Everything you need to know about the functions of an entrepreneur. The basic function of an entrepreneur is to identify a profitable business and then to venture into it. For this, he has to chart a plan of action ranging from the idea conceived to actual running of business. The functions of an entrepreneur differ depending upon the nature of business activity.

An entrepreneur plays a very important role in bringing up of an organisation. He has the capacity to handle a calculated risks in his business. His importance lies in analysing new ideas, market demands, exploiting the market opportunities and finally involve in technical progress.

Some of the functions of an entrepreneur are:-

1. Innovation 2. Managerial Skill 3. Decision Making 4. Risk Taking 5. Dynamic Function 6. Gap Filling 7. Organizing 8. Creative Function


9. Economic Function 10. Purposeful Activity 11. Develops an Idea and Explores Opportunity 12. Product Analysis and Market Survey 13. Decides Form of Organization 14. Decides Location 15. Collects Necessary Capital

16. Places Order for Machinery 17. Recruitment of Labour 18. Designs Internal Organization Structure 19. Fulfils Formalities and Launches Enterprise 20. Feasibility Study 21. Identification of Business Opportunity 22. Coping with Failure.

Learn about the Functions of an Entrepreneur: Dynamic, Managerial Skills, Creative, Decision-Making, Risk-Taking and a Few Others

Functions of an Entrepreneur – 4 Important Functions: Innovation, Managerial Skill, Decision Maker and Risk Taker

An entrepreneur plays a very important role in bringing up of an organisation. He has the capacity to handle a calculated risks in his business. His importance lies in analysing new ideas, market demands, exploiting the market opportunities and finally involve in technical progress.

Thus an entrepreneur performs the following four important functions:


1. Innovation

2. Managerial Skill

3. Decision Maker

4. Risk Taker.

1. Innovation:


An entrepreneur is involved in the following innovations-

a. Introducing a new product which the consumers are not aware of or a new quality of product.

b. Discovering and entering new markets.

c. Introducing a new method of production.


d. Finding new sources of supply of raw materials and semi-finished goods.

e. Creating or breaking a monopoly position and carrying out a new business.

2. Managerial Skills:

Along with entrepreneurial skills an entrepreneur should have a good managerial skills of organising, coordinating and controlling. He purchases the land from one person, labour from another, raw-materials from some other, capital from yet another, combines all and produces a product and earns profits. An entrepreneur is self-confident and has a strong motivation to achieve success.

3. Decision Maker:

Right from the beginning of the business till the completion and future developments an entrepreneur takes a decision. An entrepreneur has to take a right decision at a right time so as to gain profits and overcome the hurdles and risks.


a. He always analyses and finds out an industry that provides him best prospects.

b. He decides on the nature and type of goods to be produced.

c. He adopts these methods of production which seems to be the most profitable.

d. He decides the size of the business.


e. He decides the location to set up the manufacturing unit.

f. He decides on all other matters required to take the organisation to great heights and get maximum profits with minimum investments.

4. Risk Taker:

As there is a lot of un-certainties in the business an entrepreneur has to bear a great amount of risk that could be either financial risk or the change in the techniques of production, change in the fashion taste of the customers etc.

An entrepreneur always tries to reduce the risk by analysing, each mode of raising finance at different cost, therefore there should be an optimum mix of both and in case if there is any inappropriate mix, it may disturb, the economic viability. Since most of the fresh entrepreneurs lack the knowledge of appropriate finance mix leading to weak equity resulting into industrial sickness.

Functions of an Entrepreneur – 8 Important Functions: Innovation, Gap Filling, Organizing, Risk-Bearing, Economic Functions, Purposeful Activity and a Few Others

The key functions of entrepreneurs are discussed as follows:

1. Innovation Function:

Entrepreneurs are known for their innovative ideas and creative actions. They turn gaps in the marketplace into rewarding opportunities According to Schumpeter – An entrepreneur uses information, knowledge, and intuition to come up with new products, new methods of reducing costs of a product, improvement in design or function of a product, discovering new markets or new ways of organization of industry.

Through innovation, an entrepreneur converts a material into a resource or combines existing resources into new and more productive configurations. It was the amazing evolution of the Internet that caused Jeff Bezos to quit his job in New York, shift to Seattle, and start Amazon(dot)com in a garage.

He was able to clearly visualize how the Internet could impact lives in the years ahead. He did not allow the opportunity to slip away and through constant innovations, he turned Amazon(dot)com into a global electronic shopping complex, where customers can buy a range of products such as – books, DVDs, CDs, MP3 downloads, games, electronics, apparel, furniture, food, toys, jewellery, and many more at economical prices.

2. Dynamic Function:

Entrepreneurs bring about a change in the environment through new ideas, new processes, and new products and services. Ingwar Kamprad’s company IKEA is known for selling great furniture designs at affordable prices. While others were busy making bulky furniture, Kamprad challenged the conventional wisdom by making furniture in modular form, which could be easily assembled at the customer’s premises and shipped to any part of the world at low cost.

