Peter F. Drucker defines an entrepreneur as one who always searches for change, responds to it and exploits it as an opportunity. Innovation is the basic tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or service.
Learn about:-
1. Meaning and Definitions of Entrepreneur 2. Modern Concept of Entrepreneur 3. Characteristics 4. Importance 5. Functions 6. Reasons why Entrepreneurs are Important to the Economy
7. Roles Performed 8. Types 9. Entrepreneur in Three Capacities 10. Entrepreneurial Decision-Making Process 11. Competency Required 12. Factors that Threaten Entrepreneurs
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13. Qualities 14. Skills 15. Difference between Entrepreneur and Intrapreneur 16. Difference between Entrepreneur and a Manager 17. Factors Influencing the Locational Mobility of Entrepreneurs 18. Areas of Planning
19. Advantages and Disadvantages 20. Risk Faced 21. Challenges Faced 22. Financial Support 23. Government Schemes.
Entrepreneur: Meaning, Characteristics, Importance, Functions, Roles, Qualities, Risks, Advantages and Challenges
Contents:
- Meaning and Definitions of Entrepreneur
- Modern Concept of Entrepreneur
- Characteristics of an Entrepreneur
- Importance of Entrepreneurs
- Functions of an Entrepreneur
- Reasons why Entrepreneurs are Important to the Economy
- Roles Performed by Entrepreneurs in Hyper Competitive and Aggressive Market
- Types of Entrepreneurs
- Entrepreneur in Three Capacities
- Entrepreneurial Decision-Making Process
- Competency Required for Entrepreneurs
- Factors that Threaten Entrepreneurs
- Qualities of an Entrepreneur
- Skills of an Entrepreneurs
- Difference between Entrepreneur and Intrapreneur
- Difference between Entrepreneur and a Manager
- Factors Influencing the Locational Mobility of Entrepreneurs
- Areas of Planning for Small Entrepreneurs
- Advantages and Disadvantages of Being a Successful Entrepreneur
- Risk Faced by Entrepreneur
- Challenges Faced by Entrepreneurs
- Financial Support for Entrepreneurs
- Government Schemes Promoting Entrepreneurs in India
Entrepreneur – Meaning and Definitions
One of the most renowned French economists Jean Baptiste Say defined the term entrepreneur in a meaningful manner. According to J.B. Say- “an entrepreneur is the agent who unites all the factors of production and who finds in value of the products the re-establishment of the entire capital the employees, and the value of wages, the interest and the rent which he pays as well as the profits belonging to himself. He may or may not supply capital but he must have judgment, perseverance and the knowledge of the world of business. He must possess the art of “superintendence and administration.”
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Adam Smith, the father of classical economics, did not use the term entrepreneur anywhere. Instead, he used the words like employer, the merchant the undertaker and the master.
Alfred Marshall wrote about the capitalists and management but he was silent about their difference, as such, the classical economist ignored the term entrepreneur entirely.
A.P. Usher – “Specialization or division of labour necessitates an entrepreneurial function the crux of which is to coordinate different economic activities, this view on entrepreneurship was very narrow land it reduced the entrepreneurship activities to no more than a managerial function.”
F.H. Knight, in his article on Risk, Uncertainly and Profit propounded the maxim that “entrepreneurs are a specialized group of persons who bear risks and deal with uncertainty.” He also identified social, psychological and economic factors which govern the supply of entrepreneurship.
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David Ricardo, a contemporary of J.B. Say – “The foremost motive of a risk taker is to a mass capital and capital accumulation is the sine-qua-none of economic development.”
With J.A. Schumpeter, the term entrepreneur had received a wide popularity and thrust. He defined the entrepreneur as an innovator who carries out new combinations to initiate the process of economic development through introduction of new products, new markets, conquests of new source of raw materials and establishment of a new organization of industry.
He said, “The carrying out of new combinations we call enterprise, the individuals whose function is to carry them out we call entrepreneurs.” He has put emphasis on Profit, which are the product of innovation and the prime mover of economic development. According to Schumpeter- The process of development is a deliberate and continuous phenomenon which is actively promoted by the escort services of a change agent who provides economic leadership. This change agent is what is called entrepreneur.
Peter F. Drucker defines an entrepreneur as one who always searches for change, responds to it and exploits it as an opportunity. Innovation is the basic tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or service.
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International Labour Organization (ILO) defines entrepreneurs as those people who have the ability to see and evaluate business opportunities, together with the necessary resources to take advantage to them and to initiate appropriate action to ensure success.
Entrepreneur – The Modern Concept
The modern concept of entrepreneur is a very broad one. Entrepreneur is viewed as a subsystem of the total social system. According to Davis and Blomstorm, our modern view of society is an ecological one. Ecology is concerned with the mutual relations of human populations or systems with their environment.
It is necessary to take this broad view because the influence and involvement of entrepreneur are extensive. Entrepreneurs cannot isolate itself from the rest of society. Today the whole society is a business’s environment.
Davis and Blomstorm point out that, in taking an ecological view of business in a systems relationship with society, three ideas are significant in addition to the systems idea. The three ideas are values, viability and public visibility.
Values:
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Entrepreneur is like other social institutions, develops certain belief system and values for which they stand, and these beliefs and values are a source of institutional drive. These values derive from a multitude of sources, such as the mission of entrepreneur as a social institution, the nation in which a business is located, the type of industry in which it is active and the nature of its employees. These values become guides for employees’ decisions in the interface of business. Second, they become strong motivators for people in a business.
Viability:
Davis and Blomstorm define viability as the drive to live and grow, to accomplish the potential not yet reached, and to achieve all that a living system is capable of becoming. If a business is to be a viable, vigorous institution in society, it must initiate its share of forces in its own environment, rather than merely adjust to outside forces as a bucket of quicksand docs.
Every business needs a drive and spirit all its own to make it a positive actor on the societal stage rather than a reactor or a reflector. To expect the business to be otherwise is to deny it the opportunities available to other institutions, the authors have pointed out.
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Public Visibility:
The term public visibility refers to the extent that an organisation’s activities v are known to persons outside the organisation. Public visibility is different from the idea of a public image. The term public image refers to what people think about an organisation’s acts, while public visibility refers to the extent to which its acts are known. The importance of public visibility is that it subjects business activities to public examination, discussion and judgement. If acts are not known, they cannot be judged.
In short, according to modern thinking, entrepreneur is an integral part of the social system. It is a social organ to help accomplish the societal goals. Its activities and attitudes are, therefore, subject to public judgement, which may have far-reaching implications.
A business enterprise shall make profit only by accomplishing the socially accepted goals and by satisfying society. Indeed, entrepreneur and society are very intricately intertwined, acting and reacting upon each other. And, both are part of the cultural ethos that govern the varied activities in the world.
Entrepreneur – Top 18 Characteristics Possessed by Successful Entrepreneurs
Several experts have conducted research studies to establish the existence of some common personal characteristics of the successful entrepreneurs. Experts such as David Mc Clelland and John Hornaday, Albert Sheparo, John Abond and David Silver have made significant contribution in this respect.
The Entrepreneurship Development Institute of India (EDI), Ahmedabad has also made a research study to identify the common personal characteristics which have made the entrepreneurs who have become very successful in their business.
The names of certain persons like J.R.D. Tata, Birla, Dalmia, Kirloskar, Ambani, Laxmi Mittal and several others are well-known names of successful entrepreneurs who had started their business on a small scale but who achieved tremendous success in making huge fortunes.
Such success of a small business growing into a giant organisation is, to a considerable extent, attributed to the success of the entrepreneur himself or herself. Now a question arises – What makes these entrepreneurs so much successful, compared to many others? What common characteristics these entrepreneurs had possessed for achieving such a great success?
The scanning of their personal characteristics shows that these successful entrepreneurs possessed the following dominant characteristics:
Characteristic # 1. Keen Desire for High Achievement:
It is the prime psychological drive which motivates the entrepreneur to achieve high goals in his business. His motive for high achievement in his business venture strengthens him to surmount the obstacles, suppress anxieties, repair misfortunes and devise expedients and set up and run successful business.
His keen desire to excel in his business venture and achieve the desired goal poses a challenge to his ability and competence but his strong will and capacity will help him in overcoming all the difficulties and problems and differentiate him from ordinary entrepreneurs.
Characteristic # 2. Strong Desire for Independence or Autonomy:
The primary reason for a person to become a successful entrepreneur is his earnest desire for independence or autonomy in his life and his unwillingness to work under others. In other words, the entrepreneur’s firm desire to become his own boss ignites fire in his heart to accept all social, psychological, financial and technological risks and work hard almost day-in and day-out and finally, achieve his goal.
Entrepreneurs are regarded as internals who can make their career, who can influence events to their own good and who can get the rewards from their own efforts and competence and not from outsiders.
Characteristic # 3. Desire for Assuming Responsibility:
A successful entrepreneur is one who takes the responsibility on himself for all his deeds and for all acts of commission and omission. Therefore, he takes keen interest and initiative to see that he carries out his responsibility successfully.
If he claims for the success of his business venture, he also unhesitatingly owns responsibility for its failure. In case, he is the sole leader of his business, he takes all credit to himself for its success. In case, he works in a group, he performs well to influence the results, for which he takes the responsibility jointly with others.
Characteristic # 4. Organising Capacity:
An entrepreneur has to bring together the required factors of production in his new venture. It is his organising capacity and special skill for identifying any group of work, creating and filling necessary administrative and managerial positions, delegating authority and responsibility to the personnel, maintaining proper co-operation and co-ordination among the personnel, distributing resources among them and supervising and controlling the overall work for achieving the desired ultimate goals.
Being an extraordinary organiser, the entrepreneur should be energetic, resourceful, alert to new opportunities and capable of adjusting according to the changing conditions in the market. As an organiser, he performs the functions of planning, co-ordination, supervision and control.
Characteristic # 5. Risk-Taking:
An entrepreneur has the ability to assume risk in his business. However, to be successful in business, he takes moderate risk. Successful entrepreneurs are not high risk- takers because they are not gamblers. They are mostly moderate risk-takers who believe in taking calculated risks, where the chances of achievements are consistent or where such chances match with the level of performance, efforts and resources. A risk situation involves potential gain or loss.
The greater the risk involved, the greater is the chance of loss. Therefore, the entrepreneur is a calculated risk-taker. Thus, he usually avoids high risk situation because he wants to succeed. At the same time, he also avoids low risk situation because of the lack of challenge in such situations. Thus, the entrepreneurs are risk-bearing agents of production but they always believe in ‘moderate risk, with moderate or reasonable rewards’.
Characteristic # 6. Keen Desire to Innovate:
An entrepreneur, to be successful, should have a keen desire to initiate, innovate and accept changes. He is expected to discover new combinations involving new products, new technique of production, development of new markets, utilisation of a new raw material or adoption of a new form of organisation. Thus, an entrepreneur has to play the crucial role of innovator.
In underdeveloped countries like India, there is a great dearth of true entrepreneurs because people are not very enthusiastic and responsive due to age-long customs and traditions, uneconomic culture and unhealthy environments. There are very few persons in such countries who accept change and undertake innovations.
Characteristic # 7. Technical Knowledge:
Technical and technological change is the prime mover in the process of economic development. Inventions and innovations have quickened the process of development in the world. An entrepreneur must have a reasonable level of technical and technological knowledge so that he can use the latest and new technology in producing and marketing of goods and services. The success of an entrepreneur in his business largely depends upon his ability to adopt latest technology.
The entrepreneur must also be dynamic so that he can take interest and initiative in changing the technique of production in order to meet the needs and requirements of working environment. He should also have the capacity to explore new demand that occurs with the growth of industry and rise in per capita income of the people.
Characteristic # 8. Ability to Marshall Resources:
A true entrepreneurs is one who has the ability to mobilise the required resources in the best possible manner for achieving the desired results. He should be able to reduce the cost of production, without at the same time, reducing the quality of his products or service.
For this purpose, he requires sound judgement, accurate forecasting, vision and knowledge of the business world. He should not hesitate to break up old traditions and to adopt new ones. He should be a man of high ambition, strong will to conquer, intense impulse to fight and succeed and firm tendency to prove himself superior to other entrepreneurs.
