1

Chapter
Entrepreneur
If we could have an entrepreneur in every family, Indias economy would sky rocket.
We would then be able to take our rightful place as an economic super power in the
community of nations. Entrepreneurs create jobs. They create wealth. They create
products and services. Rahul Bajaj, Chairman & Managing Director, Bajaj Auto
Indefatigable energy, inextinguishable optimism, and unrelenting enthusiasm are the
essential attributes that make one entrepreneur.
Captain G.R. Gopinath The Man who made flying Cheap as Simply Fly.

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

l Describe the meaning of the term entrepreneur and also delineate the evolution
and development of the concept of the term entrepreneur.
l Highlight the salient characteristics of successful entrepreneurs.
l Justify the charms why people become entrepreneur.
l Delineate the entrepreneurial decision process.
l Describe the functions performed by entrepreneurs.
l Appreciate the need for having entrepreneurs in a country.
l Classify entrepreneurs into various types.
l Distinguish between an entrepreneur and a manager.
l Define an intrapreneur and distinguish between an entrepreneur and an
intrapreneur.
l Explain the concept of social entrepreneur and social entrepreneurship.

1.1 INTRODUCTION

The term entrepreneur is a relatively new term and concept used in

economic sphere. Because of its increasing relevance in economic sphere over
the period, it has become the buzzword in the economic literature. However, it
has been defined differently by different writers and thinkers. The definitions
vary from simple as fund provider to complex as change agents. In a book
on entrepreneurship, the students need first to understand the meaning and
concept of entrepreneur, and its related aspects. Accordingly, we shall begin
with explaining the meaning and concept of the term entrepreneur.

3
4 Entrepreneurial Development

1.2 EVOLUTION OF THE CONCEPT OF ENTREPRENEUR

The word entrepreneur has been taken from the French language
enterprendre where it cradled literally means between-taker and go-between
i.e., to undertake and meant to designate an organizer of musical or other
entertainments. The Oxford English Dictionary (in 1897) also defined entrepreneur
in a similar way as the director or manager of a public musical institution, one
who gets up entertainment, especially musical performance.
The term entrepreneur has been in use for the last five centuries. Its changing
connotations and meanings over the centuries are summarized as follows:
Period Connotations and Meanings
Early 16 Century
th
Referred to persons engaged in military expeditions.
17th Century Extended to persons engaged in engineering activities such
as construction and fortification.
Beginning of 18th Used to refer to persons engaged in economic aspects of
Century human activities.
The evolution and development of the term entrepreneur over the period
is given in a chronological order in the following Table 1.1.
Table 1.1: Evolution and Development of the Term Entrepreneur

Stems from the French word: means between-taker or go-between.

Middle Ages: actor and person in charge of large-scale production projects.
17th century: person bearing risk of profit (loss) in a fixed-price contract with
government
1725: Richard Cantillon-person bearing risks are different from one supplying
capital.
1803: Jean Baptiste Say-separated profits of entrepreneur from profits of capital.
1876: Fransis Walker-distinguished between those who supplied funds
and received interest and those who received profit from managerial
capabilities.
1934: Joseph Schumpeter-entrepreneur is an innovator and develops untried
technology.
1961: David C. McClelland-entrepreneur is an energetic, moderate risk taker.
1964: Peter Drucker-entrepreneur maximizes opportunities.
1975: Albert Shapero-entrepreneur takes initiative, organizes some social and
economic mechanisms, and accepts risks of failure.
1980: Karl Vesper-entrepreneur seen differently by economists, psychologists,
businesspersons, and politicians.
1983: Gifford Pinchot-intrapreneur is an entrepreneur within an already
established organization.
1985: Robert D. Hisrich-entrepreneurship is the process of creating something
different with value by devoting the necessary time and effort, assuming
the accompanying financial, psychological, and social risks, and
receiving the resulting rewards of monetary and personal satisfaction.
Entrepreneur 5

2008: National Knowledge Commission (NKC) (2008) of India. The professional

application of knowledge, skills and competencies and/or of monetizing
a new idea, by an individual or a set of people by launching an enterprise
de novo or diversifying from an existing one (distinct from seeking self-
employment as in a profession or trade), thus, to pursue growth while
generating wealth, employment and social good.
The fact remains that the term entrepreneur has been defined in many ways
and various senses. These views are now for the convenience of understanding
broadly classified into three groups, namely, risk-bearer, organizer, and innovator.

Entrepreneur as Risk-Bearer
Richard Cantillon, an Irishman living in France, was the first who introduced
the term entrepreneur and his unique risk-bearing function in economics in
the early 18th century. He defined entrepreneur as an agent who buys factors
of production at certain prices in order to combine them into a product with a
view to selling it at uncertain prices in future (Cantillon 1971: 2). He illustrated
a farmer who pays out contractual incomes which are certain to the landlords
and labourers and sells at prices that are uncertain. He further states that so do
merchants also who make certain payments in expectation of uncertain receipts.
Thus, they too are essentially risk-bearing agents of production.
Knight (1965) also described entrepreneur to be a specialized group of
persons who bear uncertainty. Uncertainty is defined as a risk which cannot
be insured against and is incalculable. He, thus, draws a distinction between
ordinary risk and uncertainty. A risk can be reduced through the insurance
principle, where the distribution of the outcome in a group of instances is
known. On the contrary, uncertainty is the risk which cannot be calculated. The
entrepreneur, according to Knight, is the economic functionary who undertakes
such responsibility of uncertainty which by its very nature cannot be insured,
or capitalized or salaried.

