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Entrepreneurship - Concepts, Characters and Theories

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 43

Chapter - 5

Entrepreneurship - Concepts,
Characters and Theories

Dr. Sowjanya, S.1*, Scientist (Agricultural Extension)

Dr. Lata R. Kulkarni2*, Senior Scientist & Head
Dr. Dinesha, M.S.3*, Scientist (Agronomy)
Dr. Rajendra Prasad, B.S.4* (Plant Protection)
ICAR-KVK Ramanagara, University of Agricultural Sciences, Bengaluru, Karnataka,
India
*Corresponding author email: [Link]@[Link]

Abstract
Entrepreneurship is one of the key drivers for economic development. During
an economic crisis, the importance of entrepreneurship development increases.
Entrepreneurship has been linked to improved growth, increased wealth and
quality of life. In developing countries like India, planning and implementation
for development of entrepreneurial programmes are essential for raising the living
standard of the vast majority of the backward regions because of their over-dependence
on agriculture for employment. Thus, entrepreneurship development appears to be
the best substitute to find employment opportunities, income generation, poverty
reduction and improvements in nutrition, health and overall food security in the
national economy. In this chapter, we are discussing about the important concepts,
characteristics and theories of entrepreneurship

Introduction
Entrepreneurship is the capability to develop ideas and attain success with them.
44

Innovation, ability to accept change and risk and the organization of resources are
some of the factors involved in creating a sustainable enterprise. The entrepreneurial
spirit is responsible for generating employment, competitiveness and the ability to
exploit any sector or business (European Communities, 2003). Entrepreneurship is
a feasible approach for upward mobility, as a 1% increase in entrepreneurial activities
decreases the poverty rate by 2% (Singh, 2014).

Entrepreneurs with successful businesses are self-employed. The word

entrepreneurship means a dynamic process of creating progressive asset (Shailesh et
al., 2013). This asset is produced by individuals who take the major risks in forms of
equity, time and career obligation of giving worth to some product or services. There
are chances that the product or service may or may not be new or unique but value
must be inculcated by the entrepreneur. Simply we can say that entrepreneurship is
the use of energy for commencing and building an enterprise (Mishra et al., 2010).
Consequently, entrepreneurship is a fascinating notion, widely used and defined as
a creative and innovative response to the environment (Chandramouli et al., 2007)

It can also be defined as a process in which a representative manages to visualize

and implement an idea, belief, service, product or activity (Bernier and Hafsi 2003).
Stevenson et al. (1999) describe it as the quest of an opportunity, whether enough
resources are available or not. Other authors see it as an individual’s efforts to turn a
vision into reality, despite of probability of success. This might indicate that anyone
can be an entrepreneur who has the potential to develop that vision by which
creates his own. Moreover, it could be interpreted that entrepreneurship is a mutual
phenomenon in which society as a whole can contribute to general wellbeing by
means of social deal in new products and services.

Entrepreneurship Concept

An entrepreneur is an individual who creates a new business, bearing most of the

risks and enjoying most of the rewards. The entrepreneur is commonly seen as
an innovator, a source of new ideas, goods, services, and business/or procedures.
Entrepreneurs play a key role in any economy, using the skills and initiative necessary
to anticipate needs and bring good new ideas to market. Entrepreneurs who prove
to be successful in taking on the risks of a startup are rewarded with profits, fame,
and continued growth opportunities. Those who fail suffer losses and become less
prevalent in the markets.

Though the concept of an entrepreneur has existed and was known for centuries,
the classical and neoclassical economists interestingly left entrepreneurs out of
 45

their formal models of the economy: They assumed that perfect information would
be known to fully rational actors, leaving no room for risk-taking or discovery. It
wasn’t until the middle of the 20th century that economists seriously attempted to
incorporate entrepreneurship into their models.