Characteristic # 9. Willingness to Work Hard:
An entrepreneur should always be willing to work hard so as to distinguish himself as a successful entrepreneur from other ordinary entrepreneurs. Hard work, patience and perseverance on his part give him all success in his business. Even an entrepreneur whose business is on the verge of failure would be able to survive it arid achieve ultimately grand success if he works hard endlessly, particularly in the beginning and the same becomes his way of life.
Characteristic # 10. Highly Optimistic:
The successful entrepreneurs are not at all disturbed by the problems they face in their business. They always hope that they can solve their problems successfully because they are optimistic about the future and they hope that the situations will become favourable to business in future and hence they are able to run their business successfully in future.
Characteristic # 11. Self Confidence:
An entrepreneur must have self- confidence about anything he does. He must have belief in himself and strong will and ability to achieve his business goals. If he is self-confident, he can trust others.
Characteristic # 12. Decision-Making Ability:
An entrepreneur should have a good decision-making ability. He should take prompt and timely decisions on various matters on important, occasions, particularly in critical situations. He has to collect information from various sources before taking decisions. He is responsible for all decisions that he takes and the success or failure of his business depends on many occasions upon the correctness of such decisions.
Characteristic # 13. Clear Objectives:
An entrepreneur, to be successful in his business, should have clear-cut objectives regarding the exact nature of his business, the nature and type of products to be manufactured, credit policy to be followed, industrial relations i.e. labour-management relations, etc. If his objectives are clear and specific, he would be able to take correct decisions.
Characteristic # 14. Energetic and Competitive:
An entrepreneur, to be successful in his business, should exhibit higher level of energy and competitiveness, hard work and perseverance, and un-daunting courage so that he can overcome any stiff competition from his rivals. He should be fully determined to crush the hurdler, solve the problems, face the tough and critical times and get over the misfortunes with a view to ultimately achieving his business goals.
Characteristic # 15. Visionary:
An entrepreneur, to be successful, must have an effective visionary for further growth and development of his business, commitment to constructive change and energy to achieve good results. He should have the capacity to always create new ideas, new products, new lines of business and provide added value to society based on his independent initiative.
An effective visionary performs two roles as follows:
i) A charismatic role which involves establishment of support for vision and direction.
ii) An architectural role for building up an appropriate organisation structure. For this purpose, he has to look after various management functions and discharge them effectively.
Characteristic # 16. Good Foresight:
An entrepreneur, to be successful in his business, should have a good foresight to know about future business environment. He should well visualise the likely changes to take place in the market, consumer attitudes towards his products, technological developments etc. and take timely actions accordingly.
Characteristic # 17. Social Responsibility:
An entrepreneur, to be successful in his business, should exhibit his social responsibility i.e. responsibility to the society. He should act in full awareness of social repercussions of his business actions. He might have provided jobs to thousands of people in the society and he might have produced and supplied very useful products to the society.
He might have innovated new ways of doing things. All these things might have benefitted the society. But if there have been bad effects on the health or environment of the society by his factory or workshop, then it is his bounden duty to take all necessary steps to remove the same at whatever cost the same may be.
Characteristic # 18. Business Secrecy:
An entrepreneur, to be successful, must be able to guard his business secrets from the leakage to trade competitors.
Entrepreneur – Importance of Entrepreneur in Economic Development
Entrepreneurs play an important role in economic development of a country. Economic development greatly depends upon entrepreneurial and industrial development. In western countries entrepreneurs have contributed a great deal in making their country developed. Entrepreneur is the person who perceives business opportunity and converts it into a viable business plan, culminating into a business venture ultimately.
The entrepreneur, therefore, not only launches a venture but also contributes to the objectives of employment generation, output growth, technological up gradation, improvement in the quality of production, export promotion, import substitution and supply of goods at a reasonable price to the customers.
1. Importance of Entrepreneur as an Innovator:
As an entrepreneur is an innovator, he finds new opportunities in the market and exploits them for generating profit. He helps to develop new products, new methods of production, identify new markets and new sources of raw materials thereby contributing to improving the economy of the region.
2. Importance of Entrepreneur in Generation of Employment Opportunities:
Entrepreneur plays a significant role in generation of employment opportunities. The development of a country depends on two critical factors reducing unemployment and removal of poverty. These problems can be minimized by encouraging hidden human potential through entrepreneurship.
Creation of tiny, micro and small enterprises by the entrepreneurs can lead to creation of both self-employment and wage employment opportunities, thereby solving the problem of unemployment in the country.
3. Role of an Entrepreneur Economic Growth:
Through constant creativity, new entrepreneurs assure a strong economy and rising national income.
Entrepreneurs initiate, increase and sustain economic growth in the following ways:
i) Employment Generation:
Entrepreneurs generate employment opportunities, both direct and indirect. Directly, self-employment as entrepreneurs. Indirectly, by setting up large and small scale business units they offer jobs to millions.
ii) Capital Formation:
Entrepreneurs mobilize the idle savings of the public through the issue of industrial securities. Investment of public savings in industry results in productive utilization of natural resources.
iii) Increase in per Capita Income:
Entrepreneurs locate and exploit opportunities. They convert the talent and idle resources like land, labour and capital into national income and wealth in the form of goods and services. They help to increase the Net National Product and per capita income in the country, which are important yardsticks for measuring economic growth.
iv) Improvement in Physical Quality of Life:
Improvement in physical quality of life implies increase in life expectancy and increase in literacy. Establishment of enterprise by entrepreneurs leads to increase in employment, consequently, poverty is alleviated and per capita income grows. This results in improving the physical quality of life, which is an indicator of economic growth.
v) Improvement in Standard of Living:
Entrepreneurs produce innovative products and help to improve the standard of living of the common man.
vi) Growth of Infrastructural Facilities:
Entrepreneurs play an important role in the growth of infrastructural facilities such as roads, bridges, buildings and factories etc., which are the cornerstones of economic growth. Establishment of factories and industries in a particular locality promotes the growth of infrastructural facilities.
vii) Balanced Regional Development:
Entrepreneurs in the public and private sectors help to remove regional disparities in regional development.
viii) Economic Independence:
Entrepreneurship is essential for economic independence. Industries help to manufacture indigenous substitutes for imported products, thereby reducing dependence on foreign countries. Entrepreneurs can also export their goods and services and thereby earn foreign exchange for the country.
ix) Backward and Forward Linkages:
Entrepreneurs initiate change which has a chain reaction. Establishment of a large unit generates several ancillary industries on one hand and other industries which grow by utilizing the raw materials and by products produced by the mother plant on the other.
4. Importance of Entrepreneur in Bringing Social Stability:
In each and every country, an entrepreneur is considered as a valuable human resource. The responsibility of social responsibility of social stability lies on his shoulders.
Entrepreneur, as a catalyst of change, tries to bring about social stability in the following ways:
i) Absorption of Workforce in Industries:
Establishment of small scale units by the entrepreneurs leads to absorption of a large number of workforce at a relatively small capital cost and ensures social stability.
ii) Alleviation of Poverty:
Entrepreneurs help in alleviating poverty by reducing unemployment through creation of large number of jobs. Thus social stability is maintained.
iii) Glorification of Self-Help:
Enterprise creation glorifies the maxim of self-help. Self-help is the best help because it is a binding factor to unite family, clan, village communities etc., and thus ensures stability.
iv) Checking Expansion of Monopolies:
Small scale enterprises help to bring about social stability by diffusing prosperity and checking the expansion of monopolies.
v) Equitable Distribution of Income:
Small scale enterprises explore business opportunities in both rural and urban areas, thereby leading to equitable distribution of income and wealth in the society.
vi) Creation of Social Infrastructure:
Entrepreneurs facilitate economic development and social stability through creation of social infrastructures like schools, colleges, health care centers, vocational training institutes, banking and insurance facilities, roads and buildings, etc.
vii) Empowerment of Women through Enterprise:
Women entrepreneurs are the prime benefactors of women empowerment leading to equality among men and women.
viii) Supply of Qualitative Goods and Services:
Entrepreneurs by manufacturing both consumer’s and producer’s goods can bring about the supply of quality goods and services to society.
To conclude, the entrepreneur is one of the most important components in the economic development of a nation. He is a catalyst of development. Entrepreneurial competence makes a significant difference in the rate of economic growth. In India, an increasingly important role has been assigned to the identification and promotion of entrepreneurs in the small scale industrial sector, since this sector is completely left to private entrepreneurs.
An entrepreneur is an initiator of action, stimulator of social economic change and a harnesser of resources. An entrepreneur is an independent person and has enough scope for innovation. An entrepreneur generates employment for others. An entrepreneur realizes his personal goals and contributes ultimately to the welfare of society.
Entrepreneur – Functions
An entrepreneur leads a vital role for proper functioning of an enterprise. He is recopied for multiple functions. He is responsible for growth and expansion of an enterprise.
1. Innovation:
An entrepreneur is capable of diverting activities of others in innovative activities. He is capable to bring out a new product or an alternative for the product already existing in the market. He is responsible for finding new markets and reorganising the markets, creation of monopoly or breaking up monopoly, marketing new product.
2. Decision-Making:
Another important function of an entrepreneur includes decision-making- regarding production like what to produce, where to produce, how to produce, of what quality to produce. Decision-making includes decisions like deciding the objectives, taking final decisions regarding procurement of 5 Ms — men, material, machinery, money and market. It also includes decisions regarding marketing of products of technologies and equipment’s.
3. Pricing Polices:
Entrepreneur decides the prices of various products while marketing. An entrepreneur in monopoly will charge prices according to his own will keeping in mind that the prices cannot be too high. In a perfect competition market the prices are set according to demand and supply in the market. But in case of oligopoly where only few competitors exist they keep an eye over competitors according to the cross elasticity of the product.
4. Discovery/Conception of an Idea:
Diversification reasons in an enterprise, the entrepreneurs or group of persons decide to start a new business. They take into consideration various ideas and decide about the formation of a new business unit and contemplations regarding innovations in existing units to face the challenges of competition with the help of managerial skills and economics of scale.
5. Management:
An entrepreneur bears the entire responsibility of running an enterprise. He takes decisions and manages all day to day problems of the enterprise. It includes all factors regarding expansion, growth and policies of the organisation. An entrepreneur bears the responsibilities of growth and expansion and go for various acquisition and merger.
6. Planning:
An entrepreneur prepares the planning in the prescribed systematic format for every step while making decisions. Planning is an essential pre-step for direction in decisions. An entrepreneur decides the autonomous investment for which he raises capital, decides various mixes as well to ensure the maximum possible profit or super normal profit. He prepare the plan so that the authorities being fully satisfied with the requirements grant legal sanction.
7. Organisation:
An entrepreneur manages the coordination, supervision at initial stages and at the stage of production organises for best utilisation of resources. The growth and expansion which includes mergers and acquisitions requires effective organisation of all activities like coordination, planning and direction, suppression and control.
8. Risk and Uncertainty Bearing:
Entrepreneur also bears the unseen risk and uncertainties of future. An entrepreneur has the skill enough to face or predict the losses probable and is already prepared to bear the same. The various risks cover the uncertainties of market, trade and credit etc.
The entrepreneur also includes the secondary functions like the diversification of production or employee employer relation, expansion programme, coordination related programmes.
Kilby has also given the various functions of an entrepreneur with reference to underdeveloped countries.
They are as follows:
a. Management of scarce resources.
b. Dealing with bureaucracy, concessions etc.
c. Acquiring and overseeing assembly of factory.
d. Industrial engineering and industrial designing.
e. Marketing of products and responding to competitors.
f. Introduction of new product.
g. Perception of market opportunities.
h. Financial and production management.
i. Management of customer and supplies.
Entrepreneur – 6 Reasons why Entrepreneurs are Important to the Economy
Entrepreneurs are frequently thought of as national assets to be cultivated, motivated and remunerated to the greatest possible extent.
Entrepreneurs can change the way we live and work. If successful, their innovations may improve our standard of living. In short, in addition to creating wealth from their entrepreneurial ventures, they also create jobs and the conditions for a prosperous society.
The following are six reasons why entrepreneurs are important to the economy:
1. Entrepreneurs Create New Businesses:
Path breaking offerings by entrepreneurs, in the form of new goods & services, result in new employment, which can produce a cascading effect or virtuous circle in the economy. The stimulation of related businesses or sectors that support the new venture adds to further economic development.
