ENTREPRENEURSHIP

CHAPTER – 3
ENTREPRENEURSHIP

Key topics covered in this chapter:

3.1 Definition of Entrepreneurship
3.2 Characteristics of Entrepreneurship
3.3 Innovation & Entrepreneurship
3.4 Risks involved in Entrepreneurship
3.5 Barriers to Entrepreneurship
3.6 Factors affecting Entrepreneurial Growth
3.7 Entrepreneurship Vs Small Business
3.8 Classification of Entrepreneurship

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3.1 DEFINITION OF ENTREPRENEURSHIP

In the words of Stevenson and others, “Entrepreneurship is the process of creating
value by bringing together a unique package of resources to exploit an
opportunity.”
According to A.H. Cole, “Entrepreneurship is the purposeful activities of an
individual or a group of associated individuals undertaken to initiate, maintain or
organize a profit oriented business unit for the production or distribution of
economic goods and services”.
All activities undertaken by an entrepreneur to bring a business unit into existence
are collectively known as entrepreneurship. It is the process of changing ideas into
commercial opportunities and creating values. In short, entrepreneurship is the
process of creating a business enterprise.
3.2 CHARACTERISTICS OF ENTREPRENEURSHIP
1) It is a function of innovation.
2) It is a function of leadership.
3) It is an organization building function.
4) It is a function of high achievement.
5) It involves creation and operation of an enterprise.
6) It is concerned with unique combinations of resources that make existing
methods or products obsolete.
7) It is concerned with employing, managing, and developing the factors of
production.
8) It is a process of creating value for customers by exploiting untapped
opportunities.
9) It is a strong and positive orientation towards growth in sales, income, assets,
and employment.

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3.3 INNOVATION AND ENTREPRENEURSHIP

Innovation is one of the underlying dimensions of entrepreneurship. It is a key
function in the entrepreneurial process. Without innovation, an entrepreneur cannot
survive in the modern competitive business world. Entrepreneurship is a creative
and innovative response to the environment and an ability to recognize, initiate and
exploit an economic opportunity. An entrepreneur is an innovator who introduces
who introduces something new in an economy. As per the Schumpeter’s view, a
person becomes an entrepreneur only when he or she is engaged in innovation
.further, innovation is equal to competitive advantage. The entrepreneurs today
realize the need for innovation. Innovation adds value to the product. It is only
through innovation, the organizations can survive the increasing competition in the
market place.
3.4 RISKS INVOLVED WITH ENTREPRENEURSHIP
1) FINANCIAL RISK:
The entrepreneurship has to invest money in the enterprise on the
expectation of getting in return sufficient profits along with the investment.
He may get attractive income or he may get only limited income. Sometimes
he may incur losses.
2) PERSONAL RISK:
Starting a new venture uses much of the entrepreneur’s energy and time .He
or she has to sacrifice the pleasures attached to family and social life.
3) CARRIER RISK:
This risk may be caused by a number of reasons such as leaving a successful
career to start a new business or the potential of failure causing damage to
professional reputation.
4) PSYCHOLOGICAL RISK:
Psychological risk is the mental agonies an entrepreneur bears while
organizing and running a business venturesome entrepreneurs who have
suffered financial catastrophes have been unable to bounce back.

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3.5 BARRIERS TO ENTREPRENEURSHIP

Entrepreneurial development is very slow in under developed and
developing countries. This is due to the presence of several factors. Gunnar
Myrdal pointed out that Asian societies lack entrepreneurship not because
they lack money or raw material but because of their attitudes. These
barriers to entrepreneurship are classified into three as follows:

1) ENVIRONMENTAL BARRIERS
i. Non-Availability of Raw Material: - Non-availability of raw
materials especially during peak season is one of the obstacles
inhibiting entrepreneurship. This leads to competition for raw
material.
ii. Lack of Skilled Labour: - This is the most important resource in any
organization. Unfortunately, desired manpower may not be available
in an organization. This is either due to the lack of skilled labour or
due to lack of committed or loyal employees in the organization.

iii. Lack of Good Machinery: - Good machines are required for the
production of goods, because of rapid technological developments,
machines become obsolete very soon. Small entrepreneurs find it
difficult to get large amount of cash for installing modern machinery.

iv. Lack of Infrastructure: - Lack of infrastructure facilities is a major

barrier to the growth of entrepreneurship particularly in under
developed and developing economies. The infrastructural facilities
include land and building, adequate and cheap power, proper
transportation, water and drainage facilities etc.

v. Lack of Fund: - There are various methods by which an entrepreneur

arranges for funds, e.g., own savings, borrowings from friends and
relatives, banks and other financial institutions. Many people do not
enter into entrepreneurial activities because of lack of funds.

vi. Other Environmental Barriers: - Lack of business education, Lack of

motivation from government, corruption in administration, high cost

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of production etc. are the other environmental barriers that inhibit the
growth of entrepreneurship in underdeveloped countries.