Entrepreneur as Organizer or Coordinator

Jean-Baptiste Say (1827: 285-286), the French political economist, with his
unpleasant practical experiences developed the concept of entrepreneur a little
further which survived for almost two centuries. His definition associates
entrepreneur with the functions of coordination, organization and supervision.
According to Say, an entrepreneur is one who combines the land of one, the
labour of another and the capital of yet another, and thus, produces a product.
By selling the produce in the market he pays interest on capital, rent on land,
wages to labourers and what remains is his/her profit. Say, thus, views that the
entrepreneur shifts economic resources out of an area of lower productivity and
into an area of higher productivity and greater yield (Cardula 1999: 4). Thus,
Say has made a clear distinction between the role of the capitalist as a financer
and the entrepreneur as an organizer. To play such a role, according to Say,
the entrepreneur must possess the art of superintendence and administration.
6 Entrepreneurial Development

He further elaborates that in the course of undertaking a number of complex

operations like obstacles to be surmounted, anxieties to be repressed, and
misfortunes to be repaired and expedients to be devised, three more implicit
factors are deemed to be essential. These are:
1. Morale qualities for work judgment, perseverance, and knowledge
about the business world,
2. Command over sufficient capital, and
3. Uncertainty of profits.
Marshall (1936) also advocated the significance of organization among the
services of a special class of business undertakers.
The line of argument, thus, pursued from Cantillon to Marshall was in
the context of a stationary situation not related to the process of economic
development. Also, nothing worthwhile was done on the supply side of
entrepreneurship.

Entrepreneur as Innovator
Joseph A. Schumpeter (1934: 103), for the first time in 1934, assigned a
crucial role of innovation to the entrepreneur in his magnum opus Theory
of Economic Development. Schumpeter considered economic development
as a discrete dynamic change brought by entrepreneur by instituting new
combinations of factors of production which he called innovation. In other
words, entrepreneur is, according to Schumpeter, a creative destructor who
creates or causes a dynamic disequilibrium in the economy by taking innovation
to commercialization by embedding it in an environment where it did not exist
previously. The innovation, i.e. introduction of new combination of factors of
production, according to him, may occur in any one of the following five forms:
(i) Introduction of a new product;
(ii) Introduction of a new method of production;
(iii) Opening of a new market;
(iv) Discovery of a new source of supply of raw materials; and
(v) Carrying out of the new form of organization of any industry.
However, Schumpeter stressed the fact that these attributes unaccompanied
by the ability to innovate would not be sufficient to account for entrepreneurship
(Gopakumar 1995: 1-17). Schumpeter also made a distinction between an
inventor and an innovator. An inventor is one who discovers new methods and
new materials. And, an innovator utilizes inventions and discoveries in order
to make new combinations. Schumpeter argued that the entrepreneur may or
may not be the inventor, and similarly, the entrepreneur may or may not be
the supplier of capital. The basic difference between the inventor and innovator
is that the former produces idea, the latter gets that idea converted into reality.
This difference is similar to the difference between discovery and exploitation.
Discovery is fruition of insight and exploitation is the realization of the potential
Entrepreneur 7
value of discovered idea or insight. In a sense, innovation is an invention that
is replicated and commercially used at large-scale to solve a particular problem.
However, the applicability of the Schumpeterian innovative concept of
entrepreneur to underdeveloped economies is conditioned on certain grounds.
For example, Schumpeter wrote his theory of economic development in the
context of Industrial Revolution of presently advanced countries where some of
the prerequisites of growth already existed. Inevitably, his theoretical explanation
corresponds to the particular social and economic order that existed there during
that specific period. Innovation was concentrated in a few fields in which big
entrepreneurs rose as the spearheads of growth. Big innovations yielded a surplus
for reinvestment and in this way; the entrepreneur could invade the various
economic fields with spectacular success (Singh 1966: 228). In the process, the
forces of growth tended to penetrate into the whole fabric of economy emanated
from large-scale changes introduced by a few big entrepreneurs. Moreover, from
the point of view of its magnitude of operation, the Schumpeterian theory is
modeled on big private entrepreneurship.
Although the Schumpeterian concept and perspective of entrepreneurship
had been criticized on certain grounds, the modern entrepreneurial explorations
are mainly founded on the Schumpeterian concept of entrepreneurship. The post-
Schumpeterian thinking on entrepreneurship has proceeded along two major
but different themes: the Harvard Tradition and the neo-Australian School. The
former is an extension of the Schumpeterian view, while the latter is represented
as an alternative approach (Kanungo 1998: 21-22). According to the Harvard
School approach, entrepreneurship comprises any purposeful activity that
initiates, maintains or develops a profit-oriented business or with the economic,
political and social circumstances surrounding the business (Cole 1949: 85-107).
The another exposition of the Harvard tradition emphasizes on activities like
searching and evaluating economic opportunities, mobilizing resources required
for production, connecting markets and expanding the enterprise (Leibestein
1968: 75). On the contrary, the neo-Australian School emphasized on disequilibrium
as the necessary condition for the emergence and development of entrepreneur.
According to Kirzner (1979), an entrepreneur is the arbitrageur who discovers
opportunity at low prices and sells the same items at high prices because of
inter-temporal and inter-spatial demands.
The most recent and authentic definition of entrepreneurship with special
reference to India is given by the National Knowledge Commission (NKC 2008: 1)
of India. The NKC has defined entrepreneurship as the professional application
of knowledge, skills and competencies and/or of monetizing a new idea, by an
individual or a set of people by launching an enterprise de novo or diversifying
from an existing one (distinct from seeking self-employment as in a profession
or trade), thus, to pursue growth while generating wealth, employment and
social good.
8 Entrepreneurial Development

Synthesis of the Concept

In sum and substance, the term entrepreneur has been defined in many
ways and various senses. Nonetheless, the common element implied in all
expositions from Cantillon to Kirzner to NKC is that entrepreneur performs
various functional roles as risk taker, decision maker, organizer or coordinator,
innovator, employer of factors of production, arbitrageur, etc. To sum up, an
entrepreneur can be defined as a person who tries to create something new,
organizes production and undertakes risk and handles economic uncertainty
involved in enterprise.

