Chapter 1

Introduction to
Entrepreneurship

Learning Points
1. What is Entrepreneurship and who is
an Entrepreneur?
2. Growth engines of Entrepreneurship
3. Importance of entrepreneurship
4. Entrepreneur in the history of
Economic Theory
5. Entrepreneur in the history of
Economic Theory- Major thoughts/
view points
6. Role of Constellation of Forces

ENTREPRENEURSHIP
It is the process of starting,
establishing and expanding an
enterprise that produces and markets
goods and/ or services.
It is creative act --- finds opportunities
and derive benefits.
Process by which opportunities to
create future goods and services are
discovered, evaluated and exploited.

Entrepreneur- definition
An economist defines him as one
who brings resources, labor, material
and other assets in to combinations
that make their value greater than
before and also one who introduces
changes, innovation and a new order.

Entrepreneur- definition Management experts define

entrepreneur as a person who has
vision and generates an action plan for
it.
Edward De Bono says that INNOVATION
distinguishes Entrepreneur from
others.
Etimology- Entreprendre- a German
word- which means undertaker.

Entrepreneur- definition
Peter Drucker says, Innovation is
the specific tool of entrepreneurs, the
means by which they exploit changes
as an opportunity for a different
business or service. It is capable of
being presented as a discipline,
capable of being learnt, capable of
being practiced.

Importance of
entrepreneurship

Liberalized world trade

Shifting of jobs and whole industries
Lack of innovation in economy
Problem of unemployment and creation of
jobs
Alternate to search of jobs
Distribution of economically relevant info.
(von Hayek 1945)
Wealth Generation and the GDP growth

Growth engines of
Entrepreneurship
Growing unemployment and
underemployment- entrepreneurship as
an alternative to search for jobs
Rise of Individualism- especially in USA
(Schumcher,1994) as a mega trend in
1990s
Growing entrepreneurial behavior in
developing and under developed countries
Liberalization and Globalization trends

Entrepreneur in the history of

Economic Theory
Entrepreneurship is a least understood topic
in economics.
For most of the 20th Century, the
entrepreneur disappeared from the
economics literature due to the domination
of equilibrium economic models demand
and supply determine the price
(The supply curve shows the quantity supplied at a given price by
profit-maximizing firms. The demand curve shows the quantity
demanded at a given price by utility-maximizing consumers. The
intersection of the supply curve and the demand curve is the point
that maximizes both profits and utility)

Entrepreneur in the history of

Economic Theory
Richard Cantillion (1775) was the first
to recognose the role of Entrepreneur.
He stressed on the function of
entrepreneur and not his personalitythe farmer is an entrepreneur who
promises to pay the land owner for
his farm or land, a fixed sum of
money without assurance of the profit
he will derive from the enterprise.

Entrepreneur in the history of

Economic Theory
J.B. Say (1800)- A person who
shifts economic resources out of
an area of lower and into an area
of
higher productivity and
greater yield - he stresses
importance of change and
innovation within an economic
system but also describes
entrepreneur as an agent of change.

Entrepreneur in the history of

Economic Theory- cont
Hebert and Link (1988) give overview of different roles given to
entrepreneur over 200 years
1

Who assumes risk associated with uncertainty (Cantillon, Knight

etc)
2
Who supplies financial capital (Smith)
3
Is an innovator (Weber, Schumpeter)
4
Is a decision maker (Menger, Keynes)
5
Is an industrial leader (J.B.Say, Francis)
6
Is a manager or a superintendent (Mill, Marshall)
7
Is an organizer and coordinator of economic resources (Say,
Schumpeter)
8
Is an owner of enterprise
(Quesney)
9
Is an employer of factors of production (Walker, Keynes)
10
Is a contractor (Bentham)
11
Is an arbitrageur (Cantillon )
12
Is an allocator of resources among alternate uses (Cantillon )

Entrepreneur in the history of

Economic Theory- Major
theories

1. Uncertainty and being risk bearer

The
profit
of
entrepreneur
is
compensation for bearing uncertainity
(Knight, 1921).
Risk is one of the main elements.
Difference between risk and uncertainty
is that the latter can not be measured in
% - Risk is calculable, uncertainty is not
(Knight, 1921).

