BLOCK : ENTREPRENAURSHIP

UNIT 1 –

1. Mention the basic theories of entrepreneurship. Discuss any 2 theories

with relevant examples.

• Query successful

Here are the answers to your questions, explained in an easy-to-understand manner for a student:

1. Basic Theories of Entrepreneurship and a Discussion of Two Theories:

Several theories explain entrepreneurship, drawing from various fields like economics, psychology,
anthropology, management, and sociology.

Here are two important theories of entrepreneurship:

A) Innovation Theory of Joseph A. Schumpeter

• Core Idea: Schumpeter believed that entrepreneurs are the driving force behind economic
development. They don't just set up businesses; they innovate by introducing "novel
combinations" of resources to push the economy to a new level. He saw entrepreneurship
as a "creative activity" involving innovation, risk-taking, and resource management.

• What an Innovator Does: An entrepreneur, according to Schumpeter, explores new

combinations of existing resources, introduces new products or services, invents new
production processes, enters new markets, discovers new raw material sources, or
implements new organizational structures.

• Innovator vs. Inventor: Schumpeter distinguished between an innovator and an inventor.

An inventor discovers new techniques or materials. An innovator, however, is the one who
applies or modifies these discoveries to create unique combinations and transform a
technical discovery into a financially viable business opportunity.

• Example: Think of Steve Jobs and Apple. While the underlying technologies for computers
existed (inventions), Jobs (the innovator/entrepreneur) combined them in novel ways (e.g.,
the Macintosh with a graphical user interface, the iPhone) to create new markets and
disrupt existing ones. He didn't invent all the individual components, but he innovated by
combining them and introducing them to the market in a revolutionary way.
2. Explain the factors which motivate people to become entrepreneurs.

B) Need for Achievement Theory of David McClelland

• Core Idea: David McClelland's theory (1961) suggests that people have a fundamental need
to succeed, accomplish, excel, or achieve in life. This desire is a key motivator for successful
entrepreneurs.

• Motivation for Entrepreneurs: Entrepreneurs with a high "Need for Achievement" (N-Ach)
are driven by this internal desire to succeed, rather than solely by money or external
rewards. This need encourages them to take on risky and uncertain tasks.

• Five Components of N-Ach: McClelland identified five main components of the N-Ach trait:

1. Accepting responsibility for problem-solving.

2. Setting objectives.

3. Achieving goals through their own efforts.

4. Recognizing the value of and utilizing feedback.

5. A tendency for taking moderate amounts of risk.

• Example: Consider someone who starts a small online business. They are constantly looking
for ways to improve their product, attract more customers, and grow their sales. They are
driven by the personal satisfaction of achieving these business milestones, taking calculated
risks, and learning from their experiences, which aligns with the "need for achievement."

2. Factors that Motivate People to Become Entrepreneurs:

Several factors motivate individuals to become entrepreneurs, ranging from personal traits to
external opportunities and even challenging circumstances:

• Opportunity Recognition: Entrepreneurs are skilled at identifying unmet market needs or

new technological inventions that can be developed into viable business ideas. They see
"gaps" in the market that others might overlook.

• Risk-Taking Propensity: A willingness to assume risk, accountability, and challenges is a core

characteristic of an entrepreneur. They are comfortable with the uncertain nature of starting
a new venture.

• Innovation and Creativity: Entrepreneurs often introduce pioneering business ideas,

revolutionize production patterns, or develop novel products and services. They are
imaginative people who promote innovation.

• Need for Achievement (N-Ach): As discussed in McClelland's theory, a strong internal desire
to succeed, accomplish, and excel in life motivates many entrepreneurs.
 • Internal Locus of Control: Successful entrepreneurs often believe that they can control the
events and outcomes in their lives, rather than attributing them to external forces like luck
or fate.

• Desire for Independence/Autonomy: Many entrepreneurs are driven by a desire for

independence and control over their work and decisions.

• Problem-Solving Mindset: Entrepreneurs recognize problems or unfulfilled needs and are

motivated to develop solutions through new products or services.

• Exploiting Market Imperfections: Some are motivated by the ability to identify and exploit
market imperfections, such as asymmetric information or gaps, to achieve profitable
opportunities.

• Socio-Cultural Factors and Networks: The social environment, including supportive cultural
values that encourage risk-taking and self-reliance, can foster entrepreneurship. Social
networks also provide access to resources and information, motivating individuals to pursue
entrepreneurial ventures.

• Response to Disadvantage/Marginalization: In some cases, a marginalized group's creativity

and drive to regain lost respect or status can be a significant motivator for entrepreneurial
activity, as suggested by Hagen's theory.

3. Give an account of the emergence of the entrepreneurial class and

elaborate on the various types of entrepreneurs.

Here's an easy-to-understand explanation of the emergence of the entrepreneurial class and various
types of entrepreneurs, along with the importance of entrepreneurship in a developing country like
India:

3. Emergence of the Entrepreneurial Class and Types of Entrepreneurs

The idea of entrepreneurship has changed and grown over many years, with contributions from
different fields of study like economics, psychology, and sociology.