3. Gap Filling Function:

Entrepreneurs identify market gaps and take appropriate steps to bridge those gaps. They seize opportunities, convert those opportunities into viable products and services, and offer value to customers. Organizing the vast amount of information in the world was seen not only as a great intellectual challenge but also an amazing opportunity by Larry Page and Sergey Brin though they had no idea how search could be monetized at the time. Once the gap was found, they took measures to fill the same quickly.

4. Organizing Function:

Entrepreneurs give shape to their ideas, create a business plan, pool resources, and organize things in the best possible manner. They assemble resources, put people on the job, supervise from close quarters while simultaneously coordinating and controlling the whole process. They also try to put their best foot forward in order to deliver results. Spain’s richest man, Amancio Ortega, started making gowns and lingerie in his living room way back in 1963.

In 1975, he opened the first store that later on became the biggest fashion ware seller—Zara. The entire idea of selling fashion is based on the concepts of creating trendy designs, staying ahead of competition, being very fast, and delivering the products to the customers at affordable prices. Zara needs just two weeks to develop a new product and get it to stores compared to the nine-month industry average. It is able to put everything in place at amazing speeds that sometimes defy logic and understanding.

5. Risk-Bearing Function:

Entrepreneurs live with risks and uncertainties of various kinds. They start production in anticipation of demand. There is no guarantee that customers would readily accept their products or services. Competitors may hit back, customers’ tastes and preferences might change, technological innovations may give birth to a superior product, government may change its policies, and many more changes could hit their plans abruptly and suddenly. Most of these risks may turn out to be non-insurable. The risk of failure is there in every venture and entrepreneurs may have to grapple with such risks almost on a daily basis.

6. Creative Function:

The entrepreneur is a dynamic agent of change—a catalyst who transforms resources into useful products and services. He chooses less-travelled paths, spots market gaps that are ignored by competition, and picks up unusual ways of doing things while using resources in the best way. Michael Dell has always had a genius for spotting holes in conventional wisdom.

In the early 1980s, he realized that every personal computer (PC) was created with, more or less, the same readily accessible components such as Microsoft’s software and Intel Corp’s chips. By assembling PCs and by selling them directly to customers, a fat margin of profit could be enjoyed. The then 18-year-old Dell told his father that he wanted to compete with IBM. The unconventional strategy of selling direct—thereby inventing the most efficient way to get computer into the hands of customers—paid off handsomely and, more or less, changed the way PCs are bought and sold in the marketplace.

7. Economic Function:

Entrepreneurship is an economic venture covering production and distribution of goods and services with a view to making profit.

8. Purposeful Activity:

Entrepreneurs are driven by a set of goals such as – creation of jobs, bringing about change in society, rendering service to humanity, improving the standards of living, etc. They are the people who challenge the unknown and continuously create the future. In short, they are the heroes of today’s marketplace.

Functions of an Entrepreneur – 14 Common Functions of an Entrepreneur: Develops an Idea and Explores Opportunity, Product Analysis and Market Survey and a Few Others

The basic function of an entrepreneur is to identify a profitable business and then to venture into it. For this, he has to chart a plan of action ranging from the idea conceived to actual running of business. The functions of an entrepreneur differ depending upon the nature of business activity.

Some of the common functions of an entrepreneur are briefly described below:

1. Develops an Idea and Explores Opportunity:

It is the creativity of an entrepreneur which gives birth to a business idea. Basing his research on the perceived idea, he is then on a look out for opportunities for profitable business investment and exploring the prospects of starting a manufacturing enterprise.

2. Product Analysis and Market Survey:

An entrepreneur undertakes collection of data on consumer preferences and carries out a business research to find the expected demand of the proposed product. He also focuses his research on consumers in respect of design, colour, size and shape. Besides this, he concentrates to collect information about the degree of competition in the proposed market for the product.

3. Decides Form of Organization:

It is an entrepreneur’s decision so as which way he wants to organize his business i.e., sole proprietorship, partnership, company or a cooperative society.

4. Decides Location:

It is the entrepreneur who decides the location of his business unit after analyzing the availability of resources there like transport, raw materials, power-supply, fuel, water, labour, connectivity to markets, etc.

5. Collects Necessary Capital:

He makes sufficient amount of capital available to initiate and continue the business operation. He gives personal guarantees to the financiers who contribute capital. Otherwise, he promises to invest capital himself or arrange the necessary amounts from friends and relatives.

In case of small enterprises, the promoters can provide funds from their own savings. But in case of large enterprises, funds have to be raised from various sources like general public, commercial bank, financial institutions, etc.

6. Places Order for Machinery:

The entrepreneur places order for machinery equipments and other requirements. He takes decision about the installation of equipment and machinery in the process of production.

7. Recruitment of Labour:

As an entrepreneur, he makes an estimate of skilled and unskilled workers of different categories required for various departments. Accordingly, the entrepreneur arranges their recruitment.