1.3 CHARACTERISTICS OF SUCCESSFUL ENTREPRENEURS

If we go through the business history of India, we come across the names of
some persons who have emerged as successful entrepreneurs like (Late) Dhiru
Bhai Ambani of Reliance Industries Ltd., Azim Premji of Wipro, Narayan Murthy
of Infosys Technologies Ltd., Kiran Mazumdar-Shaw of The Biocon India Group,
Verghese Kurien of Gujarat Cooperative Milk Marketing Fedration popularly
known for utterly butterly delicious Amul, Deepak S. Parekh of HDFC and
many more. The entrepreneurial profiles of these business/industry men are
found quite fascinating. They are a study in sharp contrasts. How? Some are
highly educated; others are high school / college dropouts. Some are inheritors,
others are self-made. Some topped their chosen field in their thirties; others
did not approach the starting line until their fifties. Thus, there is no typical
entrepreneur as such.
Then, the question arises is: What makes an entrepreneur successful?
Whether they had anything in common? The scanning of their personalities
shows that there are certain commonalities called characteristics found in them.
The principal ones are listed below:
1. Hard Work: Willingness to work hard distinguishes a successful
entrepreneur from unsuccessful one. Most of the successful entrepreneurs work
hard endlessly, especially in the beginning and the same becomes their habit for
their whole life. While delivering the Convocation Speech at the Entrepreneurship
Development Institute of India, Ahmedabad on Saturday, 17th September, 2005,
the well-known entrepreneur Shri Hari Shankar Singhania exhorted the budding
entrepreneurs that I have always followed the dictum that success comes only with 10%
inspiration and 90% perspiration. There is no substitute for hard work. One must have a
focus to achieve his / her Vision. Nobody gets a clean slate to write on and has to start with
the dirty slate he gets. If one waits for ideal situation, the time will never come.
2. Desire for High Achievement: The entrepreneurs have a strong desire to
achieve high goals in business. This high achievement motive strengthens them
to surmount the obstacles, suppress anxieties, repair misfortunes, and devise
expedients and set up and run a successful business (McClelland 1961). Sunil Mittal
of Bharati Telecom presents an excellent example of need for high achievement.
Entrepreneur 9

l Sunil Mittal, the son of Sat Paul Mittal, a Member of Parliament (MP),
belongs to non-business background. It was young Sunil, having high need
for achievement in life, started with the business of making cycle parts in
Ludhiana way back in 1976 at the age of 18 with borrowed capital of just `
20,000. But things did not work properly. So, he set up Bharati Healthcare in
1983-84 making capsules. It also did not work well because of the Governments
import-export policy. Then, Sunil Mittal started to manufacture push-button
telephones. Since then there was no looking back. It was Sunils high need
and urge for achievement, he bagged many first to his credit:
l The first push-button telephone set
l The first cordless
l The first answering machine
l The first fax machine
His entry into mobile sector with Airtel brand in 1995 has made him really
hit the spot light in the mobile technology in the country. His mantra is: One
achieves in proportion to what one sets and negotiates.
3. Highly Optimistic: The successful entrepreneurs have a positive approach
toward things. They do not get disturbed by the present problems faced by them.
They become optimistic for future that the situations will become favourable to
business in future.
In 1914, Thomas A. Adison, at the age of 67, lost his factory to fire. It had very little
insurance. No longer a young man, Edison watched his lifetime effort go up in
smoke and said: There is great value in disaster. All our mistakes are burnt up.
Thank God we can start anew. In spite of such devastating disaster, three weeks
after, he invented the Phonograph. What an optimistic or positive attitude!
4. Independence: One of the common qualities of the successful entrepreneurs
has been that they do not like to be guided by others and to follow their rules.
They resist to be pigeonholed. They like to be independent in the matters of their
business.
5. Foresight: The entrepreneurs have a good foresight to know about future
business environment. In other words, they well visualize the likely changes to
take place in market, consumer attitude and taste, technological developments,
etc. and take necessary and timely actions accordingly.
Nagavara Ramarao Narayana Murthy, popularly known as N. R. Narayana
Murthy, presents an excellent example of business foresight. He pursued a career
in computer science when there were not too many jobs in this field. The Indian industry/
business was very much into mortar-and-bricks business and had just about started
appreciating the role of computers. Today is the era of computers.
6. Good Organiser: Various resources required for production are owned by
different owners. Then, it is the ability of the entrepreneur who brings together all
required resources for setting up an enterprise and then produces goods.
7. Innovative: Production is meant to meet the customers requirements.
In view of the changing requirements of the customers from time to time, the
entrepreneurs initiate research and innovative activities to produce goods to
10 Entrepreneurial Development

satisfy the customers changing requirements and demands for the products. The
research centres/ institutes established by Tata, Birla, Kirloskar, etc., are examples
of the innovative activities taken by the entrepreneurs in our country.
Here is an example of the innovative quality of (Late) Dhiru Bhai Ambani.
(Late) Dhirubhai Ambani started his textile company in India at the time when the
textile industry in the country was facing absolutely unfavourable environment.
The textile industry was suffering from the general recession in the country.
The Government policy was in support of small powerloom units, on the one
hand, and against the mill sector by imposing differential tax-structure, on the
other. Expectedly, almost all small powerloom entrepreneurs were criticizing
the discriminatory policy of the Government and demanding support from the
Government to protect them in the market. The entrepreneur (Dhirubhai Ambani)
with his uncanny knack identified an opportunity even in such unfavourable
environment. He realized that the small power loom units could produce goods
with high quality, but were finding it difficult to market them. Therefore, he
decided to get high quality goods produced by these small power loom units as
per his specifications at a relatively low cost, got them duly processed and printed
with exquisite designs, and then sold them under his widely accepted brand in
the market. He earned huge margins of profits by doing so.

8. Perseverance: One of the qualities of successful entrepreneurs is that

they possess and exhibit tremendous perseverance in their pursuits. They do not
give up their effort even if they fail. They undergo lots and lots of failures, but
do not become disheartened. Instead, they take failure as learning experience
and make more dedicated and serious effort on the next time. And, ultimately
become successful. Example of Sunil Mittal, given earlier under Desire for High
Achievement, is an example of entrepreneurial perseverance also.
Following is yet another excellent example of perseverance.
Miss Fenny Hust, a creative writer, has a goal to get her story published in the
famous magazine of that time. Her 37 stories were rejected by that magazine. But
she persisted in her efforts. Her 38th story was published by that magazine. From
her story a play was produced and she earned lots of royalties and afterwards she
had not to look back. Perseverance can make miracles happen.