2) PERSONAL BARRIERS
i. Personal barrier are those barriers that are caused by emotional
blocks of an individual. Some of the personal barriers may be
outlined as below: Unwillingness to Invest Money: - Even though
people have money, still they do not come in entrepreneurship.
They are not willing to take the risk of investing money in
business.
ii. Lack of Confidence: - Many people thing that they lack what it
takes to become an entrepreneur. They feel that they could not
master all the skills. Thus most people are reluctant to become
entrepreneurs.
iii. Lack of Motivation: - When an individual starts a new venture, he
is filled with enthusiasm and drive to achieve success. But when
he faces the challenges of real business or bears loss, or his ideas
don’t work, he loses interest or motivation.
iv. Lack of Patience: - The desire to achieve success in the first
attempt or to become rich very soon is the prime motivating factor
of modern youth. When such dreams do not come true, they lose
interest. This gradually drives to fail in business.
v. Inability to Dream: - Entrepreneurs, who are short on vision or
become satisfied with what they achieve, sometimes lose interest
in further expansion/growth of business.
3) SOCIAL BARRIERS
The social attitude inhibits many people even from thinking of starting a
business. The important social barriers are as follows.
i. Low Status: - The society things that entrepreneurs are the people who
exploit the society. Thus the attitude of the society towards entrepreneurs is
not positive.
ii. Custom and Tradition of People: - Most people want a real job. Even
parents who are entrepreneurs wouldn’t like their children to be
entrepreneurs. Thus lack of support from society and family hinder the
growth of entrepreneurs.

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3.6 FACTORS AFFECTING ENTREPRENEURIAL GROWTH

There are large number of varied factors which contribute to the growth of
entrepreneurship. These factors can be broadly classified into four. 

1) PSYCHOLOGICAL FACTORS: - Inspiration for achievement prepares

an entrepreneur to set higher goals and achieve them. The important
psychological factors influencing entrepreneurial growth may be outlined
as below:
i. Need for Achievement: - Need for achievement means the drive to
achieve a goal. People having need for achievement will be so
much self – confident that they do not believe in mere luck. If an
individual has need for achievement, he will become a successful
entrepreneur.
ii. Personal Motives: - These have been found to be one of the crucial
factors responsible for entrepreneurship amongst individuals. Bill
Gates dreamt that one day he would become the richest person. His
dream became a reality later.
iii. Recognition: - Many people become successful entrepreneurs just
for getting recognition from others.
iv. Need of Authority: - ‘Need of authority’ will inspire men to work.
When they become entrepreneurs, they can exercise authority over
managers, employees etc.
2) SOCIAL FACTORS: - What mould a man into an entrepreneur is the
sociological and environmental factors during childhood, and at the
school, personal experience in adult life at the college and job
environments, the mobility, occupation and support from parents. The
social factors include:
i. Legitimacy of Entrepreneurship: - System of norms and values
within a socio – cultural setting is responsible for the emergence
of entrepreneurship. The degree of approval or disapproval
granted to entrepreneurial behaviour will influence its emergence
and its characteristics if it does emerge.
ii. Social Marginality: - Individuals or groups on the perimeter of a
given social system or between two social systems provide the
personnel to assume the entrepreneurial roles. Social marginality
is likely to promote entrepreneurship are largely determined by

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two factors, namely the legitimacy of entrepreneurship and social

mobility.
iii. Family, Role Models and Association with Similar Type of
Individuals: - If an individual has a supportive family, he or she is
more likely to become an entrepreneur. Similarly, if an individual
has role models who have been successful in entrepreneurship,
certainly, he may be motivated to start ventures. If a person is in
association with entrepreneurs, this may add to his or her desire of
setting up a new venture. Reliance, Tata, Birla etc. are the
industries depend upon family based inheritance. Roberts (1991)
has developed the idea of the ‘entrepreneurial heritage ‘ to
describe the importance of the family background for the
entrepreneur. This heritage includes factors such as the father’s
occupation, the family work ethic and religion, family size and the
first born son, growing up experience and so on.
iv. Caste System: - Certain religions and caste encourage the growth
of entrepreneurial talent. Some religious communities like the
parsees, marwaris and sindhees seem to have an affinity for
entrepreneurial activity. The caste system in Hindu society has
promoted to the growth of business and professional skills.
v. Occupation :- Those born in rich families with silver spoons in
their mouth have not only an advantage of having financial
resources for carrying out business but also learn the business skill
by continuous interaction and contacts with parents, customers,
employees and visitors in family shops, offices and homes.
vi. Education and Technical Qualifications: - Education is the best
means of developing man’s resourcefulness which encompasses
different dimensions of entrepreneurship. It may be expected that
the high level of education may enable the entrepreneurs to
exercise their entrepreneurial talent more efficiently and
effectively.
vii. Social Status: - Every human being aspires for a high social status
and once he achieves a reasonable level, his aspirations and
desires for its start getting multiplied. People work hard to
maintain their status as it also contributes to their entrepreneurial
growth.