Three thinkers were central to the inclusion of entrepreneurs in later iterations

of economics: Joseph Schumpeter, Frank Knight, and Israel Kirzner. Schumpeter
suggested that entrepreneurs—not just companies—were responsible for the creation
of new things in the search of profit. Knight focused on entrepreneurs as the bearers
of uncertainty and believed they were responsible for risk premiums in financial
markets. Kirzner thought of entrepreneurship as a process that led to the discovery.

Even though he was the first to describe in detail capitalist production and
the profit motive of business owners, it wasn’t Adam Smith who coined the term
“entrepreneur.” One type of person strangely overlooked in Smith’s free-market
masterpiece, “The Wealth of Nations,” is the entrepreneur. This is because the term
was actually coined afterwards by an admirer of Adam Smith’s book.

Entrepreneur is a French word probably coined by the economist Jean-Baptiste

Say from the word ‘entreprendre’, which is usually translated as “undertaker” or
“adventurer.” Say studied Smith’s book and, while agreeing on all points, found that
the omission of enterprising businessmen was a serious flaw.

Jean-Baptiste Say’s View on Entrepreneurship

Jean-Baptiste Say pointed out in his own writings that it was entrepreneurs who sought
out inefficient uses of resources and capital and moved them into more productive,
higher yield areas. Simply put, entrepreneurs seek opportunities for profit and, by
doing so, create new markets and fresh opportunities. By constantly disrupting
the balance of competition, entrepreneurs prevent monopolies from forming and
create a wide diversity of products that keep consumers consuming and producers
producing. In return for taking these risks, successful entrepreneurs like Bill Gates
and Henry Ford reap fortunes far beyond those of normal agents in the economy.

Say put the focus on entrepreneurs because he was one. As a cotton manufacturer,
he saw how an entrepreneur must be able to recognize opportunities and manage them
effectively. Say’s “A Treatise on Political Economy, or the Production, Distribution,
and Consumption of Wealth” captured the imagination of many people.3 Thomas
Jefferson read the English translation and tried to convince Say to teach in his new
nation. Although Say never stepped foot on U.S. soil, his entrepreneurial outlook
46

found a home in America anyway. Combining Adam Smith’s free-market principles

and Say’s entrepreneurial call to arms, the U.S. went wholeheartedly into the industrial
revolution and emerged with one of the strongest economies in the world.

Characteristics of Entrepreneurship
Not all entrepreneurs are successful; there are definite characteristics that make
entrepreneurship successful. A few of them are mentioned below:

a. Ability to take a risk - Starting any new venture involves a considerable amount
of failure risk. Therefore, an entrepreneur needs to be courageous and able to
evaluate and take risks, which is an essential part of being an entrepreneur.

b. Innovation- It should be highly innovative to generate new ideas, start a company

and earn profits out of it. Change can be the launching of a new product that is
new to the market or a process that does the same thing but in a more efficient
and economical way.

c. Visionary and Leadership quality - To be successful, the entrepreneur should

have a clear vision of his new venture. However, to turn the idea into reality, a lot
of resources and employees are required. Here, leadership quality is paramount
because leaders impart and guide their employees towards the right path of success.

d. Open-Minded - In a business, every circumstance can be an opportunity and

used for the benefit of a company. For example, Paytm recognised the gravity
of demonetization and acknowledged the need for online transactions would
be more, so it utilised the situation and expanded massively during this time.

e. Flexible - An entrepreneur should be flexible and open to change according to

the situation. To be on the top, a businessperson should be equipped to embrace
change in a product and service, as and when needed.

f. Know your Product -A company owner should know the product offerings
and also be aware of the latest trend in the market. It is essential to know if
the available product or service meets the demands of the current market, or
whether it is time to tweak it a little. Being able to be accountable and then
alter as needed is a vital part of entrepreneurship.

Theories of Entrepreneurship – 8 major theories

It is a universal fact that entrepreneurship is an important factor in economic

 47

development. An Entrepreneur is the risk bearer and works under uncertainty.

But no attempts were made by economists for formulating systematic theory of
entrepreneurship.