For example, a few IT companies founded the Indian IT industry in the 1990s as a backend programmers’ hub. Soon the industry gathered pace in its own programmers’ domain. But more importantly, millions from other sectors benefited from it. Businesses in associated industries, like call center operations, network maintenance companies and hardware providers, flourished.
Education and training institutes nurtured a new class of IT / workers offering better, high-paying jobs. Infrastructure development organizations and even real estate companies capitalized on this growth as workers migrated to employment hubs seeking new improved lives.
Similarly, future development efforts in underdeveloped countries will require robust logistics support, capital investment from buildings to paper clips and a qualified workforce. From the highly qualified programmer to the construction worker, the entrepreneur enables benefits across a broad spectrum of the economy.
2. Entrepreneurs Add to National Income:
Entrepreneurial ventures literally generate new wealth. Existing businesses may remain confined to the scope of existing markets and may hit the glass ceiling in terms of income. New and improved offerings, products or technologies from entrepreneurs enable new markets to be developed and new wealth created.
Additionally, the cascading effect of increased employment and higher earnings contribute to better national income in form of higher tax revenue and higher government spending. This revenue can be used by the government to invest in other, struggling sectors and human capital.
Although it may make a few existing players redundant, the government can soften the blow by redirecting surplus wealth to retrain workers
3. Entrepreneurs Create Social Change:
Through their unique offerings of new goods and services, entrepreneurs break away from tradition and indirectly support freedom by reducing dependence on obsolete systems and technologies. Overall, this results in an improved quality of life, greater morale and economic freedom.
For example, the water supply in a water-scarce region will, at times, force people to stop working to collect water. This will impact their business, productivity and income. Imagine an innovative, automatic, low-cost, flow-based pump that can fill in people’s home water containers automatically. Such an installation will ensure people are able to focus on their core jobs without worrying about a basic necessity like carrying water. More time to devote to work means economic growth.
For example, smart phones and their smart apps have revolutionized work and play across the globe. Smart phones are not exclusive to rich countries or rich people either. As the growth of China’s smart phone market and its Smartphone industry show, technological entrepreneurship will have profound, long lasting impacts on the entire human race.
Moreover, the globalization of tech means entrepreneurs in lesser-developed countries have access to the same tools as their counterparts in richer countries. They also have the advantage of a lower cost of living, so a young individual entrepreneur from an underdeveloped country can take on the might of the multi-million dollar existing product from a developed country
4. Community Development:
Entrepreneurs regularly nurture entrepreneurial ventures by other like-minded individuals. They also invest in community projects and provide financial support to local charities. This enables further development beyond their own ventures.
Some famous entrepreneurs, like Bill Gates, have used their money to finance good causes, from education to public health. The qualities that make one an entrepreneur are the same qualities those motivate entrepreneurs to pay it forward.
5. The Other Side of Entrepreneurs:
Italy may provide an example of a place where high levels of self-employment have proved to be inefficient for economic development. Research reveals that Italy has in the past experienced large negative impacts on the growth of its economy because of self-employment. There may be truth in the old saying, “too many chefs and not enough cooks spoil the soup.”
6. Entrepreneurship is What an Entrepreneur does:
An entrepreneur is one who creates a new business in the face of risk and uncertainty for the purpose of achieving profit and growth. He has ability to identify significant opportunities and assemble the necessary resources to capitalize on them. Although many people come up with great business ideas, most of them never work on their ideas. Entrepreneurs do and that is why they are entrepreneurs.
7. Economic Development Essentially Means:
A process of upward chance whereby the real per capital income of a country increases over a period of time. The question arises that how can the per capita income of an economy be set on an increasing trend. How does an entrepreneur help or contribute to this dramatic change in the economy? What is the significance of entrepreneurship for economic development?
8. Entrepreneurs Play an Important Role in the Economic System:
Which determines the nature and scope of this field. Economic systems grow and take shape under the influence of political policy, economic policy, and socio-cultural ideas of the people.
Entrepreneurs offer solution of the grave unemployment problem confronting the economy. Entrepreneurs firstly generate self-employment and secondly are employing others in their enterprises, solve unemployment problem of others. Entrepreneurs thus ensure an independent and honorable life style. Entrepreneur utilization of manpower resources.
10. Increasing Per Capita Income:
Budding entrepreneur are always on the looked for opportunities and are keen to exploit them. These entrepreneurs mobilize the resources of the economy and make optimum use of them. Thus they produce more goods & services, generate more employment and help in the improvement of per capita income. This results in overall economic development.
11. Helping in Capital Formation:
Entrepreneurs employ their own financial resources on one hand and on the other mobilize idle savings of the general public, through issue of various types of securities, thereby facilitating capital formation. Money so mobilized is put to productive use in industry and it facilitates economic growth.
12. Balanced Regional Development:
Entrepreneurs by setting up their units in remote and backward areas facilitate in making best possible use of local resources. More industrial units result in more employment, more income and overall development or prosperity of these regions.
Entrepreneurs by producing close substitute of imported products help in reducing overdependence on other countries. They also help in generating surplus output by producing in excess of our present requirements. By exporting this surplus output a country can earn more precious foreign exchange and settle its adverse balance of payment problem.
Schumpeter visualized the entrepreneur as the key figure in economic development because of his role in introducing innovations. The nature of an entrepreneur as an innovator was established. Innovation is an integral part of economic growth and stimulates economic growth.
Innovation develops and communalizes through entrepreneurial activity, which in turn boosts economic growth. The role of an entrepreneur and his contribution towards economic growth through innovation was thus identified mainly by Joseph Schumpeter.
Entrepreneur – Roles Performed by Entrepreneurs in Hyper Competitive and Aggressive Market
The following are some of the important roles performed by an entrepreneur in such hyper competitive and aggressive market:
(1) Catalytic Agent – As a catalytic agent the entrepreneur has to change the approach of the workers so that the latter accepts essential changes in system arrangement and process which the organization is consider introducing in order to fight with the rivals. Entrepreneur should able to change the viewpoint and norms established and accepted by workers.
(2) Developer – Entrepreneur has to play a pivotal role in developing among the employees requisite knowledge, skills and suitable attitudes and improve their performance.
(3) Facilitator – Role of entrepreneur will be to promote a refreshing climate of mutual trust and confidence between the organization and workers through a high degree of empowerment and recognition, openness, faithfulness, internal and external fairness and team work. This will evidently direct to behavioural changes in the right direction.
(4) Input Completer – Input completion involves making available inputs that improve the efficiency of existing productions methods or facilitate the introduction of new ones. The role of the entrepreneur is to improve the flow of information in the market.
(5) Organizer – Entrepreneur as an organizer is one who combines the various factors of production related to the business by performing his organizing function. He generally avoids involving in risks and prefers to stay in secure positions. Since they are basically promoters of business, they promote their business by combining the various factors of production.
(6) Manager – Entrepreneur in the capacity of a manager involves himself with the management activity of an organisation. He gets the work done from his subordinates in the best possible manner by performing his managerial functions. His scope of operation particularly relates to planning, coordinating and guiding.
(7) Innovator – An entrepreneur is regarded as an innovator of new ideas, new products and new procedures. He understands what are the needs of the customers and try to give them new products as early as possible and tries to satisfy them.
(8) Imitator – The entrepreneurs will have to play the role of imitating entrepreneurs who will have to imitate the technics and technology of their counterpart in advance countries and then use them profitably in our country.
(9) Era of Liberalization, Privatization and Globalization – The entrepreneur will have to strive hard in setting a goal to make India a develop nation. Since, India has to keep pace with the developments which are taking place in UK. USA, JAPAN and other industrially advanced countries.
(10) Incubator – Entrepreneur as incubator supports the revolution of business with high potential, into self-sufficient, rising and gainful enterprise. By reducing the risks of business formation, entrepreneur is planned to contribute to economic growth through sustaining new enterprises. As an incubator, Entrepreneur provides affordable space, shared office services and business development assistance in an environment conducive to new venture, survival, growth, diversification and modification.
Entrepreneur – Types (Innovative, Imitating, Fabian, Drone and Social Entrepreneurs)
Depending upon the level of willingness to create innovative ideas, there can be the following types of entrepreneurs:
(i) Innovative Entrepreneurs:
These entrepreneurs have the ability to think newer, better and more economical ideas of business organization and management. They are the business leaders and contributors to the economic development of a country.
Inventions like the introduction of a small car ‘Nano’ by Ratan Tata, organised retailing by Kishore Biyani, making mobile phones available to the common may by Anil Ambani are the works of innovative entrepreneurs.
(ii) Imitating Entrepreneurs:
These entrepreneurs are people who follow the path shown by innovative entrepreneurs. They imitate innovative entrepreneurs because the environment in which they operate is such that, it does not permit them to have creative and innovative ideas on their own. Such entrepreneurs are found in countries and situations marked with weak industrial and institutional base which creates difficulties in initiating innovative ideas.
In our country also, a large number of such entrepreneurs are found in every field of business activity and they fulfill their need for achievement by imitating the ideas introduced by innovative entrepreneurs. Development of small shopping complexes is the work of imitating entrepreneurs. All the small car manufacturers now are the imitating entrepreneurs.
(iii) Fabian Entrepreneurs:
Fabian entrepreneurs are those individuals who do not show initiative in visualizing and implementing new ideas and innovations. On the contrary, they like to wait for some development, which would motivate them to initiate unless there is an imminent threat to their very existence.
(iv) Drone Entrepreneurs:
Drone entrepreneurs are those individuals who are satisfied with the existing mode and speed of business activity and show no inclination in gaining market leadership. In other words, drone entrepreneurs are ‘die-hard conservatives’ and even ready to suffer the loss of business.
(v) Social Entrepreneurs:
Social entrepreneurs drive social innovation and transformation in various fields including education, health, human rights, workers’ rights, environment and enterprise development. They undertake poverty alleviation objectives with the zeal of an entrepreneur, business practices and dare to overcome traditional practices and to innovate. Dr. Mohammed Yunus of Bangladesh who started ‘Gramin Bank’ is a case of social entrepreneur.
Entrepreneur – Entrepreneur in Three Capacities (As a Risk Bearer, an Organiser and an Innovator)
a) As a risk-bearer,
b) As an organiser and
c) As an innovator.
a) Entrepreneur as a Risk-Bearer:
Richard Cantillon, an Irishman living in France, was the first to introduce the term ‘entrepreneur’ in 1725. He defined an entrepreneur as “the agent who buys means of production at certain prices in order to combine them into a product with a view to selling it at prices that are uncertain at the moment at which he commits himself to his costs.
He illustrated his concept of entrepreneur by taking the case of a farmer who pays out contractual incomes which are ‘certain’ to landlords and labourers and sells at prices that are ‘uncertain.’ Similarly, the merchants commit themselves to certain payments in expectation of uncertain receipts and hence, they are also essentially risk-bearing agents of production.
Similarly, F. H. Knight also described an entrepreneur as an individual or a specialised group of persons who bears uncertainty. Uncertainty is defined as a risk which cannot be insured against and which is incalculable. Thus, there is a difference between ordinary risk and uncertainty.
A risk can be reduced through the insurance principle since ordinary risk can be insured but uncertainty is the risk which cannot be calculated and which, therefore, cannot be insured against. Therefore, according to Knight, the entrepreneur is the economic functionary, who undertakes such responsibility of uncertainty, which, by its very nature, cannot be insured, nor can it be capitalised nor salaried too.
b) Entrepreneur as an Organiser:
J. B. Say, another French economist, developed the concept of entrepreneur as a person to bring together factors of production. According to him, an entrepreneur is one who combines the land of one, the labour of another and the capital of yet another and thus produces a product. By selling the product in the market, he pays rent to landlord, wages to labourers and interest to capital providers and what remains is his profit or income.
Thus, J. B. Say emphasizes the entrepreneur’s functions of co-ordination, organisation and supervision. He therefore distinguishes between an entrepreneur as an organizer and a capitalist as a financier. He further elaborates that in the course of undertaking a number of complex operations such as obstacles to be surmounted, anxieties to be suppressed, misfortunes to be repaired and expedients to be devised, the entrepreneur has to comply with three more essential factors.
They are:
i) Moral qualities for work judgement, perseverance and full knowledge about the business world;
ii) Command over sufficient capital; and
iii) Uncertainty of profits.
