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101
BUSINESS
ENTREPRENEURSHIP I
M. Com. Part I
Semester I
Production
Contents Pages
Programmes (EDPs)
INTRODUCTION
This self-instructional material is based on the syllabus for the subject Business
Entrepreneurship (M. Com. ).
Nashik -
SYLLABUS NOTES
SYLLABUS NOTES
Entrepreneurial Environment
Factors affecting Entrepreneurial Growth
Barriers to Entrepreneurship
Creativity
Component Elements of Creativity, Attributes of Creative Individuals, Barriers to Creativity, The
Creative Process, Inculcating Creativity, Heuristics for Stimulating Creative Ideas/Insights,
Techniques of Developing Creative Thinking
Innovation
Principles of Innovation
Business
Entrepreneurship - I 6
BUSINESS ENTREPRENEURSHIP - I
M. Com. Part I
SYLLABUS NOTES
Motivation
Motivation Theories
Abraham Maslows Need Hierarchy Theory, Douglas McGregors X & Y theory, Frederick
Herzbergs Motivation-Hygiene Theory, McClellands Achievement Motivation Theory, Clayton
Alderfers Existence, Relatedness and Growth Theory (ERG), Victor Vrooms Expectancy Theory,
Porter and Lawler Model of Motivation
Business
Entrepreneurship - I 7
NOTES
Business
Entrepreneurship - I 8
NOTES
Business
Entrepreneurship - I 9
Introduction to
UNIT 1 : INTRODUCTION TO Entrepreneurship
ENTREPRENEURSHIP
NOTES
Structure
1.0 Introduction
1.1 Unit Objectives
1.2 Entrepreneur, Entrepreneurship and Enterprise
1.3 Concept of an Entrepreneur
1.4 Significance of Entrepreneurship
1.5 Entrepreneurship Development
1.5.1 Some Models for Entrepreneurship Development
1.6 Entrepreneurship in Developing Countries
1.7 Summary
1.8 Key Terms
1.9 Questions and Exercises
1.10 Further Reading
1.0 Introduction
In the words of Peter Drucker, The manager is dynamic, life giving
element in every business. Without his leadership, resources of production remain
resources and never become production. In the competitive economy above all,
the quality of performance of managers determines success of business; indeed
they determine its survival. All other factors of production will remain inactive in
its absence. There is a close relationship between entrepreneur and resource
utilization. Obviously, role of entrepreneurs in economic development is just
indispensable. Economic development is a matter of resource utilization. In absence
of effective utilization of these resources, they continue to remain unitized or
underutilized resulting in a lower level of economic development. The presence of
entrepreneur is a crucial factor for ensuring economic growth. Administrators,
economists, and planners have recognized the relationship between
entrepreneurship and economic development. Government is developing policies
conducive for development of entrepreneurship.
Being the first unit, as per your expectation, you will find the concept of
entrepreneur and its related introductory aspects in this unit.
1. Need for motive the dynamic which for prospective entrepreneur has
the greatest possibility of achieving the goals if one performs those
NOTES
activities
2. Long term involvement is the goal either at thinking level or at activity
level in the entrepreneurial activity that is viewed as a target to be fulfilled
3. Resources personal, social and material resources which he/she thinks
are related to entry and success in the area of entrepreneurial activity
4. Socio-Political system to be perceived as suitable for establishment
and development of his/her enterprise
All these factors are additive in nature and its optimal presence lead to
entry point of entrepreneurship which leads to acquisition of material resources
and development of his/her enterprise.
B. S.Venkata Rao(1975) has described five stages for promoting small
entrepreneurship:
1. Stimulation- There is no dearth of entrepreneurial talent in any society.
However, all those persons with potential for entrepreneurship may not
be self-motivated. They may not get supportive families. They may not
get conducive environment. Due to discouraging environment, the
entrepreneurial spark may not be ignited. The stage of stimulation is
required in this background. Those who have hidden potential and latent
talent, they should get favourable atmosphere. There is a need to create
awareness and arouse interest about entrepreneurship.
This stage includes creation of industrial atmosphere, policy statement
emphasizing the role of small industry, wide publicity of industrial
development programme, formation of special schemes and creation of
support institutions. This stage is necessary to stimulate interest of the
backward region in industrial activity and to create awareness. Special
entrepreneurship awareness campaigns and motivation training is required
for stimulation phase.
2. Identification This stage is necessary to identify prospective
entrepreneurs. Identifying the right target audience is a good beginning.
According to the characteristics and requirements of target groups,
structured and standardized motivation and training programs need to
be organized. The prospective entrepreneurial force can be identified in
rural artisans, factory workers, persons who have formal training in
engineering and technology, and graduates in business administration
and management. With focused approach, untapped talent and unexplored
human resources can be diverted to the mainstream through
entrepreneurship. e.g. school drop outs, women, minority groups, juvenile
delinquents, prisoners, rural population, physically challengedetc.
3. Development This stage would include organization of motivation and
managerial training program along with advice on technology, formulation
of bankable project, location etc.
4. Promotion This can be the job of supporting institutions to provide
developmental facilities, services and incentives. Business
Entrepreneurship - I 18
Introduction to 5. Follow up This stage includes reviewing the policies and programmes
Entrepreneurship of the government and seeking of new ways with a view to make it
more effective.
Entrepreneurship is a behavior rather than a personality trait. It is risky
NOTES
in the sense that only a few of them know what they are doing. The
future is uncertain. There is no certainty about acceptability of the
outcome by market. The whole process of developing an entrepreneur,
making him/her start a venture, supporting and sustaining him/her involves
a cyclic process.
M.M.P. Akhouri suggested the entrepreneurship development cycle
consisting of the following components for the promotion and development of
entrepreneurship:
1. Stimulatory activities: These activities refer to all such activities that
stimulate entrepreneurship in any society. These activities ensure the
emergence of entrepreneurs in the society. They prepare the background
for entrepreneurship to germinate and for people to start looking for
entrepreneurial pursuits. They generate initial motivation and offer
opportunity to acquire skill. These can be obtained by various activities
such as entrepreneurial education; planned publicity for entrepreneurial
opportunities, identification of potential entrepreneurs through scientific
methods; motivational training to new entrepreneurs; help and guidance
in selecting products and preparing project reports; making techno-
economic information and product profiles available; evolving locally
suitable new products and processes; availability of local agencies with
trained personnel for entrepreneurial counseling and promotions; creating
entrepreneurial forums; recognition of entrepreneurs.
2. Support activities These activities refer to all such activities that help
entrepreneurs in establishing and running their enterprises. These activities
help a person to develop into an entrepreneur. They nurture and help
entrepreneurship to grow. This can be done by providing the necessary
infrastructure in the form of computers, internet connectivity, offering
consultancy and training, and providing all required information as to
how a person should groom himself/herself as an entrepreneur. Financial
assistance for projects and seminars could also promote entrepreneurship.
These activities can be promoted in the incubation centre to groom a
person to become an entrepreneur. The various support activities are
given below: registration of unit; arranging finance; providing land, shed,
power, water and so on; guidance for selecting and obtaining machinery;
supply of scarce raw materials; getting licenses/import licenses; providing
common facilities; granting tax relief or other subsidy; offering
management consultancy services; help marketing the product; providing
information.
3. Sustaining activities These activities help in continuous, efficient and
profitable functioning of an enterprise. These include modernization of
infrastructure, encouraging diversification, providing opportunities and
supporting industry-institute interaction through consultancy, promoting
quality, and organizing need-based common facilities centres. The various
sustaining activities are as follows: Help modernization; help
diversification/expansion/substitute production; additional financing for
full capacity utilization; deferring repayment/interest; diagnostic industrial
Business
extension/consultancy services; production units Entrepreneurship
legislation/policy
-I
change;
19
product reservation/creating new avenues for marketing; quality testing Introduction to
and approving services; need-based common facilities centres. Entrepreneurship
NOTES
1.9 Questions and Exercises
Questions
1. Developing countries need imitative rather than innovative entrepreneurs.
Comment.
2. Define the Schumpeterian innovative entrepreneurs. Are they found in
underdeveloped economies like India? If not, why?
3. Discuss the main functions of an entrepreneur.
4. Define entrepreneurship in your own words. Explain significance of
entrepreneurship development.
5. Who is an entrepreneur? Comment on the statement that entrepreneurs
are made, not born.
6. Innovation is the hallmark of entrepreneurship. Discuss critically.
7. Explain the main characteristics of entrepreneurship.
8. What is entrepreneurship? Explain its importance in the society.
9. Why is entrepreneurship so important to a developing economy? Discuss.
10. Schumpeters innovating entrepreneurs are very rare in developing
countries. Comment.
Exercise
1. Interview an entrepreneur and ask him/her the charms of being an
entrepreneur.
Answers
Check Your Progress
5. need not be
8. Developed
Business
Entrepreneurship - I 25
9. Underdeveloped Introduction to
Entrepreneurship
10. Fabian
11. Imitative
NOTES
12. Schumpeters
1. iv
2. iii
3. iv
4. iv
5. iii
6. i
7. ii
Business
Entrepreneurship - I 26
Understanding
Entrepreneurship UNIT 2 : UNDERSTANDING
ENTREPRENEURSHIP
NOTES
Structure
2.0 Introduction
2.1 Unit Objectives
2.2 Entrepreneurship: Concept and Growth
2.3 Dimensions of Entrepreneurship Development
2.4 Entrepreneurship and Management
2.5 Distinction between an Entrepreneur and a Manager
2.6 Summary
2.7 Key Terms
2.8 Questions and Exercises
2.9 Further Reading
2.0 Introduction
In the previous unit you have read about nature and importance of
entrepreneurs. Obviously, various questions may have been raised in your mind:
What is entrepreneurship? How has the concept of entrepreneurship evolved and
developed? What exactly is the meaning of entrepreneurship development? In what
manner it is related with management? This unit tries to answer these questions.
Business
Entrepreneurship - I 31
other innovations. He spots the crux of entrepreneurship in his/her ability to multiply Understanding
himself/herself by effectively delegating responsibilities to others. Harbisons Entrepreneurship
entrepreneur is an organisation builder who must be able to harness the new
ideas of different innovators to the rest of the organization, Such persons are not
always the men with ideas or men who try new combinations of resources but NOTES
they may simply be good leaders and excellent administrators.
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 highlighted individuals organizational skill, creativity,
and ability to plan and initiate changes.
Harbisons definition of entrepreneurship lays more stress on managerial
skills and creativity so far as organization is concerned. His definition, as it appears,
is not far from Schumpeters concept of innovation. It also allows creation of new
organization as innovation and Harbison also emphasizes the organization building
ability. But he maintains that the ability to create an organization is the most crucial
skill which facilitates the economic use of other innovations. If this skill is absent
then other innovations fail to stimulate economic development.
Business
Entrepreneurship - I 33
production methods, labour and markets, opportunity to learn, all the activities Understanding
associated with effective planning and successful operation of industrial enterprises. Entrepreneurship
Labour structure is concerned with supply of competent and willing labour. The
supply of labour is governed by several factors such as available alternative means
of livelihood, traditionalism and expectations of life. In this manner, entrepreneurial NOTES
supply depends upon these four structures. Any discrepancy between objective
structures and actual incidence of entrepreneurs is due to inadequate or incorrect
perceptions of various structures. Entrepreneurship depends on rather specific
combinations of circumstances which are difficult to create and easy to destroy.
Business
Entrepreneurship - I 36
Understanding A manager is primarily concerned with those activities relevant to predictive
Entrepreneurship management process i.e. with activities related to production and control. An
entrepreneur is primarily concerned with activities relevant to adaptive management
process. However, the management process as we conceived it is not a dichotomy.
It is rather a continuum, and incorporates both administrative NOTESas well as
entrepreneurial element. Administrative element and entrepreneurial element both
are complementary within an organisation and sometimes within a particular role.
Depending upon differences in environment, size of enterprises, scale of operations;
nature and degree of administrative and entrepreneurial domain is chosen.
An entrepreneur deals with entrepreneurial activities of management
process. An administrator holds attitudes related to administrative orientation of
the management process.
