ASSIGNMENT

of
Entrepreneurship
Development
Course Code-EDM 413
(UNIT-I)

(Session: 2016-2018)
 Master of Business
Administration
Central University of
Himachal Pradesh

Submitted to:
Submitted by:
Dr. Gitanjali Upadhayay
Savita kumari : CUHP16MBA61

Shahid : CUHP16MBA62

Shallu Rana : CUHP16MBA63

Shveta Dhiman : CUHP16MBA64

Shiv kumar : CUHP16MBA65

  Concepts of
entrepreneurs and
entrepreneurship

 Who is an Entrepreneur?
An entrepreneur is an enterprising individual who builds
capital through risk and initiative. The term was originally
a loanword from French and was first defined by the
Irish-French economist Richard Cantillon. Entrepreneur
in English is a term applied to a person who is willing to
help launch a new venture or enterprise and accept full
responsibility for the outcome. Jean-Baptiste Say, a
French economist, is believed to have coined the word
“Entrepreneur” in the 19th century. He defined an
Entrepreneur as one who undertakes an enterprise,
especially a contractor, acting as intermediary between
capital and labor.
Pickle & Abrahamson (1990) introduced a compact
definition of an entrepreneur: “An entrepreneur is one
who organizes and manages a business undertaking,
assuming the risk, for the sake of profit. The entrepreneur
evaluates perceived opportunities and strives to make the
decisions that will enable the firm to realize sustained
growth.

The fact remains that the term ‘entrepreneur’ has been

defined in many ways and various senses. These views
are broadly classified into three groups, namely, risk-
bearer, organizer, and innovator.

 Entrepreneur as Risk-Bearer:
Richard Cantillon, an Irishman living in France, was the
first who introduced the term ‘entrepreneur’ and his
unique risk-bearing function in economics in the early
18th century. He
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.

 Entrepreneur as Organizer or
Coordinator:
Jean-Baptiste Say, the French political economist, with
his unpleasant practical experiences developed the
concept of entrepreneur a little further which survived for
almost two centuries. His definition associates
entrepreneur with the functions of coordination,
organization and supervision. According to Say, an
entrepreneur is one who combines the land of one, the
labor of another and the capital of yet another, and thus,
produces a product. By selling the product in the market
he pays interest on capital, rent on land, wages to laborers
and what remains is his/her profit.

 Entrepreneur as
innovator:(Schumpeter’s view of
Entrepreneurship)
Joseph Schumpeter, for the first time in 1934, assigned a
critical role of innovation to the entrepreneur in his
magnums opus ‘Theory of economic Development’.
Schumpeter considered economic development as a
discrete dynamic change brought by entrepreneur by
instituting new combinations of factors of production
which he called ‘innovation’.
The ‘innovation’ i.e. introduction of new combination of
factors of production, according to him, may occur in any
one of the following five forms:
1. Introduction of a new product
2. Introduction of a new method of production
3. opening of a new market
4. Discovery of a new source of supply of raw materials,
and
5. Carrying out of the new form of organization of any
industry.

 Evolution of the concept of

Entrepreneur:
The concept of entrepreneur has a wide range of meanings. On the one
extreme an entrepreneur is a person of very high aptitude who pioneers
change, possessing characteristics found in only a very small fraction of
the population. On the other extreme of definitions, anyone who wants
to work for himself or herself is considered to be an entrepreneur.
The word entrepreneur originates from the French word, ‘entreprendre’,
which means “to undertake”. In a business context, it means to start a
business. The Merriam-Webster Dictionary presents the definition of an
entrepreneur as one who organizes, manages, and assumes the risks of a
business or enterprise.
 Evolution and Development of the
term Entrepreneur
Middle Actor and person in charge of large-scale
Ages production projects.
17th Person bearing risk of profit (loss) in a fixed-
century price contract with government.
1725 Richard Cantillon-person bearing risks are
different from one supplying capital.
1803 Jean Baptiste Say-separated profits of
entrepreneur from profits of capital.
1876 Fransis Walker-distinguished between those
who supplied funds and received interest and
those who received profit from managerial
capabilities.
1934 Joseph Schumpeter-entrepreneur is an
innovator and develops untried technology.
1961 David C. McClelland -entrepreneur is an
energetic, moderate risk taker.
1964 Peter Drucker-entrepreneur maximizes
opportunities.
1975 Albert Shapero-entrepreneur takes initiative,
organizes some social and economic
mechanisms, and accept risks of failure.
1980 Karl Vesper-entrepreneur seen differently by
economists, psychologists, and politicians.
1983 Gifford Pinchot-intrapreneur is an
 entrepreneur within an already established
organization.
1985 Robert D. Hisrich entrepreneurship is the
process of creating something different with
value by devoting the necessary time and
effort, assuming the accompanying, financial,
psychological, and social risks, and receiving
the resulting rewards of monetary and
personal satisfaction.
2008 National Knowledge Commission (NKC)
(2008) of India. “The professional application
of knowledge, skills and competencies.