According to G. H. Evans, “Entrepreneurs are persons who initiate, organise, manage and control the affairs of a business unit that combines the factors of production to supply goods and services, whether the business pertains to agriculture, industry, trade or profession.”
c) Entrepreneur as an Innovator:
It was Joseph Schumpeter, a modern economist, who for the first time in 1934, assigned a crucial role of ‘innovation’ to the entrepreneur in his book ‘Theory of Economic Development.’ According to him, “an entrepreneur is basically an innovator who carries out new combinations to initiate and accelerate the process of economic development.” An entrepreneur is an innovator who develops untried technology.
Innovations may assume the following forms:
(i) Introduction of new products;
(ii) Introduction of new methods of production,
(iii) Opening of a new market,
(iv) Conquest of a new source of raw materials or semi-manufactured goods, and
(v) Carrying out of the new form of organisation of any industry by creating a monopoly position or the breaking up of such monopoly position.
Even today, it is agreed by all that “entrepreneurs innovate” and such innovation is purposeful.
Schumpeter makes a distinction between an inventor and an innovator. An inventor is one who discovers new methods and new materials but an innovator utilizes inventions and discoveries in order to make new combinations.
Thus, we can conclude that the entrepreneur is intimately associated with the three elements viz risk-bearing, organising and innovating. Therefore, an entrepreneur may be defined as a person who tries to create something new, organise production and undertakes risks and handles economic uncertainty involved in his enterprise.
Entrepreneur – Decision-Making Process Adopted by Entrepreneur
Entrepreneurship involves managing, building and moulding of ideas, endeavours, businesses and ventures. A large part of it relies on making intelligent decisions in order to come up with positive outcomes. A decision is a choice made from the available alternatives. Decision making is the process by which individuals select a course of action after a careful evaluation of more than one options or alternatives—to produce a desired result. Decision making is the process through which entrepreneurs identify organizational problems and attempt to resolve them.
Decision – Making Process adopted by Entrepreneur:
1. Diagnosing and Defining the Problem:
This is the first step in the decision-making process. The entrepreneur has to put the finger on the pulse of the problem causing the trouble. He should focus attention on defining the problem correctly. It is easy to find solutions to a problem that is visualized clearly and defined correctly.
2. Analysing the Problem:
The decision maker here should collect all possible information about the problem, not leave anything to chance. The decision maker may be confronted with many issues while trying to deal with a problem. He should get to the root of the problem and then try to identify the real cause of the same.
3. Developing the Alternatives:
The ability to develop alternatives is as important as making a right decision from among the existing alternatives. Ingenuity, research and creative imagination are required to ensure that the best alternatives are considered before a course of action is selected.
4. Evaluating the Alternatives:
In this step, the decision maker tries to outline the advantages and disadvantages of each alternative. The consequences of each alternative should also be considered. Sometimes, the alternatives developed may meet the internal demands but may fail to meet the environmental conditions. In such cases, the entrepreneur may be forced to make a ‘less than optimal decision’.
For example, a fertilizer unit may desire to expand its production in view of the available resources and the bright prospects that the unit is enjoying. But the local public may object to the decision on grounds of environmental pollution. So, decision makers have to weigh each alternative carefully, with respect to how it will ultimately meet the internal as well external conditions. The alternatives that have been advanced must effectively put the problem to rest.
5. Selecting the Best Alternative:
In this step, the decision maker merely selects the alternative that will maximize the returns to the firm in every way. This, however, is not an easy task. The decision maker needs to carefully evaluate the impacts on internal as well as external public. Important factors such as the risks involved, the kind of sacrifices to be made, how economical it will prove to be in the end, whether timing is appropriate or not, and the availability of resources at a point of time, etc.—need to be carefully looked at before picking up the best alternative.
Entrepreneur – Competency Required
The possession of knowledge, skill, effort and personality etc. constitutes the competency of the entrepreneur. These characteristics makes entrepreneur to perform a given job well. These characteristics may or may not be known to the person concern. These characteristics possessed by an entrepreneur which result in superior performance are called entrepreneurial competence.
i. Knowledge – Knowledge means collection and retention of information in one’s mind. Only knowledge is not sufficient to perform a job. For e.g. a person having the knowledge playing a football could be in a position to describe how to play football, but only description will not make the listener to play football unless something more is required to play. He require skill also to play.
ii. Skill – Skill is the ability to perform the activity which one can see. It is an action, knowledge of football can be acquired by reading etc., but skill to play is required by playing number of times. Hence knowledge and skill are required to perform any task.
iii. Motivation – Motivation is an urge to reach one’s goal. McClelland has rightly said “Achievement motivation one can become a best player by knowledge, skill and motive. Hence all these three characteristics are called competencies.
Following are also the major competencies for an entrepreneur to perform superiorly:
1. Initiative – The entrepreneur takes the initiation to perform the work.
2. Looking for Opportunities – He takes appropriate action as and when he gets opportunity.
3. Persistence – He makes repeated efforts to overcome the difficulties and finally reaches the goal.
4. Information Seeker – He studies hard to get the information and consult the expert.
5. Quality Conscious – He always looks at to bring out the quality products.
6. Efficiency Seeker – He works hard to complete the work on time at minimum cost.
7. Committed to Work – He is always busy in working to complete the work in time.
8. Proper planning.
9. Self Confidence.
10. Problem Solver.
11. Persecutive – Pursue others to do the work.
12. Assertive.
13. Efficient monitor.
14. Employees well-wisher.
15. Effective strategist – He introduces most effective strategies to effect employees to reach the goal.
Entrepreneur – Factors that Threaten the Development Entrepreneurs
Some factors that may threaten the development of an entrepreneur exporting conscience or undermine the development of this positive attitude are:
1. Fear to the Unknown and Resistance to Change:
In some companies, international markets complexity and heterogeneity appears as an insurmountable difficulty at the beginning. The company watches external markets with a great load of uncertainty. The entrepreneur clings to the known context which he or she better manages, the internal market.
2. Unsuccessful Experiences:
If the company was unsuccessful in previous international operations, doubts about the feasibility of external marketing and company competence for this activity might appear. The entrepreneur must evaluate if those experiences have been carried out without planning.
It is also important for the organization to consider the implications of some failed attempts, such as the need of adequate technical counseling and a requirement of minimum necessary information to gain access to international activity.
3. Ignorance about the Positive Aspects of International Marketing:
The entrepreneur must not only emphasize the challenge that international marketing poses, but also know about the different incentives that international marketing activity may have for the company. Some very relevant are: rise in earnings and credit, or tax incentives.
4. National Market Security:
The security the company has in national market operations is a factor that may threaten the creation of the exporting conscience. When the entrepreneur develops certain level of operations in the domestic environment, operation diversification towards other markets may be considered unnecessary.
This factor can also be supported by increasing national sales and the high purchasing power level of the segment to which product is oriented in the local environment.
5. Knowledge about Global Reality:
The entrepreneur may have some degree of naivety and not be aware of some present global context principles. Some globalization factors, such as the progressive and irreversible interconnection of national economies by means of commercial, financial, and communicational flows, constitute keys to the entrepreneurial activity.
Unawareness about this increasingly globalizing trend that interpenetrates constantly the national context where the company develops its activities, can bring about serious consequences for the organization.
Ignorance about these issues can make the small and medium-sized entrepreneur think that his or her product is marketed at a local level of competition, totally disconnected from the international environment. These distorted perceptions can also make executives believe that their product can only be accepted by the domestic market and is not fit for the global market.
Entrepreneur – Qualities and Traits
The modern entrepreneur is one who detects and evaluates a new situation in his environment and directs the making of such adjustments in the economic systems as he deems necessary. He conceives a new industrial enterprise, displays considerable initiative, grit and determination in bringing his project to fruition. Successful entrepreneurs, whatever their individual motivation— be it money, power, curiosity or the desire for fame and recognition— try to create value and to make a contribution, still, successful entrepreneurs aim high.
They are not content simply to improve on what already exists, or to modify it. They try to create new and different values and new and different satisfactions, to convert a ‘material’ into a ‘resource’ or to combine existing resources in a new and more productive configuration.
In order to make the business a success, an entrepreneur should possess the following trait:
Quality # 1. Willingness to Assume Risk:
‘No risk, no business’ or ‘no risk, no gains.’ There is an element of risk in every business; hence, an entrepreneur should be prepared to accept failure as a challenge and opportunity. Richard Cantillon, an Irish man living in France, defined entrepreneur as an agent who buys factors of production at certain prices in order to combine them into a product with a view to selling it at uncertain prices in future.
Knight also described entrepreneur to be a specialized group of persons who bear uncertainty. People who need certainty are unlikely to make good entrepreneurs. But such people are unlikely to do well in a host of other activities as well in politics, for instance, or in command positions in a military service, or as the captain of an ocean liner. In all such pursuits decisions have to be made, and the essence of any decision is uncertainty.
Quality # 2. Leadership:
An entrepreneur leads entire industrial activities and all divisions. He leads and provides direction to managers, supervisors, engineers, technical staff, group leaders, etc. Through, this he generates frankness, wide acceptance and trustworthy environment. As leader of industry he encourages good performance. He creates trust, keeps individual contacts. He listens everybody calmly, clarifies priority.
Robert D. H., opines that the person, who strives for establishing business successfully, is a leader with great foresight. He also dreams big entrepreneurship also includes leadership. He is who amplifies growth. When you wish to have tomato, you buy seeds, which grow in fertile land, you carefully water them. Thus, you are not producing tomatoes but you are growing them.
Quality # 3. Decisiveness:
An entrepreneur has to take various decisions when establishing an enterprise. He also has to plan properly to apply these decisions. The decision making activity is the work of a manager performs to arrive at the conclusions and judgments necessary for people to act.
The main decisions related with establishment of an enterprise:
i. Decide about product to manufacture;
ii. Decide how to manufacture and by what means;
iii. Ownership of production facility;
iv. Source of finance;
v. Location of enterprise;
vi. Choice of technology;
vii. Aids, subsidy encouragement provided by govt., and
viii. Production cost, price, sell, profit and the opportunities for production and selling of the products and problems related.
To apply business decisions, he has to take important managerial decisions. For this he has to plan for production, finance, market, arrangement of means, etc. He has to plan production, finance, to purchase raw material, to arrange sells, etc., and more of such managerial decisions.
Arthur H. Kaul, describes him as a person taking comprehensive decisions which affect everywhere. According to Arthur, an entrepreneur sets business objectives and changes them if necessary or decides beneficial, need-based objectives.
Quality # 4. Creative Thinking:
An entrepreneur should basically be creative and imaginative. He should have a killer instinct to perform and to do something beyond average in the market, society or business. He develops new thoughts, concepts and approach by grabbing original viewpoint or from business environment.
Joseph Schumpeter, has given concept of five types of initiations which is directly – connected with creativity:
i. New product;
ii. Newer production system;
iii. Explore new market;
iv. Search for new source of raw material or semi-finished material;
v. To arrange new management or administration system.
Quality # 5. Confidence in Project:
Setting up a new business enterprise is a very challenging and rewarding task. Several problems are involved in this task. Right from the conception of a business idea up to the start of production, numerous decisions have to be taken. In order to succeed in this task, an entrepreneur must correctly perceive the nature and intensity of problems to be faced and prepare and implement appropriate plans. The delay will definitely cause problems and affect production which in turn affects the profitability.
Quality # 6. Technical Knowledge:
The entrepreneur should have in-depth knowledge about the technical aspects of the project. He should be well conversant with the manufacturing and trading process and also know about the economic aspects of the technology including costs and benefits. Technical knowledge implies the ability to devise and use new and better ways of producing and marketing goods and services.
Complex and confusing technical know-how is not preferable in the initial stage. Generally, the technology which is indigenous or available locally and should be easy to use is preferable. A good entrepreneur is one who is interested in changing the pattern of production to suite the available resources, market conditions and quality of output.
Quality # 7. Flexibility:
Most successful people after weighing the pros and cons of a decision, tend to change if the situation so demands. They do not hesitate in revising their decisions. Successful entrepreneurs are persons with open minds, not rigid.
Quality # 8. Ability to Marshal Resources:
An entrepreneur should possess the ability to mobilize necessary resources in the best possible manner for achieving the business goal. He should be able to minimize the cost of production without reducing the quality of the product or service.
In order to do this, an entrepreneur needs sound judgment, accurate forecasting vision and knowledge of the global business. He should be able to break up old traditions and develop new ones. He should have high ambitions, the will to conquer, the impulse to fight and succeed and prove superior to others.