8. Designs Internal Organization Structure:

The entrepreneur designs internal organization structure for his proposed concern. This involves breaking up of the total work of the enterprise into major functions like production, marketing, finance, personnel, purchase, engineering, etc. and dividing each of them into sections. He stipulates the functions of different departments and their interrelationships.

9. Fulfils Formalities and Launches Enterprise:

Every type of business has some procedural formalities while starting a new enterprise. The formalities are different for different types of business organizations. Unless you fulfill them, you cannot simply launch an enterprise.

10. Idea Generation:

The first and foremost task of an aggressive entrepreneur is to generate a novel idea that would be worth using in future as well. The creative mind of entrepreneurs traps the opportunities in the markets. The business idea builds upon the actual demand of any product or service which an entrepreneur identifies.

The following points should be borne in mind of an entrepreneur while creating a business idea:

(i) It should bring out the best in him i.e., it should utilize his plethora of technical and professional skills effectively. Use of any special knowledge of some special manufacturing techniques that an entrepreneur possess, would make it easier for him to have a better management.

(ii) The production of the new product should utilize the locally available raw material to the greatest extent instead of imported ones as it is easier to procure raw materials locally.

(iii) It is always better to supply goods which have a demand in markets but are not freely available.

(iv) The business idea of the entrepreneur should help existing problems of products’ availability in the market. At times, the goods are available but not of good quality; at others complementary goods required for use of existing goods are absent. Hence, it becomes the responsibility of an entrepreneur to research and analyze the difficulties faced by consumers and supply solutions to their problems.

Sources of Information for Business Ideas:

The starting point of product development is project idea generation. There are a number of potential studies conducted by several organizations like the National Council of Applied Economic Research (NC AER), financial institutions and other promotional organizations such as Confederation of Indian Industries (CII), etc.

These may include the following:

(i) Study of areas, like that of a backward area or district to identify development potential.

(ii) Study of sub-sectors to identify opportunities in specific sub-sectors.

(iii) Resource-based studies which identify opportunities based on utilization of natural or industrial resources such as forest-based industries, marine-based industries, industries using rubber as the raw material, etc.

(iv) Studies of product consumption pattern of the country,

(v) Surveys of existing industrial establishments.

(vi) Possibilities of import and export.

(vii) Demand forecasts made by industrial chambers such as CII, FICCI, ASSOCHAM, etc.

Approaches to Idea Generation:

An entrepreneur may use any of the following approaches while exploring various sources of business ideas:

(i) Brainstorming – It is a process to develop or identify a range of productive ideas. An expert should carry out this process. No judgment or evaluation should be done on any of these ideas. This is an initial stage, hence no emphasis should be laid on the suitability of ideas.

(ii) New Ways of Doing Old Things – Products originated from traditional methods and practices are supplied to markets in large numbers. An entrepreneur may derive advantages by deriving new methods better than that of old ones to produce these existing goods.

(iii) Converting Hobby into Business – People may use their hobbies or the talent that they possess to venture into the business world. It always provides such professions an edge over the others due to their personal interest. Hobbies like photography, interior decoration, fashion designing, etc., are often developed as business ventures.

(iv) Improving an Existing Product – There can be an improvement in existing products with the use of old techniques with utmost care or introducing newly developed technologies.

(v) Utilizing Waste Material – The present need of the world is to conserve and protect the environment. A substantial difference could be observed by recycling waste or turning them into useful products. Products conserving energy also have good potential in the recent situations.

Selection of Project Idea:

A well-defined criterion is set to screen the project ideas. Ideas which do not seem to release promising results are discarded and the best among all is selected.

The following facts demand attention while selecting the idea:

(i) The project should be compatible with the objectives and resources of the entrepreneurs. It should also match his capabilities and skills.

(ii) There must be a reasonable assurance to the resources required for the project such as capital, technical know-how, raw materials, power supply, etc.

(iii) The cost structure of the project should be managed in a way that it realizes reasonable returns on the investments made.

(iv) Due consideration should also be made on the effects of environmental factors such as technological changes, state of economy, competition, etc.

(v) A consistency of the project should also be sought with the governmental policies, licensing requirements, environmental regulations, foreign exchange regulations, etc.

11. Feasibility Study:

It is important to undertake a feasibility study to provide base for the investment decision on an industrial project- a project of a defined production capacity at a selected location, using a particular technology relation to defined materials and inputs at identified investment and production costs, and sales revenues yielding a defined return on investment.

The prime motive to undertake feasibility study is to examine the reasonability of project. A feasibility study presented in the form of project report is required to get approval or sanction from the concerned authorities, including financial institutions. The feasibility of a project is evaluated by the concerned authorities on the basis of results of this report.

The following areas should be studied to evaluate workability of any project:

i. Technical Aspect

ii. Commercial Aspect

iii. Financial Aspect, and

iv. Socio-Economic Aspect.

Apart from reports on these aspects, a project should also contain general information, including description of the project, the status of the project in the national prosperity and the government policies supporting the project, information about the promoters of the project, etc.

i. Technical Aspect:

It is important to carry out an appraisal procedure on the technical aspect of the project.