9. Team Spirit: The word Team refers to: T for Together, E for Everyone, A for
Achieves and M for More. Team results in synergy. Successful entrepreneurs build
teams and work with teammates. In simple words, team is a group of individuals
who work in a face-to-face relationship to achieve a common goal. They share
collective accountability for the outcome of the teams effort. Working in teams
creates synergy and achieves success in its endeavours. While appreciating the
role of team spirit in success, Henry Fords apt view seems worth citing: Bringing
people together is beginning, keeping people together is progress, and working with people
is success.
Entrepreneur 11
Here is a story of Hare and Tortoise that best illustrates the role of team spirit in
achieving success.

The Story of a Hare and a Tortoise

A Hare and a Tortoise lived in the world famous Kaziranga National Park in
Assam. They were very close friends and some times used to have a dig at each
other. What happened that, one day the Hare in a joking mode ridiculed the Tortoise
for his slow pace. The Tortoise felt bad and reacted very sharply challenging the
Hare to a race from Kaziranga National Park to Tezpur. On 15th June 2007, the
two met at the starting point and started the race. As expected, the Hare dashed
off like a flash. After crossing the midway point Jakalabanda, Hare thought for a
short sleep i.e., nap would do no harm to him. But short nap turned out relatively
a long nap. Meantime, the tortoise crossed the mid point Jakalabanda and reached
the destination, i.e., Tezpur before Hare. The Hare awoke from his slumber and
dashed off to Tezpur. He found the Tortoise taking a nap at the finish point Church
field. The lesson of the story is slow and steady wins the race. But the story does
not end here.
The Hare went home and pondered over his defeat in the race. He understood that
the complacency and over-confidence were the reasons for his defeat. He resolved not
to commit such mistake again. He went to the Tortoise and invited him for another
race. The Tortoise also agreed. They met at the appointed day and time and began the
race. This time the Hare dashed off to the finishing point without any nap and break
and, thus, won the race comfortably. The moral of the story is fast and steady also
wins the race. The story does not end here also.
This time the Tortoise made introspection about his defeat and realized that the
Hare could not be defeated by speed. He pondered over his core competence in
relation to the Hare. The Tortoise invited the Hare to race from Tezpur to Nagaon.
As usual, the Hare this time too dashed off in a flash and arrived at the banks of
the Brahamputra. He did not know how to swim. After some time, the Tortoise also
arrived at the Brahamputra bank and saw the Hare standing helplessly at the bank.
The Tortoise looked at the Hare in sympathy and coolly entered into the water.
He swam to the other side and reached Nagaon. The moral of the story is core
competence wins the race. But, the story does not end here also.
The two friends decided enough of racing against each other. The finally found a
way by which they could together travel from Tezpur to Guwahati Airport in the
minimum time. Hare dashed off from Tezpur to Nagaon. After arriving at the bank
of Brahamputra, the Hare got on to the back of the Tortoise. The Tortoise swiftly
crossed the river. On reaching the other bank, the Tortoise again climbed on Hares
back. The Hare again dashed off in a flash to reach to Guwahati Airport. Thus, the
both friends made it possible to reach Guwahati Airport in the fastest and shortest
possible time.
The moral of the story is innovation and team spirit win the race.

That it will be more convincing to know the characteristics of successful

entrepreneurs based on the life experiences of successful entrepreneurs, we are
presenting, in the following Box No. 1.1, the Azim Premjis Ten Golden Rules
for a successful entrepreneur.
12 Entrepreneurial Development

Box No. 1.1

Azim Premjis Ten Golden Rules for a Successful Entrepreneur

1. Dare to Dream: People wonder if having unrealistic dreams is foolish. My reply:

dreams can never be realistic or safe. If they were, they would not be dreams.
But one must have strategies to execute dreams and slog to transform them into
reality.
2. Set Clear Goals: Define what you stand for as early as possible and do not
compromise for any reason. You cant enjoy the fruits of success if you have to
argue with your own conscience.
3. Never Loose Your Zest and Curiosity for Learning: I personally spend ten hours
a week on reading, or I find myself quickly outdated.
4. Strive for Excellence: In the world of tomorrow, and with globalization, just
being good is not good enough. One needs to excel in whatever one does.
5. Build Self- Confidence: Remember, no one can make you feel inferior without
your consent.
6. Learn to Work in Teams: The challenges ahead are so complex that no individual
will be able to face them alone. Team work results in effort and, in turn, more and
better results.
7. Take Care of Your self: The stress a young person faces today while beginning
his career is the same as what the last generation faced at the time of retirement.
Along with alternates, physical fitness is also important. I jog daily.
8. Persevere: It can make miracles happen.
9. Have a Broader Social Vision: While earning is important, we must use the same
for the larger good of the society.
10. Never Let Success Go to Your Head: For whatever we achieve is with the help
of other factors and people outside us. The moment we become ignorant, we
become vulnerable to making bad judgments.

(Extracts from a Convocation Address by Azim Premji at IIT, Madras, on July 27,
2001).

Based on her own entrepreneurial experience, Dr. Kiran Mazumdar-Shaw

has listed the following essential qualities of a successful entrepreneur:
1. Spirit of challenge.
2. Sense of conviction.
3. Resourcefulness.
4. Ethos of persistence.
5. Ability to manage failure.
6. Problem solving approach.
7. Ability to spot and leverage opportunity.
8. Building core competence and excellence.
9. Uncompromising work ethic.
10. Building a strong organizational DNA through differentiation.
Entrepreneur 13

1.4 THE CHARMS OF BECOMING AN ENTREPRENEUR

On completion of ones formal education, one has usually two career options,
viz. wage-employment and self-employment. Under wage employment, one
joins a job in the Government, public and private establishment and earns fixed
wages or salary. Thus, the nature of income generation in wage employment is of
self-saturation. In case of self-employment, i.e. pursuing ones own endeavour/
enterprise, the scope for ones excellence is limitless and, thus, the scope for
earning in self-employment is also unlimited or flexible. Alternatively speaking,
the nature of income generation in case of self-employment is of, what Abraham
Maslow termed the ultimate human need in his Need Hierarchy Theory of
Motivation (1943: 370-396), self-actualization. Self-Actualization means to
achieve or actualize what one can. The major differences between the two career
options of wage employment and self-employment are presented in a more
orderly manner in the following Table 1.2.
Table 1.2: Differences between Wage Employment and Self-Employment

