theory, ‘n Ach’ or need for achievement refers to the need for personal accomplishment by the person through excellence. This category of persons is fond of shouldering personal responsibility. They are generally moderate risk takers and try to be winners all the time. High achievers aim at personal achievement rather than the reward of success. Persons with high need for achievement behave in the entrepreneurial way.
b. Psychological Factors for
viii. Knight’s Theory of Profit:
F.B. Knight, in his book Risk, Uncertainty and Profit propounded the theory of profit. He, points out that entrepreneurs are a specialized group of persons who bear risk and deals with uncertainty.
Knight’s Theory has the following features:
a. Pure Profit:
Knight identified entrepreneurs as the recipient of pure profit: Pure profit refers to the reward for bearing the cost of uncertainty.
b. Situation of Uncertainty:
Uncertainty, according to Knight, is identified with a situation where the probability of alternative cannot be determined either by a prior reasoning or by statistical inference.
c. Risk-Bearing Capability:
Risk bearing implies assuming the responsibilities of loss or gain that may occur due to unforeseen contingencies of the future. According to Knight, an entrepreneur is the person who willingly carries on those responsible activities which are neither insured nor salaried.
d. Guarantee of Specified Sum:
While undertaking the responsibility of the business enterprise, entrepreneur guarantees interest to lender, wages to employees and rent to the landlord. Thus, specified sums of money are guaranteed by the entrepreneur for the assignment made to them; however, the supply of entrepreneurship depends upon the following three factors as per his opinion –
(i) Ability of the entrepreneur
(ii) Willingness of the entrepreneur
(iii) The power to extend guarantees to others
e. Identification of Socio-Economic and Psychological Factors:
Knight identified the social, economic and psychological factors which influence the supply of entrepreneur since entrepreneurial motivation and abilities are long-run problems. Economic, social and psychological factors should be combined to promote entrepreneurship.
f. Use of Consolidation Technique to Reduce Business Uncertainty:
Knight’s entrepreneurs specifically commit their capital and bear the resultant risk and uncertainty. He argued that business uncertainty can be reduced by using the technique of consolidation to increase the profit. Through the help of consolidation in which individual instances are pooled, total uncertainty can be reduced.
Self-confidence is the most important factor which is essential for the entrepreneur to undertake risk and to determine the level of profit. However, Knight felt that uncertainty defied definition as every uncertain condition was unique and depended on a number of imponderables in the marketplace. The elasticity of supply of self-confidence is an important factor that’ determined the level of profit and size of the entrepreneur.
ix. Hayek’s Theory of Market Equilibrium:
F.A. Yon Hayek propounded the theory of market equilibrium. His main contribution to entrepreneurial theory is to identify the absence of entrepreneurs in neo-classical economics which is associated with the assumption market equilibrium.
According to Hayek, the services of entrepreneur can be of following types:
a. To combine the means and resources together for production.
b. To undertake the entrepreneurial function of planning, scheduling and decision making.
c. To guarantee a fixed rate of income, profit and interest which will go to entrepreneur as the reward’ for his services.
Advocates of cultural theories point out that entrepreneurship is the product of culture. Entrepreneurial talents come from cultural values and cultural systems embedded into the cultural environment.
The following theories portray that the cultural factors are always responsible for the emergence of entrepreneurship:
i. Hoselitz’s Theory;
ii. Stoke’s Theory.
i. Hoselitz’s Theory:
Hoselitz explains that the supply of entrepreneurship is governed by cultural factors, and culturally minority groups are the spark-plugs of entrepreneurial and economic development. In many countries, entrepreneurs have emerged from a particular socioeconomic class.
He emphasizes the role of culturally marginally groups like the Jews and the Greeks in medieval Europe, the Lebanese in West Africa, the Chinese in South Africa, the Indians in East Africa in promoting economic development.