 Personal characteristics of an
Entrepreneur:
Timmons (1994) describes entrepreneurial mind (which
means the attitude and behavior of successful
entrepreneurs) as those people who are capable of hard
work, and are driven by an intense commitment and
determined perseverance. They see the cup half full rather
than half empty, they strive for integrity, they burn with
competitive desire to excel and win. They are dissatisfied
with the status quo and seek opportunities to improve
almost any situations they encounter. They use failure as a
tool for learning. Some of the important personal traits of
a successful entrepreneur are as follows:
1. Disciplined: They are focused on making their
businesses work, and eliminate any hindrances or
distractions to their goals. Successful entrepreneurs are
disciplined enough to take steps every day toward the
achievements of their objectives.
2. Confidence: The entrepreneur does not ask questions
about whether they can succeed or worthy of success.
They are confidence with the knowledge that they will
make their business succeed.
3. Self-starter: Entrepreneurs know that if something
needs to be done, they should start it themselves. They set
the parameters and make sure that projects follow the
path.
4. Open Minded: Entrepreneurs realize that every event
and situation is a business opportunity. Ideas are
constantly being generated about workflows and
efficiency, people skills and potential new enterprises.
They have the ability to look at everything around them
and focus it towards their goals. They update their
knowledge continuously and seek information from a
variety of sources.
5. Competitive: Many companies are formed because of
an entrepreneur knows they can do a job better than
another. An entrepreneur will always be willing to
highlight their own company’s track record of success.
The success of the entrepreneur will depend on the quality
of their product and services.
6. Creativity: Entrepreneur often come up with solutions
which are the synthesis of their items.
7. Determination: Entrepreneurs are determined to make
all their endeavors succeed, so they will try and try again
until it does. Successful entrepreneurs do not believe that
something cannot be done.
8. Strong people skills: The entrepreneur has strong
communication skills to sell the product and motivate
employees. Most successful entrepreneurs know how to
motivate their employees so the business grows overall.
9. Strong work ethic: The successful entrepreneur will
often be the first person to arrive at the office and the last
one to leave. They will come in on their days off to make
sure that an outcome meets their expectation.
10. Passion: Passion is the most important attribute of
successful entrepreneur. They genuinely love their work.
  Roles of an Entrepreneur:
The entrepreneur who is a business leader looks for ideas
and puts them into effect in fostering economic growth
and development. Entrepreneurship is one of the most
important input in the economic growth or development
of the country. The entrepreneur acts as a trigger head to
give spark to economic activities by his entrepreneurial
decisions. The major roles played by an entrepreneur in
the economic development of an economy is discussed in
a systematic and orderly manner as follows:
1. Promotes capital formation: Entrepreneur promote
capital formation by mobilizing the idle savings of public.
They employ their own as well as borrowed resources for
setting up their enterprises. Such type of entrepreneurial
activities leads to value addition and creation of wealth,
which is very essential for the industrial and economic
development of the country.
2. Create large-scale employment opportunities:
Entrepreneurs provide immediate large-scale employment
to the unemployed which is chronic problem of
underdeveloped nations.
3. Reduces Concentration of economic power:
Economic power is the natural outcome of industrial and
business activity. Industrial development normally leads
to concentration of economic power in the hands of a few
individuals which results in the growth of monopolies. In
order to redress this problem a large number of
entrepreneurs need to be developed, which will help
reduce the concentration of economic power amongst the
population.
4. Wealth creation and distribution: It stimulates
equitable redistribution of wealth and income in the
interest of the country to more people and geographical
areas, thus giving benefit to larger sections of the society.
Entrepreneurial activities also generate more activities
and give a multiplier effect in the economy.
5. Induces Backward and Forward Linkages:
Entrepreneur like to work in an environment of change
and try to maximize profits by innovation. When an
enterprise is established in accordance with the changing
technology, it induces backward and forward linkages
which stimulate the process of economic development in
the country.