An entrepreneur is in search for change; he/she responds to it and exploits
it as an opportunity. He/she perceives a need and then brings together various
resources required to meet that need. He/she organises various factors for
production to initiate changes. Management consists of continuous activity of
combining and coordinating factors of production.
Robert D. Hisrich and Michael P. Peters analyzed entrepreneurial and
administrative managerial styles along five key business dimensions: strategic
orientation, commitment to opportunity, commitment to resources, control of
resources, management structure. They compared entrepreneurial domain and
administrative domain as follows:
Entrepreneurial domain is characterized by rapidly changing technology,
social values, consumer economics and political values. Their strategic orientation
is driven by perception of opportunity whereas it is driven by currently controlled
resources for managers. Administrative focus deals with pressures concerned
with social contacts, performance measurement criteria, planning systems and
cycles.
Commitment to opportunity is revolutionary and of short duration for
entrepreneurs and for managers, it is evolutionary and of long duration. The main
features with reference to commitment to opportunity for entrepreneurs are action
orientation, short decision windows, risk management, acceptance of reasonable
risks, and limited decision constituencies. Administrative domain comprises of
multiple constituencies, negotiation of strategic course, risk reduction, coordination
with existing resource base and management of fit.
Entrepreneurial decision style regarding commitment of resources is
multistaged with minimal exposure at each stage. It is featured by lack of long-term
control over the environment, social need for more opportunity per resource unit,
and international pressure for more efficient resource use. Pressures are regarding
lack of predictable resource needs, lack of control over environment, social demands
for appropriate use of resources, foreign competition etc. Managerial decision style
regarding commitment of resources is single staged with complete commitment upon
decision. Its main features are personal risk reduction, incentive compensation,
managerial turnover, capital allocation systems, and formal planning systems.
Entrepreneurial domain for control of resources is episodic and concerned
with use or rent of required resources. The pressures are increased specialization,
long resource life compared to need, risk of obsolescence, risk inherent in any
new venture, and inflexibility of permanent commitment to resources. Administrative
domain regarding control of resources is concerned with ownership
Business or employment
of required resources. The pressures are with reference to power, status
Entrepreneurship -I and
37
financial rewards, coordination of activity, efficiency measures, inertia, cost of Understanding
change, industry structures. Entrepreneurship
Entrepreneur Manager
Check Your Motive To start a venture by To render services/
Progress setting up an enterprise. manage to an enterprise
He/she is not guided by already established by
7. How does an profit motive. someone. He/she is
entrepreneur differ interested in salary which
from a manager? is fixed and certain.
Status Entrepreneur is self- Manager is a salaried em-
employed. Being the ployee in an enterprise.
owner of enterprise, he/ He/she depends upon his/
she is his/her own boss her employer
Vision Understands organization Understanding is narrow
as a whole and limited to the scope
of work
Pre-requisites High achievement motive, Knowledge in manage-
innovation, vision, risk ment theory, principles and
t aki ng at t i t ude, sel f -practice
confidence
Innovation E n t r e p r e n e u r i s a n Manager may not be an
innovator. He/she adopts innovator. He/she
an innovative approach manages established
business on the basis of
fixed rules, policies,
procedures. He/she
adopts a realistic
approach
Risk Bearing Entrepreneur assumes Manager implements
risk and uncertainty entrepreneurs ideas into
involved in enterprise. practice. He/she does not
He/she is a moderate undertake risk. His/her risk
risk-taker exposure is low
Rewards Reward for risk bearing Salary of a manger is
is profit which is highly fixed and certain.
uncertain. No guarantee Rewards are guaranteed
for rewards. Possibility of either through salary or
losses through promotions
2.6 Summary
The term entrepreneurship has been defined differently by different
persons. The word entrepreneur is derived from the French verb entreprendre
meaning to undertake. The word entrepreneurship appeared first in French
according to Encyclopedia Britannica. In the early 16th Century, it was applied to
those who were engaged in military expeditions. In 17th Century, it was extended
to cover civil engineering activities. It was in the beginning of 18th Century that the
word was used to refer to economic activities. The entrepreneur and his/her unique
risk bearing function were first identified by Richard Cantillon.
Schumpeters entrepreneur is one who perceives opportunities to innovate.
According to him, an entrepreneur is an entrepreneur only when he/she tries new
combinations to innovate and to produce new things.
Frank Young has accepted the Schumpeterian definition of entrepreneur
as that of an innovator. In his view, entrepreneurial characteristics have to be
analysed in the form of groups; entrepreneurial characteristics are rooted in social
clusters, ethnic communities, or occupational groups.
According to Bert Hoselitz, managerial skills and leadership are important
facets of entrepreneurship. Hoselitz suggests that entrepreneurship can develop
in a society when its culture permits a variety of choices and where social processes
are not rigid and in a situation which encourages the development of personalities
interested in enterprise.
Fredrick Harbisons entrepreneur is an organization builder who must be
able to harness the new ideas of different innovators to the rest of the organization.
He viewed organization building as the most critical skill needed for economic
development as it facilitates the use of other innovations.
David McClelland highlighted that the desire to achieve is the most
important motivating factor for entrepreneurial functions. He identified two
characteristics of entrepreneurship; doing things in a new and better way and
decision making under uncertainty.
Harvey Liebenstein defines entrepreneur as an individual or a group of
individuals having four major characteristics: connection of different markets,
capability of making up market deficiencies (gap filling), input-completing and
creation and expansion of time-binding input transforming entities i.e. firms.
Everett Hagen suggests that economic growth has been led not by
individuals randomly distributed throughout a society but disproportionately by
Business
Entrepreneurship - I 40
Understanding individuals from some distinctive group. He identified creative innovation or
Entrepreneurship change as the fundamental characteristics of economic growth.
John Kunkel argues that marginality does not guarantee entrepreneurship.
He states that industrial entrepreneurship depends upon four structures which are
NOTES
found within a society or community: limitation structure, demand structure,
opportunity structure, labour structure.
According to Max Weber, religious functions are an important influence
on individuals and the nurturing of an entrepreneurial culture in the society.
An entrepreneur differs from a manager. An entrepreneur launches a
new enterprise and a manager operates an existing one. The roles of entrepreneur
and manager may, however, overlap. Entrepreneur while initiating their enterprises
have to apply their managerial skills to implement their innovations. Managers
have to use entrepreneurial skills for managing change and innovation
NOTES
Answers
Check Your Progress
1. a rich farmer who applied his intelligence and wealth for profit
2. Peter Drucker
3. produces, applies
4. inventor, entrepreneur
5. A. ii
B. iv
C. i
D. iii
Business
Entrepreneurship - I 43
Introducing the Entrepreneur
UNIT 3: INTRODUCING THE
ENTREPRENEUR
NOTES
Structure
3.0 Introduction
3.1 Unit Objectives
3.2 The Entrepreneurial Personality
3.3 Entrepreneurial Mindset
3.4 Entrepreneurial Functions
3.5 Summary
3.6 Key Terms
3.7 Questions and Exercises
3.8 Further Reading
3.0 Introduction
Whenever you see a successful business, someone made a courageous
decision Peter Drucker
Entrepreneur is a key figure in entrepreneurship. He/she is one who creates
a new business in the face of risk and uncertainty for the purpose of achieving
profit and growth by identifying significant opportunities and assembling the
necessary resources to capitalize on them. He/she powers the process of economic
development. He/she has been defined in various ways an innovator, a capitalist,
a risk taker, a resource assembler, an organization builder, a change agent, an
opportunist, a decision maker, a visionary, a leader, a dreamer, a problem solver
and so on. Actually, an entrepreneur is all combined into one a multifaceted
personality. Let us discuss various facets of this versatile, multidimensional
personality.
Entrepreneurial Competencies
Initiation of entrepreneurship involves perceiving an idea of enterprise,
converting that idea into reality, organizing various resources, and getting the things
done through various activities, operations, persons and organizations for seeking
market acceptance and societal sanction. Those who think about entrepreneurship
Business
Entrepreneurship - I 53
career are not ordinary people. They are innovative. They are blessed with some Introducing the Entrepreneur
special skills and competencies.
A competency can be defined as an underlying characteristic of a person
which results in effective and/or superior performance in a task. It may be a
NOTES
motive, trait, skill, or a body of knowledge, or a combination of any of these which
one uses to his/her advantage.
Competencies are of two kinds:
Hard skill competencies Hard skill competencies refer to skills that are
acquired through academic education or through work experience.
Soft skill competencies Most soft skills are like traits such as initiative,
self-confidence, assertiveness, persuasion, persistence, information seeking, seeking
and acting on opportunities, problem solving, commitment, systematic planning,
efficiency orientation, desire for excellence, perfection, and high quality.
Entrepreneurial competencies can be defined as characteristics such as
generic and special knowledge, motives, traits, self-image, social roles and skills
which result in birth of a venture, its survival and/or growth. In short, the
competencies required by an individual for starting a business venture and carrying
it on successfully are known as entrepreneurial competencies.
Entrepreneurial competencies may be classified into two types: Personal
entrepreneurial competencies and Venture initiation and success competencies.
3.6 Summary
Entrepreneurs have most often been thought of as being born with some
special traits and skills. However, in due course of time, several research studies
were conducted on entrepreneurs and their enterprises. These empirical surveys
revealed that entrepreneurs are not people born with innate quality. They are not
exceptional and extra ordinary human beings blessed with some inborn traits. People
realized that actually entrepreneurship is a calculated and well planned career
option which leads towards wealth generation and economic development. Kakinada
experiment proved that entrepreneurs can be developed with training.
Entrepreneurship is not like basic science. It falls with the domain of social sciences.
It is linked with various streams of knowledge. Much of the research is applied. It
is difficult to generalize the findings easily. Business
Entrepreneurship - I 57
Anyone, regardless of age, gender, religion, race, or any other characteristic Introducing the Entrepreneur
can become an entrepreneur. Entrepreneurship is not a mystery. It is a practical
discipline. It is not a genetic trait. It is a skill that can be leant.
Existing corporations have also realized that in this highly competitive world,
NOTES
being entrepreneurial is a must. Many big corporates created numerous corporate
entrepreneurship programmes to promote entrepreneurs within who will enable
future growth for these enterprises.
A number of researchers have tried to identify the traits responsible for
entrepreneurship. They could not devise a combination of entrepreneurial
characteristics; they could not identify a definite formula for success. However,
innovation, creativity, need for achievement, risk bearing attitude etc are considered
to be the characteristics of a successful entrepreneur.
Entrepreneurship is not a matter of heritage. Entrepreneurs are not
necessarily born, they can be groomed with proper awareness, education and
training. If you possess certain skills, qualities, personality traits, mental aptitude;
you can become a successful entrepreneur. You may not be from a business family,
you may not be rich, you may not belong to a business community/caste/class; still
you can fulfill your dream of entrepreneurship by identifying and sharpening the
necessary behavioural traits/aptitude through counseling and motivational training.
You need to possess a strong desire to succeed, entrepreneurial capability, initiative,
problem solving.
Entrepreneurs identify opportunities that no one has earlier noticed.
Creativity and innovation enables entrepreneurs to think in a unique and new way.
They apply innovative ideas to business. They monitor environment, sense
opportunities, martial resources and apply their innovative ideas into actual practice.
They are able to get the things done. They take calculated risks and create value.
A competency is a combination of knowledge, skills and appropriate
motives or traits that an individual must possess to perform a given task.
Business
Entrepreneurship - I 58
Introducing the Entrepreneur 5. Is entrepreneurship different from small business management?
Express your own views.
6. Who is an entrepreneur? What are the characteristics of successful
entrepreneurs?
NOTES
7. In what manner entrepreneurship and small business management are
related to each other?
8. What are the popular myths around entrepreneurship?
9. Why should an entrepreneur require a different mindset?
10. Describe the entrepreneurial profile and evaluate your potential as an
entrepreneur.