A) Emergence of the Entrepreneurial Class (How the Idea of Entrepreneurship Evolved):

• Early Economic Thinkers (Rational Agent): Initially, economists like Richard Cantillon (1680-
1744) and Adam Smith (1776) focused on entrepreneurs as rational economic actors.
Cantillon saw them as people who take risks by buying products at a certain price to sell
them at an uncertain price. Adam Smith characterized them as "profit-seeking enterprisers".
Later, Jean-Baptiste Say (1807) added that entrepreneurs coordinate and manage
 production and take on business risks for profit. Most of these early thinkers saw
entrepreneurs reacting to changes in the market.

• Schumpeter's Innovation Theory: A big shift happened when Joseph A. Schumpeter (1934)
introduced his "Innovation Theory." He saw entrepreneurs as a dynamic force who drive
economic development by creating "novel combinations" of resources, introducing new
products or processes, opening new markets, or reorganizing industries. He said
entrepreneurs "destroy or disrupt an equilibrium-state market". Schumpeter distinguished
innovators (entrepreneurs who apply discoveries) from inventors (who make discoveries).

• Focus on Personality Traits: After the economic view, research moved to focus on the
individual characteristics of entrepreneurs. Psychologists looked at traits like the "need for
achievement" (McClelland, 1965), internal locus of control (belief in controlling one's own
destiny), self-confidence, and a willingness to take risks as motivators for entrepreneurial
behavior.

• Opportunity Recognition: In the late 1990s, the focus shifted to how entrepreneurs find,
create, and use opportunities. This view suggests that people with special information,
knowledge, and skills are better at spotting and developing business opportunities from
unmet market needs or new technologies.

• Institutions and Networks: More recently, theories consider how environmental,

institutional, and cultural factors, like supportive social values and networks, encourage
entrepreneurship. Social networks are seen as crucial for entrepreneurs to access resources,
information, and identify opportunities.

B) Various Types of Entrepreneurship:

Different people start businesses with different goals and visions, based on their skills, knowledge,
experience, and the environment around them. Here are some common types:

• Small Business Entrepreneurship: These are the most common type, like local grocery
stores or hair salons. They usually aim to support the owner's family and provide a basic
living. They often use personal savings or money from friends and family, and their workers
might be neighbors or relatives.

• Large Company Entrepreneurship: These are big businesses (like Apple or Samsung) that
constantly innovate to stay competitive and profitable. They invest in research and
development to create new products and services for their customers.

• Scalable Start-up Entrepreneurship: These entrepreneurs begin with a unique, innovative

idea that has the potential for rapid and significant growth. They identify a market need and
offer a solution. Venture capitalists often invest in these businesses because of their
originality and potential for large profits and quick growth.

• International Entrepreneurship: This involves doing business outside of one's home country,
such as setting up sales units abroad or exporting goods. It's often pursued when local
demand is falling but global demand is rising.
• Social Entrepreneurship: These entrepreneurs focus on solving social problems. They create
innovative goods or services to address societal challenges like environmental protection,
animal welfare, or improving community health and education. Their main goal is social
benefit, not just profit, though they aim for financially sustainable social change.

• Environmental Entrepreneurship (Ecopreneurship/Green Entrepreneurship): These

businesses are environmentally conscious and aim to make a profit while promoting
environmental values. They might replace existing products with eco-friendly alternatives.

• Technopreneurship or Technological Entrepreneurship: Technopreneurs build businesses

that rely heavily on innovative technology. They use their technical knowledge and business
skills to offer cutting-edge solutions and can change the market. Technology is the
foundation of their products and services.

• Imitative Entrepreneurship: These entrepreneurs copy or mimic existing business ideas,

goods, or services, often through franchise contracts. They might make small improvements
to current products to suit local needs but aren't focused on completely new innovations.

• Researcher Entrepreneurship: These entrepreneurs do extensive research on the market

and opportunities before starting a business. They rely on data, knowledge, and logic more
than intuition to plan thoroughly and reduce the risk of failure.

• Innovation Entrepreneurship: This involves identifying market gaps and using advanced
technology and creative thinking to develop completely new and unique goods or services
that improve people's lives (like Tesla or iPhones).

• Cyber Entrepreneurship: These entrepreneurs use information technology to run their

businesses online. They create original concepts for providing goods and services through
internet-based applications, operating as "virtual businesses".
4. What is the importance of entrepreneurship in a developing country like

India?

4. Importance of Entrepreneurship in a Developing Country like India:

Entrepreneurship is incredibly important for a developing country like India because it drives
progress and helps solve many challenges. Here's why:

• Economic Development: Entrepreneurs are like engines of growth. By starting new

businesses, especially those that are innovative and scalable, they create new economic
activity, jobs, and wealth, which is vital for a developing nation's economy.

• Job Creation: When entrepreneurs start new ventures, they hire people. This is crucial in a
country like India with a large workforce, as it helps reduce unemployment and provides
livelihoods for many families.