 Concept of Entrepreneurship:
Entrepreneurship is the act of being an entrepreneur,
which is a French word meaning ‘one who undertakes an
endeavor”. Entrepreneurs assemble resources including
innovations, finance and business acumen in an effort to
transform innovations into economic goods. The most
obvious form of entrepreneurship is that of starting new
businesses; however, in recent years, the term has been
extended to include social and political forms of
entrepreneurial activity.
Entrepreneurship is the dynamic process of creating
incremental wealth. The wealth is created by individuals
who assume the major risks in terms of equity, time
and/or career commitment or provide value for some
product or service. The product or service may or may not
be new or unique, but value must somehow be infused by
the entrepreneur by receiving and locating the necessary
skills and resources efficiently and effectively.
Entrepreneurship is thus considered as the process of
creating something new with value by devoting the
necessary time and effort, assuming the accompanying
financial &social risks and receiving the resulting rewards
of monetary and personal satisfaction and independence
that comes with it.
According to A.H. Cole, “Entrepreneurship is the
purposeful activity of an individual or group of associated
individuals, undertaken to initiate, maintain or aggrandize
profit by production or distribution of economic goods or
services”.

The Entrepreneurial Decision Process:

Just a traveler has to pass through a road from starting
point to reach to his/her destination point; an individual
also needs to pass through a process from present status to
become an entrepreneur. In other words, the individual/
entrepreneur has to take a number of decisions in
sequential order, call it the entrepreneurial decision
process, to leave the present status and become an
entrepreneur. Following is an illustrative decision process
individuals follow to become entrepreneurs:
The Present Status

Reasons for Changing the present Status

Desire for Change from the present Status to become

Entrepreneur

Possibilities to Become an Entrepreneur

 An Entrepreneur

(The Entrepreneurial Decision Process)

 The present status:

There is an apt saying “Change is the law of nature and
change is the only permanent thing in this world”. Yet
change is often resisted because it involves uncertainty
which causes fear, it is due to uncertainty, the present
status of affair is considered better than the unknown one
after the change. As such, leaving the present status and
becoming an entrepreneur is not easy as it takes great deal
of preparation and courage to do so.
 Reasons for changing the present status:
Entrepreneurship being a difficult journey, the obvious
question is: What are the reasons that people still become
entrepreneurs? Researchers have tried to understand and
answer these questions. The researcher report that people
generally become entrepreneurs because of economic
reasons. These include unemployment, completion of
education, dislocation, no or less possibility for carrier
and/or economic prosperity, etc. nonetheless, the personal
dislocation is reported as one of the most powerful
reasons galvanizing an individual’s will to become an
entrepreneur. This is duly supported by an increase of
12% in number of new business enterprises in the United
States during a lay-off period Completion of one’s
education is reported another major reasons for becoming
an entrepreneur.
 Desire for change from the Present Status to
become Entrepreneur:
Evidences are available to believe that the desire to start
one’s own enterprise and, thus, become an entrepreneur is
spawned by some factors like the culture and family one
belongs to and the teachers and peers one comes into
contact with. Like elsewhere in the world, there are
cultures in India also which place a high value on being
entrepreneur. For example, Punjabis and Gujaratis in
India represent such cultures which value more on making
money, becoming one’s own boss, having more
individual opportunities for being successful in career and
life.
 Possibilities to become an Entrepreneur:
No doubt, the desire to form an enterprise needs to be
present before forming an enterprise, but just desire to
form an enterprise cannot make an individual an
entrepreneur. Also needed is possibility, better call it
supportive and facilitative structure, to form an enterprise.
Available literature on entrepreneurship indicates that an
individual’s business background, educational
background, previous experience, government attitude,
availability of finance and market and, of course, one’s
role models in business world make it possible to form an
enterprise.