Exercise
1. Conduct an interview of a successful entrepreneur from your city. Find
out his/her qualities, and functions performed by him/her for promotion
of entrepreneurial venture.
i. E. E. Hagen
ii. Ronstadt
iii. Liebenstein
iv. Peter Drucker
6. Choose the wrong alternative from the following
i. Entrepreneurs have a strong desire to achieve
ii. Entrepreneurs are innovators
iii. Entrepreneurs take calculated risk
iv. Entrepreneurs like to work for others
7. Which of the following is a typical characteristic of entrepreneurs?
i. Need for achievement
ii. Need for power
iii. Need for avoidance
iv. Need for affiliation
8. Pick the odd one out.
i. Innovation is a distinguishing feature of entrepreneurship
ii. Entrepreneurship is a practical discipline
iii. Entrepreneurship is a genetic trait
iv. Entrepreneurship is a skill that can be leant
Answers
Check Your Progress
2. moderate risk takers
3. entrepreneur, a small business manager
4. businessman, entrepreneurs
Business
Entrepreneurship - I 61
Entrepreneurial Career
UNIT 4 : ENTREPRENEURIAL CAREER
NOTES
Structure
4.0 Introduction
4.1 Unit Objectives
4.2 Charms of Being an Entrepreneur
4.3 A Journey Towards Entrepreneurship Career
4.4 Myths of Entrepreneurship
4.5 Problems Faced by Entrepreneurs
4.6 The Dark Side of Entrepreneurship
4.7 Summary
4.8 Key Terms
4.9 Questions and Exercises
4.10 Further Reading
4.0 Introduction
The best way to predict the future is to create it. - Peter Drucker
For a long time, there was a belief that entrepreneurs are born, and not made.
Entrepreneurship was not considered as a career option. It was for either naturally
gifted persons, wealthy individuals or school drop outs. It was never the most sought
after career option. No one thought about taking efforts to plan for entrepreneurial
career. It was considered to be the last resort when all other career options failed.
However, several research studies in the past few decades have shown
that millions of small businesses have been started by common people and these
enterprises have been doing well on the basis of disciplined practice of a number
of repeated and structured activities. It was attempted to identify the factors that
inspired entrepreneurs, to develop a profile of entrepreneurs in the light of their
upbringing, their personality set up, their socio-economic background, the factor
responsible for their success etc. Researchers documented these activities of
practicing entrepreneurs and other information details for the benefit of new aspiring
entrepreneurs. There is an emerging body of knowledge about entrepreneurship.
Now, in the light of comprehensive and all round efforts of the government for
entrepreneurship development, and consequent positive change in the societal
attitude about entrepreneurship as a career; it is now safe to consider
entrepreneurship as a career option.
Entrepreneurship has been evolving as an independent body of knowledge.
Literature is now available on various aspects of entrepreneurship. Researchers,
experts from various academic disciplines such as economics, psychology,
management, commerce, sociology etc are increasingly being attracted towards Business
Entrepreneurship - I 62
entrepreneurship. Researchers have started studying various practices of small
Entrepreneurial Career businesses, their initiation, management, growth as well as problem solving. Budding
entrepreneurs now have tremendous literature to learn from.
Now society has started giving sanction to entrepreneurship career option.
Successful entrepreneurs are being recognized. There is awareness about
NOTES
entrepreneurship. Entrepreneurial ecosystem has been developed in the form of
support of different institutions, availability of finance etc.
Business
Entrepreneurship - I 70
Entrepreneurial Career
4.5 Problems Faced by Entrepreneurs
Pain is temporary, quitting lasts forever. - Lance Howard
Oxford advanced dictionary of current English defined entrepreneurship
NOTES
as the ability to organize a business undertaking and assume the risks for the sake
of profit, also as the willingness of one to start, control and direct the processes of
production of goods and services and bear risks too. Entrepreneurship is a risky
proposition in comparison with a salaried job in an established enterprise.
Entrepreneurs have to shoulder the responsibility of using their own judgement,
using their ability to create new values, coping adversity, uncertainty, risks of failure
and loss. It is important to be aware about the challenges commonly faced by
entrepreneurs so that one gets a clear idea about the path towards entrepreneurship.
To find a right business opportunity and to select a promising and feasible
business idea is one of the foremost challenges faced by almost every entrepreneur
at the time of initiating the business venture. Developing a brilliant business idea is
indeed not an easy task. Entrepreneurs must sense opportunities while others see
problems. Entrepreneurs have to transform problems into business opportunities
and then elicit an attractive and viable business idea.
Particularly entrepreneurs face challenges with regard to access to finance
in new as well as already existing business. Entrepreneur has to convince investors
about feasibility of the business idea/project. To convince the investors about a
new unique business idea is not an easy task. He/she must have good convincing
skills and a perfect flawless business plan. He/she should possess the skill to sell
idea/vision to the financiers. Banks demand collateral security. It is not possible
for the entrepreneurs to fulfill this demand. High interest rates, lack of credit pose
other problems for entrepreneurs. There is a risk of losing entire investment. There
is uncertainty of income. Obviously stress level is high.
Entrepreneurs have to work long hours. They have to put hard work.
Their day is never restricted to fixed office timings like from 10.30 am to 5.30 pm.
An entrepreneur has to work 24x7 if required. There are physical hardships as
well as emotional strains. There may be injustice with family responsibilities and
social obligations due to busy schedule of entrepreneurs. Sometimes individuals
are discouraged from entering into entrepreneurship career path because they
fear lower quality of life.
Many entrepreneurs venture into entrepreneurship with an eye on unlimited
income potential. They build their enterprises for the sake of being their own boss.
They wish to develop their own destiny. Some of them may be lacking passion for
what they are doing. When they begin to experience difficulties and hardships of
managing business, it is difficult for them to accept the actual reality. Some
entrepreneurs suffer from depression and anxiety.
Entrepreneurs always work on ways to improve their organizations/
products/services/business practices. They are required to keep themselves updated
regarding changes and trends in the market. It is a gigantic task to face competition
from big players in the market. Big established brands have a long standing in the
market. There is a high level of awareness about market leaders. Further, there is
a competition from other small players also.
Competition is a big challenge for entrepreneurs especially for startup
entrepreneurs. In this globalized era, there is cut-throat competition in almost all
Business
Entrepreneurship - I 71
product categories and in all sectors of the economy. Small entrepreneur has to Entrepreneurial Career
assess market and make a strategic plan to ensure survival and growth.
Some entrepreneurs face marketing problems such as lack of marketing
orientation, developing a market plan, branding, advertising, actual selling, identifying
NOTES
and understanding customers, developing new products and services etc.
Human resource management is another big challenge for entrepreneurs.
Entrepreneurs have to find hardworking and trustworthy employees. For efficient
functioning of business enterprise, a good business team is required. The team
should possess diverse talent in which team players should supplement and
complement each other. It should be passionate about the future vision. Finding
and retaining qualified employees is a difficult task.
Choice of a good business location with good transportation network and
other conveniences and amenities is another important issue.
Technology problems faced by entrepreneurs are mainly related to
inadequacies of physical infrastructure such as improper transport facilities, irregular
power supply. There is a need of efficient communication network, transportation
network, water supply, electric power supply.
Majority of the entrepreneurs suffer due to lack of adequate infrastructure.
Basic infrastructure requirements such as connectivity, proper and efficient modes
of transport, effective means of communication, power, water, land are not
commonly available in our country.
Of course, government is providing basic needs in terms of infrastructure
to budding and existing entrepreneurs. Government policy is supportive for
entrepreneurs. Sometimes there are obstacles in implementation of policy,
procedural formalities, lengthy procedures etc. For getting loans collateral security
is required. In absence of collateral security, it is difficult to convince the financiers.
Like a plan to get into business, there is a need of a plan to get out of it. An
exit strategy is required to be planned before starting a business. After death of
the founder many businesses crush due to lack of exit plan. Exit strategy is important
for long term survival of a business. Some entrepreneurs use a certain benchmark
as a target such as annual sales, annual turnover, asset base, customer base, market
saturation, number of users etc. After the specific target is achieved, they exit the
business.
There are a number of social and cultural barriers which are difficult to
overcome readily. Getting societal approval and sanction is a difficult task for
entrepreneurs. Society looks at entrepreneurship as a risky proposition. It is not a
preferred occupation which is the most sought. Entrepreneurs have to convince
their family members, friends, relatives for choice of entrepreneurship career.
Check Your
In addition, entrepreneurs face common problems such as negative
Progress
mindset, lack of support, political instability, and technological set back, high tax
rates, time management, setting goals, measuring performance, accessing and
5. Which are the most
getting useful information, lack of skill and experience, high cost of production and
difficult challenges for
so on.
entrepreneurs in your
Entrepreneurial education and training definitely contributes significantly opinion?
for development of entrepreneurship among society. Aspiring entrepreneurs benefit
immensely out of these training programmes and EDPs. However, there is limited
access for education about entrepreneurship Business
Entrepreneurship - I 72
Entrepreneurial Career
4.6 The Dark Side of Entrepreneurship
A ship in port is safebut that is not what ships were designed for!
Risk-taking was one of the earliest identified characteristic
NOTES of an
entrepreneur. Cantillon and later Mill both portrayed an entrepreneur as an individual
who assumed risk for the firm. In fact, Mill included the term risk bearing to
distinguish entrepreneurs from managers. According to Mill, entrepreneurial
functions consisted of direction, control, superintendence and risk-bearing. Later,
Schumpeter noted the innovating nature of an entrepreneur and the inherent risks
associated with this kind of innovative behavior.
Hisrich defines entrepreneurship as the process of creating something
new with value by devoting the necessary time and effort, assuming the
accompanying financial, psychic, and social risks, and receiving the resulting rewards
of monetary and personal satisfaction and independence.
Britain encyclopedia defines entrepreneur as a person who organizes and
manages a job or economic association and receives its risks. Entrepreneurship is
a process in which entrepreneur establishes new jobs and firms, new creative and
growing organizations associated with risk taking by new and creative ideas and
identification of new opportunities and resource mobilization. Entrepreneurs are
widely believed to be willing to assume more risks than managers and salaried
employees. Burch argues: the antithesis of the entrepreneur is a person who
never loses because he or she never puts himself/herself at risk.
Generally entrepreneurship is considered as a function of risk bearing and
entrepreneurs are perceived as insane risk-takers. One of the entrepreneurs
personality traits is risk-taking. In comparison with a salaried job in an established
organization, entrepreneurship involves risks of various kinds. Let us see which
challenges and risks are being faced by entrepreneurs. Awareness about challenges
in the way of entrepreneurship will develop a high level of preparedness to face
those and take necessary precautions for their avoidance and prevention.
Successful entrepreneurs are willing to take greater risks than others in
the society. They prevail against the odds by intuitively jumping onto the right
opportunity at the right time. Successful entrepreneurs are successful not because
they adopt better decision processes but because they seize whatever opportunities
come their way. Successful entrepreneurs systematically reduce risk using different
decision making processes in line with needs of the situation.
Generally risk is related to uncertainty in loss occurrence. It is measurable
uncertainty. It is defined as objective uncertainty about occurrence of adverse
events. Entrepreneur is the recipient of risk tending to overtake business risks.
Business risks arise due to uncertainty about future effects of current decisions.
Business choices should consist of an assessment of outcomes and possibilities
that if differs from expectations.
Frank Knights Risk Bearing theory is based on economic principles.
Entrepreneur has to cope with various challenges which are unknown and
unpredictable. There lies uncertainty. The main function of an entrepreneur is to
act in anticipation of future events. Uncertainty bearing is essential to production.
It is a factor of production and the reward for it is a part of normal cost of production.
Entrepreneur earns profit because he/she undertakes risk. Profit is a payment for
the assumption of risks the entrepreneur undertakes.