Quality # 9. Market Orientation:
The liberalization and globalization process made free entry of business enterprises into our country. World has become a small village because of technological development. Hence, the need arise for every entrepreneur to know about the market, the substitutes available, its price, quality, special features and about the customers and their taste.
He should have flexible policy to change anything according to the need of the customers to bring satisfaction to them. The above information should be collected up to dates and necessary modification should be made whenever and wherever necessary.
Quality # 10. Determination, Courage and Perseverance:
Entrepreneurs have driven and high energy levels, they are achievement-oriented and they are tireless in the pursuit of their goals. They devote their energy to completing the tasks immediately before them. Dwight Eisenhower quoted as saying, “No matter what the weather looks like, and we have to go ahead now. Waiting any longer could be even more dangerous. So, let us move it.”
The point here is that people who can judge when a decision needs to be made and make it, are for more likely to succeed in entrepreneurial ventures. To achieve a goal he has got to be a gambler, he has got to be certain that he can do it. There are the words of entrepreneurship, dreams, determination and willingness to take risks. J. B. Say observed, that an entrepreneur must possess the following qualities – “He must have judgments, perseverance and the knowledge of world as well as of business. He is called upon to estimate, with tolerable accuracy the importance of specific product, the probable amount of demand and the means of its production at another, buy or order the raw material, collect labour, find consumer and give at all times a rigid attention to order and economy in a world, he must possess the art of superintendence and administration.”
Quality # 11. Honesty:
This again is the most important factor which plays a major role in the successful operation of the business. If a businessman is not honest, he cannot stand long in the market.
Quality # 12. Drive to Achieve and Grow:
The entrepreneurs have a strong desire to achieve high goals in business. This high achievement motive strengthened them to surmount the obstacles, suppress anxieties, repair misfortunes and devise expedients and only set up and run a successful business.
Quality # 13. Low Need for Status and Power:
An entrepreneur reviews consequences of every task in reference to inspiration and need of authority. He is very much self-confident, which makes him to trust others. He behaves like a director to carry out his job. If such entrepreneur works only for power and self-interest, he jeopardizes entire organisation to avoid this. An entrepreneur should work with balance and awakening. He should assign some of his assignments and treat people to make them work for him and to act accordingly.
Entrepreneur – 18 Important Skills Required for Becoming an Entrepreneur
Many people believe that entrepreneur possess innate, genetic talents and needs intuition, creative thinking and innovative ability among other skills, on the other hand, an entrepreneur depends more on human relations and conceptual abilities. However, experts generally agree that most entrepreneurs were not born; they learned to become entrepreneurs.
Organisation successfully managed various training programmes for entrepreneurs- developed and proved that people of any class can own a business and respectfully earn their livelihood. Organisation holds skills based development for the rising demand of training in the fields like rural market capacity; unit-wise finance distribution, in-house financial management in NGOs, etc.
An entrepreneur can create self-employment by a very tiny industry or ‘Kutir Udyog’ to employ himself and his family. To run his industry, he needs skilled, semi-skilled, and unskilled labourers, technicians, engineers, managers, etc.
Let us see some of the important skills required for entrepreneur:
1. Conceptual:
Entrepreneur possesses the ability to identify relationships quickly in the midst of complex situations. They identify problems and begin working in their solution faster than other people. They are not troubled by ambiguity and uncertainty because they are used to solving problems.
Entrepreneurs are natural leaders and are usually the first to identify a problem to overcome. If it is pointed out to them that their solution to a problem will not work for some valid reason, they will quickly identify an alternative problem-solving approach.
2. Technical:
Technological change is an important factor in the process of economic development of every country. Invention and innovations have improved the global economy. A good entrepreneur should have the interest in introducing changes in the pattern of production, to suit the available resources, market conditions and quality of output. He should have interest to explore new ideas, new technology, new production method, etc. The entrepreneur must have a reasonable level of technical knowledge. An entrepreneur who lacks this technical skill cannot improve his business in this modern market.
3. Human Relation:
The most important entrepreneurial skill contributing to his success are emotional stability, personal relations, consideration and tactfulness. In other words, maintenance of public relations or human relation most often makes the difference between success and failure of an entrepreneur.
An entrepreneur must have good relations with his customers in order to gain their continued patronage and win their confidence in his product. He must also maintain good relations with his employees, if he is to motivate them to higher levels of efficiency.
As the business grows and assumes an organizational structure, entrepreneur goes through a classic-management crisis. Their strong direct approach induces them to seek information directly from its source, by passing the structural chains of authority and responsibility. Entrepreneur with good interpersonal skills will be able to adjust and survive as their organisation grows and becomes more structured.
4. Communication:
The ‘gift of the gab’ is a must for a successful entrepreneur. Good communication also means that the entrepreneur has the ability to put his point across effectively and with clarity. Communication must be to the point, crisp and convincing. Communication ability is the secret of the success of most entrepreneurs.
5. Diagnostic:
Diagnosis is used to measure risk. It guides in choice of segments and attack strategy. It gives an initial idea of how to go about planning, development, because it justifies the order in which the entrepreneur attack the segments. There are two distinct part of it: technical diagnosis and commercial diagnosis.
Technical diagnosis consists of evaluating two different dimensions of risk – technology-related risk and risks related to the technological environment. Whereas, commercial diagnosis consists of assessing two dimensions of the risk involved – company advantages and shortcomings and market appeal and constraints.
Managing groups in organisation is difficult. An entrepreneur must have the skill to develop group into a productive unit by nurturing its activities, encourage open communication and trust among the people, stimulate discussion on important issues, provide task related information at appropriate times and analyze external factors such as – competition and external threats and opportunities.
An entrepreneur must always remember that the achievement of goals often increases the cohesiveness of a group because people are proud to be identified with a winner and to the thought of as a competent and successful team, ‘Success breeds success’.
6. Decision Making:
Running a business requires taking a numbers of decisions. Decision making means the ability to choose the correct alternative from a number of alternatives. The entrepreneur has to take decision himself even without the support of his staff or any statistical fast figures.
An entrepreneur should take the risk of decision making whether it is right or wrong because taking no decision at all is bad than taking wrong decision. Hence, an entrepreneur should have the capacity to analyze the various aspects of the business for arriving at a decision.
7. Managerial:
The entrepreneur must have the skill to manage the men and other factors of production and able to harvest to the best of his organisation. He must have the ability to select, train and maintain the persons composing of labour force. The entrepreneur combines in him managerial functions, though they are strictly different than the standard entrepreneurial duties. The entrepreneur thus has a multifaceted personality when he undertakes managerial functions.
8. Project Development:
The entrepreneur should select a suitable, proper and appropriate project which gives him reasonable profit. If the project is selected properly half of the work is over. According to Albert O. Hirschman, “The development project connects purposefulness, something qualitatively new, and the expectation that a sequence of further development moves will be set in motion. Development projects are privileged particles of the development process.” If the project has been selected without due care, it cannot achieve the objects.
9. Marketing:
The success of a project depends on how it is able to sell the product/service in the market. This is because marketing is the only activity which produces revenue while alt other activities incur expenditure. If the new venture does not have a market focus from the very beginning, all it is likely to create is the market for a competitor. The greatest danger for the new venture is to ‘know better’ than the customer what the product or service is or should be, how it should be bought, and what it should be used for. They are paid to satisfy customers.
10. Time/Process Management:
Time Management is the act or process of exercising conscious control over the amount of time spent on specific activities, especially to increase efficiency or productivity. Time management may be aided by a range of skills, tools, and techniques used to manage time when accomplishing specific tasks, projects and goals. This set encompasses a wide scope of activities, and these include planning, allocating, setting goals, delegation, analysis of time spent, monitoring, organizing, scheduling, and prioritizing.
Initially, time management referred to just business or work activities, but eventually the term broadened to include personal activities as well. A time management system is a designed combination of processes, tools, techniques, and methods. Usually time management is a necessity in any project development as it determines the project completion time and scope. Entrepreneur must possess this skill to manage the time.
11. Stress Management:
It is the amelioration of stress and especially chronic stress often for the purpose of improving everyday functioning. Stress produces numerous symptoms which vary according to persons, situations, and severity. These can include physical health decline as well as depression. According to the St. Louis Psychologists and Counseling Information and Referral, the process of stress management is one of the keys to a happy and successful life in modern society.
Entrepreneur may come across numerous stressful demands that can prove difficult to handle, stress management is the best way to manage anxiety and maintain overall well-being. Entrepreneur must able adopt or design various mechanism to control the level of stress. Meditation can be one of the ways of minimizing the impact of stress.
12. Anger Management:
Entrepreneur during course of his/her business activities may come across a variety of problems. Problems if not tackle in advance, it will turn into chronic. Accumulated problems if not tackle stage-wise, may build up anger. In anger, entrepreneur may take wrong decision which in turn ruins the business. Possible that in annoyance he/she may reveal business secrets which may benefit the rivals. Hence, the best alternative is to control the anger with the help of meditation, self-realization, apprehension, and understanding.
13. Personality and Individual:
Impressive personality and individual skill help to develop entrepreneurship. In absence of them entrepreneurship withers up. These qualities require for entrepreneurs since they have to work with officers, managers, engineers, labours, customers, investors, Govt., officers, ministers, social, economic, industrial organizations, trust, etc.
14. Analytical:
Entrepreneurs are realistic; they have a matter of fact approach about business undertakings. They are not likely to let personal likes and dislikes stand in their way. When they require assistance, they select experts rather than friends and relatives to help them. They generally do not take an emotional attitude towards their business or a problem.
15. Pioneering:
Entrepreneurs are people who have the skill to explore, or venture into new opportunities. They always like to create or discover new methods of production, new markets. They are thus pioneers in their own field.
16. Unification and Organization:
An entrepreneur comes in contact with many unions and organizations. He has to deal with them regularly. He has to gather or arrange many things in many ways and to unite all of them for a common goal. So he must have the qualities of unification and organizational skills.
17. Problem-Solving:
Entrepreneur is not creating problems but solves them. He should have spontaneity and skill to solve any complex problem.
18. Computer Knowledge:
Whatever may be the business, odds are that it could be significantly improved by having a computer. From basic letters to client billing to presentations and fliers, how entrepreneurs today survive without one is a mystery, and especially if they are young and in business they better have e-mail.
As a young entrepreneur, computer knowhow is supposed to be part of their birthright. Entrepreneur who is computer literate can use the computer and software to perform different aspects of their jobs. Computer is a helpful tool for decision making. Some important applications of the internet are e-mail, file transfer protocol, Usenet, telnet, acquiring software and world-wide web.
Entrepreneur – Difference between Entrepreneur and Intrapreneur
Given below are some key differences between an entrepreneur and an intrapreneur or a corporate entrepreneur with:
Entrepreneurship/Entrepreneur:
1. An Entrepreneur is a free thinker.
2. An Entrepreneur does not have any preconceived notions or history to comply with.
3. In Entrepreneurship, the starting point is a challenge as everything needs to be set up from the scratch.
4. An Entrepreneur often adopts an adhoc approach to work as there is no framework as yet for the institution.
5. An Entrepreneur typically does not have anybody to report to. In this situation the accountability quotient in the initial days is quiet low.
6. Entrepreneurship mostly happens in a small setting with limited access to resources, technology know- how etc.
7. The Entrepreneur has to find his own resources, talent, distribution channels, funds etc.
8. Entrepreneurship is easy to practise, as an entrepreneur has the right to decide his priority.
Intrapreneurship/Intrapreneur:
1. An Intrapreneur will be operating within the constraints of the institution under which he is employed.
2. An Intrapreneur does have an enterprise history to respect and practices to comply with.
3. In Intrapreneurship, with the backing of the existing enterprise, it becomes easier to start seeing action for an approved idea.
4. An Intrapreneur adopts a more formal or organized approach, governed by operational framework of the organization.
5. An Intrapreneur always has to report to his/ her higher-ups. Thereby there is a high level of control and accountability that is imposed on the Intrapreneur.
6. Intrapreneurship mostly happens in a bigger corporate setting with good access to resources, technology know- how etc.
7. The intrapreneur can access the resources, talent, existing distribution channels, funds of his employer.
8. Intrapreneurship is difficult to practise due to the existing business priorities of the enterprise.
Entrepreneur – Difference between Entrepreneur and a Manager
Entrepreneur:
1. Motive – The main motive of an entrepreneur is to start a venture by setting up an enterprise for his personal gratification.