• Innovation and Problem Solving: Entrepreneurs, especially innovative ones, identify

problems and unmet needs in society and create new goods, services, and solutions. For
India, this can mean developing affordable solutions for healthcare, education, clean energy,
or access to technology.

• Increased Productivity and Efficiency: Entrepreneurs often introduce new ways of doing
things, new technologies, and more efficient processes. This can lead to better utilization of
resources and increased overall productivity in the economy.

• Wealth Creation and Income Generation: Successful entrepreneurial ventures generate

profits not only for the entrepreneur but also for employees, suppliers, and investors,
leading to a rise in overall income levels and standard of living.

• Regional Development: Entrepreneurial activity isn't just limited to big cities. It can lead to
the growth of businesses in smaller towns and rural areas, helping to balance economic
development across the country.

• Market Disruption and Competition: New entrepreneurs can challenge existing businesses,
leading to healthy competition, better quality products, and more choices for consumers at
potentially lower prices.

• Utilizing Underemployed Resources: Entrepreneurs are skilled at spotting "underemployed

resources or capabilities" and transforming them into viable business opportunities. In India,
this could mean effectively utilizing untapped human talent or natural resources.

• Social Change: Social entrepreneurs, in particular, directly address critical social challenges
like poverty, illiteracy, and environmental degradation, leading to positive societal impact
beyond just profit.
 • Encouraging Self-Reliance and Independence: Entrepreneurship fosters a culture of self-
reliance and independence, empowering individuals to take control of their economic future
rather than solely relying on traditional employment.

5. What is entrepreneurship? Discuss the various types of entrepreneurs.

Here's a straightforward explanation of entrepreneurship and its various types:

What is Entrepreneurship?

Entrepreneurship is essentially the ability of a person to take on risks, challenges, and

responsibilities with the goal of finding opportunities, changing market norms, and creating value.
Some people define it by the qualities an entrepreneur possesses (like their traits or skills), while
others define it by the actual activities they do.

Historically, the term "entrepreneurship" comes from a French expression meaning "to undertake"
or "taking from below". French economist Richard Cantillon was one of the first to popularize the
idea, noting that business owners buy products at one price to sell them at an uncertain price,
making them different because they take on more risk. Later, Adam Smith described entrepreneurs
as "profit-seeking enterprisers". Jean-Baptiste Say added that entrepreneurs coordinate and manage
production factors, taking on business risk while aiming for profit and wealth.

More broadly, entrepreneurship is seen as a "creative activity" that involves innovation, taking risks,
and managing resources. It's about discovering, evaluating, and exploiting opportunities to create
new goods and services. Modern definitions also emphasize transforming the world by solving big
problems, such as bringing about social change or creating innovative products that challenge how
we live daily.

Various Types of Entrepreneurs:

Different individuals have different goals and visions when starting a business, which leads to various
types of entrepreneurs. Their choices often depend on their skills, knowledge, experience, and the
entrepreneurial environment around them.

Here are the main types of entrepreneurs:

• Small Business Entrepreneurship: These entrepreneurs typically start businesses to support

their families and maintain a basic quality of life. They often use their own savings or borrow
from friends and family for funding. Examples include local grocery stores, hair salons, and
boutiques. These businesses are usually small, informal, and often family-managed.

• Large Company Entrepreneurship: These are big businesses that continuously provide
cutting-edge products and services for profit. They've grown into large organizations with
sustainable competitive advantages. They constantly develop technology through research
 and development to meet changing customer needs. Apple and Samsung are well-known
examples.

• Scalable Start-up Entrepreneurship: These entrepreneurs begin with an innovative idea that
has the potential for significant change and rapid growth. They identify a market need and
provide a solution for it. Venture capitalists often invest in these businesses based on the
originality and scalability of their ideas. They hire specialized workers to achieve quick
growth and large profits.

• International Entrepreneurship: This involves conducting business operations outside the

country's borders, such as setting up sales units overseas or exporting goods. It can be
profitable when local demand declines and global demand rises.

• Social Entrepreneurship: Social entrepreneurs identify a social problem and create

entrepreneurial initiatives to benefit society. They develop innovative goods, services, or
solutions for urgent societal challenges, like environmental protection, animal welfare, or
improving community health and education. Their primary motivation is societal benefit, not
just profit, though they aim for financially sustainable social change.

• Environmental Entrepreneurship (Ecopreneurship/Green Entrepreneurship): Also known as

ecopreneurship, these businesses engage in environmentally conscious activities while still
making a profit. They promote social and environmental value over purely monetary gain
and aim to replace existing products with eco-friendly alternatives.

• Technopreneurship or Technological Entrepreneurship: A technopreneur builds a company

that relies heavily on the innovative use of technology and their technical expertise. They
offer cutting-edge solutions and can change the market, with technology being the
backbone of their products and services.

• Imitative Entrepreneurship: This type of entrepreneurship involves mimicking or copying

existing business concepts, goods, and services. They often operate under franchise
contracts. While they might modify current products or services to suit local needs, they are
less focused on entirely new innovations. Fast food restaurants are a common example.