 FUNCTIONS OF
ENTREPRENEURS:
In practice, an entrepreneur does perform all the functions
necessary right from the genesis of a business idea up to
the establishment of an enterprise. According to Peter
Kilby (1971), there are thirteen functions to be performed
by the entrepreneur to establish and run his/her enterprise:
1. Perception of market opportunities
2. Gaining command over scare resources
3. Purchasing inputs
4. Marketing the products
5. Dealing with officials
6. Managing Human Resources within the enterprise
7. Managing customer and supplier decisions
8. Managing finance
9. Managing production
10. Acquiring and overseeing assembly of the factory
11. Industrial engineering
12. Upgrading process and product
13. Introducing new production techniques and products

All these functions can be listed in the following

sequential order:
 Business Idea generation and selection of the best
suitable business idea
 Determination of the business objectives
 Product analysis and market research
 Determination of form of ownership/organization
 Completion of promotional formalities
 Raising necessary funds
 Procuring machine and material
 Recruitment of men
 Undertaking the business operations
For the convenience of better understanding, the various
functions performed by entrepreneurs are broadly
classified into four categories as mentioned below:
(A) Entrepreneurial functions
(B) Managerial functions
(C) Promotional functions
(D) Commercial functions

 Entrepreneurial Functions:
The major entrepreneurial functions include risk bearing,
organizing, and innovation.

 Managerial functions:
In simple words, management is getting things working
with and through others. According to Henri Fayol (1949)
who is considered as father of ‘principles of
management’, “management is to forecast, to plan, to
organize, to command, to co-ordinate, and to control”.
The management functions performed by entrepreneur are
classified into the following five types:
1. Planning: In common parlance, planning is pre-
determined course of action to accomplish the set
objectives. An entrepreneur has to make decisions as to
what is to be done, how it is to be done, when it is to be
done, where it is to be done, by whom it is to be done and
so on.
2. Organizing: The organizing function of an
entrepreneur refers to bringing together the men, material,
machine, money, etc. to execute the plans. The
entrepreneur assembles and organizes the above
mentioned different organs of an enterprise in such a way
that these combinedly start functioning as one, i.e.,
enterprise.
3. Staffing: Staffing involves human resources planning
and human resources management. Thus, staffing
function of an entrepreneur includes preparing inventory
of personnel available, requirement of personnel, sources
of manpower recruitment, their selection, remuneration,
training and development and periodic appraisal of
personnel working in the enterprise.
4. Directing: The functions like planning, organizing, and
staffing are merely preparations for setting up a business
enterprise. The directing function of entrepreneur actually
starts the setting up of enterprise. Under the directing
function, the entrepreneur guides counsels, teaches,
stimulates and activates his/her employees to work
efficiently to accomplish the set objectives.
5. Controlling: Controlling is the last management
function performed by the entrepreneur. Controlling is
comparison of actual performance with the target or
standard performance and identification of variation
between the two, if any, and taking corrective measures
so that the target is accomplished.

 Promotional Functions:
1. Identification and selection of business idea: Every
intending entrepreneur wants to start the most profitable
and rewarding project. The selection of the most suitable
business project involves a process. The intending
entrepreneur, based on his/her knowledge, experience and
information gathered from friends and relatives, generates
some possible business ideas which can be examined and
pursued as a business enterprise. This process is also
described as ‘opportunity scanning and identification’.
2.Preparation of business plan or project report: The
entrepreneur prepares a statement called ‘business plan’
or ‘project report’ of what he/she proposes to take up. In
other words, business plan is a well evolved course of
action devised by entrepreneur to achieve the specified
objectives within a specified period of time. The
preparation of business plan is not must, but it is very
much useful for the entrepreneur to establish his/her
enterprise in an effective and smooth manner.
3. Requirement for finance: The entrepreneur prepare
requirements for funds with its detailed structure. The
financial requirement is also classified into short term and
long term separately. Then, the sources of supply to
acquire the required funds are also mentioned. How much
will be the share capital in terms of equity and preference
shares and how much will be borrowed capital from
different financial institutions and banks are clearly
determined.