2. Status – Owner
3. Risk bearing – Assumes all risks and uncertainty involved in running the enterprise
4. Rewards – Profits (but highly uncertain and not fixed)
5. Innovation – Entrepreneur himself thinks over what and how to produce goods to meet the changing demands of the customers. Hence, he acts as an innovator/change agent.
6. Qualification – An entrepreneur needs to possess qualities and qualifications like high achievement motive, originality in thinking, foresight risk bearing ability etc.
Manager:
1. Motive – Main motive of a manager is to render his services in an enterprise already set up by someone else.
2. Status – Servant
3. Risk bearing – Manager does not bear any risk involved in the enterprise.
4. Rewards – Salary (certain and fixed).
5. Innovation – A manager simply executes the plans prepared by the entrepreneur.
6. Qualification – A manager needs to possess distinct qualifications in terms of sound knowledge in management theory and practice.
Entrepreneur – Factors Influencing Locational Mobility of Entrepreneurs
Locational or geographical mobility of entrepreneurs represents the drive and initiative to move to other places in search of better opportunities. For example, Marwaris and Sindhis in our country have moved to almost every corner of India to carry on business activities. Such a spirit helps to reduce regional imbalances in economic growth.
Every entrepreneur has a ‘spatial horizon’ depending upon his resources, experience and information-gathering capacity. In the initial stages of industrialisation, the spatial horizon is narrow due to weak communication network, poor information systems, limited capital resources and absence of institutional arrangements. Therefore, most of the entrepreneurs set up industries at or near their places.
Thus, there are three stages of entrepreneurial mobility – in the initial stage entrepreneurs are tied to their usual places of working. With gradual growth, they are likely to become relatively mobile within a limited area. When they become highly resourceful, greater degree of mobility occurs. This implies that in any country only a handful of entrepreneurs will be mobile. If entrepreneurial class is limited and unevenly distributed, there will be strong regional imbalances in industrial development.
The key factors influencing the mobility of entrepreneurs are as follows:
(i) Resources:
An individual with limited resources is willing to take limited risks. Therefore, he starts an enterprise within a zone he can easily manage. Setting up of a plant at a distance will require his staying away from his usual place of working or handing over management to others. But the entrepreneur with larger resources can assume greater risks and collect better information. He does not mind locating a plant at distant places. Thus, larger the resources at the entrepreneurs command, the greater the degree of mobility.
(ii) Experience:
An experienced entrepreneur is more mobile than the new entrant. He has better perception of opportunities, greater access to sources of information and better analytical tools to judge the efficacy of an enterprise at a distant place. He better understands the problem of alienation, regional barriers, etc., at a new place. The experience may be technical, business, industry or any other.
The most mobile entrepreneur is one who is familiar with working of industry as he has acquired risk-taking attitude, knowledge of markets, rapport with the government officials etc. The individual with business experience is less mobile as he is less prone to assume risks elsewhere. The entrepreneur with technical experience is likely to make a start at a place where he obtained practical experience or at his usual place of living.
(iii) Education:
An educated entrepreneur tends to be more mobile than an uneducated one. He is better able to comprehend the conditions at a distance and make his own studies of the area. He can better hold discussions with the authorities and better appraise the opportunities existing outside his area.
(iv) Language:
People speaking different languages see each other with suspicion as there often exists a communication gap among them. Labour having language affinity may combine against the outside entrepreneur or the local politicians may incite feelings against him. Local governments committed to regionalism may also pose threats. New and small entrepreneurs find it difficult to overcome these barriers. Only experienced and established entrepreneurs can assume such risks.
(v) Culture:
The entrepreneurs uprooted from their traditional native places are more mobile than the local one, like a displaced person or a foreigner. They develop a more cosmopolitan outlook as they adjust themselves in new cultures and are free from the sanctions and bandages of their own culture.
(vi) Nature of an Enterprise:
If the enterprise involves only expansion of the existing plant, the entrepreneur is likely to acquire additional land in the vicinity of the existing plant. Same will be the case when the enterprise has backward or forward linkages with the existing industry. But when the new unit cannot be started near the existing one, he will move out. The above considerations are inter-related and influence simultaneously. However, the resources and experience of the entrepreneur play a decisive role and others may be considered as contributing factors.
Entrepreneur – Areas of Planning for Small Entrepreneurs
There is a general misconception that only large scale companies need planning; small scale entrepreneurs do not have to make long term plans as their ventures are small in size and the finance involved is also comparatively low.
But planning, in fact, is critical for a small entrepreneur. The entrepreneur has limited resources in terms of finance, manpower and time. He not only takes a loan but puts in all his savings and blood and sweat in the venture and hence his stakes are high. It is therefore necessary that a small entrepreneur plans for all his activities and their outcome well in advance.
What is Planning?
Planning is essentially choosing a course of action from available alternatives and detailing the course chosen. It helps the entrepreneur view and review his project, scan and analyse the environment, the money and the people involved, including himself, in a certain perspective.
Planning is essential to survive in the dynamic situations that entrepreneurs face.
i. Helps in dealing with strategy formation
ii. Provides direction and purpose
iii. Enables a comprehensive perspective
iv. Helps in anticipating problems
v. Helps in time management.
In today’s changing and newly liberalized industrial conditions, an entrepreneur has to take up more challenges, be more aggressive to survive. He therefore needs to continuously plan and strategize to reduce the risk of failure.
Planning provides direction and purpose to an entrepreneur. Advance planning helps determine the direction in which the enterprise should grow and the goals the entrepreneur aims to achieve. It also clarifies the purpose, the mission, of the enterprise.
Planning will help an entrepreneur become aware of the various steps involved in establishing and running his enterprise. This will enable him to be better organized in utilizing his limited resources.
Planning equips an entrepreneur with knowledge of the problems that are likely to arise and this in turn can urge him to think of alternative courses of action.
A small entrepreneur has to perform multifarious roles in his enterprise which means he has to manage his time efficiently on the basis of priorities. Planning in advance helps him attain his goals.
Planning should therefore be integrated into the system of the enterprise and directed towards finding and exploiting opportunities.
Areas of Planning:
For a small entrepreneur, planning need not be complex.
You should start planning by defining:
1. Your present status
2. Your goal—what you can achieve given your resource constraints
3. How to attain this goal most efficiently in the shortest possible time.
Ask Yourself a Few Questions:
1. What product should I manufacture?
2. Is the production process simple and short? What is the level of demand now? Is there scope for expansion?
3. What is the investment required? Can I raise the resources?
4. Can I do it on my own or should I co-opt a partner?
5. Where should I locate it?
6. What are the advantages/disadvantages of the location in terms of infrastructure, proximity to market, availability of labour, raw material, etc.?
7. What machinery should I buy; of what capacity, and who are the suppliers?
8. Is the raw material easily available? Is it in short supply, scarce or seasonal? What are the sources?
9. Will I have a market for the product? Which segment should I identify for this purpose?
10. What is the competition?
11. What are the government policies regarding the product, its production and sale?
12. How should I market it?
13. From where do I get finance/capital?
14. Which are the financial agencies I can approach? What are the interest rates, moratorium periods and repayment periods offered?
Before doing the Above Exercise Ask Yourself:
1. What are my strengths and weaknesses in relation to my project?
2. Do I have the necessary traits and qualities to become an entrepreneur? If not, can I develop them?
3. What are my own sources of finance?
4. Do I know the technology or do I hire it and at what cost?
If an entrepreneur, based on the above, plans all his activities, the difficulties in his path will be minimal.
Entrepreneur – Advantages and Disadvantages of Being a Successful Entrepreneur
Becoming a successful entrepreneur takes a lot of time, patience and perseverance. Successful entrepreneurs are extremely passionate about their business; they create a vision, focus on their strengths and work hard to accomplish their goals. Often they are strong social networkers and shameless self-promoters who strive to become the expert in their trade. Once they have achieved that expert status, they begin reaping the benefits of a successful entrepreneur.
Advantages:
i. No Set Timetable:
Successful entrepreneurs work flexible schedules and are free to come and go as they please. They do not have to punch a time clock every day nor do they have to sit behind a desk for eight hours. Because of the flexibility they are often able to spend more quality time with their friends and family. They have complete freedom to do anything what they want. They can any time move out of the day, if they feel they have some other important work to do.
ii. Passion for their Career:
Successful entrepreneurs often build their business around something they love to do. For example, someone who cares about car and mechanics may open their own auto repair shop. Because it is something they are passionate about they are more like to work harder and succeed. They live their dream. They are happy with their business. They can achieve what they want because they are not the employee of any one; they are free to do what they want to do with their business.
iii. Job Satisfaction:
Successful entrepreneurs have the satisfaction of using their skills, interests and creativity to make money. They do not have a set job description and can work on whatever project interests them the most. They are the satisfied one for at least what they want they do that. They do not work under any influence and therefore they are not restricted by any one. They implement new ideas; they do not have to take the permission of the others for their work.
iv. Increased Self Confidence:
Successful entrepreneurs often build their business from the ground up. Seeing it succeed increases their self-confidence and gives them a strong sense of accomplishment. They feel proud of themselves. They overcome the problems; they face the challenges after that too they get success in their business. It gives them the complete satisfaction with increase in the confidence. They now become relaxed; they do not fear about any challenge and have a faith that they will overcome the problems.
v. Giving Back to the Community:
Successful entrepreneurs are able to give back to their communities by building symbiotic relationships with local business owners as well as increasing local job opportunities. They may also bring a sense of prestige and recognition to their community. They are the job creator. Their business runs many families. They produce the products for the customers. They fulfill the needs of the people in a society. They give satisfaction to the society. They come up with the new ideas to solve the problems of the people.
vi. Job Security and Friendly Work Environment:
Because successful entrepreneurs are their own boss, they do not have to worry being laid off or losing their job. Also if something in their work environment displeases them, they can easily make adjustments to improve the situation. They are not dependent to anyone. They are independent person. They survive by themselves. They run their own business, create the environment of peace, they give-facilities to their employees from medical insurance to education of the employees’ children. They create the happy environment in the society.
Successful entrepreneurs work hard to achieve financial freedom. Their salary is based on their efforts and not on what an employer offers them. Countless small business owners have been able to build their business into a secure financial empire. Financial freedom can also be obtained when an entrepreneur sells a successful small business. If the work is no longer rewarding and challenging, they can sell the business, reap the benefits and come up with a new business idea.
Due to its high capacity for risk, there is a lot of adventure. What they do they enjoy it very much? They come up with the new and new strategies apply them in the market and remain excited about the outcome. They are very hopeful about the outcome. They always form the strategies like the strategies formed by the military officers. They get enjoyment after defeating the others but they are also ready to get defeated.
Work in a current job is difficult to do because of all the “red tape” and consistent administrative approval is needed. In a job someone has to follow all the rules and regulations. Those may be wrong but as an employee the person has to follow the rules. But in a business they form their rules; they have a complete authority to make the rule. They are free to work.
x. Originality:
Some people feel that they can offer a new service/product that no one else has offered before. The entrepreneurs have a complete freedom to implement their ideas. They come with their creative ideas and produce a new product that has not been produced by anyone. They do not follow others, idea. They have their own idea and product.
xi. Competition:
Employees feel they can offer their current company’s product / service at a lesser expense to the public.
xii. Independence:
Some people wish to be their own boss and make all the important decisions themselves. They are not connected by anyone else. They take their own decisions. They feel satisfied in taking their decisions. They do what they want. They run the complete business independently.
xiii. Salary Potential:
Generally, people want to be paid for the amount of work they do in full; they do not want to be “short-charged.”
xiv. Flexibility:
Entrepreneurs can schedule their work hours to spend quality time with family or for any other reason. They can do many tasks at the same time. They are not attached to only one place. They can handle many projects. They can freely move to other places for their other work.
xv. Rational Salary:
They are not being paid what they’re worth and would rather work on their own and earn the money they should be earning for their efforts.
xvi. Freedom:
Entrepreneurs can work whenever they want, wherever they want and however they want. They can implement their ideas at any time. They are the boss, they have complete authority. They are not required to work at the same place for the long time. They can run simultaneous business. They can handle more than one project at the same time. The employee does not have such freedom.