Hoselitz’s theory of entrepreneurship supply can be viewed from the following stand points which are cultural in nature:
a. Hypothesis of Marginal Men:
Hoselitz formulated the Hypothesis of marginal men who are the important reservoir of entrepreneur development. According to Hoselitz, marginal men because of their ambiguous position from a cultural or social statement are particularly suited to make creative adjustments in situations of change and in the ‘course of this adjustment process they develop genuine innovations in social behaviour.
b. Emphasis on the Functions of Managerial and Leadership Skill:
Entrepreneurial talents can be brought about in a society by the individuals who possess extraordinary managerial and leadership skills. Hoselitz observed that a person who is to become an industrial entrepreneur must have additional personality traits to those resulting from a drive to a mass wealth. In addition to being motivated by the expectation of profit, he must also have the ability to lead.
c. Contribution of Specific Social Classes:
The theory reveals that in several countries entrepreneurial talents are found in persons having particular socio-economic background. For example, contribution of the protestant ethic of the west is significant in so far as the growth of a new class of industrialists is concerned. In Britain, the United States and Turkey, ranks of entrepreneurs were filled from commerce, Samurai in Japan, Family pattern in France, Yoruba in Nizeria, Kikiyu in Kenya; Christians in Lebanon, Halai Memon industrialists in Pakistan, Marwaris and Parsis in India are considered to be the dominant social classes in the field of entrepreneurship.
ii. Stoke’s Theory:
Stoke’s theory portrays that entrepreneurship is likely to emerge under specific social sanctions, social culture and economic action. According to Stoke, socio-cultural values channel economic action. He suggests that personal and societal opportunities and the presence of requisite psychological distributions may be seen as conditions for an individual movement to get changed into industrial entrepreneurship.
Psychological theories centre round the psychological characteristics of the individuals in a society. Psychological characteristics influence the supply of entrepreneurs in a society.
The following theories clearly portray the emergence and supply of entrepreneurs:
i. Theory of personal resourcefulness
ii. Theory of entrepreneurial supply
i. Theory of Personal Resourcefulness:
Personal resourcefulness is a critical factor for the growth and development of entrepreneurship.
The theory of personal resourcefulness has got the following implications as far as the supply of entrepreneurs is concerned in the society:
a. Cognitive Junction present theory presupposes the activities undertaken by the individuals who require cognitively mediated behaviour like emotions, sentiments, inner feeling, thoughts and knowledge which is shaded by risk and motivational involvement.
b. Human Aspects of Psychology – Different authors have given their different opinions on human aspects of psychology. For example, by grave and Hoffer highlight the significance of human volition.
Schumpeter pointed out entrepreneur as innovator while Carland gives emphasis on organization building for entrepreneurship development in Schumpeter’s words, entrepreneurship is influenced by the following traits:
1. Will to power
2. Will to conquer
Thus, studies examining non-economic factors have brought out the fact that mere provisions of economic inputs may not itself guarantee success in entrepreneurial ventures, organizational and psychological factors also still remain a subject of further investigation.
ii. Theory of Entrepreneurial Supply:
John H. Kunkel advocated the theory of entrepreneurship supply. According to him, psychological and sociological variables are the main determinants for the emergence of entrepreneurs. He contemplated that entrepreneurial talent can be found in minorities, religious, ethnic, migrated, displaced elites and these minorities have supplied most of the entrepreneurism in the society.
What is Entrepreneurship – Role of Advisor in the Life of Entrepreneurs
The advisor plays an important role in the life of entrepreneurs. If entrepreneurs will have such a good advisor then entrepreneurs can save themselves from many mistakes.
Role # 1. The Power of Peers:
The advisor plays an important role in the success of the business. They give the direction to the business. The new entrepreneurs though have all the knowledge but somewhere they require advice of the experienced one for running their business. It is seen that the business owners achieve greater success and ease in solving problems when they have peers and advisors with whom they can brainstorm. The entrepreneurs who do not have any advisor they mostly face many problems.
They do not know the minute things of the business where they require help but when they do not have any one who can help them then they become hopeless. In the absence of the experienced one they take decision whatever they think is good for the business. Absence of the advisor is also one of the factors responsible for the failure of the business.
Role # 2. Role of Small Business Advisor:
You know your business? That is why you ventured into your field in the first place, but do you “know business”? Many small business owners know their respective fields but lack specialized knowledge about good business practices. This is the point where they require the help of advisor.
The advisor protects them from hidden risks that the new one does not know. If you find that your business could use some help establishing good business practices consider hiring a small business advisor. Small business advisors can help the budding entrepreneur in a variety of ways.
Role # 3. Business Coaching:
First and foremost, small business advisors can help by actually coaching you and your business to becoming better. They direct you in each and every aspects of the business. Whereas a business consultant outlines problems and develops a course of action, a small business coach outlines current and potential issues but also assumes the role of teacher and trainer, providing instruction on how to invest in your business, how to avoid mistakes and how to implement change.