Basis of Self-Employment
Wage Employment
Difference
Nature Self-saturation Self-actualization
Scope Limited Unlimited
Tendency Routine or status quo Imaginative, creative, innovative
Earning Fixed Generating, flexible
Satisfaction Through compliance Through converting ones
of rules, procedures creativity into reality
Status Employee Employer
Having differentiated the two career options, we can now profitably
appreciate the charms of being an entrepreneur.
Researchers have invested a great deal of time and effort over the last few
decades trying to know what are the charms of becoming an entrepreneur. The
major charms of becoming an entrepreneur are discussed as follows:
1. Opportunity to Create Ones Own Destiny: Owning a business provides
entrepreneurs both the independence and opportunity to do and achieve what is
important to them. Entrepreneurs know that they are the driving forces behind
the success of their business. Therefore, they want to make their destiny high and
bright and, thus, want to call the shots in their lives as much as possible. They
use their businesses to make it come true. They believe in Swami Vivekanada Jis
dictum: You are the creator of your own destiny.
2. Opportunity to Make a Difference: A perceptible trend which is on
increase also noticed among the entrepreneurs is that they start their business
because they see an opportunity before them to make a dent and difference in
the cause that is important to them. It may be providing low-cost houses to the
middle-class families or establishing a recycling programme to preserve the earths
limited resources. Mr. Deepak S. Parikh, the Chief Executive Officer (CEO) of the
14 Entrepreneurial Development

Housing Development and Financing Corporation Limited (HDFC) is one such

example among the Indian entrepreneurs.
3. Opportunity to Reach Ones Full Potential: Owning a business gives
entrepreneurs a sense of empowerment to do what they can. In his Need Hierarchy
Theory of Motivation, Abraham Maslow termed it Self-Actualization. Thus,
doing business becomes entrepreneurs play. It also becomes an instrument for
entrepreneurs self-expression and self-actualization. They know that the only
boundaries on their success are those imposed by their own creativity, enthusiasm
and vision. N. R. Narayana Murthy who left the job of a System Programmer in the
prestigious Indian Institute of Management, Ahmedabad to start his own business
with three other partners, says, Starting my own business was a sort of spiritual
awakening. I found out what was important to me-being follow my own interests
and harness it to its fullest extent possible.
Following are some Indian Idols who dared to dream big and transformed
their dreams into action and achievement to the highest order:
Shri Dhiru Bhai Ambani Lakshmi Mittal
Dhirubhai Ambanis life inspires us to The son of a scrap dealer today is the
dream and dare. He went to Mumbai worlds largest producer of steel having
with ` 15,000/- to start his yarn business plants in 15 countries including India
and lived with his family of seven people producing 18 times more steel than Tata
in a one-room tenement in Mumbai. He Steel Co. Also his companies make two
created Reliance Industries Limited, and a half times entire steel production of
i.e. the Indias biggest private sector India.
organization. Subhash Chandra
Dr. Karsan Bhai Patel Subhash Chandra of Zee Television (TV)
The Nirma man was an ordinary factory came to Mumbai with ` 17/- only. Today he
chemist in Gujarat Mineral Development is the owner of a ` 20,000/- crores business.
Corporation (GMDC). He started Kiran Mazumdar-Shaw
conducting experiments in his kitchen Kiran Mazumdar-Shaw, who started
to offer an affordable detergent to rural her business from her car garage with a
harried housewives struggling to balance capital of ` 10,000/- only. By now, Kiran
to their monthly budgets. His efforts Mazumdar-Shaw as the Chief Executive
finally yielded a pale, whitish-yellow Officer (CEO) of Biocon Group is
detergent powder that he named Nirma, considered as the quintessential pioneer
after his then one-year old daughter amongst the Indian business persons. She
Niranjana. Today Nirma is one of the is also recognized as Indias Bio-tech
worlds biggest detergent brands. It sells Queen, by the Economist and Indias
over 8 lakh tones of detergent product Mother of Innovation by the New York
annually. It holds 40% of the Indian Times.
market with turnover of more than `
2,500/- crores.
4. Opportunity to Reap Impressive Profits: Industrial surveys show that
the entrepreneurs earn much more income than if they work for others, say some
organization. Of course, all not, but some entrepreneurs become super-rich.
Michael Dell, the owner-entrepreneur of Dell Computer Corporation is one such
example of richness reaching the list of the wealthiest people in the United States.
Entrepreneur 15
(Late) Dhiru Bhai Ambani and N. R. Narayana Murthy, among others, are such
examples of rich entrepreneurs in India.
5. Opportunity to Contribute to Society: Entrepreneurs by running their
businesses in an honest and transparent manner and serving the customers
faithfully earn recognition and respect in their communities. They contribute to
the well being of the society as well by providing jobs to unemployed, utilizing idle
resources, reducing differences in the levels of development of different regions,
and producing and providing goods and services to the people in the society. Here
is an anecdote how entrepreneur contribute to the well being of society.
The well-known entrepreneur N. R. Narayana Murthy started Infosys Foundation
to render services in the area of education and health care. Its Chairperson, Sudha
Murty, the wife of Narayana Murthy says: We have a responsibility to give back
to the society. Wealth is only a means to an end and we are just trustees of that
wealth.
6. Opportunity to Do What One Enjoys: Entrepreneurial history is replete
with the instances that most of the entrepreneurs entered into business because
they have an interest in that line of work. They have made their avocations
(hobbies or interest) their vocations (work). For such entrepreneurs, Harvey
McKays dictum seems worth quoting: Find a job doing what you love, and
youill never has to work a day in your life. The journey rather than the destination
is the entrepreneurs greatest reward.