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viii. Social Responsibility: - It is the obligation to the society in which

the business enterprise operates. An entrepreneur generates
employment for others besides helping himself.
3) ECONOMIC FACTORS: - Economic factors also influence the growth
of entrepreneurship. The important economic factors are
i. Infrastructural Facilities: - Entrepreneurship development requires
certain basic infrastructure like power, transportation,
communication, technical information etc. These provide external
economies and improve the efficiency of investments by
entrepreneurs. These infrastructural facilities are scarce in less
developed countries. The entrepreneurs themselves have to procure
these facilities at their own cost. They have to obtain these
facilities at higher costs. This will greatly discourage the
entrepreneurship development. In advanced countries, those who
are desirous of starting an enterprise will find no difficulty in
procuring the infrastructural facilities at reasonable costs.
ii. Financial Resources: - Finance is the life blood of business
activity. Capital is required to obtain materials, machinery,
equipment, etc. and to undertake innovation. Capital is regarded as
lubricant to the process of production. The lack of financial
resources discourages the youth and potential entrepreneurs to start
new ventures. Hence, the need for fixed and working capital
should be adequately met if new entrepreneurs are to come forward
and grow.
iii. Availability of Material and Know – How: - Entrepreneurship is
encouraged only if there is an adequate supply of materials and
know-how. Easy availability of materials attracts more individuals
towards entrepreneurship. Technical know-how is essential for
innovation. With technical knowledge, men discover more and
sophisticated techniques of production.
iv. Labour Conditions: - The quality rather than quantity of labour is
another factor which influences the emergence and growth of
entrepreneurship. The availability of cheep labour positively
affects entrepreneurship. Labour problem can be solved not by
capital intensive technologies but by increasing their mobility, by

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offering them facilities, incentives and concessions in every remote

corner of the country.
v. Market: - The size and composition of market influence
entrepreneurship in their own ways. Practically, monopoly in a
particular product in a market becomes more influential for
entrepreneurship than a competitive market.
vi. Support System: - Ability, initiative and support systems include
financial and commercial institutions, research, training,
consultancy services, ancillary industry etc.
vii. Government Policy: - The socio- political and economic policies
of the government inhibit or foster entrepreneurial growth. Land
and factory sheds at concessional rates, adequate sources of power,
supply of materials and other physical facilities should be provided
by the government to facilitate the setting up of new enterprises.
The government has a dominant role to play in the industrial
development of backward regions with a view to attain a balanced
regional development.
4) PERSONALITY FACTORS: - The supply of entrepreneurship in a
society is largely influenced by the presence of individuals with the
imitativeness, foresightedness and organizing and managerial
competence. The following personality factors contribute to the
entrepreneurial development:
1. Passion
This is the most significant characteristic that every entrepreneur
has, and for obvious reasons. They are successful because they
love what they do. These entrepreneurs put all the extra hours they
have into the business to make it successful and flourish. It is a
pleasure for them to see the results of their labor, which goes well
beyond the money received.
People like this are always researching and reading things to find
strategies in how they can make their business better.
2. Strong work ethic
Entrepreneurs who are successful make sure that they are always
the one who is first to the office and the last one to leave.
These people are those who ensure that they come to the office
during their off days, if needed, just to ensure that the outcomes

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meet their expectations. The successful entrepreneurs are those

who always have their mind in their work, even if they are not in
their workplace.
3. Strong people skills
A successful entrepreneur is someone who has excellent
communication skills for selling the products to customers and
motivating the employees. Yes, most entrepreneurs who have the
power to motivate their employees can see their business grow
within no time. These entrepreneurs are also great at instructing
others to be successful and highlighting the advantages of any
situation.
4. Determination
The successful entrepreneurs are never greatly impacted by the
defeats they encounter. For them, failure is like an opening for a
success story, and hence, they try again and again just till they get
the success they are expecting. Moreover, these entrepreneurs are
not wired to believe that some things are not possible and cannot
be done.
5. Creativity
One of the main aspects of creativity is the ability to find a
relationship between two unrelated situations or events. They
usually come up with the solutions of these problems that are a
combination of other things. These people normally re-purpose the
items for marketing them to new industries.
6. Competitiveness
The number of companies formed are increasing every month and
every year, as every entrepreneur feels that they can do a much
better job than others. They run with the aim that they need to win
at the sport they play and win the business that they are creating or
have created. It is an entrepreneur that highlights the track record
of success of their company.
7. Self Starter
Every successful entrepreneur knows that if something has to be
done, it needs to be done by themselves. Parameters are set by
them, and they ensure that the projects are following that path.