Technical appraisal of a project broadly involves a critical study of the following parameters:

(i) Location:

A report on industrial feasibility study should contain information on the location and its suitability for the project. Selecting a location would mean determining the geographical area where the project would be based, like an industrial area or a backward area. While a site would define the exact plot in the selected area where the project is supposed to set up. Hence, it is self-explanatory that a site of the project is determined only after its geographical area is finalized.

There are a number of factors like cost of production and distribution, distributional efficiency, operating environment and others which greatly influence the decision about location of the site.

The problem of selection of the location is complicated by the fact that at a particular location when one or few factors are favourable, others may not be favourable. Hence, the impact of all the relevant factors has to be taken into consideration while selecting an optimum location.

(ii) Plant Capacity or Size:

Economic and financial competence of a project largely depends upon the size of the plant or its scale of operation. Many a times, a particular technological size is economical for an industry to operate. In case of sub-optimal sizes, diseconomies of scale are bound to operate. The uneconomic size is one of the important reasons for the poor performance of many industrial units in India.

The uneconomic size results in high cost and makes survival in a competitive market, particularly in the international market, very difficult. The government of India is now emphasizing that the plant or its scale of operation should be economic in size.

(iii) Plant and Equipment:

The feasibility study of a project should also take into account the technology that it uses to undertake production in a particular project, alternative technology available and various other aspects. The various implications of the acquisition of such technology should be assessed including contractual aspects of technology licensing, when applicable.

The selection of technology for a project must take into consideration the nature of inputs and combination of short term and long term input methods. For example, the quality of limestone used in the production of cement would determine the process of production. Also, a study should be undertaken to understand the easy availability of factors of production like that of capital intensive method or a labor intensive one.

(iv) Infrastructure:

Proper functioning of a project depends a lot on the sufficiency and efficiency of infrastructure like facilities to transport, raw materials and other inputs, power and fuel supply, water supply, storage and warehousing facilities, etc.

(v) Effluent Treatment and Discharge:

Some industries face additional challenges on front of discharge and disposal of effluents which are it’s by product. Industrial pollution has become a serious ecological problem and causes severe problems for civic life. Hence particular attention needs to be paid to those industries which have high industrial pollution creating capacity for their location.

The feasibility report should provide details about the pollution creating capacity and the plans undertaken for treatment of its waste. Also, while evaluating the application for industrial license, government considers the arrangements proposed to ensure the safe disposal of effluents and gases into air, water and soil.

(vi) Foreign Collaboration:

The project report involving foreign collaboration should contain the relevant details about the collaboration. The terms of collaboration should strictly adhere to the government policies and guidelines in this regard.

ii. Commercial Aspect:

Commercial viability of any project is identified by the size of market it proposes to cater and the expected demand of goods and services proposed to be produced. A reasonable profit margin indicates the commercial viability of the project both in national and international markets.

In order to check on the commercial viability of a proposed project, a detailed market survey and its thorough appraisal is required which takes into account factors like recession, industrial sickness, technological progress and changing nature of competition.

iii. Financial Aspect:

The analysis of financial aspect of a project requires detailed analysis of the working results, balance sheets, and cash flows expected from it.

Besides these, following aspects may also be analyzed:

(i) A rough estimate of the cost expected to be incurred.

(ii) The modes of financing the project, i.e., capital introduced by the entrepreneur, loan amounts, debt-equity ratio and availability of anticipated resources.

(iii) A critical and detailed analysis of existing investments, if any.

(iv) A clear and unambiguous profit projection in future.

(v) Expected cash flow both in operation period and construction tenure of the project.

(vi) Internal rate of return, debt service coverage, domestic resources, cost both in respect of import substitution and export promotion aspects, etc.

iv. Socio-Economic Aspect:

Private projects, in general are evaluated in terms of its commercial viability. However, there are certain projects which are of more socio-economic significance than that of commercial one. Some examples of such projects include irrigation project, power project, transport project and other infrastructural projects or socio-overhead projects.

These projects are generally undertaken by Government or its subsidiaries considering the welfare aspect of the country. Although at various occasions, even private entrepreneurs, especially in developing countries, have to pay due attention to national profitability of the proposed project along with the optimal utilization of scarce resources.

While analyzing national profitability of a proposed project, a social cost-benefit analysis is required. There are certain benefits and costs each project entails to social objects such as employment, health delivery system, transport, communication, earning foreign exchange, import substitution, etc., are evaluated.

In the Indian context, the socio-economic viability of a project may be judged on the basis of its net contribution to the following objectives:

(i) Generation of employment

(ii) Income distribution

(iii) Foreign exchange earnings/savings

(iv) Self-reliance

(v) Development of backward regions

(vi) Development of small-scale and ancillary industries

(vii) Development of infrastructure.

(viii) Development of technology, and

(ix) Improvement of quality of life of the general public.

v. Project Appraisal:

Once the feasibility study is completed, an in-depth analytical study of the project is undertaken and is known as project appraisal. It is carried out before implementation of the project. It involves a systematic procedure for weaving the technical and financial information about the project with relevant data about its economic environment, together into one or a few criteria on the basis of which the project is recommended for selection or rejection.