1.5 THE ENTREPRENEURIAL DECISION PROCESS

Just a traveller has to pass through a road from starting point to reach to
his/her destination point; an individual also needs to pass through a process
from present status to become an entrepreneur. In other words, the individual/
entrepreneur has to take a number of decisions in sequential order, call it the
entrepreneurial decision process, to leave the present status and become an
entrepreneur. Following is an illustrative decision process individuals follow to
become entrepreneurs:
The Present Status

Reasons for Changing the Present Status

Desire for Change from the Present Status to Become Entrepreneur

Possibilities to Become an Entrepreneur

An Entrepreneur
Figure 1.1: The Entrepreneurial Decision Process
16 Entrepreneurial Development

Let us discuss these one by one.

The Present Status: There is an apt saying: Change is the law of nature and
change is the only permanent thing in this world. Yet, change is often resisted
because it involves uncertainty which causes fear. It is due to uncertainty, the
present state of affair is considered better than the unknown one after the change.
As such, leaving the present status and becoming an entrepreneur (i.e., a synonym
of risk and uncertainty) is not easy as it takes a great deal of preparation and
courage to do so. Nonetheless, individuals dare it and become entrepreneurs.
Broadly, there are two reasons for individuals to become entrepreneurs: (i)
By chance, and (ii) By compulsion. As regards choice, individuals working in
marketing area become familiar with market and gain experience and, in turn,
they decide to start their own business in that market. Sales representatives
working in publishing companies generally start their own publishing business
and present such example of becoming entrepreneurs by choice. On the other
hand, disruption in the present job/status due to retirement, lay-off, and other
compulsions also compel people to become entrepreneurs. Thus, the idea and
decision to become an entrepreneur, i.e. to start ones own business enterprise
occurs when an individual perceives and realizes that establishing a new
enterprise is desirable for him / her.
Reasons for Changing the Present Status: Entrepreneurship being a difficult
journey, the obvious question is: What are the reasons that people still become
entrepreneurs? Researchers have tried to understand and answer these questions.
The researchers report that people generally become entrepreneurs because
of economic reasons. These include unemployment, completion of education,
dislocation, no or less possibility for career and / or economic prosperity, etc.
Nonetheless, the personal dislocation is reported as one of the most powerful
reasons galvanizing an individuals will to become an entrepreneur. This is duly
supported by an increase of 12% in number of new business enterprises in the
United States during a lay-off period (Hisrich, Peters and Shepherd 2007: 10-11).
Completion of ones education is reported another major reason for becoming
an entrepreneur.
Desire for Change from the Present Status to Become Entrepreneur:
Evidences are available to believe that the desire to start ones own enterprise
and, thus, become an entrepreneur is spawned by some factors like the culture
and family one belongs to and the teachers and peers one comes into contact
with. Like elsewhere in the world, there are cultures in India also which place a
high value on being entrepreneur. For example, Punjabis and Gujaratis in India
represent such cultures which value more on making money, becoming ones
own boss, having more individual opportunities for being successful in career
and life. It is, therefore, not surprising to find the more number of enterprises
formed by the people belonging to the Punjabis and Gujaratis cultures. This is
contrary in the Assamese culture which places low value on being self-employed
i.e. entrepreneur and high value on being an employee. As such, the rate and
number of new enterprise formation is expectedly low in the Assamese culture.
Entrepreneur 17
Of late, educational institutions and teachers are also found encouraging
individuals to regard entrepreneurship as the desirable and viable career.
Concerted efforts are made by the educational institutions to design and develop
exciting course curriculum on entrepreneurship and enterprise management to
mould and stimulate individuals to become entrepreneurs. For example, Central
Board of Secondary Education (CBSE), Nagaland Board of School Education
(NBSE), Meghalaya Board of Secondary Education (MBOSE), and Council of
Higher Secondary Education (CHSE), Odisha has very recently introduced
entrepreneurship as an optional subject at their higher secondary level of
education. Somuchso, Jammu & Kashmir State Board of School Education
(JKBSE) has just introduced entrepreneurship as a compulsory subject in Class
11 and 12. Not only that, the premier national educational institutions likes
Universities, Indian Institutes of Management (IIMs), and the Indian Institute
of Technologies (IITs), besides teaching the subject entrepreneurship, have even
established Centre of Entrepreneurship and Innovation Incubation to stimulate
the students to form their own enterprises.
Possibilities to Become an Entrepreneur: No doubt, the desire to form an
enterprise needs to be present before forming an enterprise, but just desire to
form an enterprise cannot make an individual an entrepreneur. Also needed is
possibility, better call it supportive and facilitative structure, to form an enterprise.
Available literature on entrepreneurship indicates that an individuals business
background, educational background, previous experience, government attitude,
availability of finance and market and, of course, ones role models in business
world make it possible to form an enterprise. This is precisely the reason why
more enterprises are formed by the individuals belonging to business family
background. Similarly, it is also no wonder why more enterprises are established
in the places with supporting facilities like roads, communication, transportation
systems, utilities, economic and political stability, finance, and market. Finally,
to have someone else successful in business as ones role model also makes
enterprise formation possible. The reason is the role model develops the feeling
of self efficacy in the individual. That is: If that person can do and succeed,
so can I also. In other words, entrepreneurs are not born, they develop. It is
possible to become entrepreneur.

1.6 FUNCTIONS OF ENTREPRENEURS

In practice, an entrepreneur does perform all the functions necessary right
from the genesis of a business idea upto the establishment of an enterprise.
According to Peter Kilby (1971), there are thirteen functions to be performed by
the entrepreneur to establish and run his / her enterprise:
1. Perception of market opportunities
2. Gaining command over scarce resources
3. Purchasing inputs
4. Marketing the products
18 Entrepreneurial Development

5. Dealing with officials

6. Managing human resources within the enterprise
7. Managing customer and supplier relations
8. Managing finance
9. Managing production
10. Acquiring and overseeing assembly of the factory
11. Industrial engineering
12. Upgrading process and Product
13. Introducing new production techniques and products
All these functions can be listed in the following sequential order:
Business idea generation and selection of the best suitable business idea.
Determination of the business objectives.
Product analysis and market research.
Determination of form of ownership / organization.
Completion of promotional formalities.
Raising necessary funds.
Procuring machine and material.
Recruitment of men.
Undertaking the business operations.
For the convenience of better understanding, the various functions performed
by entrepreneurs are broadly classified into four categories as mentioned below:
Entrepreneurial Functions
Managerial Functions
Promotional Functions
Commercial Functions
These are now discussed in seriatim.