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They do not wait for someone to permit them and are highly
proactive.
8. Open Minded
For those entrepreneurs that are successful or are following others
who have been successful, understand that each situation and
event is a business opportunity. There are new ideas that
continually come out regarding new potential businesses, people
skills, efficiency, and workflows. These people have the capability
to see all that is around them and direct the focus towards their
objectives and goals.
9. Confidence
A successful entrepreneur never asks the question or keeps doubts
in their mind about if they can succeed or if they are even worthy
of success. They are normally confident enough that their
knowledge and their know-how will help them make their
business idea a success. And they radiate this confidence in
everything that they do for the business.
10. Disciplined
Successful entrepreneurs always focus their energy on making the
business work, and for eliminating the distractions or obstacles to
their goals. Their overarching strategies help them to reach the
goals they have while they outline the plan to achieve the final
outcome. Moreover, entrepreneurs become successful as they are
disciplined to always make new steps every day towards the
accomplishment of their goals.

Entrepreneurship Vs Small Business

Many people use the terms “entrepreneur” & “small business owner”
synonymously. While they have much in common, there are significant differences
between the entrepreneurial venture and the small business. Entrepreneurial
ventures differ from small businesses in these ways:
1. Amount of wealth creation: Rather than simply generating an income
stream that replaces traditional employment, a successful entrepreneurial

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venture creates substantial wealth, typically in excess of several million

dollars of profit.

2. Speed of wealth creation: While a successful small business can generate

several million dollars of profit over a lifetime, entrepreneurial wealth
creation often is rapid, for example within 5 years.

3. Risk: The risk of an entrepreneurial venture must be high; otherwise, with

the incentive of sure profits many entrepreneurs would be pursuing the idea
and the opportunity no longer would exist.

4. Innovation: Entrepreneurship often involves substantial innovation beyond

what a small business might exhibit. This innovation gives the venture the
competitive advantage that results in wealth creation. The innovation may be
in the product or service itself, or in the business processes used to deliver it.

3.8 Classification of Entrepreneurship

Hans Schollhammer has classified entrepreneurship into the below categories.
They are discussed in a nutshell below:
1. Administrative Entrepreneurship
The entrepreneurial activity under this category is centered around administrative
techniques and functions. It given new option to handle prevailing or future
situations in more effective way that provides advantages and competitive edge.
Total Quality Management, job redesigning, new techniques of doing things,
participative management or management by consensus is a few of the examples of
administrative entrepreneurship that increases overall organizational efficiency and
that nukes the firm successful and sustainable in the competitive market
environment.
2. Opportunistic Entrepreneurship

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There is a proverb, “Hit ! While the iron is hot”. It is the best exhibit of the
characteristic of this category of entrepreneurship. Environmental changes always
offer new opportunities. But everybody is not equally capable to identify and to
utilize that opportunity on time. In short, entrepreneurship that identifies exploits
and executes the opportunity in the first hand is regarded as opportunistic
entrepreneurship.
3. Acquisitive Entrepreneurship
The entrepreneurship that learns from others competences is acquisitive
entrepreneurship. It acquires something new of value front, the competitive
environment or achieves the competitors’ technical capacities. It keeps the
entrepreneurship sustainable in the competitive environment.
4. Incubative Entrepreneurship
This category of entrepreneurship generates and nurses new ideas and ventures
within the organization. It executes them in the productive manner and ensures
material gain for the organization. They pursue and help getting differentiated
technologies to promote creations and innovations. Microsoft, Nokia, etc, always
incubates new varieties types of product and creates product differentiation in the
market.
5. Imitative Entrepreneurship
The entrepreneurship that imitates a good or service operating in the market under
a franchise agreement is the imitative entrepreneurship. It is in medium that spread
technology over the world. It adopts an existing technology in countries over the
world. It also adopts an existing technology with minor modification appropriate to
the local condition.
6. Private Entrepreneurship
The entrepreneurship that is initiated under private sector is private
entrepreneurship. Government gives various support services through private and
public concerns that encourage private initiative in taking entrepreneurial ventures.
A lair and mutual relationship between private and public sectors would make
economic development speedy and balanced.
7. Public Entrepreneurship

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The entrepreneurship that is undertaken by the government through its various

development agencies is public entrepreneurship. All countries, developed or under
developed, take public initiative in venture ideas to fulfill the initial deficiency of
private entrepreneurs.
8. Individual Entrepreneurship
The entrepreneurship that is undertaken by an individual or a family with personal
initiative is individual entrepreneurship.
9. Mass Entrepreneurship
This type of entrepreneurship emerges in an economy where a favorable climate of
motivation and encouragement exist for developing wide range of entrepreneurship
among general mass is mass entrepreneurship. It increases small and medium
enterprises in a country.

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