 Commercial Functions:
1. Production/Manufacturing: Once the enterprise is
finally established, it starts producing goods or offering
services, whichever be the case. Production function
includes decisions relating to the selection of factory site
design and layout, types of products to be produced,
research and development, and design of the product. The
ancillary activities include production planning and
control, maintenance and repair, purchasing, and store-
keeping. The effective performance of production
function, to a large extent depends on the proper
production planning and control.
2. Marketing: All production is basically meant for
marketing. Marketing is the performance of those
business activates that direct the flow of goods and
services from producer to consumer or user. Thus,
marketing essentially begins and ends with the customers.
3. Accounting: The main objective of any business
enterprise is to earn profits and create wealth. Weather the
business is fulfilling its objective or not is ascertained
through accounting. According to the American
Institute of Certified Public Accountants, “accounting
is the art of recording, classifying and summarizing in a
significant manner and, in terms of money, transactions
and events which are, in part at least, of a financial
character and interpreting the results thereof”.

 Entrepreneur vs
Manager
 ENTREPRE
BASIS OF DIFFERENCE
Meaning Entrepreneur refers to a p
an enterprise, by taking
order to get profit.

Motive The main motive of an

start a venture by setting
He understands the ventu
gratification.

Status An entrepreneur is th
enterprise.

Risk bearing An entrepreneur being

enterprise assumes all ri
involved in running the en

Rewards The reward an entreprene

risks involved in the e
which is highly uncertain.

Innovation Entrepreneur himself thin

how to produce goods to
demands of the customers
an innovator also called a

Approach to task Informal

Decision –making Intuitive

qualification An entrepreneur needs t

and qualifications like
motive, originality in t
risk-bearing ability, and s
  Entrepreneurship and
economic development
Entrepreneurship plays an influential role in the economic
growth and standard of living of the country. As a startup
founder or small business owner, you may think that you
are simply working hard to build your own business and
provide for yourself and your family. But you are actually
doing a whole lot more for your local community, state,
region, and the country as a whole. Here are the top 7
important roles an entrepreneur plays in the economic
development of a country.

1.Wealth Creation and Sharing:

 By establishing the business entity, entrepreneurs invest
their own resources and attract capital (in the form of
debt, equity, etc.) from investors, lenders and the public.
This mobilizes public wealth and allows people to benefit
from the success of entrepreneurs and growing
businesses. This kind of pooled capital that results in
wealth creation and distribution is one of the basic
imperatives and goals of economic development.
2.Employment generation:
Entrepreneurs are by nature and definition job creators, as
opposed to job seekers. The simple translation is that
when you become an entrepreneur, there is one less job
seeker in the economy, and then you provide employment
for multiple other job seekers. This kind of job creation
by new and existing businesses is again is one of the basic
goals of economic development. This is why the Govt. of
India has launched initiatives such as Startup India to
promote and support new startups, and also others like
the Make in India initiative to attract foreign companies
and their FDI into the Indian economy. All this in turn
creates a lot of job opportunities, and is helping in
augmenting our standards to a global level.
3.Balanced Regional Development:
Entrepreneurs setting up new businesses and industrial
units help with regional development by locating in less
developed and backward areas. The growth of industries
and business in these areas leads to infrastructure
improvements like better roads and rail links, airports,
stable electricity and water supply, schools, hospitals,
shopping malls and other public and private services that
would not otherwise be available.
Every new business that locates in a less developed area
will create both direct and indirect jobs, helping lift
regional economies in many different ways. The
combined spending by all the new employees of the new
businesses and the supporting jobs in other businesses
adds to the local and regional economic output. Both
central and state governments promote this kind of
regional development by providing registered MSME
businesses various benefits and concessions.
4.GDP and Per Capita Income:
India’s MSME sector, comprised of 36 million units that
provide employment for more than 80 million people,
now accounts for over 37% of the country’s GDP. Each
new addition to these 36 million units makes use of even
more resources like land, labor and capital to develop
products and services that add to the national income,
national product and per capita income of the country.
This growth in GDP and per capita income is again one of
the essential goals of economic development.
5.Standard of Living:
Increase in the standard of living of people in a
community is yet another key goal of economic
development. Entrepreneurs again play a key role in
increasing the standard of living in a community. They do
this not just by creating jobs, but also by developing and
adopting innovations that lead to improvements in the
quality of life of their employees, customers, and other
stakeholders in the community. For example, automation
that reduces production costs and enables faster
production will make a business unit more productive,
while also providing its customers with the same goods at
lower prices.
6.Exports:
Any growing business will eventually want to get started
with exports to expand their business to foreign markets.
This is an important ingredient of economic development
since it provides access to bigger markets, and leads to
currency inflows and access to the latest cutting-edge
technologies and processes being used in more developed
foreign markets. Another key benefit is that this
expansion that leads to more stable business revenue
during economic downturns in the local economy.
7.Community Development:
Economic development doesn’t always translate into
community development. Community development
requires infrastructure for education and training, health
care, and other public services. For example, you need
highly educated and skilled workers in a community to
attract new businesses. If there are educational
institutions, technical training schools and internship
opportunities, that will help build the pool of educated
and skilled workers.
A good example of how this kind of community
development can be promoted is Azim Hashim Premji,
Chairman of Wipro Limited, who donated Rs. 27,514
crores for promoting education through the Azim Premji
Foundation. This foundation works with more than
350,000 schools in eight states across India.
So, there is a very important role for entrepreneurs to
spark economic development by starting new businesses,
creating jobs, and contributing to improvement in various
key goals such as GDP, exports, standard of living, skills
development and community development