Entrepreneur in the history of

Economic Theory- Major
theories

2. Entrepreneur as InnovatorSchumpeter (1934)

Criticized Knight for not distinguishing
between entrepreneur and resource owner.
Stressed Innovation as against resource.
Categories of action covered by innovation :
Intro of new good or quality of good
Intro of new method of production

Opening of new market

Utilization of new source of supply of

material or intermediate goods

Carrying out new organizational form

raw

Entrepreneur in the history of

Economic Theory- Major
theories

Entrepreneur as InnovatorSchumpeter (1934)

Entrepreneur is defined as one what he
does and not what he owns
He does not invent or find opportunities
but his role is to make them living
Entrepreneurial traits are not teachable
His motivation comes from the dream
and the will to found his own kingdom

Entrepreneur in the history of

Economic Theory- Major
theories

3. Entrepreneur as Alert
Discoverer- Hayak (1949)
Markets help people to communicate
their discoveries to others and learn of
others discoveries (Casson, 1982)
Entrepreneur make use of asymmetry in
information to his advantage
Cognitive learning ability of the individual
decides market equilibrium process

Entrepreneur in the history of

Economic Theory- Major
theories

4. Entrepreneur as CoordinatorCasson, 1988

He is expert in judgmental decisions
about coordination of scarce resources
He integrates elements of dynamism
(Schumpeter) and bearing uncertainty
(Knight)
Casson tried to integrate human behavior
in to economic theory

Entrepreneur in the history of

Economic Theory- Major
theories

Entrepreneur as a person with special

characteristics- The traits approach
( The Psychological contribution)Gartner, 1989.
Economic theory cannot explain
entrepreneurial behavior all the times.
Special characteristics- high need for
achievement, self-confidence/ locus of
control, risk taking, personal values, age
etc.

Critique of Traits Theory

The theory assumes that entrepreneur
to be a particular person, a fixed state
of existence. Once an entrepreneuralways an entrepreneur
There is no agreement among
scholars whether the founder of a
company alone is an entrepreneur or
whether the employed manager is
also an entrepreneur.

Behavioral Approach
It revolves around the following:
What kind of activities he performs
With whom he works
What basic rules can be inferred from
the study of entrepreneurs activities?
Where does the entrepreneur start?
Where do his ideas come from?
How does he try them etc

Critique of Behavioral
Theory
Methodology- It is very difficult to
observe the behavior of the
entrepreneur.

The Myths of Entrepreneurship

1.
2.

Entrepreneurs are doers, not thinkers

Entrepreneurs are born, not made
Not true! Talent gained and enhanced by experience is a foundation for
entrepreneurial success.

1.
2.
3.
4.

Entrepreneurs are always inventors

Entrepreneurs are academic and social misfits
Entrepreneurs must fit the profile
All entrepreneurs need is money
Not true! Money is no guarantee of success. Theres a lot more to it than
that; many entrepreneurs start with very little

5.
6.
7.
8.

All entrepreneurs need is luck

Ignorance is bliss for entrepreneurs
Entrepreneurs seek success but experience high failure
rates
Entrepreneurs are extreme risk takers (Gamblers)

Role of Constellation of
forces
Rise of Knowledge Intensive Industries
resulting in the rise of technopreneurs
Liberalization and Globalization trends
resulting in to dismantling of licence-raj
and deterritoralization in business activities
Growing literacy and the rise of
indigeneous enterprise
Growth in infrastructure- thanks to 5 year
plans

Role of Constellation of
forces-cont
Growing urbanization
Growth of Service and Primary Sectors
and the gradual decline of Primary
Sector
Information Technology, growing Social
Network, improved communications,
data warehousing- World crumbling in
to Global Village
Reducing trend of cultural barriers

Role of Constellation of
forces-cont
Women empowerment resulting in
Woman Entrepreneurship
Electoral Politics leading to
empowerment of Dalits- Dalit
Entrepreneurship
Nucleus families, decline of joint
families- growing entrepreniurial
behavior and individualism
Family back grounds, gender, age etc

Conclusion
Entrepreneurial behavior cannot be
explained purely economic theory because
psychological, cultural and sociological
factors are important too (Campbell, 1992)
Innovation is the specific tool of
entrepreneurs, the means by which they
exploit changes as an opportunity for a
different business or service. It is capable
of being presented as a discipline, capable
of being learnt, capable of being
practiced.

Conclusion- con
Three critical characteristics of entrepreneur
being moderate risk taking, innovation and
venturing in to New Business
Entrepreneurship is the professional
application of knowledge, skills and
competencies; and of monetizing a new idea,
by an individual or a set of people by launching
an enterprise de novo or diversifying from an
existing one, thus pursuing growth while
generating employment, wealth and social
good- National Knowledge Commission, 2008