Entrepreneurial Functions
The major entrepreneurial functions include risk bearing, organizing, and
innovation. Since these are already discussed under the heading 1.2 Evolution
of the Concept of Entrepreneur, the same is, therefore, not discussed here again
for the sake of repetition.

Managerial Functions
In simple words, management is getting things working with and through
others. Different experts have defined term management differently. According
to Henri Fayol (1949) who is considered the father of principles of management,
management is to forecast, to plan, to organize, to command, to co-ordinate,
and to control. In the opinion of George Terry (1953), management is a
distinct process consisting of planning, organizing, actuating, and controlling
performance to determine and accomplish the objectives by the use of people
Entrepreneur 19
and resources. The significance of management function lies in the fact that
enterprises with excellent facilities and quality resources have floundered and
fizzled out due to either no management or poor management and enterprises
with good management but with poor facilities and resources have flourished
and performed exceedingly well. In small-scale enterprises, the entrepreneur who
is the owner of the enterprise also, has to perform the management functions as
well. The management functions performed by entrepreneur are classified into
the following five types:
1. Planning
2. Organizing
3. Staffing
4. Directing
5. Controlling
A brief description of each of these follows in seriatim:
1. Planning: In common parlance, planning is pre-determined course of action
to accomplish the set objectives. In other words, planning is todays projection for
tomorrows activity. Planning pervades in all aspects of business. An entrepreneur
has to make decisions as to what is to be done, how it is to be done, when it is to be
done, where it is to be done, by whom it is to be done and so on. The importance
of planning lies in the fact that it ensures the smooth and effective completion and
running of a business enterprise. Absence of planning causes confusion which,
in turn, affects the smooth performance of job whatsoever it may be. How? The
following anecdote beautifully demonstrates it:
This is a story about four people named Everybody, Somebody, Anybody and
Nobody. There was an important job to be done. Everybody was sure that
Somebody would do it. Anybody could have done it, but Nobody did it. Somebody
got angry about that because it was Everybodys job. Everybody thought Anybody
could do it, but Nobody realized that Everybody would not do it. It ended up that
Everybody blamed Somebody when Nobody did what Anybody could have done.
2. Organising: The organizing function of an entrepreneur refers to bringing
together the men, material, machine, money, etc. to execute the plans. The
entrepreneur assembles and organizes the above mentioned different organs of
an enterprise in such a way that these combinedly start functioning as one, i.e.,
enterprise. Thus, organizing function of an entrepreneur ultimately provides a
mechanism for purposive, integrated and co-operative action by many people in a
joint and organized effort to implement a business plan.
3. Staffing: Staffing involves human resource planning and human resource
management. Thus, staffing function of an entrepreneur includes preparing
inventory of personnel available, requirement of personnel, sources of manpower
recruitment, their selection, remuneration, training and development and periodic
appraisal of personnel working in the enterprise. Business history is replete with
evidences that it is basically the staff, i.e., personnel working in the organization
that makes all the difference. While appreciating the role of personnel in the
20 Entrepreneurial Development

success of an organization, L. F. Urwick had remarked that, business houses are

made or broken in the long-run not by markets or capital, patents or equipments, but by
men. Andrew Carnieges view that Take my people and leave my factory, soon grass
will grow on the floor. Take my factory and leave my people, soon we shall build a better
factory also underlines the significance of people or staffing in the making of an
organization. However, staffing function is as crucial for the success of a business
enterprise is equally complex as well.
4. Directing: The functions like planning, organizing, and staffing are
merely preparations for setting up a business enterprise. The directing function
of entrepreneur actually starts the setting up of enterprise. Under the directing
function, the entrepreneur guides, counsels, teaches, stimulates and activates his/
her employees to work efficiently to accomplish the set objectives. Thus, directing
function of entrepreneur concerns the total manner in which an entrepreneur
influences the actions of his / her employees/ workers. It is the final action of
an entrepreneur in making his / her employees actually act after all preparations
have been completed.
5. Controlling: Controlling is the last management function performed by
the entrepreneur. In simple words, controlling means to see whether the activities
have been performed in conformity with the plans or not. Thus, controlling is
comparison of actual performance with the target or standard performance and
identification of variation between the two, if any, and taking corrective measures
so that the target is accomplished.

Promotional Functions
1. Identification and Selection of Business Idea: Every intending
entrepreneur wants to start the most profitable and rewarding project. The
selection of the most suitable business project involves a process. The intending
entrepreneur, based on his /her knowledge, experience, and information gathered
from friends and relatives, generates some possible business ideas which can be
examined and pursued as a business enterprise. This process is also described
as opportunity scanning and identification. Then, the generated ideas are analysed
in terms of costs and benefits associated with them. Having made cost-benefit
analysis of all the ideas, the most beneficial idea is finally selected to be pursued
as business enterprise.
2. Preparation of Business Plan or Project Report: The entrepreneur
prepares a statement called business plan or project report of what he / she
proposes to take up. In other words, business plan is a well evolved course
of action devised by entrepreneur to achieve the specified objectives within a
specified period of time. In this sense, business plan is just like an operating
document. The preparation of business plan is not must, but it is very much
useful for the entrepreneur to establish his / her enterprise in an effective and
smooth manner. But, it is must for those entrepreneurs who intend to apply
for financial assistance from the financial institutions and banks for their
enterprises. It contains information about the intending entrepreneur, location
Entrepreneur 21
of enterprise, requirement for land and building, plant and machinery, raw
material, utilities, transport and communication, manpower, requirement for
funds including working capital along with its sources of supply, break-even
point and implementation schedule of the project.
3. Requirement for Finance: The entrepreneur prepares requirement for
funds with its detailed structure. The financial requirement is also classified into
short-term and long-term separately. Then, the sources of supply to acquire the
required fund are also mentioned. How much will be the share capital in terms
of equity and preference shares and how much will be borrowed capital from
different financial institutions and banks are clearly determined.