Business
Entrepreneurship - I 73
Brockhaus defines risk taking as the perceived possibility of receiving Entrepreneurial Career
the rewards associated with success of a proposed situation, which is required by
an individual before he/she will subject himself/herself to the consequences
associated with failure, the alternative situation providing less reward as well as
less severe consequences than the proposed situation. Risk-taking refers to the NOTES
tendency to engage in behaviours that have the potential to be harmful or dangerous,
yet at the same time provide the opportunity for some kind of outcome that can be
perceived as positive. In general, entrepreneurs are perceived as more risk prone
than other people. They deal with various types of risks as follows:
Financial risk is normally risk associated with any form of financing. It is
the probability of actual return being less than expected return. Financial risk
includes credit risk, inflation, and cost risk. Majority of the entrepreneurs invest
their savings and borrow money on the basis of their personal relations. They
expect adequate returns on the investment. Sometimes they get attractive returns
and sometimes there is a possibility of limited income. If they fail, there is a possibility
of loss. They take risks of failure.
Market risk is the risk that value of an investment decreases due to market
factors. There are four standard market risk factors: interest rate risk i.e. the risk
that interest rate will change; equity risk i. e. the risk that stock prices will change;
commodity risk i. e the risk that commodity prices such as crude oil, copper etc
change; currency risk i.e. the risk that foreign exchange rate will change.
Environmental risk is the risk associated with economic or administrative
consequences of slow or catastrophic environmental pollution and other disasters.
Technology risk is the risk associated with implementation of new
technology in business.
Political and economic risk is the risk of loss when investing in a given
country caused by changes in a countrys political structure or policies such as tax
laws, tariffs, expropriation of assets or restriction in repatriation of profits.
An operational risk is a risk arising from execution of a companys business
functions such as breakdown of key equipment, human error, technical failure etc.
Human risks comprise of personal risks, consumer risks, government risk,
and public risk
Entrepreneur has to sacrifice the pleasures associated with family life,
social life. The start-up phase of entrepreneurial venture needs total and
wholehearted commitment. There is a need of high energy, and time. Due to this,
there may be injustice with family and social roles.
Career risk: Some persons resign their jobs to start their entrepreneurial
ventures. If he/she fails, is it possible to find a new job? Is it possible to return to
his/her previous job?
Mental risk/psychological risk: Perhaps the biggest risk an entrepreneur
takes is the risk of mental health. In the initial struggling period, there are mental
tensions, stress, anxiety which have destructive influences.
Natural risk recognizes that entrepreneurial decisions alone do not
determine financial outcomes. Luck also plays a crucial role.
Zimmerer and Scarborough described the following risks that an
entrepreneur may encounter: Business
Entrepreneurship - I 74
Entrepreneurial Career Time risk: This risk entails the time implication of taking a new idea through
the product development phase until it could be considered right for the market
Investment risk: This includes the cost of establishment of a new venture,
those related to the total product development process as well as those concerned
NOTES
with the physical manufacturing of the total product.
Technical risk: All the technical aspects associated with product
development process are considered. The final product has to satisfy the set
technical quality standards.
Competitive risk: There is a possibility of competitors offering the same or
comparable products in the market. Success rate of competitors in comparable
markets is also an indication of risk.
In general, to overcome risks, various strategies are used such as risk
avoidance (elimination), risk reduction (mitigation), risk transfer (outsourcing or
insurance), and risk retention (accepting and budgeting). Risk avoidance includes
not performing an activity that could carry risk. Risk reduction includes methods
to reduce the severity of loss or likelihood of loss from occurring. Risk retention is
a viable strategy for small risks where the cost of insuring against the risk would
be greater over time than the total losses sustained.
However, you must not let these risks make you apprehensive towards
taking the entrepreneurial path. There are many institutions to help budding as
Check Your
well as existing entrepreneurs. Some of these institutions are government agencies
Progress
central governments as well as state government while some are non-
governmental organisations (NGOs). There are a plethora of government schemes
6. Enlist various types
to help new entrepreneurs and to encourage people to take up entrepreneurial
of risks that an
path at national level, state level, district level as well as at local level also.
entrepreneur may
encounter. No doubt, starting a business is hard. It can be pretty tough. At times
entrepreneurs feel frustrated. They are depressed. Emotionally unstable and weak
persons may give up. But there are also times when they feel on top of the world.
There are incredible benefits associated with entrepreneurship as discussed above.
Mentoring of Entrepreneurs
Mentoring is an important aspect foran entrepreneur. Entrepreneurs
venture into the unknown, unforeseen. They challenge the obvious. Most of the
times, they take untrodden path in the face of uncertainty, risks, pressures and
strains. This journey will be reaching definitely towards success with guidance,
counselling, advice from mentors. Entrepreneurs do not have experience. They
are the first-timers. Mentor acts as a strong guiding force. May mistakes and
errors can be avoided with advice from mentors. Mentoring at a desired time
interval often frees an entrepreneur of fears, problems, frustrations and
disappointments. Counselling from mentors relieves entrepreneurs from emotional
outbreaks. Now after consultation with mentors, entrepreneurs learn not to react.
They respond to the situations in a planned and cool manner. Entrepreneur can
ensure that he/she is in right direction after a counselling session with the mentor.
Mentors provide relaxation, reassurance, encouragement to entrepreneurs.
Entrepreneurs trust in their mentors. They respect the knowledge, wisdom,
experience of the mentors. Mentors wish to support entrepreneurs. They are
interested to see them successful. They have a personal interest in entrepreneurs
and making them flourish. They dont expect anything in return. There is no financial
consideration involved. Mentoring may not work well if Business
it is done as a service for
a fee. Entrepreneurship - I 75
Entrepreneurial Career
4.7 Summary
Entrepreneurship offers scores of benefits and opportunities to
NOTES
entrepreneurs. It provides them independence, freedom, opportunities for self-
fulfillment, recognition for their work, attractive financial rewards. Entrepreneurship
is a joyful expression of ones contribution to society, economy and nation.
A decision to venture into entrepreneurship is concerned with a
comprehensive decision process. The decision is taken when the individual is
convinced about desirability and possibility of the career. The choice of
entrepreneurship career is influenced by various factors such as child rearing
practices, personal background, family, peers, teachers, culture, government etc.
There are a number of myths surrounding entrepreneurship. It is crucial
to be aware about reality as well as truths about entrepreneurship path.
Inability to produce convincing business plans, lack of knowledge about
appropriate sources of finance, hard work, competition are some of the problems
faced by entrepreneurs.
Generally entrepreneurship is considered as a function of risk bearing and
entrepreneurs are perceived as insane risk-takers. They deal with various types
of risk as financial risk, market risk, environmental risk, technology risk, political
Check Your
and economic risk, operational risk, human risk, career risk, natural risk etc. In
Progress
general, various risk strategies are used as risk avoidance, risk reduction, risk
transfer, and risk retention.
7. What is mentoring?
8. Why does an
4.8 Key Terms entrepreneur need a
mentor?
Exercises
1. Meet five entrepreneurs. Discuss the problems faced by them in the
beginning of their enterprises.
2. Ask an entrepreneur about the risks faced by him/her for his/her
enterprise.
Answers
Check Your Progress
1. self-saturating, self-generating
2. blocks, creates
Business
Entrepreneurship - I 78
Theories of Entrepreneurship
UNIT 5 : THEORIES OF
ENTREPRENEURSHIP
NOTES
Structure
5.0 Introduction
5.1 Unit Objectives
5.2 Economic Theories of Entrepreneurship
5.3 Sociological Theories of Entrepreneurship
5.4 Cultural theories of Entrepreneurship
5.5 Psychological Theories of Entrepreneurship
5.6 Conceptual Models of Entrepreneurship
5.7 Summary
5.8 Key Terms
5.9 Questions and Exercises
5.10 Further Reading
5.0 Introduction
The concept of entrepreneurship and its theory have been evolved over a
period of time. There are different opinions on the emergence of entrepreneurship.
A discussion on different theories of entrepreneurship helps us to comprehend
various perspectives of entrepreneurship. It develops an understanding of
development of the domain of entrepreneurship over a period of time. The theories
of entrepreneurial supply give numerous insights and views regarding societal
perception about entrepreneurship. Various writers have developed various theories
on entrepreneurship. These theories can be categorized as sociological theories,
economic theories, cultural theories and psychological theories. Sociologists and
psychologists focus on the reasons, motives, urges and drives behind
entrepreneurship. They are interested in various perspectives of entrepreneurial
personality and behavior patterns. Economists are keen on consequences of
entrepreneurial behavior and activities. Management experts are interested in
characteristics of entrepreneurs, and in their approaches and techniques of
achieving their goals. An effort is made in this section to capture the essence of
these theories of entrepreneurship propounded by experts and specialists from
various disciplines.
Business
Entrepreneurship - I 80
Theories of Entrepreneurship According to Papanek and Harris, economic incentives are the main drive
for entrepreneurial activities. Sometimes it may not be directly apparent but inner
drives have always been associated with economic benefits. These incentives
and benefits are considered as the sufficient condition for emergence of
entrepreneurship. NOTES
Business
Entrepreneurship - I 89
suggests that entrepreneurial behavior is a function of surrounding social structure, Theories of Entrepreneurship
both past and present, and can really be influenced by manipulable economic and
social incentives. The model is based upon experimental psychology which identifies
sociological variables as the determinants of entrepreneurial supply.
NOTES
Each of the above theories is incomplete and inadequate and fails to explain
the phenomenon of entrepreneurship. None of them is right or wrong.
Entrepreneurship is influenced by a multitude of factors. No single factor by itself
can generate or explain entrepreneurship since it is an outcome of a complex and
varying combination of socio economic, psychological and other factors. Economic,
political and legal factors can be quickly manipulated to make the environment
favourable for emergence of entrepreneurship whereas social and psychological Check Your
factors take a long time to change. Progress
NOTES
5.7 Summary
It is beneficial to learn various theories of entrepreneurship. It develops
an understanding of various perceptions of entrepreneurship. Various doyens from
different disciplines have developed a plethora of theories. These theories can be
categorized as sociological theories, economic theories, cultural theories, and
psychological theories. Sociological theories interpret emergence and growth of
entrepreneurship from sociological angle. They focus societal perceptions, social
processes, social norms, social sanctions, traditions etc. Economic theories view
economic parameters such as economic climate, policies, incentives etc and their
impact on entrepreneurial emergence. Advocates of cultural theory view towards
entrepreneurship as the product of culture. Cultural theories analyse cultural values
and cultural systems. Proponents of psychological theory explain emergence and
supply of entrepreneurs on the basis of psychological characteristics.
Exercise
NOTES
1. Meet a professor of entrepreneurship. Discuss various theories of
entrepreneurship and prepare your own report on emergence of
entrepreneurship.
Business
Entrepreneurship - I 95
Answers Theories of Entrepreneurship
Business
Entrepreneurship - I 96
Classification of
Entrepreneurs UNIT 6 : CLASSIFICATION OF
ENTREPRENEURS
NOTES
Structure
6.0 Introduction
6.1 Unit Objectives
6.2 Classification of Entrepreneurs
6.2.1 Danhofs Classification Based on Adaptability
6.2.2 Singhs Classification Based on Nature of Economy
6.2.3 Guptas Classification From Development Angle
6.2.4 Arthur Coles Classification
6.2.5 Classification Based on Motives
6.2.6 Classification by Behavioral Scientists
6.2.7 Classification by Ucbasaran, Alsos, Westhead and Wright
6.2.8 Raj Shankars Classification
6.2.9 Classification Based on Expertise
6.2.10 Classification Based on Motivation Levels
6.2.11 Classification Based on Type of Business
6.2.12 Joe Abrahams Classification
6.2.13 Zimmerer and Scarboroughs Classification Based on Cultural
Diversity
6.2.14 Schollhammers Classification Based on Entrepreneurship
Practice
6.2.15 Robert Hisrichs Classification of Start-up Enterprises
6.2.16 Classifications Based on New Trends
6.2.17 Other Classifications
6.3 Summary
6.4 Key Terms
6.5 Questions and Exercises
6.6 Further Reading
6.0 Introduction
To classify entrepreneurship and practice of entrepreneurship into various
types or categories is not an easy task. There are no definitive classifications.
