Entrepreneurship

The concept entrepreneurship is derived from the French concept “entreprendre” which literarily is equivalent to the English concept “to undertake”. From the business point of view, to undertake simply means to start a business.

Entrepreneurs develop new goods or processes that the market demands and are not currently being supplied. Entrepreneurship is a force of “creative destruction”. The entrepreneur carries out “new combinations”, thereby helping render old industries obsolete. Established ways of doing business are destroyed by the creation of new and better ways to do them. Entrepreneur actually searches for change, responds to it, and exploits change as an opportunity.

The capacity and willingness to develop, organize and manage a business venture along with new ideas by taking risk to make profits is entrepreneurship.

The entrepreneur is one who is willing to bear the risk of a new venture if there is a significant chance for profit. Entrepreneurship is a necessary ingredient for stimulating economic growth and employment opportunities in all societies. In the developing world, successful small businesses are the primary engines of job creation, income growth, and poverty reduction. In economics, entrepreneurship combined with land, labor, natural resources and capital can produce profit. Entrepreneurial spirit is characterized by innovation and risk-taking, and is an essential part of a nation’s ability to succeed in ever changing and increasingly competitive global marketplace.

The Bill Gates changed the way we use home computers is an excellent example of entrepreneurship.

Most economists today agree that entrepreneurship is a necessary ingredient for stimulating economic growth and employment opportunities in all societies. In the developing world, successful small businesses are the primary engines of job creation, income growth, and poverty reduction. Therefore, government support for entrepreneurship is a crucial strategy for economic development.

Characteristics/Aspects of Entrepreneurship and Entrepreneurs

Several scholars through various studies identified several characteristics possessed by entrepreneurs some of which are discussed as follows.

Creative Activity: Entrepreneurship entails innovations. It deals with product innovation, production techniques innovation, process innovation.

Invention:- refers to the creation of a brand new product or device. Example : Newton law, first computer etc   Innovation: is an act of making changes to the existing product or the process by introducing new ways or ideas. Example mobile versions, pc versions etc

Purposeful Activity: Entrepreneurship is an activity starts with specific purpose. This could be for profit making purposes or to bring a difference to the market.

Risk Bearing Ability: The entrepreneur must have the capacity to bear risk. This is because the new venture is created in an uncertain and risky environment.

Technical Knowledge: Depending on the kind of venture created, the entrepreneur must have technical expertise about production techniques and marketing.

Ability to Gather Financial and Motivational Resources: Financial and motivational resources are needed for the creation of the new business. Sometimes the entrepreneur, as 7 an individual may not have these resources but he/she/they should have the ability to gather it from those who have it.

Definition of Entrepreneur

Wikipedia, 2010

An entrepreneur is a person who has possession of a new enterprise, venture or idea and assumes significant accountability for the inherent risks and the outcome.

Business Dictionary, 2010

The entrepreneur is anyone who has the capacity and willingness to undertake conception, 4 organization, and management of a productive venture with all attendant risks, while seeking profit as a reward.

Frank Knight (American economist)

Entrepreneurs as individuals who attempt to predict and act upon change within markets.

Joseph Alois Schumpeter (American economist)

Entrepreneur as the innovator who implements change within markets through the carrying out of new combinations such as introduction of new techniques of production, reorganization of an industry and innovation.

Thus, entrepreneurs are business persons who identify the existence of business opportunities and based on this they create businesses thereby creating new products, new production methods, new markets and new forms of organization to satisfy human needs and wants mostly at a profit.

From the definitions above we can see that while defining the concept ‘entrepreneurship’, emphasis on a wide spectrum of activities such as

  • Creation of organizations
  • Innovation applied to a business context
  • The combination of resources
  • Identification and exploitation of opportunities within the economic system or market
  • The bringing together of factors of production under uncertainty

The Entrepreneurial Decision Process

(1) identification and evaluation of opportunity,

(2) development of the business plan,

(3) determination of required resources and

(4) management of enterprise.

Although these phases precede progressively, no one stage is dealt with in isolation or is totally completed before work on other phases occur. For example, to successfully identify and evaluate an opportunity, an entrepreneur must have in mind the type of business management.

Figure: Entrepreneurial Decision Process

 

Identify and Evaluate the Opportunity: It is a very difficult task to identify the opportunity. Most good business opportunities do not suddenly appear, but rather result from an entrepreneur’s alertness to possibilities or, in some case, the establishment of mechanisms that identify potential opportunities. For example, one entrepreneur asks at every cocktail party whether anyone is using a product that does not adequately fulfill its intended purpose. This person is constantly looking for a need and an opportunity to create a better product.

A window of opportunity is a short time period available for creating the new venture.

An opportunity assessment includes the following; a description of the product or service, assessment of the opportunity, an assessment of the entrepreneur and the team, specification of all the activities and resources needed to translate the opportunity into a viable business venture, and the source of capital to finance initial venture as well as its growth.