1) Innovation Entrepreneurship theory: What makes entrepreneurs different from

normal businessmen is finding innovative solutions and having foresight. Joseph Alois
Schumpeter, one of the greatest economists, put forth the well-known innovative
theory which changed the entrepreneur’s perspective. According to Schumpeter,
entrepreneurs take the stationary economy to a new level of development by adding
innovation and creativity of their own. Schumpeter also stated that entrepreneurs
bring innovation in two ways namely:

1. By reducing the cost of production

2. By increasing the demand for certain products

2) Economic Entrepreneurship theory: This theory was proposed by Richard

Cantillon who considered the economy as one of the fields affected by entrepreneurship.
According to Cantillon, an entrepreneur acts as both ‘producers’ and ‘exchangers’.
An entrepreneur’s action greatly affects the supply chain of raw products being
collected, to become an end product for consumers. Cantillon included everyone as
an entrepreneur from their little actions starting from a beggar to restaurant owners
as they also have their source of unfixed income; this counts as a unique factor and
made his theory stand out from other entrepreneurship theories.

3) Sociological Entrepreneurship theory: This theory talks about the social aspects
of entrepreneurship. If an entrepreneur considers all the social aspects such as social
taboos, customs, culture, and other religious beliefs, they might have a well-established
business that is up to mark with every consumer’s expectation. Max Weber propounded
the sociological entrepreneurship theory and stated that entrepreneurs should accept
the system of a society for the development of themselves as well as their startup.

4) Psychological Entrepreneurship theory: Psychological theories are of three

sections. They are based on the personal characteristics of a typical entrepreneur.

i. Locus of control:- Any entrepreneur’s success can be an outcome of internal

locus of control as well as the outer locus of control i.e., his or her Inside
abilities and support from outside.

ii. Theory of personality traits: The inborn qualities of an individual are the
one that naturally makes them an entrepreneur.
48

iii. Theory of need for achievement:- Entrepreneurs are driven by a need

for achievement and it eventually makes them [Link], these
three characteristics distinguish various types of entrepreneurs based on
psychological entrepreneurship theories.

5) Opportunity based Entrepreneurship theory: Peter Drucker in his theory

stated that “this defines entrepreneur and entrepreneurship, the entrepreneur
always searches for change, responds to it and exploits it as an opportunity”. Peter
Drucker and Howard Stevenson focused on a wide-ranging conceptual framework
of entrepreneurship and hence contradicted Schumpeter’s theory which stated
entrepreneurship as change.

6) Resource-based Entrepreneurship theory: This theory states that entrepreneurs

need resources to start and carry their businesses. Money and time alone are not
sufficient for a blooming startup; hence Entrepreneurs require resources to make
their efforts productive. Also, the theory’s main focus is on showing the importance
of financial, social, and human resources and in the process enhance an individual’s
abilities.

7) Anthropological Entrepreneurship theory: It relates to the cultural model of

entrepreneurs. Anthropologists study the human aspects within the past and present.
This makes them good observers of society and hence according to them, to have a
successful venture, entrepreneurs should consider the social and cultural contexts.
Entrepreneurs can find possibilities that present themselves as difficulties because
of the social aspects of business activities (social or environmental). It pushes them
to come up with new ways to solve difficulties, or at the very least contribute to
their solutions.

8) Process of stage Entrepreneurship theory: This theory is once again divided

into five stages describing the development journey of an entrepreneur. It is a widely
accepted theory by Venkat Rao. The five steps of entrepreneurship development
according to this theory are:-

1. Simulation for stimulation of entrepreneurship

2. Identifying abilities and capacities of entrepreneurship

3. Expansion and development stage

4. Publicity foundation/Promotion

5. Feedback
 49

Types of Entrepreneur
The various types of entrepreneurs are classified on certain parameters. Some
important classifications are described below:

1. On the Basis of Economic Development: Clarence Danhof classified entrepreneurs

into four groups on the basis of economic development.