However, entrepreneurship literature is abundant with various categories of
entrepreneurs on the basis of different criteria propounded by various experts
from different disciplines. It is interesting to learn various categories of
entrepreneurship. We will take into consideration various broad categories of
Business
entrepreneurs and analyse these types for the purpose of Entrepreneurship
appreciating the- Iconcept
97
and nature of entrepreneurs in a better manner. Further, it will help in understanding Classification of
intricacies of the practice of entrepreneurship. A detailed analysis of various types Entrepreneurs
of entrepreneurs will help in identifying different approaches for development of
entrepreneurship. Each category of entrepreneurs is associated with some unique
features, characteristics, issues and challenges in the practical setting. One of the NOTES
objectives of this classification is to facilitate the study of these characteristic
features so as to boost up entrepreneurship development of a specific kind; identify
challenges and come up with appropriate solutions and framework. Such a
compilation of entrepreneurship categories and their detailed analysis will augment
chances of success of entrepreneurial ventures. In this unit, we shall analyse and
classify various types of entrepreneurs.
Business
Entrepreneurship - I 100
Classification of Rational entrepreneur is well informed about general economic
Entrepreneurs conditions. He/she takes rational decisions depending upon the situation. He/she
is ready to introduce even revolutionary changes on the basis of general economic
conditions.
NOTES
Cognitive entrepreneur is well informed, draws upon advice of experts
and introduces changes that reflect complete break from the existing scheme of
enterprise
Business
Entrepreneurship - I 109
is called as ultrapreneuring. According to James B. Arkebauer, ultrapreneurs Classification of
identify a business opportunity, determine its viability and form a company. It Entrepreneurs
requires assembling a competent management team who then develop, produce
and market product/service. Then they sell majority interest in the company with
maximum leverage of both talent and money in the shortest time period. NOTES
Ultragrowth companies are not made to pass on to next generation.
Ultrapreneurs create them, then sell out, merge or combine. Their life long challenge
is to do it again and over again. Such ultrapreneurs possess characteristics such
as achievement, action orientation, commitment, energy, goal setting, growth
orientation, honesty, innovation, intelligent, leadership, risk tolerance, self-confidence.
6.3 Summary
Entrepreneurs differ in their attitudes, skills, thoughts, approaches and actions.
We have seen various categories of entrepreneurs on the basis of varied criteria.
Clarence Danhof classified entrepreneurs on the basis of economic
development as innovative entrepreneurs, imitative entrepreneurs, Fabian
entrepreneurs and drone entrepreneurs.
Singh classified entrepreneurs as innovative entrepreneurs, imitative
entrepreneurs, exploitative entrepreneurs and model or ideal entrepreneurs.
Gupta classified entrepreneurs from development angle as prime mover
type, manager type, minor innovative type, initiator type, satellite type, and local
trading type entrepreneurs.
Arthur Coles categories of entrepreneurs are empirical entrepreneurs,
rational entrepreneurs, and cognitive entrepreneurs.
On the basis of motives, Evan classifies entrepreneurs as managing
entrepreneurs, innovating entrepreneurs and controlling entrepreneurs.
Business
Entrepreneurship - I 111
Behavioural scientists talk about various types of entrepreneurs as solo Classification of
operators, active partners, inventors, challengers, buyers, and life timers. Entrepreneurs
2. Distinguish between:
i. Innovating entrepreneur and imitative entrepreneur
ii. Business entrepreneur and trading entrepreneur
iii. Corporate entrepreneur and agricultural entrepreneur
iv. Fabian entrepreneur and drone entrepreneur
v. Intrapreneur and ultrapreneur
3. Classify entrepreneurs on the basis of motivation level
4. Discuss new types of entrepreneurs based on latest trends
5. Explain the classification of start-up enterprises by Robert Hisrich?
6. How will you classify entrepreneurs on the basis of motivation levels?
7. Can you classify entrepreneurs based on type of business?
8. Discuss the types of entrepreneurs classified by Ucbasaran, Alsos,
Westhead and Wright.
9. How do behavioural scientists classify entrepreneurs? Describe.
10. Describe Zimmerer and Scarboroughs classification of entrepreneurs
based on cultural diversity.
Exercise
1. Meet five entrepreneurs, which categories of entrepreneurs they
belong? Prepare a report.
Answers
Check Your Progress
2. Innovative
3. Innovative
4. Novice
5. Habitual
6. Motivated
7. Spontaneous
8. Corporate
9. Academic
Business
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Entrepreneurial Environment
UNIT 7: ENTREPRENEURIAL
ENVIRONMENT
NOTES
Structure
7.0 Introduction
7.1 Unit Objectives
7.2 Entrepreneurial Environment
7.3 Factors affecting Entrepreneurial Growth
7.4 Barriers to Entrepreneurship
7.5 Summary
7.6 Key Terms
7.7 Questions and Exercises
7.8 Further Reading
7.0 Introduction
All that is valuable in human society depends upon the opportunity for
development accorded to the individual Albert Einstein
Entrepreneurship does not emerge and grow spontaneously.
Entrepreneurial activity at any time depends upon a combination of social, cultural,
economic, psychological, political and other factors. Entrepreneurship is a function
of environment. The concept of entrepreneurship changes with change in
environment. It is necessary to consider the influence of environment on the concept
of entrepreneurship.
Emergence and development of entrepreneurship depends upon these
support factors. Environmental factors exert a strong influence on the personal
background and personality of entrepreneurs. Entrepreneurs also create an impact
on the environment. Due to constant interaction with the environment, it is essential
to understand the impact of the interplay of these environmental components and
consequent adaptation to decide the nature and degree of entrepreneurial activity.
A detailed analysis of various components of entrepreneurial environment is
presented in this unit.
Business
Entrepreneurship - I 129
Exit Barriers are those constraints limiting the termination of those small Entrepreneurial Environment
industrial ventures that have outlined their business viability or the growth of such
ventures to a different size category. Identified entry barriers include:
Emotional commitment of entrepreneurs to his venture.
NOTES
Specialized assets, sunk funds.
Increasing demand for managerial skills
Fear of failure.
7.5 Summary
Entrepreneurial activity at any time is dependent upon an interplay of
socio-economic, cultural, psychological and other factors. Various environmental
factors influence personality/personal background of entrepreneurs. Personality
of entrepreneurs is shaped by the environment in which they are born, brought up
and work. Entrepreneurs also influence the environment. Interaction between
entrepreneurs and their environment and consequent adaptation is a continuous
process.
Entrepreneurship is influenced by a multitude of factors mainly at two
levels external and internal. The influencers at the individual level are intrinsic
and more powerful.
The factors related to the individual prompt him/her to consider
entrepreneurship. The individual wants independence of work. He/she may want
to be his/her own boss, or experience freedom. Maybe he/she is interested in a
marketing/manufacturing opportunity related with his/her skills/interests. Internal
influencers are more important since they are related with the individual. They are
intrinsic and the strongest. The individual wants to experience freedom, or
independence at work. When he/she has the ability to identify a market opportunity
and possess confidence about market success, there is emergence of an enterprise.
Regarding external influencers, a social or cultural factor may boost up
enterprise creation. Business background, belonging to a specific community may
induce individuals for entrepreneurial ventures. Social pressures like the need to
prove/establish oneself may prompt an individual to attempt entrepreneurship.
Government policy also improves chances of entrepreneurs for success. Various
facilities, grants, subsidies etc also influence promotion of entrepreneurship. The
external economic environment is composed of many elements, each of which
influences growth and development of entrepreneurship. As far as external
environment is concerned, favourable economic conditions, a social need, cultural
norm, technological breakthrough may trigger setting up of an enterprise. Ease of
access to a source of finance, being born in an enterprising business community
etc. may be a strong influence. Government policy contributes to promotion of
entrepreneurship by means of incentives, subsidies, facilities etc.
The external environment is dynamic. It keeps on changing and affects
individuals as well as organizations. The nature and degree of change depends
upon the nature of relationship and degree of dependence with the environment.
Entrepreneurial growth depends upon favourable business environment. Healthy
business environment needs forward and mature social behaviour, encouraging
cultural norms, proficient and conducive economic policies, encouraging and Business
supportive government policies. Entrepreneurship - I 130
Entrepreneurial Environment An insight into barriers to entrepreneurship develops a deep understanding
about entrepreneurs personality and the process of entrepreneurship. A knowledge
about inhibiting factors helps budding entrepreneurs, government and society to
develop strategy to overcome them and devise effective programmes to create a
conducive entrepreneurial climate. NOTES
Some barriers to entrepreneurship are personal and some are
environmental. The personal barriers can be motivational or perceptional.
Entrepreneurs who lack toughness and perseverance often give up. Due to initial
obstacles faced by them , they lose their commitment after the venture starts
functioning. Lack of clarity, misunderstanding lead to wrong perception about
enterprise functioning and outcome. Non-accessibility of capital, non-availability
of trustworthy, reliable human resources, inadequate infrastructure, no easy access
to market are some barriers related to economic environment. Cultural values in
our society linked with rituals, status-quo, conventionalism, cultural taboos restrain
entrepreneurial spirit. Certain types of work are considered unsuitable for people
of specific culture. A political environment characterized by instability and insecurity,
political policies, excessive government intervention in the form of controls, delays,
corruption, red tapism etc discourge entrepreneus.
If a country wants to be more proactive in developing an entrepreneurial
culture, it is relevant to implement consistent policies and programs on restructuring
the capability of education system toward providing entrepreneruail competencies
proactivenss, innovativenessm responsibility for their own choices etc
There is a need to get an insight in several individual attributes such as
perception of opportunities, perception of own capabilities, to act entrepreneurially,
fear of failure, and entrepreneurial intentions
Exercise:
1. Read at least two case studies of successful entrepreneurs and
prepare a report on the factors which helped them and the factors
which acted as barriers for them.
Answers
Check Your Progress
3. Capitalism, socialism, mixed economy
4. High
5. Conducive
Business
Entrepreneurship - I 133
Entrepreneurial Environment
Appendix
GEMs Key Entrepreneurial Framework Conditions
NOTES
The Global Entrepreneurship Monitor (GEM) report is an annual survey
of entrepreneurial attitudes, activities, and aspirations around the world conducted
by a consortium of academic researchers across the globe.
1. Entrepreneurial finance: The availability of financial resources
equity and debt for small and medium enterprises (SMEs)
(including grants and subsidies)
2. Government policy: The extent to which public policies support
entrepreneurship. This EFC has two components- 2a.
entrepreneurship as a relevant economic issue, and 2b. taxes or
regulations are either size-neutral or encourage new and SMEs
3. Government Entrepreneurship Programs: The presence and quality
of programs directly assisting SMEs at all levels of government
(national, regional, municipal)
4. Entrepreneurship education: The extent to which training in creating
or managing SMEs is incorporated within the education and training
systems at all levels. This EFc has two components 4a.
entrepreneurship education at basic school (primary and secondary)
and 4b. entrepreneurship education at post-secondary levels (higher
education such as vocational, college, business schools etc)
5. R & D transfer: The extent to which national research and
development will lead to new commercial opportunities and is
available to SMEs
6. Commercial and legal infrastructure: The presence of property
rights, commercial, accounting and other leal and assessment
services and institutions that support or promote SMEs
7. Entry regulation: This EFC contains two components:
a. Market dynamics The level of change in markets from year
to year, and
b. Market openness The extent to which new firms are free to
enter existing markets
8. Physical infrastructure: Ease of access to physical resources
communication, utilities, transportation, land or space at a price
that does not discriminate against SMEs
9. Cultural and social norms: The extent to which social and cultural
norms encourage or allow actions leading to new business
methods or activities that can potentially increase personal wealth
and income
Source: http://www.gemconsortium.org/docs/download/3616
Business
Entrepreneurship - I 134
Creativity and Innovation
UNIT 8 : CREATIVITY AND INNOVATION
NOTES
Structure
8.0 Introduction
8.1 Unit Objectives
8.2 Creativity
8.2.1 Component Elements of Creativity
8.2.2 Attributes of Creative Individuals
8.2.3 Barriers to Creativity
8.2.4 The Creative Process
8.2.5 Inculcating Creativity
8.2.6 Heuristics for Stimulating Creative Ideas/Insights
8.2.7 Techniques of Developing Creative Thinking
8.3 Innovation
8.3.1 Principles of Innovation
8.4 Summary
8.5 Key Terms
8.6 Questions and Exercises
8.7 Further Reading
8.0 Introduction
Joseph Schumpeter termed entrepreneurs as innovators saying that
entrepreneur is one who introduces something new in the economy. Peter Drucker
also emphasized innovation as the basic tool of entrepreneurship. Entrepreneurs
set up new ventures. They bring about changes in the use of resources in society
and create wealth. They depend upon innovation for setting new ventures.