“Business opportunities are like buses, there’s always another one coming.” – Richard Branson, founder of Virgin Enterprises

Develop Business Plan: A good business plan must be developed in order to exploit the defined opportunities. This is a very time consuming phase of the entrepreneurial process. An entrepreneur usually has not prepared a business plan before and does not have the resources available to do a good job. The business plan is a written document prepared by the entrepreneur that describes all the relevant external and internal elements involved in starting a new venture. It is often an integration of functional plan such as marketing, finance, manufacturing, technological, operational, organizational, and human resources. It also addresses both short-term and long-term decision making for the first three years of operation <Belinda Guadarrama>. The business plan basically answers the following: where am I now? Where am I going? How will I get there? Profit analysis is done in this stage. The business plan is important because:

  • It helps to determine the viability of the venture in a designated market.
  • It provides guidance to the entrepreneur in organizing his or her planning activities.
  • It serves as an important tool in helping to obtain financing.

Determine Resource Required: The resource needed for addressing the opportunity must also be determined. This process starts with an analysis of the entrepreneur’s present resource. Any resources that are critical need to be differentiated from those that are just helpful. Care must be taken not to underestimate the amount and variety of resources needed. The downside risks associated with insufficient or inappropriate resources should also be assessed.

An entrepreneur should strive to maintain as large an ownership position as possible, particularly in the start-up stage. As the business develops, more funds will probably be needed to finance the growth of the venture. Alternative suppliers need to be identified. By understanding resource supplier needs, the entrepreneur can structure a deal that enables the resources to be acquired at the lowest possible cost and the least loss of control. Entrepreneur must develop access to the future needed resources.

Manage the Enterprise: After resources are acquired, the entrepreneur must use them to implement the business plan. The operational problem of the growing enterprise must also be examined. This involves implementing a management style and structure, as well as determining the key variables for success. A control system must be established. To grow up the business one should to develop the strategies to compete in global market.

Role of Entrepreneurship in Economic Development

The role of entrepreneurship on economic growth began with the ideas of Adam Smith (1776) whose overriding goal was to understand the wealth-creation process whereas division of labor is limited by the extent of the market. As market grew, entrepreneurship would lead to innovation, which would lead to an increasing division of labor and increased productivity. However, entrepreneurship has not played a central role in economic theory. Traditionally, the economic output of a country is seen as a function of capital and labor inputs, combined with technological change (Solow 1956). The standard production function shows that economic output (Y) is a function of the sum of labor and capital inputs, and the level of technological progress. In traditional models of economic growth, investment in capital, labor and technology is sufficient to realize economic growth. New models of economic growth see these investments as a necessary complement to entrepreneurship, but not as a sufficient explanation for economic growth in its own right.

Some of most important roles of entrepreneurship in economic development are explained below:

  • Capital formation
  • Generation of employment
  • Reduces concentration of wealth
  • Balanced regional development
  • Promotes Country’s Export Trade
  • Improvement in standard of living
  • Increasing Gross National Product and Per Capita Income
  • Usage of natural resources
  • Facilitates Overall Development

Capital Formation: Entrepreneurs promote capital formation by mobilizing the idle savings of public. They employ their own as well as borrowed resources for setting up their enterprises. Such type of entrepreneurial activities leads to value addition and creation of wealth, which is very essential for the industrial and economic development of the country.

Generation of employment: Entrepreneurs provide immediate large-scale employment to the unemployed which is a chronic problem of underdeveloped nations. With the setting more and more units together by entrepreneurs, both on small and large-scale huge job opportunities are create. As time passes, these enterprises grow, providing direct and indirect employment opportunities to many more. In this way, entrepreneurs play an effective role in reducing the problem of unemployment in the country which in turn clears the path towards economic development of the nation.

Balanced Regional Development: Entrepreneurs help to remove regional disparities through setting up of industries in less developed and backward areas. The growth of industries and business in these areas lead to a large number of public benefits like road transport, health, education, entertainment, etc. Setting up of more industries leads to more development of backward regions and thereby promotes balanced regional development.

Reduces Concentration of Wealth: Economic power is the natural outcome of industrial and business activity. Industrial development normally leads to concentration of economic power in the hands of a few individuals which results in the growth of monopolies. In order to redress this problem a large number of entrepreneurs need to be developed, which will help reduce the concentration of economic power amongst the population.

Promotes Country’s Export Trade: Entrepreneurs help in promoting a country’s export-trade, which is an important ingredient of economic development. They produce goods and services in large scale for the purpose earning huge amount of foreign exchange from export. Hence import substitution and export promotion ensure economic independence and development.  

Increasing Gross National Product and Per Capita Income: Entrepreneurs are always on the lookout for opportunities. They explore and exploit opportunities, encourage effective resource mobilization of capital and skill, bring in new products and services and develops markets for growth of the economy. In this way, they help increasing gross national product as well as per capita income of the people in a country. Increase in gross national product and per capita income of the people in a country, is a sign of economic growth.

Facilitates Overall Development: Entrepreneurs act as agent for change which results in chain reaction. Once an enterprise is established, the process of industrialization is set in motion. This unit will generate demand for various types of units required by it and there will be so many other units which require the output of this unit. This leads to overall development of an area due to increase in demand and setting up of more and more units. In this way, the entrepreneurs multiply their entrepreneurial activities, thus creating an environment of enthusiasm and conveying an impetus for overall development of the area.