a. Innovating Entrepreneurs: This type of entrepreneurship is characterized

by aggressive assemblage of information and the analysis of results deriving
from novel combination of factors of production. Entrepreneurs falling in this
class are generally aggressive in experimentation and exhibited shrewdness in
putting attractive possibilities into practice. They are the entrepreneurs who
have creative and innovative ideas of starting a new business. An innovating
entrepreneur sees the opportunity for introducing a new technique or a new
product or a new market. He may raise money to launch an enterprise, assemble
the various factors, and choose top executives and the set the organization going.
Schumpeter’s entrepreneur was of this type. Innovative entrepreneurs thus, results
in the creation of something new. They are the contributors to the economic
development of a country. Innovating entrepreneurs are very commonly frond
in undeveloped countries. There is dearth of such entrepreneurs in developed
countries. Innovating entrepreneurs played the key role in the rise of modern
capitalism, through their enterprising sprit, hope of moneymaking, ability to
recognize and exploit opportunities, etc.

b. Adoptive or Imitative Entrepreneur: There is a second group of entrepreneurs

generally referred as imitative entrepreneurs. The imitative entrepreneurs copy
or adopt suitable innovations made by the innovative entrepreneurs. They does
not innovate the changes himself. They only imitates technology innovated by
others. Such entrepreneurs are particularly important in developing courtiers
because they contribute significantly to the development of such economies.
Imitative entrepreneurs are most suitable for the developing regions because
in such countries people prefer to imitate the technology, knowledge and skill
already available in more advanced countries. In highly backward countries there is
shortage of imitative entrepreneurs also. People who can imitate the technologies
and products to the particular conditions prevailing in these countries are needed.
Sometimes, there is a need to adjust and adopt the new technologies to their
special conditions. Imitative entrepreneurs help to transform the system with
the limited resources available. However; these entrepreneurs face lesser risks
and uncertainty then innovative entrepreneurs. While innovative entrepreneurs
50

are creative, imitative entrepreneurs are adoptive.

c. Fabian Entrepreneur: The third type is Fabian entrepreneur. By nature these

entrepreneurs are shy and lazy. This type of entrepreneurs have neither will to
introduce new changes nor desire to adopt new methods of production innovated
by the most entrepreneurs. They follow the set procedures, customs, traditions and
religions. They are not much interested in taking risk and they try to follow the
footsteps of their predecessors. Usually they are second generation entrepreneur
in a business family enterprise.

d. Drone Entrepreneur: The fourth type is Drone entrepreneurs who refuse to

copy or use opportunities that come on their way. They are conventional in their
approach and stick to their set practices products, production methods and ideas.
They struggle to survive not to grow. They may be termed as Laggards. In such
cases the organization looses market, their operations become uneconomical
and they may be pushed out of the market

2. According to Growth: The industrial units are identified as high growth, medium
growth and low growth industries and as such we have ‘Growth Entrepreneur’ and
‘Super Growth Entrepreneur.’

a. Growth Entrepreneur: He necessarily takes up a high growth industry and

chooses an industry which has sustained growth prospects. Growth entrepreneurs
have both the desire and ability to grow as fast as large as possible.

b. Super-Growth Entrepreneur: This category of entrepreneurs is those who have

shown enormous growth of performance in their venture. The growth performance
is identified by the high turnover of sales, liquidity of funds, and profitability.

3. On the Basis of Type of Business: Under this category we can classify entrepreneurs
as described below:

a. Business Entrepreneurs: They are the entrepreneurs who conceive an idea for
a new product or service and then create a business to materialize their idea
into reality. They tap the entire factor of production to develop a new business
opportunity. They may set up a big enterprise or a small scale business. When
they establish small business units they are called small business entrepreneurs. In
a majority of cases, entrepreneurs are found in small trading and manufacturing
business.