Innovation helps in development of new ideas through which the opportunities are
identified and new ventures are established.
Persons with inclination and aptitude for entrepreneurship may be
motivated, and trained further to become successful entrepreneurs. Concern for
excellence is a common trait of majority of entrepreneurs. To become an
entrepreneur one should develop creativity in oneself.
The need of the hour is to establish entrepreneurial culture and move
towards an entrepreneurial society. For inculcating entrepreneurial culture, special
emphasis has to be laid on innovation and creativity right from early childhood
through child rearing practices, socialization, schools, colleges, universities, other
social and educational institutions. Each and every one should possess
entrepreneurial spirit. They should feel like bringing about improvement
Business in whatever
they do in their daily routine, at work, at play, at rest everywhere.
Entrepreneurship - I 135
Creativity and Innovation
8.1 Unit Objectives
After going through this unit, you will be able to
Be on familiar terms with creativity and innovation NOTES
8.2 Creativity
Creativity is the ability to develop new ideas and to discover new ways of
looking at problems and opportunities. It is development of novel solution to a
perceived problem. It is the ability to bring something new into existence. The
emphasis is on the ability and not the activity of bringing something new into
existence. Even if no effort is made to convert the conceived idea into reality, the
person is a creative person.
Innovation is the ability to apply creative solutions to problems and
opportunities to enhance or to enrich peoples lives. Innovation is the process of
doing new things. Creativity is thinking new things and innovation is doing new
things. Creativity is the ability to conceive while innovation is doing new things.
Ideas are useless until they are converted into useful products/services. Innovation
transforms dreams into actual reality. It converts creative ideas into useful
applications.
Creativity is a pre-requisite to innovation. Innovation helps in development
of new ideas through which opportunities are identified and new enterprises are
established. According to Schumpeter, a person is an entrepreneur only when he/
she is engaged in innovative behavior. Entrepreneurship is a creative activity and
entrepreneur is an innovator who introduces something new in the economy.
Peter Drucker views entrepreneurship as a creative and innovative
response to the environment and an ability to recognize, initiate and exploit an
economic opportunity. Creativity is the ability to sense an opportunity where others
see chaos, contradiction and confusion; it is the ability to spot the patterns and
trends that define an opportunity.
Entrepreneurship and innovation are characterized by creative process in
the economy directed at generation of jobs, community development and economic
growth. Entrepreneurs succeed by thinking and doing new things or old things in
new ways. Simply having a great new idea is not enough; transforming the idea
into a tangible product, service or business venture is important.
Creativity has been defined by J.A. Timmoans as, the ability to create
and build something from practically nothing. It is the application of a persons
mental ability and curiosity to discover something new. It is the act of relating
previously unrelated things. It requires the ability to relate and connect, to put
things together in novel ways. It is concerned with producing unique ideas, concepts,
and ways of doing things that would not have occurred normally in routine
functioning. It is a distinct way of looking at the world. It is concerned not only
with generating new creative ideas and /or insights, but also with convincing the
concerned people and applying those ideas into actual reality. It is not restricted to Business
Entrepreneurship - I 136
Creativity and Innovation thinking. Its scope and application comprises all aspects of human endeavor
imaginative exploration and conceptualizations of difficult problems and issues,
working out and testing their solutions, implementing solutions by securing
cooperation of all the concerned individuals.
NOTES
Creativity is the ability to bring something new into existence, to invent
into a new form. It is not the ability to create out of nothing, but the ability to
generate new ideas by combining, changing or reapplying existing ideas. The
emphasis is on ability and not the activity of bringing something new into existence.
Creativity can be defined in a simple manner in terms of the output(s) of
creative effort. In this sense, it may be defined as the discovery or production of
something that is novel and also useful or relevant or economical or superior or
valuable. There must be a significant difference between the product or the outcome
of the creative effort and the existing product(s) or outcome(s).
Two important aspects of creativity exist process and people. The process
is goal oriented; it is designed to attain a solution to a problem. People are the
resources that determine the solution. The process remains the same, but the
approach that the people use varies.
Business
Entrepreneurship - I 139
Dont be foolish unwillingness to think unconventionally out of fear Creativity and Innovation
of appealing foolish
Im not creative the worst of the blocks: self-condemnation that
trumps talent, opportunity, and intelligence
NOTES
Efforts should be made to remove the barriers that block creativity within
a person. There is a need of positive thinking, an open mind, deliberate and planned
efforts, insight and perception to arouse and enhance creativity.
Delphi method
Dialectical approach
NOTES
Genetic learning approach
8.3 Innovation
Myers and Marquis provide a comprehensive definition of innovation as:
Innovation is not a single action but a total process of interrelated sub processes.
It is not just the conception of a new idea, nor the invention of a new device, nor
the development of a new market. The process is all these things acting in an
Check Your integrated fashion.
Progress
In the words of Peter F. Drucker, Innovation is the specific function of
entrepreneurship. It is the means by which the entrepreneur either creates new
6. Enlist major wealth-producing resources or endows existing resources with enhanced potential
qualities of a creative for creating wealth. Innovation is the key function of entrepreneurship. It is the
person. means by which they become catalysts for change.
It is the process of doing new things. It is the process by which
entrepreneurs convert opportunities into marketable ideas which requires dedication
and perseverance along with vision to create a good idea. Majority of the innovations
result from a conscious, purposeful search for new opportunities. Most successful
innovations are simple and focused. As Thomas Edison said, Genius is 1 per cent
inspiration and 99 per cent perspiration; it often involves more work than genius.
Creativity is concerned with the ability to conceive. Innovation is doing
new things. It transforms creative ideas in to useful applications. Ideas have little
value until they are converted into useful products or services. Innovation transforms
creative ideas into useful applications. According to Schumpeter, a person is an
entrepreneur only when he/she is engaged in innovativebehavior. This innovative
behavior is an entrepreneurial function
Creativity is a pre-requisite to innovation. Creativity is assumed to have
greater tinge of art and artistic expression; innovation is said to be more on the
application and business side of the enterprise. Innovation may lack creativity but
the application of the idea itself could make it novel. Creativity is the ability to
develop new ideas and to discover new ways of looking at problems and
opportunities. Innovation is the ability to apply creative solutions to those problems
and opportunities to enhance or to enrich quality of life.
Creativity is the thinking of novel and appropriate ideas. Innovation is the
successful implementation of those ideas within an organization.
Business
Entrepreneurship - I 145
Four basic types of innovation exist, ranging from the totally new to Creativity and Innovation
modifications of existing products/services, as explained below:
Invention: the creation of a new product/service/process, often one that
is novel or untried
NOTES
Extension: the expansion of a product/service/process already in
existence. Such concepts make a different application of a current idea
Duplication: the replication of an already existing product/service/process.
It is, however, not simply copying but improving, enhancing the concept
with entrepreneurs creative niche at the marketplace.
Synthesis: the combination of existing concepts and factors into a new
formulation. This involves taking a number of ideas or items already
invented and finding a way so together they form a new application.
Exercise
1. Write creative solutions to improve your exam percentage.
3. convergent thinking
NOTES
4. divergent thinking
8. creativity, innovation
Business
Entrepreneurship - I 152
Creativity, Innovation and
Entrepreneurship UNIT 9 : CREATIVITY, INNOVATION AND
ENTREPRENEURSHIP
NOTES
Structure
9.0 Introduction
9.1 Unit Objectives
9.2 Peter Druckers Theory of Innovation and Entrepreneurship
9.3 Creativity, Innovation and Entrepreneurship
9.4 Creative Thinking
9.5 Generation of Business Ideas
9.6 Project Identification
9.7 Creative Enterprise
9.8 Enhancing Creativity
9.9 Summary
9.10 Key Terms
9.11 Questions and Exercises
9.12 Further Reading
9.0 Introduction
Innovation and entrepreneurship are very closely related with each other.
Innovation is the essence of entrepreneurship. In the words of Schumpeter,
entrepreneurship is a creative activity and entrepreneur is essentially an innovator.
According to Schumpeter, the dream and will to establish a private kingdom, will
to conquer, joy of creating, getting things done, exercising ones energy and ingenuity
are the motives that inspire innovative entrepreneur to undertake innovation.
Innovation manifests itself in problem solving activities and entrepreneur is a
problem solver. He/she converts problems into opportunities. He/she goes beyond
the known, the obvious, the traditional.. He/she does things in a better way, in a
unique manner with an application of innovation. One who behaves in a traditional
way can hardly become an entrepreneur.
Peter Drucker argued that innovation is the tool of entrepreneurship.
Innovation begins with creative ideas. Creativity is the starting point for innovation.
Innovation is the manner in which entrepreneur searches for new opportunities. It
is the way in which ideas are converted into profitable solutions. The importance
of innovation is not in its novelty but in its market acceptability and success.
Entrepreneurship is characterized by innovation, risk-taking and pro-
activeness. Entrepreneurs have to develop creativity, creative skills and skills of
innovation. Risk taking refers to the manner in which innovation is inserted into
the organization. It indicates willingness to commit resources to promising and
profitable opportunities. Entrepreneurs exhibit adaptability, perseverance in making
Business
things happen. Entrepreneurship - I 153
Creativity, Innovation and
9.1 Unit Objectives Entrepreneurship
Low High
Inventor Entrepreneur
High
Creativity
and
Innovation
Business
Entrepreneurship - I 162
Creativity, Innovation and Figure 9.2. Creativity, Innovation and Product Development
Entrepreneurship
NOTES
BOX 9.1
9.9 Summary
Creativity, innovation and entrepreneurship play an instrumental role in
contributing to economic growth. Entrepreneurship is an untrodden path. To travel
on this is not without challenges, risks, uncertainties and pressures. The
entrepreneur has to think, act and behave differently, innovatively in a creative
manner. He/she has to make smart guesses and informed predictions about
environmental happenings, market demand and customer response.
Creativity has been viewed as construction of ideas or products which
are new and potentially useful. Entrepreneurial creativityBusiness
is necessarily associated
Entrepreneurship - I 167
with innovation, monetary incentives and social objectives. Creativity enables Creativity, Innovation and
entrepreneurs to sense and exploit opportunities which result due to changes in Entrepreneurship
the environment. Business ideas can be located internally or externally.
Entrepreneurs are inclined to search and select potential solutions based in part by
internal competencies. NOTES
Peter Druckers entrepreneur always searches for change, responds to it
and exploits it as an opportunity. He/she accepts change in the normal routine
working and exploits it as an opportunity. Drucker views entrepreneurship as a
creative and innovative response to the environment.
Creativity and innovation is crucial for each and every phase of
entrepreneurship. Especially for idea generation and project identification phase,
creative thinking is of immense use.
Creative individuals make enterprises creative with their creative ideas.
Along with individuals, enterprises are also required to be creative and innovative.
Creativity can certainly be enhanced with proper environment and
application of techniques meant for enhancing creativity.
Business
Entrepreneurship - I 169
Answers Creativity, Innovation and
Entrepreneurship
Check Your Progress
Business
Entrepreneurship - I 170
Motivation Theories
UNIT 10 : MOTIVATION THEORIES
NOTES
Structure
10.0 Introduction
10.1 Unit Objectives
10.2 Motivation
10.3 Motivation Theories
10.3.1 Abraham Maslows Need Hierarchy Theory
10.3.2 Douglas McGregors X & Y theory
10.3.3 Frederick Herzbergs Motivation-Hygiene Theory
10.3.4 McClellands Achievement Motivation Theory
10.3.5 Clayton Alderfers Existence, Relatedness and Growth Theory
(ERG)
10.3.6 Victor Vrooms Expectancy Theory
10.3.7 Porter and Lawler Model of Motivation
10.4 Summary
10.5 Key Terms
10.6 Questions and Exercises
10.7 Further Reading
10.0 Introduction
No organization can succeed without highly motivated and committed team
of employees. Motivation is a widely talked-about topic. It is the most powerful
tool for getting things done through people. The performance of a team depends
upon ability, motivation and the environment both at the workplace and at home-
of the team members. There is an enormous impact of motivation on the behavior
and performance level of the employees. A lot of research has been done on
motivation and many theories have been developed. Some of these theories are
discussed in this unit.