 Theories of
entrepreneurship

1.Innovation theory of Schumpeter:

 A dynamic theory of entrepreneurship was first
advocated by Schumpeter (1949) who considered
entrepreneurship as the catalyst that disrupts the
stationary circular flow of the economy and thereby
initiates and sustain the process of development.
Embarking upon ‘new combinations’ of the factors of
production – which he simply terms, innovation- the
entrepreneur activates the economy to new level of
development.
Schumpeter introduced a concept of innovation as key
factor in entrepreneurship in addition to assuming risks
and organizing factor of production. Schumpeter defines
entrepreneurship as “a creative activity”. An innovator
who brings new products or services into economy is
given the status of an entrepreneur. He regards innovation
as a tool of entrepreneur, The entrepreneur is viewed as
the ‘engine of growth’, He sees the opportunity for
introducing new products, new markets, new sources of
supply, new forms of industrial organization or for the
development of newly discovered resources. The concept
of innovation and its corollary development embraces
five functions:
  The introduction of a new product with which
consumers are not yet familiar or introduction of a
new quality of an existing product.
 The introduction of new method of production that is
not yet tested by experience in the branch of
manufacture concerned, which need by no means be
founded upon a discovery scientifically new and can
also exist in a new way of handling a commodity
commercially,
 The opening of new market that is a market on to
which the particular branch of manufacturer of the
country in question has not previously entered,
whether or not this market has existed before,

 Conquest of a new source of supply of raw material
and

 The carrying out of the new organization of any
industry.

 Schumpeter is the first major theorist to put the
human agent at the centre of the process of economic
development. He is very explicit about the economic
 function of the entrepreneur. The entrepreneur is the
prime mover in economic development; his function,
to innovate or carry out new combinations.
Schumpeter makes a distinction between an
innovator and an inventor. An inventor discovers
new methods and new materials. On the contrary, an
innovator is one who utilizes or applies inventions
and discoveries in order to make new combinations.
An inventor is concerned with his technical work of
invention whereas an entrepreneur converts the
technical work into economic performance. An
innovator is more than an inventor because he does
not only originate as the inventor does but goes much
farther in exploiting the invention commercially.

Wilken had added the concept of the changes that an

entrepreneur brings:

 Expansion of goods, products.


 Productivity of factors of production such as finance,
labour, material.

  Innovation in production such as, technology, process
changes and increase in human resource productivity.

 Innovation in marketing area such as the composition

of the market, size of the market and new markets.