Commercial Functions
1. Production / Manufacturing: Once the enterprise is finally established, it
starts producing goods or offering services, whichever be the case. Production
function includes decisions relating to the selection of factory site, design and
layout, types of products to be produced, research and development, and design
of the product. The ancillary activities include production planning and control,
maintenance and repair, purchasing, store-keeping, and material handling. The
effective performance of production function, to a large extent, depends on the
proper production planning and control.
2. Marketing: All production is basically meant for marketing. Marketing
is the performance of those business activities that direct the flow of goods and
services from producer to consumer or user. Thus, marketing essentially begins
and ends with the customers. It is important to note that marketing is not just
selling. In fact, marketing includes much more than selling. Selling is the last
function in marketing activities. The examples of marketing activities are market
or consumer research, product planning and development, standardization,
packaging, pricing, storage, promotional activities, distribution channel, etc. The
success of marketing function is linked with an appropriate marketing mix.
Traditionally, marketing mix referred to 4 Ps, namely, product, price, promotion,
and physical distribution. Of late, 3 more Ps namely, packaging, people, and
process are also added to marketing mix.
3. Accounting: The main objective of any business enterprise is to earn
profits and create wealth. Whether the business is fulfilling its objective or not is
ascertained through accounting. What is accounting? According to the American
Institute of Certified Public Accountants, Accounting is the art of recording,
classifying and summarizing in a significant manner and, in terms of money,
transactions and events which are, in part at least, of a financial character and
interpreting the results thereof. Thus, accounting involves a process consisting
of the following four stages:
1. Recording the Transactions
2. Classifying the Transactions
3. Summarising the Transactions
4. Preparing the Final Accounts
5. Analysing and Interpreting the Results.
The Profit & Loss Account is prepared for ascertaining whether the business
22 Entrepreneurial Development

earned profit or incurred loss during a particular period of time also called
accounting year. The Balance Sheet is prepared to know the financial position
of business during the accounting period. Hence, the Balance Sheet is also called
Position Statement.

1.7 NEED FOR ENTREPRENEURS

The entrepreneurs are considered change agents in the process of industrial
and economic development of an economy. The primum mobile role that
entrepreneurs play in promoting industrial and economic development of
an economy is well adduced across the countries. In a sense, entrepreneurs
are the spark plug who transform the economic scene of an economy. For
example, Japan and United States are developed because of their entrepreneurial
development and Bangladesh and Nepal are underdeveloped because of lack
of their entrepreneurial development. Within India itself, Gujarat and Punjab
are developed because of their entrepreneurial development and Bihar and
Odisha are backward or underdeveloped because of the lack of entrepreneurial
development. Thus, with entrepreneurs societies prosper, without them they are
poorer. In fact, the need for entrepreneurs in an economy can be imbued with
multiplicity of justifications as listed below:
Entrepreneurs promote capital formation by mobilising the idle saving of
the people.
They create immediate and large-scale employment by establishing small-
scale enterprises. Thus, they reduce the unemployment problem in the
country, i.e., the root cause of all socio-economic problems.
They promote balanced regional development by establishing small-scale
enterprises in rural, remote and less developed regions.
They help reduce the concentration of economic power.
They promote the equitable redistribution of wealth, income and even
political power in the interest of the country.
They encourage effective resource mobilization of capital and skill which
might otherwise remain unutilized and idle.
They, by establishing industries, induce backward and forward linkages
which stimulate the process of economic development in the country.
Last but no means the least; they also promote countrys export business,
i.e. an important ingredient to economic development.
Mr. Rahul Bajaj, Chairman & Managing Director of Bajaj Auto extols the need for
and significance of entrepreneurs in India in these words: If we could have an
entrepreneur in every family, Indias economy would sky rocket. We would then
be able to take our rightful place as an economic super power in the community
of nations. Entrepreneurs create jobs. They create wealth. They create products
and services.
Entrepreneur 23
One way, perhaps the most plausible way, of examining and appreciating
the role of entrepreneurs in economic development in India is to see their
contribution to countrys total production, employment, and exports. It is
interesting to mention that entrepreneurs by establishing small-scale enterprises
contribute 35 per cent of gross value of the output in the manufacturing sector,
about 80 per cent of the total industrial employment and about 40 per cent of
total exports of the country. A cross-country (for example, Japan and Bangladesh)
and cross-region (for example, Gujarat and Odisha) examination confirm that
with entrepreneurs we prosper, without these we are poorer.
1.8 TYPES OF ENTREPRENEURS
In fact, there is no typical entrepreneur. Entrepreneurs are classified into
different types based on different classifications as mentioned below:
Based on the Type of Business
1. Trading Entrepreneur: As the name itself suggests, the trading entrepreneur
undertake the trading activities. They procure the finished products from the
manufacturers and sell these to the customers directly or through a retailer.
These serve as the middlemen as wholesalers, dealers, and retailers between the
manufacturers and customers.
2. 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. In other words, the manufacturing entrepreneurs convert raw
materials into finished products.
3. 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.

Based on the Use of Technology

1. Technical Entrepreneur: The entrepreneurs who establish and run
science and technology-based industries are called technical entrepreneurs.
Speaking alternatively, these are the entrepreneurs who make use of science
and technology in their enterprises. Expectedly, they use new and innovative
methods of production in their enterprises.
2. Non-Technical Entrepreneur: Based on the use of technology, the
entrepreneurs who are not technical entrepreneurs are non-technical entrepreneurs.
The forte of their enterprises is not science and technology. They are concerned
with the use of alternative and imitative methods of marketing and distribution
strategies to make their business survive and thrive in the competitive market.

Based on Ownership
1. Private Entrepreneur: A private entrepreneur is one who as an individual
sets up a business enterprise. He / she its the sole owner of the enterprise and
bears the entire risk involved in it.