Check Your
Progress Needs and
drives Tension Effort Rewards
1. Define entrepre-
neurship. How is it dif- Goals and Ability
ferent from the word Incentives
entrepreneur?
Needs and
Satisfaction
Business
Entrepreneurship - I 174
Motivation Theories Safety and Security needs: After satisfying the lowest level physiological
needs to a reasonable level, next need category is safety needs. These comprise
of economic security and protection from physical dangers, and emotional harm
or self-preservation. After satisfying physiological needs partially full satisfaction
of these needs is not necessary and degree of satisfaction is subjective
NOTES-, people
want assurance of maintaining a given economic level.
For meeting these needs, an entrepreneur is motivated to work more in
his/her enterprise. These needs are finite. Like physiological needs, these needs
become inactive once they are satisfied.
Social needs: These refer to belongingness, affection, acceptance and
friendship. Human beings want to be recognized, loved and accepted by others.
As a social being, an individual has a need to belong and be accepted by various
groups. After the first two needs are satisfied, social needs become important in
the need hierarchy. The individual will strive for meaningful relations with others.
An entrepreneur is motivated to interact with other entrepreneurs and
other societal members. He/she takes pleasure in membership of various
associations.
Ego/Esteem Needs: These refer to self-esteem, self-respect, self-
confidence, achievement, competence, knowledge, autonomy and independence.
He/she desires to gain attention, respect, reputation, status, recognition and
appreciation from others. Esteem needs are concerned with a feeling of being
unique, feeling of personal worth. Satisfaction of esteem needs creates self-
confidence, power, control and prestige. Satisfaction off esteem needs is not always
through mature or adaptive behavior. Sometimes it is generated by irresponsible
and disruptive behavior. Some of the social problems are due to frustration of
esteem needs.
An entrepreneur through his/her enterprise satisfies his/her esteem needs
by means of status, respect, reputation and independence.
Self-Actualization need: This refers to the need to maximise ones potential,
whatever it may be. It is a desire to become what one is capable of becoming.
This refers to self-fulfillment. The term self-actualization was coined by Kurt
Goldstein. It means to become actualized in what one is potentially good at. A
person with high need for achievement will be restless unless and until he/she
seek situations that can utilize his/her potential.
An entrepreneur may achieve self-actualization in being a successful
entrepreneur. He/she creates enterprise for the sake of self-fulfillment.
Maslows need hierarchy consists of five types of needs arranged in
hierarchy from lowest to highest category. The satisfaction of physiological needs
which are the most fundamental, results in the safety need becoming more
powerful and felt by the individual. Once these are satisfied, the need for belonging
becomes uppermost and consequently, the needs for esteem and self-
actualization come into play. In this manner, after reasonable satisfaction of lower
order needs, the next higher level needs emerge. If one need is partially satisfied,
another need emerges. Once a need is satisfied it ceases to be a motivating factor.
A satisfied need is not a motivator of behavior. For entrepreneurs it is mainly
social, esteem and self-actualization needs which motivate them to work more
and more for their satisfaction.
Business
Entrepreneurship - I 175
Maslow further suggests that these levels are independent and overlapping. Motivation Theories
Each higher level need emerges before the lower needs have been completely
satisfied. One need does not disappear when another emerge, all needs tend to be
partially satisfied in each area. When the peak of a need is passed, that need
ceases to be primary motivator. The next level need then begins to dominate. NOTES
Even though a need is satisfied, it still influences behaviour since the needs are
interdependent and overlapping. In our society, most people tend to be partially
satisfied in each need area and partially unsatisfied, and have higher satisfaction
at lower-need level than at higher-need levels.
Check Your
Progress
1. Distinguish between
esteem needs and self-
actualization needs.
2. Social needs are also
called ____________
3._______________
There are some problems in need hierarchy theory. It may not apply at all comprise the highest
times in all places. The need hierarchy may not follow the sequence postulated by level needs in Maslows
Maslow. Some people may be deprived of their lower order needs but still may try Need Hierarchy Theory.
for self-actualization needs. Even if safety need is not satisfied, social need may
emerge. For some people, need for self-esteem is more prominent than that of
love. For creative people, the drive for creativeness seems to be more important.
Another cause of reversal of need hierarchy is that when a need has been satisfied
for a long time, it may be under-evaluated.
Assumption that one need is satisfied at one time is of doubtful validity.
The phenomenon of multiple motivations is important in understanding human
behavior. Human behaviour at any time is mostly guided by multiplicity of motives.
One or two motives in any situation may be strong while others may be less
powerful. Moreover, at different levels of needs, the motivation will be different.
A person tries for his/her higher level need when his lower order needs
are reasonably satisfied. What is this reasonable level is a question of subjective
matter. The level of satisfaction for particular need may differ from person to
person. Needs and their satisfaction are mental feelings. Sometimes even the
person concerned may not be aware about his/her own needs. It is difficult to
know about the needs of others.
Business
Entrepreneurship - I 179
A person, with high N- Pow believes in positions of authority, and strives Motivation Theories
to acquire and exercise power and authority. He/she is interested in influencing
others and winning arguments. Such persons seek leadership in politics and enjoy
working with a large number of followers. They are dynamic, powerful, influential
and outspoken. NOTES
Need for Achievement (N-Ach): The need for achievement refers to
ones desire to accomplish something with own efforts, ones will to excel in his/
her efforts, the urge to improve. It is the extent to which and individual desires to
perform difficult and challenging tasks successfully. It is an intense desire to achieve,
to do well. It is an inner spirit that activates an entrepreneur to strive for success.
It motivates people to take risk. It stimulates behaviour of person to be an
entrepreneur.
People with a high need for achievement desire success and positive
feedback that is related to their performance on tasks. They seek to excel and
thus tend to avoid both low-risk and high-risk situations. They avoid low-risk
situations because for them easily attained success is not genuine achievement;
they attribute it to the ease of the task not their own effort. Similarly, they avoid
high-risk situations regarding success as the result of their chance not their
competence. They like to work alone or with other high achievers. McClelland
suggested that high achievers make good leaders, although they tend to expect
others also result driven like them and anticipate too much from others. Their
aggressive realism makes them successful.
McClelland noted that people generally have all three needs. However,
one need tends to be dominant which depends upon their personality characteristics
and situational experiences.
McClelland suggests that these three needs may simultaneously act on an
individual. For an entrepreneur, the need for achievement is the most prominent
and dominating one. In his words, Need for achievement is the desire to do well
not so much for the sake of social recognition or prestige but for the sake of an
inner feeling of personal accomplishment. In his view, people with high need for
achievement are characterized by the following:
1. They set moderate, realistic and attainable goals for them. Moderate
risk taking is the most descriptive characteristic of high achievers.
2. They prefer situations in which they can find solutions for solving personal
responsibility.
3. They need concrete feedback on their performance. Persons with high
achievement need desire activities which provide immediate and precise
feedback information about progress towards a goal.
4. They have need for achievement for attaining personal accomplishment.
They take intrinsic pleasure in accomplishing a task. They do not expect
or necessarily want accompanying material rewards
5. They look for challenging tasks. They are characterised by fully dedicated
commitment. They will not be satisfied unless they put their maximum
efforts in completing the task. Once a high achiever selects a goal, he/
she tend to be totally committed to the task until it is successfully
completed.
According to the research conducted by McClelland and other, managers
show high on achievement and power and low on affiliation. The research findings
Business
also indicate that chief executives of smaller companies show higher achievement Entrepreneurship - I 180
Motivation Theories motive as compared to those of large companies. Middle level managers have
higher N-ach as compared to the chief executive. This seems to be contradictory
but McClelland feels that it is quite understandable because chief executives have
already arrived, and those below them are striving to advance.
NOTES
People with high achievement motives like to take calculated risks and
want to win. They are not gamblers. They are not afraid to take risk. Rather, they
Check Your calculate the degree of risk and select moderate risk options. High achievers strive
Progress for personal achievement rather than rewards of success. They want to do
something better and more efficient. People with high need for achievement behave
4.Distinguish between in an entrepreneurial way.
need for power and
10.3.5 Clayton Alderfers Existence, Relatedness and
need for achievement.
Growth Theory (ERG)
5. What do you know ERG theory is based on human needs. It is a modification of Maslows
about need for theory. Clayton Alderfer came out with a revised need hierarchy. He propounded
affiliation? three basic groups of core needs i.e. existence, relatedness and growth and labelled
the theory as ERG theory.
Existence needs: Physiological and safety needs explained by Maslow
are considered here as needs for existence. Human beings have basic material
requirements for existence such as food for hunger, water for thirst, sufficient rest
for sleep, house for shelter etc. The existence group of needs is concerned with
providing basic existence requirements.
Relatedness needs: Social and ego or esteem needs of Maslow are
considered as relatedness i. e the desire to maintain interpersonal relationships by
an individual in the society. Every human being is interested in healthy and
meaningful interaction with others. The relatedness needs are concerned with the
desire for maintaining important interpersonal relationships.
Growth needs: Human beings have an intrinsic desire for personal development.
These include the characteristics included by Maslow in esteem needs and self-
actualization needs.
According to ERG theory, there are three levels of needs; more than one
need may be operative at the same time. If the individuals higher level need is
impeded, then he/she thinks of increasing the lower level need. If social needs
remained unsatisfied then his/her desire for more money and better working
conditions may increase. Non-satisfaction of higher level needs may lead the
individual to increase lower level needs. Thwarting of need is known as frustration.
The ERG theory contains frustration, regression dimension. The frustration at
higher level needs can lead regression to lower level needs.
ERG theory is concerned with the same needs as Maslows. It views the
needs as operating in different ways. The ERG needs are not rigidly hierarchic.
Maslow realises that once a need is satisfied, it no longer motivates the individual.
According to Alderfer if for some reason people continually become frustrated in
trying to satisfy their needs at one level, their next lower level of needs will emerge
and peoples desire to satisfy a lower level need will increase. He also suggests
that more than one need may be activated at the same time and may be operating
simultaneously.
Business
Entrepreneurship - I 181
Motivation Theories
Figure 10.4 : ERG Model
NOTES
Check Your
Progress
Porter and Lawler start with the premise that motivation (effort or force)
does not equal satisfaction and/or performance. They point out that effort does
not directly lead to performance. It is mediated by abilities/traits and role perceptions.
The rewards that follow after performance and how these are perceived will
determine satisfaction. According to them satisfaction is a consequence of work
rather than cause of work.
The figure 10.5 shows that whether the individual will make an effort
depends on interaction between the value of reward and perceived probability
that effort would lead to the expected reward. Effort is the same as motivation. In
the form of equation, it may be written as
Business
Effort = value of reward x perceived effort reward probability
Entrepreneurship - I 183
Another feature of the theory is that performance is not a direct Motivation Theories
consequence of effort. It is a product of effort, individuals traits and his/her role
perception.
The various elements of this model are as follows:
NOTES
Effort refers to the amount of energy exerted by an employee on a given
task. Perceived-reward probability refers to the individuals perception of the
probability that differential rewards depend upon differential amounts of effort.
Efforts lead to performance but both of these may not be equal; rather,
performance is determined by the amount of effort and the ability and role
perception of the individual.
Performance is seen as leading to intrinsic as well as extrinsic rewards.
Intrinsic rewards are more likely to produce attitudes about satisfaction that are
related to performance. The perceived equitable rewards vitally affect the
performance-satisfaction relationship.
If actual rewards meet or exceed perceived equitable rewards, the
individual will feel satisfied; if these are less than equitable rewards, he/she will be
dissatisfied. Satisfaction is derived from the extent to which actual rewards fall
short, meet or exceed perceived level of equitable rewards.