Taking coaching is the best option for the new entrepreneurs. They can learn a lot from the experience of the coach. The coach helps the entrepreneurs’ business for surviving. The small business advisors have, by virtue of the work they do, seen first-hand the mistakes made by various businesses and have played party to their recovery.
Role # 4. Marketing Training:
Small business advisors also provide marketing training to help you navigate your chosen market successfully and avoid marketing mistakes. They help you identify market opportunities and find ways to make the most of those opportunities. They tell you how to compete with others; they provide you all the market information that helps in taking the decision. Small business advisors can really make an impact here because they are involved in the market through their own business and the businesses of the other people they coach.
They know the exact sources of the information. They know the perfect timing of the market when to sell, to give discount or to launch the product. As a result, they have a better understanding of the current market situation and can provide advice as to how to enter other markets, some of which you may not have thought of, such as a different geographic area or moving all or part of your business online. They also help you with issues such as effective branding, advertising, lead generation and the creation of an actual marketing plan.
Role # 5. Financial Advice:
Using a small business advisor can also benefit your bottom- line. Small business advisors can help you make sure that you are investing your money in your business and yourself, in the right places and can assist you to increase your income and lower your overhead costs at the same time. They tell you the perfect combination of the finance.
They have knowledge about when to purchase, when to lease, when to give credit and when to take debt. They help in better utilization of the finance. By offering advice, training and direction, a small business advisor can help make sure that you reach all your financial goals, including eventually transitioning into passive income from your business.
Mentoring – it is a term historically used to describe a teacher-student relationship.
In the business world, a student/teacher relationship occurs when a more experienced professional (the advisor) gives significant career assistance to a less-experienced professional (the protege). A counselor’s knowledge, experience, tenacity and skills offer the growing entrepreneur guidance, advice and training. However, while an advisor can steer a protege in the right direction to reach her potential, proteges must still rely upon themselves to succeed.
Roles and Responsibilities of Advisor:
i. Provide guidance based on past business experiences.
ii. Create a positive counseling relationship and climate of open communication.
iii. Protect the business from the hidden risks of the market.
iv. Help dependent identify problems and solutions.
v. Give direction to the business.
vi. Lead dependent through problem solving processes.
vii. Offer constructive criticism in a supportive way.
viii. Share stories, including mistakes.
ix. Assign “homework” if applicable.
x. Develop business logic.
xi. Refer dependent to other business associates.
xii. Be honest about business expertise.
xiii. Solicit feedback from dependent.
xiv. Come prepared for each meeting to discuss issues.
Finding an Advisor that’s Right for You:
i. Look for someone who has knowledge and business experience in areas you don’t.
ii. The mentor is friendly in nature.
iii. Ready to share information.
iv. Make sure the mentor you choose desires to be your advisor. A quality relationship requires consent by both parties.
v. Look for what you can offer the person willing to invest time in you – make the relationship mutually beneficial.
Many organizations have advisor programs. Look for one in your community. Contact your local business center for more information.
Checklist – Be Careful about Following Points?
If you want an advisor for the business then go through the following points that will decide whether you are ready to take mentor or not?
i. I know the kind of mentoring I want.
ii. I’m willing to accept help, if it is appropriate.
iii. I’m a good listener. I hear what the other person is saying.
iv. I’m a good follower.
v. I do not have ego.
vi. I am friendly in nature.
vii. I love to get new information.
viii. I share my thoughts.
ix. I can be counted on to carry out commitments.
x. I learn most new things quickly.
xi. I’d be willing to speak up (diplomatically) if I disagreed with an advisor. I’m not a “yes” person.
xii. I appreciate people who help me.
xiii. I feel that my “entrepreneurship potential” is high.
Myths about the Mentor/New Entrepreneur (Dependent) Relationship:
i. Mentoring is going out of style.
ii. Advisor is the guarantee of the success.
iii. Getting advisor is very costly.
iv. It is best if the advisor is older than the entrepreneur.
v. Student/teacher relationships need to be close and last a long time.
vi. The relationship benefits one party more than the other.
vii. A person cannot have more than one advisor or dependent at a time.
viii. Healthy mentor/dependent relationships won’t run into difficulties.
ix. Getting an experienced advisor is the easy way of getting ahead.
What is Entrepreneurship – 7 Benefits
There are a number of benefits that accrue from entrepreneurship, not just to the entrepreneur, but to others also who associate with it.