b. Trading Entrepreneur: There entrepreneurs undertake trading activities and

 51

are not concerned with the manufacturing work. They identifies potentiality
of their product in markets, stimulates demand for their product line among
buyers. They may go for both domestic and overseas trade. These entrepreneurs
demonstrated their ability in pushing many ideas ahead which promoted their
business.

c. Industrial Entrepreneur: Industrial entrepreneur is essentially a manufacturer

who identifies the needs of customers and creates products or services to serve
them. He is product-oriented who starts through an industrial unit to create a
product like electronic industry, textile unit, machine tools.

d. Corporate Entrepreneur: These entrepreneurs used his innovative skill in

organizing and managing a corporate undertaking. A corporate undertaking is
a form of business organisation which is registered under some statute or Act
like a trust registered under the Trust Act, or a company registered under the
Companies Act. These corporate work as separate legal entity. He is thus an
individual who plans, develops and manages a corporate body.

e. Agricultural Entrepreneur: Agricultural entrepreneurs are those who undertake

agricultural activities as through mechanization, irrigation and application of
technologies to produce the crop. They cover a broad spectrum of the agricultural
sector and include agriculture and allied occupations.

4. According to Entrepreneurial Activity: Based on entrepreneurial activity,

entrepreneurs are classified as novice, serial, and portfolio entrepreneur.

a. Novice Entrepreneur: A novice is someone who has started his/her first

entrepreneurial venture. A novice entrepreneur is an individual who has no prior
business ownership experience as a business founder, inheritor of a business, or
a purchaser of a business. It is not similar to early starter; a novice can also be
a 50 year old with over 25 years of experience in the industry.

b. A Serial Entrepreneur: A Serial Entrepreneur is someone who is devoted to

one venture at a time but ultimately starts many. It is the process of starting
that excites the starter. Once the business is established, the serial entrepreneur
may lose interest and think of selling and moving on.

c. Portfolio Entrepreneur: A portfolio entrepreneur is an individual who retains

an original business and builds a portfolio of additional businesses through
inheriting, establishing, or purchasing them. A portfolio entrepreneur starts and
runs a number of businesses. It may be a strategy of spreading risk or it may be
52

that the entrepreneur is simultaneously excited by a variety of opportunities.

Also, the entrepreneur may see some synergies between the ventures.

5. According to the Use of Technology: The application of new technology in various

sectors of the national economy is essential for the future growth of business. We may
broadly classify these entrepreneurs on the basis of the use of technology as follows:

a. Technical Entrepreneurs: With the decline of joint family business and the rise
of scientific and technical institutions, technically qualified persons have entered
the field of business. These entrepreneurs may enter business to commercially
exploit their inventions and discoveries. Their main asset is technical expertise.
They raise the necessary capital and employ experts in financial, legal- marketing
and other areas of business. Their success depends upon how they start production
and on the acceptance of their products in the market.

b. Non-technical Entrepreneur: Non-technical entrepreneurs are those who

are not concerned with the technical aspects of the product or service in which
they deal. They are concerned only with developing alternative marketing and
promotional strategies for their product or service.

c. Professional Entrepreneur: Professional entrepreneur is an entrepreneur who

is interested in establishing a business but does not have interest in managing it
after establishment. A professional entrepreneur sells out the existing business on
good returns and starts another business with a new idea. Such an entrepreneur
is dynamic and conceives new ideas to develop alternative projects.

6. According to Motivation: Motivation is the main force that promotes the efforts
of the entrepreneur to achieve his goals. An entrepreneur is motivated to achieve or
prove his excellence in their performance. According to motivation we can classify
entrepreneur as:

a. Pure Entrepreneur: A pure entrepreneur is the one who is motivated

by psychological economical, ethical considerations. He undertakes an
entrepreneurial activity for his personal satisfaction in work, ego or status.

b. Induced Entrepreneur: This type of entrepreneur is one who induced to

take up an entrepreneurial task due to the policy reforms of the government
that provides assistance, incentives, concessions and other facilities to start a
venture. Most of the small scale entrepreneurs belong to this category and
enter business due to financial, technical and several other facilities provided
to them by the various agency of Govt. to promote entrepreneurship. Today,
 53

import restrictions and allocation of production quotas to small units have

induced many people to start a small scale unit.

c. Motivated Entrepreneur: New entrepreneurs are motivated by the desire

for self-fulfilment. They come into being because of the possibility of
making and marketing some new products for the use of consumers. They
are motivated through reward like profit.