Disadvantages:
i. Salary:
Starting your own business means that you must be willing to give up the security of a regular pay cheque. The entrepreneurs do not get regular salary. They are dependent on the business for their payment. They are not secured about the salary. They will earn if the business will do well otherwise they will suffer. Here the employees have an advantage over entrepreneurs.
ii. Benefits:
There will undoubtedly be fewer benefits, especially when considering that your business will be just starting off. Definitely in the starting stage of the business, entrepreneurs cannot be the confident ones. If they run it very well then they will achieve success, otherwise there is a fear of business failure. They have to take many efforts to survive the business. They are not the free person, at the initial stage of the business they work for even 12 hours or more.
iii. Work Schedule:
The work schedule of an entrepreneur is never predictable; an emergency can come up in a matter of a second and late hours will have to be put in. They do not have fix schedule. They can go anywhere whenever it becomes urgent to go for business work. They cannot say that they will come home at sharp 5 evening.
iv. Administration:
The entrepreneurs have to take the burden of making decisions. They are the only higher authority in the business and therefore they are responsible for the decisions and their consequences. They are ready to accept the failure if business suffers from their decisions. They have to manage their employees also that is not the easy task.
They have to better utilize the resources without any wastages because already they have limited resources. All the decisions of the business must be made on your own; there is none ranked higher than you on the chain of command in YOUR business. So as an entrepreneur he has the burden of whole business progress.
v. Incompetent Staff:
Often times, you will find yourself working with an employee who “doesn’t know the ropes” as well as you do due to lack of experience.
vi. Procedures:
Many times during your entrepreneurial life, you will find that many policies do not make sense, nor will they ever make sense.
Entrepreneur – Entrepreneurial Risks (With Types, Methods to Avoid and Management)
Different Types of Entrepreneurial Risks:
Business is a risky venture. Unless and until an entrepreneur takes risk, he or she cannot make profits. Win or lose is the name of the game. A businessman or woman can either make a success of his or her venture or suffer from many losses. Risks have to be taken by businessman or woman. It is part of the game. If he/she is able to cross these bridges, then he or she gains monetarily. If not then he/she has to close down the venture and face problems in paying off debts.
These risks have been briefly discussed below:
(i) Financing Risk:
When a new business is set up, there are only costs in the initial stages and no returns. Therefore, there is always a risk of losing finances
(ii) Product Risk:
There is very strong possibility of the product not being accepted by the consumer. There may be nothing wrong with the product, but the consumer may not accept it.
(iii) Technology Risk:
Technology is rapidly changing and there is a risk of investing in purchase of an expensive technology, and it may become obsolete shortly after use.
(iv) Business Development Risk:
Huge resources are involved in business development, if there is a failure, all the cost becomes “sunk cost”.
(v) Market Risk:
The market is also very volatile and rapidly changing. On several occasions, it becomes difficult to penetrate the market and on some occasions, it is difficult to create or expand market, as planned or targeted.
(vi) Timing Risk:
You are too early or too late to the market. The timing has to be perfect for launch, advertising or marketing.
(vii) Margin Risk:
As the cost of production increases due to increase in input cost, the margins decline. Many times, the entrepreneur is not even able to break even.
(viii) Start-Up Risk:
The gestation period of each business is different. If the starts up costs are high and the gestation period is long, then it becomes very difficult proposition for the entrepreneur to carry on operations.
(ix) Risk of Heavy Losses:
A businessman or woman faces setbacks in business in case the market is not favourable or there is general economic decline. Recession, for example, causes setbacks to business people, anywhere in the world.
(x) Risk of Market Fluctuations:
Market does not always remain stable. It fluctuates. Many variables cause this; therefore, steady profits may not always be there.
(xi) Risk of Non-Repayment of Loan:
A businessman is usually in debt as he or she has to borrow a lot of money to invest. Often he or she suffers losses and is unable to pay up the loans. Debts can cause a lot of concern & worry.
(xii) Risk of Strikes and Lockouts:
Workers go on strike for either increase in salaries or for being maltreated by management. Valuable production time is lost. An entrepreneur loses out on money on such occasions. It is a known fact that ‘Time is money’ for them.
(xiii) Risk of Stiff Competition:
At times competition can wipe out a business completely. Many times small ventures cannot survive the onslaught of big ventures. The small ventures do not have money to advertise and publicize their products, therefore, they perish.
Shifting of Risks by Entrepreneur:
Initial risk management plans will never be perfect. Practice, experience, and actual loss results, necessitate changes in the plan and contribute information to allow possible different decisions to be made in dealing with the risks being faced. The strategies to manage risk typically include transferring the risk to another party, avoiding the risk, reducing the negative effect or probability of the risk, or even accepting some or all of the potential or actual consequences of a particular risk.
Following are some common methods to avoid risk:
(i) Hedging:
Under it, the possibility of loss which occurs because of price fluctuations is shifted during the time gap between purchase and sale of a commodity. It involves entering simultaneously into two contracts of an opposite nature, one in the spot or cash market and the other in the future market. The purpose of hedging is to protect the trade profit from adverse fluctuations in commodity prices.
(ii) Underwriting:
A public company which issues shares, may not be able to sell the shares, therefore, this risk is shifted to underwriters who are known as financial intermediary between the company issuing securities and the ultimate investors
(iii) Subcontracting:
The need for subcontracting arises when a firm undertakes a business which extends over a long period of time or which requires the specialised services of several experts. In such a situation, the firm may face risks resulting from rise in prices of materials, labour or other imports. Such risks may be shifted to other firms through sub-contracting. For instance, a building construction firm may engage subcontractors for timbers, glasses, electric wiring, plumbing, cement, etc.
(iv) Insurance:
It may be defined as a contract in writing under which one party agrees to indemnify the other party against a loss or damage suffered by it on account of an uncertain future, in return for a consideration called ‘premium’. The entrepreneur can also take insurance to combat the fear of loss of risk.
(v) Developing a Risk Management Plan:
Having sufficient insurance to protect against losses is only one aspect. Taking proactive steps to cross-train is another key way to avoid risk.
(vi) Employ the Services of an Internal Control Consultant:
This is an outside professional specializing in investigating weaknesses in company’s processes. An outsider completely unconnected to a company’s daily operations can view the situation more objectively and more readily identify areas in need of improvement.
Risk Management by Entrepreneurs:
As entrepreneurs plan their new business, they recognize that they are exposed to business risk, or the uncertainty of the future performance of a business. The future profits of a business are uncertain because of uncertainty surrounding the expected revenue and expected expenses.
Some businesses have much more risk than others. For example, a business of tutoring on a college campus has business risk, but the investment of funds to create the business is minimal, so the potential losses are limited.
Conversely, consider a business that wants to produce a drug that will cure a particular disease. It must invest substantial funds in laboratories and highly skilled employees to try to develop the drug. This business will perform very well if a cure is found.
But if its drug is not effective, the business will have no revenue, will have incurred large expenses, and will likely fail. It is subject to a very high degree of business risk because there is much uncertainty about its future performance.
As part of the business planning process, entrepreneurs must consider the sources of business risk that could cause their business to perform poorly. Some sources of risk such as economic conditions are beyond their control. But many other sources of risk are within their control.
Such sources of risk are said to result from firm-specific characteristics. Exhibit 6.6 lists some of the more common firm-specific sources of business risk. Several of these are discussed here, along with strategies that entrepreneurs can use to reduce their exposure. One way that entrepreneurs may reduce their risk exposure is by purchasing insurance; Exhibit 6.7 lists some types of insurance that a firm might purchase.
It may seem that entrepreneurs are being pessimistic if they anticipate conditions that could adversely affect their business. However, any entrepreneurs who ignore possible adverse conditions when planning their business are not being realistic. Proper business planning includes preparing for the possibility of adverse conditions so that the business can survive even if such conditions occur.
Firms that rely on a single customer for most of their business have a high degree of business risk because their performance will decline substantially if the customer switches to a competitor. For example, a firm may rely on selling some of the products it produces to the federal government.
If the federal government reduces its spending, it will order fewer products from the firm. Firms can reduce their reliance on a single customer by attempting to spread the sales of their products across various customers.
Firms that rely on a single supplier for most of their supplies may be severely affected if that supplier does not fulfill its obligations. If that supplier suddenly goes out of business, the firm may experience a major shortage of supplies. Firms that use several suppliers are less exposed to the possibility of a single supplier going out of business, because they will still receive their supply orders from the other suppliers.
When a firm relies on a key employee for its business decisions, the death or resignation of that employee could have a severe impact on the firm’s performance. Consider a computer repair business that has only one employee who can perform the repairs. If the employee dies or leaves the firm, other employees may not be able to perform this job.
Until the employee can be replaced, business performance may decline. Since a business cannot be managed as well following the loss of a key employee, it may be less capable of covering its expenses.
Hedging against Losses Resulting from a Key Employee’s Death:
Firms can hedge against losses resulting from a key employee’s death by purchasing life insurance for their key employees. The policy identifies the firm as the beneficiary in the event that a key employee dies. Thus, when a key employee dies, this type of insurance provides the firm with compensation, which the firm can use to offset the possible losses or reduced performance.
The firm is cushioned from the loss of a key employee and may be able to survive while it attempts to hire a person to fulfill the key employee’s responsibilities. Consider an individual who runs a small business and applies for a business loan at a local bank. If the individual is killed in an accident, the business may deteriorate and the loan would not be paid off.
A life insurance policy could designate creditors (such as a bank) as the beneficiaries to protect them against such a risk. Using this strategy, the business is more likely to be approved for a loan.
Hedging against the Illness or Loss of a Key Employee:
The illness or resignation of a key employee may also adversely affect the performance of a firm. To try to prevent employees from becoming ill, many firms offer a program that enables their employees to obtain health insurance from health insurance companies. The insurance is generally cheaper when purchased through the firm.
Even if a firm provides a health insurance plan for its employees, it may still be affected by the temporary absence of an employee. Firms can reduce the potential adverse effect of an employee’s illness by ensuring that more than one employee can perform each task. To attempt to prevent key employee from resigning, firms can offer good compensation and benefits.
Information technology has created new risks and increased the complexity of risk management. For example, there is the risk that electronic data may be stolen and used in a manner that adversely affects the business.
Online banking and securities trading have created large exposures to risk. These services are vulnerable to potential losses from security breaches through network hacking, viruses, and electronic thefts.
New businesses can hire firms to establish a computer system that is protected from this exposure. Alternatively, a business may attempt to purchase insurance to cover against loss of business income, damage to reputation, loss of intellectual property, interruption of service liability, and liabilities incurred as a result of electronically published information.
Entrepreneur – 7 Significant Challenges Faced by Entrepreneurs
Entrepreneurs encounter various challenges in present age of cutthroat competition. However, entrepreneurs have access to more resources for tackling those problems than ever before.
Significant challenges faced by entrepreneurs are as follows:
1. Financing:
Money is vital in fulfilling dreams of entrepreneurs. There are various government schemes that promote new ventures in multiple ways. However, apart from startup, funds are critical to business survival too, yet many entrepreneurs struggle to meet ends in the initial stages.
Various associated reasons are delayed invoicing, non-payment, bad debts, attrition costs especially during gestation period. Proper budgeting and planning can help in maintaining cash flows. Advance payments or attractive discounts for early payments can help in bill collections. They may even use their pool of capital from a business they previously sold.
2. Building a Team:
This is especially difficult, as they need to pick the right team (reviewing resumes, sitting through interviews, identifying suitable candidates) for a startup with whom they can share and materialize their goals. Additionally, they need to consider cost to the business, cultural fit and overall team balance. Such considerations are exceptionally hard as the team has to be put in place as soon as possible.
3. Time Management:
Time management might be the biggest problem faced by entrepreneurs, who have to be multi-taskers. They need to judiciously balance their time by creating time bound goal lists, setting up priorities and periodically reviewing their timelines.
4. Focus on Core Competency:
They need to delegate or outsource routine tasks to be ultra-specific as to what they need to focus upon. They should not get distracted while handling multiple tasks and should nurture creative synergies.
5. Marketing Challenges:
They are not necessarily trained in best marketing strategies whether it is print, online, mobile, advertising, etc. Budget and competition are added pressures while finalizing marketing plans.
6. Fear of Failure:
Despite best of the plans, entrepreneurs deal with bouts of self-doubt and loneliness. They are dealing with the unknown and charting new ways but risk levels are high and probability of sustaining business in long run is yet untested.