Following are some benefits:
i. It generates employment
ii. It leads to socio-economic progress
iii. Through wealth creation it improves lifestyle of people
iv. It inspires future generation to become job creators
v. By providing employment it reduces social evil like theft
vi. It helps country earn revenue through tax
vii. It provides solution to social problems.
What is Entrepreneurship – 3 Major Problems or Barriers
Entrepreneurial ventures begin with a big dream in mind of the person concerned. But to transform that dream into reality is not everyone’s cup of tea. This is because the entrepreneurs face a lot of troubles and problems in the process of attainment of their respective.
Inspite of all the efforts made by individuals and the government to promote entrepreneurship, some societies are unable to produce sufficient number of successful entrepreneurs.
The problems or barriers to entrepreneurship can be categorized as:
i. Raw Material:
Non-availability of raw material required for production of goods, especially during the peak season causes impediment in the growth of the business. In such kind of situation, competition causes increase in the price of the raw material. This problem becomes more severe if there are alternative goods or services available in market. (If the plastic granules required for production of glasses are not present then the demand can shift to the alternative thermocol glasses.) It becomes very difficult to shift the consumer back to the former product.
Human resources have been identified as the most important resource in an organization. Bur unfortunately, there is always a dearth of the desired manpower in an organization-either because of the lack of skilled labour in the market or because of lack of committed and loyal employees in the organization. Both these factors cause implements in the growth of the organization.
Good machineries are required in the organization for production and operation of goods. These machineries come at a cost and because of rapid technological developments they also become obsolete very soon and need to be replaced, which requires lot of cash-in-hand. This is very difficult to maintain, especially in a small business organization.
iv. Land and Building:
Acquisition of land and construction of building at prime location with respect to business requires expenditure of large amount of scarce cash, especially in the small organizations. An alternative approach could be acquiring land on lease or rent. But this becomes a matter of constant concern for the entrepreneur.
v. Other Infrastructure Requirements:
Apart from the factors of production mentioned above, there are other infrastructure requirements of the business and which when not present in adequate amount, can further cause barriers to the growth of business.
Any business organization requires some basic infrastructure support like adequate power supply, proper roads, water and drainage Facilities etc. This support has to come from the various development authorities, which again is a chain in a long bureaucratic system that suffers from problems like corruption and red-tapism.
2. Financial Barriers:
Availability of funds is one of the most important ingredients required for the successful running of a business. There are various methods by which entrepreneur arranges for funds like his own savings, borrowing from friends and relatives, bank and other institutional bodies supporting new ventures.
3. Personal Barriers:
These barriers are caused by emotional blocks of an individual. These barriers cause mental Obstruction to the individual and lead to the failure in business.
Some of the personal barriers have been discussed below:
They look at successful entrepreneurs and think that they could never emulate them. To be fair, they probably couldn’t. They think that they would never be able to find a successful idea or would be unable to attract the resources required and therefore dismiss the thought of becoming self-employed as irrelevant.
They may regard themselves as risk averse and feel that running a business is too risky. They may not feel that they could master all the necessary skills.
ii. Lack of Dependability on Others:
Many entrepreneurs aim to gain their additional expertise through the trial and error of experience, at her than seeking further personal development or assistance from others.
As Businesses Grow:
They increasingly need to replace the initial, largely informal management arrangements with more formality. They also need to think more strategically (Burns and Harrison). Often this is uncomfortable for the entrepreneur, who is far more interested in spotting and filling market needs than in devising effective management systems, but is essential if the business is grow and prosper.
Those who do recognize that they need support when they start to do things for the first time-employing people, exporting, introducing total quality management, raising equity are far more likely to be successful in the long run.
Lack off Sustained Motivation:
When an individual starts a new business venture he’ is filled with enthusiasm and drive to achieve success, but when he faces the challenges of real business, bears losses or his ideas don’t work, he loses interest/motivation. This causes further loss of interest and the entrepreneur starts withdrawing herself/himself from the mainstream competition.
Lack of Patience:
This barrier is more dominant amongst entrepreneurs. The desire to achieve success in the first attempt or to become rich instantly is the motivating factors of modern youth. They want to achieve success through cakewalk. When such desires are confronted by business challenges/problems they lose interest. Apart from the inability to get into the details of business.
iii. Inability to Dream:
It is being rightly said, “Think Big to Achieve Big”. The entrepreneurs who are short of vision or become complacent (satisfied) with what they achieve sometimes lose interest in further expansion/growth of the business, which further impedes the growth of the business.