Other Entrepreneurs:

A. First-Generation Entrepreneurs: This category consists of those entrepreneurs

whose parents or family had not been into business and was into salaried service. The
booming economy of India has led to a multitude of business opportunities, and with
deregulation, it has become easier to set up businesses. Also, with a change in the
mindset of the middle class, it is now more acceptable to become an entrepreneur.
A first-generation entrepreneur is one who starts an industrial unit by means of an
innovative skill. He is essentially an innovator, combining different technologies to
produce a marketable product or service.

B. Modern Entrepreneur: A modern entrepreneur is one who undertakes those

businesses which go well along with the changing scenario in the market and suits
the current marketing needs.

C. Women Entrepreneurs: Women as entrepreneurs have been a recent phenomenon

in India. The social norms in India had made it difficult for women to have a
professional life. Now this has changed. Progressive laws and other incentives have
also boosted the presence of women in entrepreneurial activity in diverse fields. In
1988, for the first time, the definition of Women Entrepreneurs’ enterprise was evolved
that termed an SSI unit/industry-related service or business enterprise, managed
by one or more women entrepreneurs in proprietary concerns, or in which she/they
individually or jointly have a share capital of not less than 51 per cent as partners
/ shareholders / directors of a private limited company / members of a cooperative
society, as a Woman Enterprise.

D. Nascent Entrepreneur: A nascent entrepreneur is an individual who is in the

process of starting a new business.

E. Habitual Entrepreneur: A habitual entrepreneur is an individual who has prior

business ownership experience. The nascent entrepreneur can either be a novice or
a habitual entrepreneur.
54

F. Lifestyle Entrepreneurs: Lifestyle entrepreneurs have developed an enterprise

that fits their individual circumstances and style of life. Their basic intention is to
ear an income for themselves and their families.

G. Copreneurs: It is related to the married couples working together in a business.

When a married couple share ownership, commitment and responsibility for a’
business, they are called “copreneurs”. As copreneurs, couples struggle in ventures
to establish equality in. their relationships. Such couples represent the dynamic
interaction of the systems of love and work.

H. IT Entrepreneurs: IT entrepreneurs are creating a new business platform that

takes them straight to the top. They are confident, ambitious innovative and acquired
creativity in the competitive global environment and created a niche of their self.
They are the brave new bunch of entrepreneurs who are raring to take on the world
of information technology

Conclusion
The entrepreneur of the world is the wisest minds who leave an indelible mark in
the history of mankind. They make it possible through their action, and not through
words. They do things in a completely new way. They think beyond the obvious. They
go deeper. They think from different perspectives and angles. There are different types
of entrepreneurs. A nascent entrepreneur is an individual who is in the process of
starting a new business. A 72 novice entrepreneur is an individual who has no prior
business ownership experience. A habitual entrepreneur is an individual who has
prior business ownership experience. A serial entrepreneur is an individual who has
sold or closed an original business, established another business, sold or closed that
business, established another business, sold or closed that business, and continues
this cycle of entrepreneurial behaviour. A portfolio entrepreneur is an individual
who retains an original business and builds a portfolio of additional businesses.
The entrepreneur is a key in entrepreneurship. His personality is a composite of
innovator, risk taker, motivator, planner, a creative problem solver and who makes
things happen. Entrepreneurs are made and not born. He is made by his family,
environment and education. Because of limited resources, high levels of uncertainty
and inexperienced management and employees and man other such reasons, new
ventures suffer from a very high rate of failure – much higher than that of larger,
well-established firms.
 55

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