A point to be noted here is the co-working of project preparation and its partial or initial economic evaluation that are closely related. However, at the end of the project formulation stage, an overall economic evaluation is carried out.

vi. Project Report:

A report on the proposed project for new establishment or expansion of already existing units needs to be prepared by the entrepreneur or his co-workers in order to carry out further investigation and analysis. This report is of great help to apply for loans from financial institutions and seek clearance from government departments.

The following should be included in a project report:

(i) Name, address, history and other details of the entrepreneur.

(ii) Brief summary of the project.

(iii) Inputs for the proposed project such as land, building, location, plant and machinery, water, materials, power, etc.

(iv) Financial aspects- cost of fixed assets, working capital, sources of finance, assets and liabilities

(v) Cost of production and marketing

(vi) Total income, operative net-profits, etc.

(vii) Technological feasibility, licensing regulations, foreign exchange requirements, etc.

(vii) Information regarding marketing, present demand, new market likely to be available, foreign exchange market, competition, marketing strategies, availability of substitutes, etc.

(ix) Importance of project to national economy, availability of government support, if any.

vii. SWOT Analysis for an Entrepreneur:

SWOT analysis largely helps an entrepreneur to evaluate current prospects of success for his business. Internal factors in an organization are categorized as strengths and weaknesses such as, key management personnel whereas external factors which cannot be directly controlled are categorized as opportunities or threats to the business, for example, economics environment. SWOT analysis creates a snapshot of business situation.

While strengths of any business organization are used to make its position stronger in the market by building upon its gains whereas weaknesses are identified in order to take corrective steps for meeting pre-specified goals and objectives. Certain examples of strengths and weaknesses of a business unit are recognition as market leader, availability of adequate financial resources, strong proprietary team, proprietary technology and; comparative cost disadvantages, weak market image, no clarity in strategic direction, lack of managerial depth, outdated facilities available respectively.

Threats for a business unit would include the ones from political issues that must receive proper consideration and addressed in time. For example, entries of strong competitor, increased regulation, change in customer buying preferences, etc.

However, opportunities would help a business unit to grow, expand its sphere in market to improve its position. For instance, expansion in product line, addition of related services, formation of strategic alliances and targeting new markets.

An important fact regarding the external factors i.e., opportunities and threats is that they seek immediate attention. In case, an opportunity is not identified and used in a proper time it may eventually turn out to be a threat for the organization.

Core Competencies:

Core competencies of a business unit may be identified using SWOT analysis. Core competencies may be understood as those special skills and tasks that rest or are performed by the entrepreneur specifically and are valued highly by the customers. A core competence is a capability that could help the business unit to achieve a comparative advantage such as an expert sales team, strong branding, efficient processes, proprietary technology, or any another asset that is critical of its success.

A business may own a range of competencies but it is the core competencies rested with him that provides him a different place in the market. For instance, Toyota is currently the car company possessing the most advance core competency in introducing hybrid vehicles in the market.

Starbucks on the other hand builds upon its customers by brewing full- flavoured coffee, developing to be a dominant coffee brand with the largest distribution outlets and a predictable customer experience.

If one wants to identify its core competency, it may start up evaluating its business strengths. Once core competencies are identified, they can form the cornerstone of the business strategy. Core competencies are a part of invisible assets of any unit. Although these do not show up explicitly on the balance sheet, they are the ones to show that are used to beat the competition in market.

Core competency is not a stable concept, it changes over time. For example, your business may have superior technological skills that give it a competitive edge. Eventually competitors will catch up or new technological skills will supersede the current ones.

In that case, business managers will require exploring new opportunities and introducing changes so as to gain comparative advantage over the competitors. There has been business units observed across the globe which were considered identical to quality but once they started outsourcing their production, they lost their market share and finally end up in bankruptcy.

12. Decision-Making:

Entrepreneurs or promoters give birth to a business enterprise by his persistent efforts. He is the one to conceive the business idea, analyze its prospects, work out a tentative scheme of organization, bring together the requisite men, material, machines, money and managerial ability in order to float a new enterprise.

The decisions which the entrepreneur or promoter have to take in order to bring a business unit into existence are known as entrepreneurial decisions. Main purpose to take these decisions is to tackle the main problems faced by an enterprise in its establishment and running.

Important decisions taken by an entrepreneur include:

i. Selecting the apt business activity.

ii. Deciding upon the ownership pattern of the enterprise.

iii. Arranging for the requisite finance for the proposal.

iv. Deciding upon the location of business bearing in mind both the availability of the inputs and markets for the produce.

v. Decisions related to the size of the business operation.

vi. Arranging for the adequate machinery and equipment.

vii. Deciding upon the efficient plant layout

viii. Managing the human resources by employing competent people.

ix. To undertake all the procedural formalities in order to set up a business unit.

x. To launch the enterprise effectively and efficiently.

xi. To prepare tax plan for the organization.