Intrapreneurship

Intrapreneurship (entrepreneurship within an existing business structure) can also bridge the gap between science and the marketplace. Existing business have the finance resource, business skills, and frequently the marketing and distribution system to commercialize innovation successfully. Yet, too often the bureaucratic structure, the emphasis on short-term profits, and highly structured organization inhibit creative and prevent new products and business from being developed. Corporations recognizing these inhibiting factors and the need for creativity and innovation have attempted to establish an intrapreneural spirit in their organizations. In the present era of hyper-competition, the need for new products and the intrapreneurial spirit have become so great that more and more companies are developing an intrapreneural environment, often in the form of strategic business unit.

entrepreneurship within an existing business structure is Intrapreneurship

Environment for Intrapreneur:

  • Organization operates on technology
  • New ideas encouraged
  • Trial and error encouraged
  • Failures allowed
  • No opportunity parameter
  • Resource available and accessible
  • Multidiscipline teamwork approach
  • Appropriate reward system
  • Support to top management

Comparison between Intrapreneur and Entrepreneur

Basis for comparison Entrepreneur Intrapreneur
Meaning  An entrepreneur is an individual who creates a new business, bearing most of the risks and enjoying most of the rewards.   The term intrapreneurship refers to a system that allows an employee to act like an entrepreneur within a company or other organization.
Resource Used own resource Use resource provided by the company
Capital Raised by himself/herself Financed by the company
Enterprise Newly established An existing one
Dependency Independent Dependent on existing company
Risk Taken by the entrepreneur himself Taken  by the company
Works for Creating a new and leading position in a market Change and renew the  existing organizational system and culture
Decision Follows dream with decision Able to get other to agree to help achieve dream
Failure and mistakes Deals with mistake and failure Attempts to hide risky projects from view until ready.

Ethics and social responsibility of Entrepreneurship

The life of entrepreneur is not easy. An enterprise must earn profits for its own survival, for expansion, for bearing the risks and finally for the prestige of its management. But profit cannot be the sole objective of the entrepreneur. It is a means and not an end. No enterprise can last long unless along with earning profits, it continues to fulfill its obligations to the society. The ultimate objective of every enterprise has to be the good of the people. Business must be run by the people through the people and for the people. An entrepreneur must take risks with his or her own capital in order to sell and deliver products and services while expending greater energy than the average businessperson in order to innovate.

Faced with daily stressful situations and other difficulties, the possibility exists that the entrepreneur will establish a balance between ethical exigencies, economic expediency, and social responsibility, a balance that differs from the point at which the general business manager takes his or her moral stance. How much and what type of social responsibility an organization should pursue has been a topic of heated debate for a number of years. Social responsibility is the obligation of organizational decision makers to act in ways that recognize the interrelatedness of business and society. Social responsibility assumes the existence of stakeholders, individuals or groups of individuals who have a stake in or are significantly influenced by an organization’s actions and who, in turn, can influence the organization.

Employees: Employees need security of job, higher wages, full employment, better conditions of work and opportunities for self-development and promotion. They also desire their work itself to be rewarding and to contribute something good to the society in general. Management, as a part of its social responsibilities, is expected to provide for their social security, welfare, grievances settlement machinery and sharing of excess profits.

Stockholders: An entrepreneur must provide safe, fair adequate and stable long-run rate of return and steady capital appreciation to the shareholders for their investments. It must also provide regular, accurate and adequate information about the working of the company.

Suppliers: Dealings with the suppliers should be based on integrity, impartiality and courtesy. Terms and conditions regarding delivery of goods and payment of prices must be reasonably fair. Producers may make available to the suppliers the benefits of their information and research so as to promote indigenous growth or for the improvement of the quality of their products.

Customers: In the words of Henry Ford, an entrepreneur must provide, “those goods and services which the society needs at a price which the society can afford to pay.” Entrepreneurial ventures must meet the requirements of the customers of different classes, tastes and with different purchasing power at the right time, place, and price and in right quality. An entrepreneur should act as a friend Employees Government Trade Association Customers Communities Suppliers Stockholders Organization 84 and guide to the customer. He must try to protect consumers’ interest at all costs. He must guard against adulteration, poor quality, lack of service and courtesy to the consumer, misleading and dishonest advertisement, underweighting, supply of stale goods, etc. He must handle the complaints of the customers carefully and efficiently and cooperate to the maximum extent with the consumers associations. A customer must also be protected against the ill effects of monopolistic and restrictive business practices.

Government: Entrepreneurs must abide by the laws of the country in their true spirit. The must conduct their affairs as may cause the minimum possible social damage such as air or water pollution. They must help in the proper implementation of all social improvement policies adopted by the Government. They must pay taxes honestly and promptly.

Trade Associations and Competitors: An entrepreneur should develop healthy inter-business relationships with fellow-entrepreneurs. He must adopt fair trade practices regarding prices, quality, terms and conditions of sale and after-sales service. The policy of under-cutting or restricted trade practices should be avoided. An entrepreneur must patronize business associations to ensure development of healthy business practices.

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