10.4 Summary
Maslows theory is based on human needs. He classified all human needs
into five need-clusters. These need clusters in sequential priority from lower to
higher can be listed as physiological needs, safety and security needs, social needs,
esteem and status needs and at the highest level self-actualization needs. According
to Maslow, once the lower order needs are substantially satisfied, an individual
moves up the hierarchy and the next order of needs becomes prominent.
McGregor set forth two pairs of assumptions about human beings contained
in theory X and theory Y. These sets of assumptions were not based on any
research. They are, according to McGregor, intuitive deductions. Theory X is the
traditional theory of human behaviour. It insists that employees dislike work, they
are lazy, they dislike responsibility, and they must be coerced to perform. The
assumptions of theory Y suggest a new approach in management. It emphasizes
that employees like work, they are creative, they seek responsibility, and that they
can exercise self-direction.
Herzbergs motivation-hygiene theory examines the motives which seem
to have the strongest influence on behavior at work. According to Herzberg,
success or failure of an individual largely depends upon the persons attitudes
towards work/job. Hygienic factors or dissatisfiers include wages, fringe benefits,
physical conditions and overall company policy and administration. Their presence
at a satisfactory level prevents job dissatisfaction but they do not provide motivation
to employees. Motivational factors also known as satisfiers are essential for
increasing productivity of employees and include factors as recognition, feeling of
accomplishment and achievement, opportunity for advancement and potential for
further growth, challenging work etc.
David McClelland highlighted the importance of three basic needs to
understand motivation. They are achievement needs, affiliation needs, and power
needs. Achievement motivated people seek competitive situations in which they
can achieve results through their own efforts and which allow them to obtain Business
Entrepreneurship - I 184
Motivation Theories immediate feedback on their performance. They have an intense desire for success.
High achievers are characterised by restlessness and willingness to work for long
hours. Need for affiliation refers to the desire to maintain warm friendly relationship
with others. Affiliation motivated people maintain friendly interaction with others.
They strive to maintain pleasant social relationships. The need forNOTES
power refers to
the desire to be influential. Power motivated individuals assert themselves when
a decision needs to be made.
Clayton Alderfer propended three basic groups of poor needs i.e. existence,
relatedness and growth and labelled the theory as ERG theory. According to
ERG theory an individual can start working on growth needs even though his/her
existence or relatedness needs are unsatisfied; rather when an individual fails to
fulfil higher order needs, his/her desire to work upon a lower level need increases.
According to Victor Vroom, the tendency of a person to act in a certain
way depends upon the expectation of the likely outcome that act will generate and
on the attractiveness of that outcome to the individual. There is no universal
principal for explaining everyones motivations. There is a need to understand
goals of an individual, the linkage between efforts put in by the individual and
performers, between performance and rewards and the importance of rewards in
terms of goal satisfaction.
Porter and Lawler concluded that an individuals motivation to complete a
task is affected by the reward they expect to receive for completing the task.
They categorised reward as intrinsic and extrinsic. Intrinsic rewards are the positive
feelings that the individual experiences from completing the task. Extrinsic rewards
are rewards emanating from outside the individual.
Exercise NOTES
ii. Theory Y
iii. ERG Theory
iv. Theory Z
7. need does not belong to the Three Needs Theory
of McClelland.
i. Security
ii. Achievement.
iii. Power
iv. Affiliation
8. The Expectancy Theory is propounded by
i. Maslow
ii. Vroom
iii. Alderfer
iv. Drucker
9. Theory X and Theory Y are associated with
i. Maslow
ii. McGregor
iii. Herzberg
iv. McClelland
10. Which of the following is not a social need?
i. Hunger
ii. Love and affection
iii. Friendship
iv. Sense of belonging
Answers
Check Your Progress
2. belongingness needs
3. Self-actualization needs
4. Existence, Relatedness, Growth Business
Entrepreneurship - I 187
Multiple Choice Questions Motivation Theories
1. iv
2. iii
3. iv NOTES
4. iii
5. ii
6. iii
7. i
8. ii
9. ii
10. i
Business
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Entrepreneurial
Motivation UNIT 11: ENTREPRENEURIAL
MOTIVATION
NOTES
Structure
11.0 Introduction
11.1 Unit Objectives
11.2 Entrepreneurial Motivating Factors
11.3 Achievement Motivation
11.4 Kakinada Experiment
11.5 Summary
11.6 Key Words
11.7 Questions and Exercises
11.8 Further Reading
11.0 Introduction
There are two things that motivate a person to succeed: inspiration and
desperation Anthony Robbins
After realizing the importance of entrepreneurs in socio-economic
development of a country, the subject of entrepreneurship development is attracting
the attention of everyone in the society. Economists, sociologists, anthropologists,
psychologists, administrators, policy makers, academicians are trying their best to
understand and boost up the process of entrepreneurship development and to find
out answers to several questions: How to attract more and more people towards
entrepreneurship? What motivates people to go into business? Why do people go
in for business and become entrepreneurs? This unit attempts to answer these
questions by discussing various perspectives of entrepreneurial motivation.
11.5 Summary
What motivates people to inspire for entrepreneurship is an interesting
issue to explore and analyse. Motivation is a highly complex phenomenon that
affects and gets affected by a multitude of factors. The entrepreneurial activity at
any time is dependent upon a complex and varying combination of socio-economic,
psychological and other factors. The environmental factors exercise a strong
influence on the personality or personal background of the entrepreneurs.
From the above discussion, it is revealed that majority of entrepreneurs
were motivated by previous experience in the same or related line. They possessed
technical knowledge. There was heavy demand for the particular product.
Government and institutional assistance available facilitated individuals to enter
industry. They possessed an achievement motive. They had enterprising attitude
and wanted to do something independent in their life.
The need for achievement plays an important role in entrepreneurial
success. The need for achievement is the desire to do well. It is the urge for
excellence. It is striving towards perfection. It is the inner spirit that stimulates an
entrepreneur for success. Several researches have also proved the hypothesis
that need for achievement contributes to entrepreneurial success. There is a need
to develop achievement motivation for spread of entrepreneurship in the economy.
David McClelland holds the view that achievement motivation can be developed
through training and experience. He conducted experiments with groups of
businessmen from three countries. He carried out a separate full-fledged training
programme in India to instill achievement motivation in the minds of entrepreneurs.
This successful experiment is popularly known as Kakinada Experiment.
Exercises
1. Meet any five entrepreneurs from your city and know about their
motivations.
2. Read success stories of entrepreneurs and write a report on
entrepreneurial motivation.
Answers
Check Your Progress
Business
Entrepreneurship - I 204
Entrepreneurship
Development Programmes UNIT 12 : ENTREPRENEURSHIP
DEVELOPMENT PROGRAMMES
(EDPs) NOTES
Structure
12.0 Introduction
12.1 Unit Objectives
12.2 EDPs - Meaning and Objectives
12.3 Need for EDPs
12.4 Role of EDP
12.5 Phases of EDPs
12.6 EDP Curriculum
12.7 Evaluation of EDPs
12.8 Strategy for Ensuring Success of EDP
12.9 Summary
12.10 Key Terms
12.11 Questions and Exercises
12.12 Further Reading
12.0 Introduction
Entrepreneurship development is an organized effort to inculcate
entrepreneurial qualities among people. It entails encouraging people to understand
entrepreneurship; make them realize the importance of entrepreneurship for their
own, for their community, for the society, for the economy as a whole.
Entrepreneurial development is now recognized widely as the key to
economic development and societal welfare. Experience of developed as well as
developing nations clearly exhibited that it is possible to develop entrepreneurs
through planned efforts. The myth that entrepreneurs are born and not made, no
longer holds good. In recent years, government and some non-government agencies
have been developing strategies and launching programmes for developing
entrepreneurial skills among society.
Business
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Entrepreneurship
12.5 Phases of EDPs Development Programmes
NOTES
Limitations of EDPs
EDPs are conducted by various organizations government organizations,
public financial institutions, nationalized banks etc as their primary or subsidiary Check Your
activities. Several thousand entrepreneurs have been trained and a few thousands Progress
are being trained each year. However, it is difficult to get reliable, regular, time
related data pertaining to the usefulness of EDPs in terms of developing all-round, 6. To undertake
competent and successful first generation entrepreneurs and generating viable entrepreneurship
opportunities for permanent self-employment. There is no provision of any kind of development and
procedure to regularly monitor and periodically evaluate the results of an EDP training on regular
conducted by an organization with funds from a public financial institution, basis, the Ministry of
government, or nationalized banks. There is no provision for any obligation to Micro, Small and
monitor progress and results of EDPs conducted even by funding agencies. There Medium Enterprises
is no organization which keeps an eye on conduct of EDPs with respect to the (MSME) has set up
effectiveness of EDPs conducted. There is complete lack of accountability to three national level
monitor and evaluate results in financing EDP activity in India. The average training Entrepreneurship
of six to twelve weeks provided through EDP is completely free for selected Development
potential entrepreneurs as the entire cost is borne by sponsoring financial institution. Institutes (EDIs).
Even for the EDP conducting organization, this activity is costless because its These are ------------
overheads and direct costs are paid for by the funding organization. No performance
criteria is fixed for the agency conducting EDP and nor for the participant
entrepreneurs in terms of use and results of training inputs. Potential entrepreneurs
are selected carefully on the basis of pre-determined criteria and care is taken to
select developable level of entrepreneurial talent. No fixed criteria of this kind is
found for ensuring whether carefully selected potential entrepreneurs become or
try to become entrepreneurs or not. No one keeps track for observing whether
trained potential entrepreneurs become entrepreneurs within a reasonable period
after completion of training or not.
12.9 Summary
Entrepreneurship development is one of the priorities of our country. It is
a key element for promotion of micro, and small enterprises, particularly, the first
generation entrepreneurs. In the light of liberalization, privatization, globalization
and digitization; increasing need is being felt for spread of entrepreneurial culture
in our country. Government is making all round efforts for creating entrepreneurial
society through EDPs i.e. entrepreneurial training.
The main objectives of EDP are development of need for achievement
and enterprise creation. EDPs aim to strengthen entrepreneurial quality/motivation
of selected entrepreneurs, know the pros and cons of being an entrepreneur, analyse
environment related to small enterprises, select product/project, understand the
process and procedure of setting up of small enterprise, be aware about the support
system needed for launching enterprise, and acquire basic management skills.
EDPs include inputs like awareness about entrepreneurship, motivation,
business opportunities, project feasibility study, managerial skills, and support system.
This process involves three phases: pre-training phase, training phase, and post-
training phase. The duration of EDPs ranges from one week to six weeks.
EDPs are evaluated on the basis of development of achievement motivation
among the trainees which get reflected through entrepreneurial behavior. The
success of EDP is directly seen from the number of enterprises started by the
trainees after completion of the training programme.
EDPs are designed with an aim of encouraging self-employment. It imparts
training and motivates potential and existing entrepreneurs to start new business
or diversify and expand the existing one. It helps employment and wealth creation
among educated unemployed youth.
Some problems of EDPs are concerned with trainers, with trainees, ED
organizations, the support organizations, and the government.
Business
Entrepreneurship - I 219
Entrepreneurship
12.11Questions and Exercises Development Programmes
Questions
1. Entrepreneurs are made, not born. Discuss. NOTES
Exercise
1. Get information about an EDP at local level and attend it.
Answers
Check Your Progress
Business
Entrepreneurship - I 222
Entrepreneurship
Development Programmes 12.12 Further Reading
Faculty Development Programme, Suggested Reading/Reference Material,
Entrepreneurship Development Institute of India, Ahmedabad
NOTES
Gupta C. B, Srinavasan N. P, Entrepreneurship Development in India,
Sultan Chand and Sons, New Delhi, 2005.
Reddy P. Narayana, Entrepreneurship Text and Cases, Cengage
Learning, Delhi, 2010
Sarwate Dilip M., Entrepreneurial Development Concepts and Practices,
Everest Publishing House, Pune, 1996
Business
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NOTES
Business
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