13. Identification of Business Opportunity:

A number of factors that may directly or indirectly impact the selection of the type of industry to be taken up have to be studied and properly evaluated. Special attention should be paid to the factors that may hinder the smooth functioning of the business unit. Hence, an entrepreneur should decide upon the enterprise selection only after having an extensive study of the relevant data.

Selecting an enterprise is one time decision taken by an entrepreneur and cannot be changed subsequently. Hence, it is the main decision and provides premises for all the following decisions. In case this decision is taken wrong, all the following decisions would turn meaningless and will not be able to deliver the expected results.

Hence, an entrepreneur has to pay special heed in identifying, selecting and exploring various business opportunities in a proper manner. In order to build his career, an entrepreneur has to use his extra alertness to capture upon any attractive business opportunity in market and hard work to make this unit economically viable.

Because of such tasks performed by the entrepreneur, he is known as an ‘opportunity seeker’. Business opportunity and entrepreneurial response together form a good foundation to establish a new enterprise for an entrepreneur.

There are numerous hidden opportunities in the business world and can be identified by only those who constantly hunt for them. No entrepreneur receives an opportunity by chance, rather it is his persistent struggle and desire which fetches him a business opportunity.

Besides this, an entrepreneur has to constantly collect and research information from various sources to supplement his business idea. Business opportunity may be described as ‘an economic idea which can be implemented to create a business and earn profits.’

Two aspects which demand due attention before finalizing on the business idea are – (i) existence of a good market for the proposed product and; (ii) an attractive rate of return on the investments made by the entrepreneur.

An economy may be divided into three sectors-primary, secondary and tertiary or service sector. While primary sector mainly focuses on the agriculture, mining, forestry and all the other sectors directly related to natural resources; secondary sector revolves around manufacturing or industrial concerns whereas tertiary or the service sector deals with making personal, professional and commercial services available.

Service Sector:

The term ‘service’ has a very general outlook. It consists of a variety of services ranging from business to professional to that of personal. Business services include advertising, banking, insurance, warehousing, transportation, etc. Professional services involve medical advice, legal advice, etc. However, personal services help to meet emotional needs of consumers directly such as recreation, education, fine arts, etc.

The American Marketing Association defines services as “activities, benefits or satisfactions which are offered for sale or are provided in connection with that of sale of goods.”

“Services are those separately identifiable, essential intangible activities which provide want satisfaction, and are not necessarily tied to the sale of a product or another service.” – William Stanton

“A service is any activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything.” – Philip Kotler

The ultimate aim of marketing both products and services is to meet the consumers’ needs and desires. To make a product or service successful, the first and the foremost task is to identify the needs fulfilled by the product offered and then to identify ways and means to differentiate them with that of one’s already available in the market.

There are different ways which differentiates products from that of services.

These differences may be tabulated as:


1. Tangibility – Intangible- cannot often be physically possessed.

2. Perishability – Usually perishable

3. Storage – Unused capacity cannot be stored

4. Separation – Inseparable from the service provider

5. Performance/ Production – Performed, not produced

6. Basis – More people based

7. Adjustment to supply – Supply cannot be adjusted easily to demand

8. Standardization – It is difficult to standardize and patent quality

9. Basis of value – Value is based on experience.

10. Ownership – Ownership not transferred to the payer.


1. Tangibility – Tangible- can be physically possessed

2. Perishability – Often non-perishable

3. Storage – Can be stored for use in future

4. Separation – Can be separated

5. Performance/ Production – Produced

6. Basis – More technology based

7. Adjustment to supply – Supply can be easily adjusted to suit demand.

8. Standardization – Quality can be and easily standardized and patented

9. Basis of value – Value is based on ownership

10. Ownership – Ownership is transferred to the buyer.

Post understanding the difference between products and services, it must be noted that certain services are produced only to supplement the sale of specified range of goods, such as financial assistance, insurance and repair services are needed along with the sale of cabs.

In the marketing of services, certain marketing functions such as transportation, warehousing and inventory control are not needed. But these functions are essential in the marketing of products.

Characteristics of Services:

There are certain specific factors of services which generally create marketing problems.

These features may be briefly described as below:

(i) Intangibility:

The most distinguishing feature of a service is its intangible character. It has no shape, size or other physical dimensions. One cannot evaluate the effectiveness of a service by touching, feeling or smelling it. Such an intangible nature of services provide various implications to it – (a) a service cannot be touched; (b) there can be no precise standardization of services; (c) no service can be patented; (d) services involve no transfer of ownership; (e) there can be no inventories built for services.

An intangible nature of service creates problems for its promotion. A seller or promoter of a service faces problems while promoting it as there can be no demonstration or illustration done for them. It is also not possible to distribute samples so, it is difficult for the buyers to judge its quality before making a purchase. Hence, it is the reputation and authenticity of the seller which promotes services.

Intangibility of services also offers certain advantages. First, absence of problems in physical distribution. No warehousing is required as there is nothing to store practically. The loss that may arise on account of decline in the value of inventory also does not affect services.