7. Long-Term Sustainability:
Though viable opportunities may seem profitable in the near future, long-term benefits are questionable. Perseverance and intelligence can help in fighting all odds. Survival is important for new start-ups but growth and expansion is the next logical goal.
Entrepreneurship brings along a host of challenges. Fulfilling challenges, but harsh realities too. Nonetheless, becoming an entrepreneur requires one to be mentally prepared to deal with all these challenges.
Entrepreneur – Financial Support for Entrepreneurs
Various individuals, agencies and government are involved in providing support to entrepreneurs during initial phases. In fact, it takes a community to raise, nurture and grow start-ups. The eco-system needs to be receptive of change, innovative ideas and new ways of thinking. Moreover, the state needs to provide necessary support in terms of financial, technical and managerial assistance required to bright young minds falling short of funds.
This encouragement and support may come from the following:
1. Roles of Mentors in Developing Entrepreneurs:
Mentors are the people who have envisioned, executed and experienced it before. They are people who have rich entrepreneurial experience and an access to the most active start-up friendly networks. Both these traits of mentors make them indispensible to start the entrepreneurial journey.
They guide you through the common and uncommon mistakes, cost effective ways, help in overcoming hurdles, establish connections, counsel in moments of despair and at times even take up the role of co-founders.
They facilitate the entrepreneurs to expand their horizons. The mentor may also act as a role model and reinforces self-belief and perseverance. Their level of involvement is very customizable depending upon the need of entrepreneur. It may range from meeting occasionally to keeping a close watch. Their experience is first hand and not available in the books. They reduce the ‘hit and trial’ time of a new venture. Mentors leave a very positive impact on the budding minds.
They are a constant source of moral guidance, positive thoughts, motivational talks and words of wisdom. Their experience helps them in having a refined vision and segregating practical and impractical goals of entrepreneurs. Their questions make the entrepreneurs think more rationally and take justifiable decisions instead of rushing through the initial phases.
2. Entrepreneurs’ Associations:
Networking, relationships and society matters for everyone. More importantly for people who envision to be different as their ideas and thoughts need social, financial, ethical and moral backing. World over there has been an initiative of various creative minds to form or join some groups with like-minded people. These groups help in knowledge sharing, finding co-partners, funders, highlighting hurdles and in fact, becoming the ‘go to’ group for any issues faced by the entrepreneurs.
These associations give social exposure and help in seizing opportunities. They provide trusted mentors, excellent ways of tapping resources and funds (something that every entrepreneur faces a challenge with).
3. Entrepreneurial Developments through Self Help Groups (SHGs):
Self-Help Group are mutual aid support groups of self-governed, peer controlled, informal group of people with same socio-economic background and having a desire to collectively resolve a common problem. They may exist separately or as a part of large organization. In India, SHGs are usually formed by rural people especially women who are of homogenous financial background.
The Tamil Nadu Corporation for Development of Women Ltd. (TNCDW) defines “Self Help Group (SHG) as a group of 12 to 20 women of the same socio-economic background who come forward voluntarily to work together for their own upliftment. The unique feature of the SHG is its ability to inculcate among its members sound habits of thrift, savings and banking. Regular savings, periodic meetings, compulsory attendance, and systematic training are the salient features of the SHG concept.”
Hence these SHGs help in mobilizing resources of individual members towards collective economic development, inculcating saving and investment behaviour, identifying and supporting enterprising women, developing linkages with NGOs for sustainable development and entrepreneur ship.
Government of India has been very supportive of SHG concept and has various schemes being run under different ministries to support the same. Women SHGs Development Fund with a corpus of Rs. 500 crore was setup in 2012 to address issues related to imbalances and State wise disparities in the SHG Bank Linkage programme with particular focus on women SHGs in backward regions identified in consultation with the Ministry of Rural Development where the progress of SHG Bank Linkage is slow.
National Scheduled Tribes Finance and Development Corporation (NSTFDC) also runs SHG scheme. It provides financial assistane for Scheme(s)/ Project(s) having unit cost upto Rs. 25.00 lakh per SHG.
4. Business Incubators:
A business incubator is an organization designed to nurture new and small businesses and offer them a host of services need in their initial stages so that the same can establish a strong foundation and succeed in future. They offer growth of a startup in a controlled environment.
Their services are customized and depend upon the requirements of new enterprises. Most of the new companies face specific issues in their nascent stages and require handholding through tough times. The array of services offered by them range from infrastructural support, financial and technical assistance to rent a desk or a basic service like a dedicated telephone line.
They act as a catalyst for national economic development. If successful, they can help to nurture such companies that can bring about paradigm shift in development and growth of an area, utilization of natural resources, generation of employment opportunities and enhance social goods. A company typically spends initial two years in a business incubator before starting its operations independently.
The National Business Incubation Association (NBIA) defines business incubators as a catalyst tool for either regional or national economic development. NBIA categorizes their members’ incubators by the following five incubator types: academic institutions; non-profit development corporations; for-profit property development ventures; venture capital firms, and combination of the above.
Hence these organizations aim at growth and success of early stage companies and serve as a launch pad for new companies and provide all cushioning support required to deal with teething issues like help with business basics, marketing, accounting and financial assistance, networking activities, information and assistance for access to bank loans, guarantee programs, angel investors, venture capitalists, help with professional presentations, participation in business training programs, advisory boards and mentors, office space, access to shared administrative services and such other services.
Hence business incubation is a dynamic process of business development.
5. Venture Capital:
Capital invested in new and emerging companies with a substantial degree of risk is termed as venture capital. Entrepreneurs do not always have access to sufficient funds. Hence, these idea-rich people look for high net worth individuals/ institutions that are supportive of new ideas. These wealthy people invest in such startup companies and get a stake in equity in return.
It is a form of financing where venture capitalists take on the risk of financing risky start-ups with the expectation that some of these firms may become game-changers and reap good returns. The people who invest this money are called venture capitalists (VCs).
The venture capital investment is made when a venture capitalist invests in shares of such a company. Venture Capital is also referred as risk capital or patient risk capital, as it the risk of losing money is high in case the venture fails and usually has medium to long-term period for gestation.
It normally comes from institutional investors and high net worth individuals and is pooled together by dedicated investment firms. Venture Capital is a preferred mode of raising funds financing option for funding unproven business ideas. It is most widespread in the fast- growing technology, biotechnology, communications, computer software and services, and online-specific sectors and such other promising fields.
Venture Capital Funds are pooled investment funds that manage the money of wealthy investors who intend to finance startup and small- to medium-sized enterprises with strong growth potential through equity stakes. It has a lot of scope in Indian scenario where Government aims to promote new technologies, the backward integration of existing technologies, and the domestic production of foreign technologies through disruptive innovation, entrepreneurship and application of scientific technology and knowledge -based ideas into large scale commercial production.
Venture capital firms typically comprise of compact specialized teams with expertise in technology, business, training or networking.
Hence, it is more than just technology finance. It brings along smart advice, professional management, experience, assistance needed to guide entrepreneurial vision. These investors are always active and keep themselves updated with the dynamic changes in the environment.
At times, they provide their own resources to entrepreneurs that would otherwise not be possible for small new companies. They bear the risk and provide necessary guidance. They help in creating a strong foundation for IPO launch of the startup.
It’s a tool to mentor budding entrepreneurs. Government of India recognized the need for venture capital financing during seventh five-year plan. In 1973 Bhatt Committee on Development of Small and Medium Enterprises highlighted the need to faster VG and problems of-new entrepreneurs and technologists in setting up new businesses.
Risk Capital Foundation (RCF) sponsored by Industrial Finance Corporation of India (IFCI) was inaugurated in 1975 and Industrial Development Bank of India (IDBI) introduced seed capital scheme in 1976.
The growth of VC financing in India marks 1988 as a significant milestone due to announcement of guidelines for the establishment and functioning of venture capital activities and formation of Technology Development and Information Company of India Ltd. (TDICI) – promoted by ICICI and UTI.
6. Private Equity Funds:
Private equity funds comprise of funds and investors that directly invest in equity of listed companies usually. These individual and institutional investors have substantial funds to be invested for reasonable duration. Private equity firms also perform leveraged buyouts.
These equity funds have been steadily increasing in India and they also place their representatives in Board of Directors. The funds have been flowing in industries displaying a potential for positive returns like telecommunications, software, hardware, healthcare and biotechnology among others.
Institutional investors have shown their inclination for private equity due to their potential to excel market returns. However, as the investment have to be made privately, huge initial investments are required for a long time-horizon. They are considered as illiquid investments. These funds are invested in high risk proposals with an expectation of high return.
Private equity investment has a bright potential in India and has witnessed favourable trends in the recent years.
Entrepreneur – Government Schemes Promoting Entrepreneurs in India
Entrepreneurship development and training is a prerequisite for development of micro and small enterprises (MSEs). MSME Ministry has set up three national-level Entrepreneurship Development Institutes (EDIs). These are the National Institute for Micro, Small and Medium Enterprises (NI-MSME), Hyderabad; the Indian Institute of Entrepreneurship (IIE), Guwahati and the National Institute for Entrepreneurship and Small Business Development (NIESBUD), Noida.
Further, the Ministry has been implementing (in addition to the schemes of MSME-Do) an important scheme, namely, Scheme for Assistance for Strengthening of Training Infrastructure of Existing and New Entrepreneurship Development Institutes (EDIs). The main objectives of the scheme are (i) promoting entrepreneurship for creating self- employment through enterprise creation; (ii) facilitating creation of training infrastructure; and (iii) supporting research on entrepreneurship related issues.
i. National Institute for Micro, Small and Medium Enterprises (NI-MSME), Hyderabad:
NI-MSME, formerly known as National Institute of Small Industry Extension Training (NISIET), was set up in 1960 at New Delhi as a Department of Central Government under the Ministry of Commerce and Industry and was initially known as Central Industrial Extension Training Institute (CIETI). The academic activities of the Institute focus on specific needs of the MSMEs.
The Academic Council of the Institute is the central coordinating body for benchmarking, formulation and evaluation of academic activities and programmes. Over the years, the Institute has conducted various EDPs in the areas of entrepreneurship development, technology, management and information services. It conducts need-based seminars, workshops and conferences.
ii. Indian Institute of Entrepreneurship (IIE), Guwahati:
The Indian Institute of Entrepreneurship (IIE) was set up at Guwahati in 1993. It took over NI-MSME’s NER Centre w.e.f. 1st april, 1994. Since its establishment and up to March 2007, the Institute has organized 1167 training programmes / workshops / seminars / meets with a cumulative participation of 38524 persons.
It is ISO-9001-2000 certified and its major focus has been promotion of new entrepreneurs. It has initiated a unique programme of Comprehensive Entrepreneurship Development (CEDP) on gemstones processing and hosiery & woolen garment manufacturing under the sponsorship of the Ministry of MSME.
iii. National Institute for Entrepreneurship and Small Business Development (NEISBUD):
It is the apex organisation under the Ministry of Skill Development and Entrepreneurship, Government of India engaged in Training, Consultancy, Research and Publication, in order to promote entrepreneurship.
Objectives:
i. To evolve standardised materials and processes for selection, training, support and sustenance of entrepreneurs, potential and existing.
ii. To help/support and affiliate institutions/organisations in carrying out training and other entrepreneurship development related activities.
iii. To serve as an apex national level resource institute for accelerating the process of entrepreneurship development ensuring its impact across the country and among all strata of the society.
iv. To provide vital information and support to trainers, promoters and entrepreneurs by organising research and documentation activities relevant to entrepreneurship development.
v. To train trainers, promoters and consultants in various areas of entrepreneurship development.
vi. To offer consultancy nationally/internationally for promotion of entrepreneurship and small business development.
vii. To provide national/international forums for interaction and exchange of experiences helpful for policy formulation and modification at various levels.
viii. To share international experience and expertise in entrepreneurship development.
ix. To share experience and expertise in entrepreneurship development across national frontiers.
The major activities of the institute consist of Training of Trainers (ToT), Management Development Programmes (MDP), Entrepreneurship- cum-Skill Development Programmes (ESDP) and Entrepreneurship Development Programmes (EDP) etc. NIESBUD has -provided training to 9,43,625 persons as of March 31,2016 through 36,877 different training programmes since inception.