(ii) Inseparability:

Services are generally inseparable in character, i.e., it is difficult to separate production and consumption of services. This makes it completely different from the products which can be produced and stored for their sale in future. Such an inseparable nature of services leaves significant implications for their marketing.

First, it is generally difficult to allocate the distribution of services as the only feasible option. There are only few services which may be distributed through agents like insurance and finance services. The customer being a part of the process, the delivery system must go to the market or the customer must come to the delivery system. Secondly, the scale of operations is limited as the physical presence of service provider is necessary.

(iii) Perishability:

Services are perishable in character. It means a service, if not used at a particular point of time gets wasted and cannot be stored for use in future. For example, an empty seat in an aircraft or cinema hall representing the service capacity, if remain unsold, loses it revenue generation capacity forever.

Thus, any service if not fully utilized, represents a total loss to its supplier. This feature of service make its supply worse getting impacted from demand fluctuations in the market. A hotel room in a hill station costs much higher than that of the ones in the winter season. This is an effort to smoothen out the loss that the service provider incurs due to demand fluctuations.

(iv) Heterogeneity:

Standardization of the quality of services is a difficult task due to the involvement of human element in it. The quality of services provided by different set of people is different. For instance, a waiter in a restaurant will not be able to deliver services of the same quality to that of one provided by a bank clerk.

Rather at various instances, the same provider may not be able to deliver identical service. One may receive different treatment on repetitive visits to a hotel. This is despite the fact that rules and procedures have been laid down to ensure maximum efficiency. For example, there is a standard procedure for booking a hotel room and a computerized reservation system has minimized the human element.

But when you go to the reception counter of a hotel, the person who hands over the key of your room affects the quality of services through his behaviour. The room, the food and the facilities may all be perfect, but the person carrying the luggage to your room and the boy providing room service and other hotel employees who interact with the customer make all the differences in your assessment of the hotel.

Therefore, internal marketing means making the staff rendering services conscious of the need for providing total customer satisfaction and making them competent for this purpose.

(v) Ownership:

A service is bought for the benefits it provides. A person buying a service does not become its owner, but only gets the right to use if for a specific period of time. This is not the case in products. A person paying for the product automatically gets, its ownership. For example, a person buying a car becomes its owner. However, he pays his insurance premium to avail insurance facility but does not become the owner of the service.

Some of the basic concepts and techniques of marketing can be used to promote both goods and services efficiently, e.g., marketing research, product planning and development, pricing, promotion and distribution. But a highly differentiated marketing system is necessary in case of services.

Though there is no common pattern to market all the services. A seller of any service needs to introduce greater element of creativity and ingenuity. Many services are highly personal in nature and the customer places himself in the hands of the seller.

Types of Services:

(i) Commercial Services – Services of this kind includes the ones provided by traders (wholesalers, retailers, agents, etc.); transporters (roadways, railways, and shipping); communication; insurance; banking; financial institutions; warehousing; advertising; agencies; etc.

(ii) Professional Services – These services include all those services provided by professionals such as chartered accountants, lawyers, engineers, consultants, architects, doctors and others.

(iii) Personal Services – These services comprise tailoring, beauty parlour, laundry, cinema houses, amusement parks, guest houses, etc.

(iv) Public Utility Services – Such kind of services are provided by posts and telegraph department, police, fire service, water supply, electricity supply, sanitation, courts, university, etc. These services primarily aim to improve the welfare of public directly.

Reason for Growth of Service Sector in India:

Some of the prime reasons leading to growth in service sector of an economy are:

(i) Economic Planning:

The expansion of service sector in the country finds its roots in the developmental planning in the country carried out by the government. The economic planning laid emphasis to develop industrial economy which was not possible in the absence of infrastructure like transportation, communication, power, insurance, banking, finance, etc., along with social infrastructure such as education, medical facilities, community services, etc.

(ii) Increasing Urbanization:

Increased urbanization in the country has made people shift from rural areas to cities. Such an increased pace of shifting of people between places has given a boost to the demand of infrastructure services such as communication, public utilities and distribution services.

(iii) Media:

A spurt in tourism has been observed due to prevalent use of television, internet and other media. Business has become more comfortable due to advent of modern technology. Promotion of the tourism sector has in turn increased demand for services like hotels, restaurants, travel agents, amusement parks, event management, etc. Expanding world trade has also had a demonstration effect.

(iv) Rise in Per Capita Income:

Growing per capita income has led to growth in demand for new and better services. Interior decoration, garden care, beauty parlour, slimming centres, health clubs, etc., are examples of these services. More leisure time creates demand for recreation and entertainment services such as water parks, etc.

(v) Women Workforce:

Higher percentage of women in workforce has created demand for baby-sitting, household, domestic help and such other personal services.

(vi) Greater Life Expectancy:

Increase in life span has led to greater demand for health care and related services. Greater concern for ecology and resource scarcity requires time sharing, pollution control and other services.

(vii) Growing Capacity:

In case of complex electronic products like computers, air conditioner, etc. there is an increased demand for the services related to them. Also increased complexity of modern industrial organizations has given a boost to services like accounting, finance, legal public relations and others.

Implications of Growth of Service Sector:

Growth in the service sector has left significant implications on people, level of employment and trade prospects for the country.

Some of them may be briefly described as below:

(i) It is the government policies and initiatives to introduce greater efficiency and competition in the sector which ensure sustained growth and boosts the service sector.

(ii) A change in the employment pattern and consumption pattern has been observed in the country from manufacturing to service sector and that from commodities to services.

(iii) The service sector has enhanced the tax base of the country. This has left a positive impact on the fiscal policy of the country.

(iv) The quality of service providers in the country is low. Hence, it leads to stagnation in income of people working in the sector thereby resulting in social tensions. The need of hour is to enhance the quality of services.

14. Coping with Failure – A Key to Entrepreneurial Success:

Success and failure are two sides of a coin for all the entrepreneurs. Since they venture into uncertain business environment, they have to face both success and failure at different points of time. Hence, an entrepreneur can only succeed if he takes all his failure in a sporting way and learn from the mistakes that he had committed in the past and try to improve upon them.

According to a report on entrepreneurship, being able to bounce back from failure is one of the leading keys to success. Entrepreneurs who experience failure and see it as a learning opportunity are better placed to succeed in future. Conversely those who experience failure and conclude it is as catastrophic events from which it will be difficult to recover don’t learn from the experience, struggle.

Donal Van de Mark, author of the Good among the Great – 19 Traits of the Most Admirable, Creative and Joyous People, wrote in a report, “It’s very important when you suffer a setback to look back, work out what your contribution was and determine how you need to change your behaviour. When successful people fail, they are able to detach themselves from the setback, take stock and see the world and their weaknesses very clearly. And that takes humility, even courage.”

According to a theory, failed entrepreneurs may be classified into four main types:

(a) Boiled Frog:

It is often said that a frog dropped into boiling water will immediately leap out again, whereas one placed in cold water that is then heated gradually will not. In an entrepreneurial context, the entrepreneur is the frog who sits in the water as it heats up, and does not notice its changing environment. He or she becomes complacent and fails to notice how factors such as competition, changing technology or evolving customers are rendering their business model obsolete.

(b) Drowned Frog:

As their business grows, many entrepreneurs think they need to be everywhere at once. They try to be ‘king of the pond’ and spread themselves across every aspect of the business but often lack the necessary breadth of skills to do this effectively. Avoiding this fate requires the entrepreneur to build a strong team, delegate and take the right advice.

(c) Bull Frog:

Early success can encourage some entrepreneurs to become too fond of the trapping of success. These bull frogs put their own needs above those of the business. They consider themselves to be indestructible and do not acknowledge that their actions harm the business financially.

(d) Tadpole:

Many entrepreneurial ventures will never fulfill their promise and are doomed to remain as tadpoles. Despite early promise, they do not reach their potential and fizzle without teaching the next stage of growth.

Functions of an Entrepreneur – Organisation Building, Managing, Perceiving, Dealing with Bureaucrats, Managing Finance, Managing Production and a Few Others

1. Innovation – An entrepreneur introduces new combination in any area of economic activity. Innovation implies doing new things of doing things that are already being done in a new way.

2. Risk-Taking – Risk-taking is the soul of any entrepreneurship. Risk also involves venture. An entrepreneur assumes the responsibility for loss that may arise due to unforeseen contingencies. Risk is associated with innovation since the market of an innovative product or service may or may not respond to the expectation of an entrepreneur.

3. Organization Building – An entrepreneur brings together various factors of production, organizes them properly and performs the decision making functions of administration. He/she determines the line of business, expansion, and growth of the enterprise. As an organization builder he/she performs planning, co-ordination, and control functions.

4. Managing – Entrepreneurs who start new ventures must use managerial skills to implement their innovation. However, some authors make a distinction between entrepreneurs and managers. An entrepreneur attempts to change the factor combinations and thus increases profits.

5. Perceiving market opportunities – Entrepreneurs perceive market opportunities and accordingly they provide the services to the needs of the consumers.

6. Gaining command over scarce resources – It is the entrepreneurs’ main function to anticipate the resources requirement and their availability and accordingly they procure in time and control the resources.

7. Dealing with bureaucrats – It is the important function of the entrepreneurs to deal with the bureaucrats successfully and maintain cordial relations with them. As a result, the enterprise will be on a sound footing.

8. Managing finance – Fund management is a tough job for any person. The entrepreneurs manage funds successfully. In other words, entrepreneurs identify the financial requirements and also find the source to meet accordingly.

9. Managing production – Irrespective of the market situation, production must go on continuously. This is possible only when the entrepreneur is able to manage production systematically.

10. Manage human resources – Managing human resource is an important function of any entrepreneur. At the same time, it is the toughest function too. Successful entrepreneurs perform the function very carefully while assessing and recruiting, training, and compensating them suitably. Otherwise, human resource will become liability to the organization.