To Schumpeter, entrepreneurs are individuals motivated
by a will for power; their special characteristic being an
-inherent capacity to select correct answers, energy, will
and mind to overcome fixed talents of thoughts, and a
capacity to withstand social opposition. The factors that
contribute to the development of entrepreneurship would
essentially be a suitable environment in grasping the
essential facts.

It can be noted that this theory’s main figure, the

“innovating entrepreneur” has played an important role in
the rise of modem capitalism. The entrepreneur has been
the prime mover - for economic development process. On
the criticism side, this theory seems one-sided as it puts
too much emphasis on innovative functions. It ignores the
risk taking and organizing aspects of entrepreneurship. An
entrepreneur has not only to innovate but also assemble
the resources and put them to optimum use.

While stressing upon the innovative function of the

entrepreneur, Schumpeter ignored the risk-taking
function, which is equally important. When an
entrepreneur develops a new combination of factors of
production, there is enough risk involved.
In spite of these lacking, the theory supports the
“enterprising spirit” of entrepreneur to innovate. It is the
act that endows resources with a new capacity to create
wealth. Drucker says, “Innovation, indeed, creates a
resource. It endows it with economic value.”
Schumpeter’s views are particularly relevant to
developing countries where innovations need to be
encouraged. The transformation of an agrarian economy
into an industrial economy required a great deal of
initiative and changes on the part of businessmen and
managers.

2. Need for Achievement Theory of

McClelland:
According to McClelland the characteristics of
entrepreneur has two features - first doing things in a new
and better way and second decision making under
uncertainty. McClelland emphasizes achievement
orientation as most important factor for entrepreneurs.
Individuals with high. achievement orientation are not
influenced by considerations of money or any other
external incentives. Profit and incentives are merely
yardsticks of measurement of success of entrepreneurs
with high achievement orientation. People with high
achievement (N-Ach) are not influenced by money
rewards as compared to people with low achievement.
The latter types are prepared to work harder for money or
such other external incentives. On the contrary, profit is
merely a measure of success and competency for people
with high achievement need.
Professor David McClelland, in his book The Achieving
Society, has propounded a theory based on his research
that entrepreneurship ultimately depends on motivation. It
is the need for achievement (N-Ach), the sense of doing
and getting things done, that promote entrepreneurship.
According to him, N-Ach is a relatively stable personality
characteristic rooted in experiences in middle childhood
through family socialisation and child-learning practices
which stress standards of excellence, material warmth,
self-reliance training and low father dominance.
According to him a person acquires three types of needs
as a result of one’s life experience. These three needs are:
Need for Achievement. A drive to excel, advance and
grow.

Need for Power. A drive to dominate or influence
others and situations.

 Need for Affiliation. A drive for friendly and close

inter-personal relationships.
 McClelland found that certain societies tended to
produce a large percentage of people with high
achievement. He pointed out that individuals, indeed
whole societies that possess N-ach will have higher
levels of economic well-being than those that do not.
McClelland’s work indicated that there are five major
components to the N-ach trait: (a) responsibility for
problem solving, (b) setting goals, (c) reaching goals
through one’s own effort, (d) the need for and use of
feedback, and (e) a preference for moderate levels of
risk-taking.

The individual with high levels of need achievement is a

potential entrepreneur. The specific characteristics of a
high achiever (entrepreneur) can be summarized as
follows:

(i) They set moderate realistic and attainable goals

for them.

(ii) They take calculated risks.

(iii) They prefer situations wherein they can
take personal responsibility for solving
problems.
(iv) They need concrete feedback on how well they
are doing.

(v) Their need for achievement exist not merely

for the sake of economic rewards or social
recognition rather personal accomplishment
is intrinsically more satisfying to them.

According to McClelland, motivation, abilities and

congenial environment, all combine to promote
entrepreneurship. Since entrepreneurial motivation
and abilities are long run sociological issues; he
opined it is better to make political, Social and
economic environments congenial for the growth of
entrepreneurship in underdeveloped and developing
countries.

3. Leibenstein’s X-Efficiency Theory:

This theory, originally developed for another purpose, has
recently been applied to analyze the role of the
entrepreneur. Basically, X-efficiency is the degree of
inefficiency in the use of resources within the firm: it
measures the extent to which the firm fails to realize its
productive potential. According to Leibenstein, When an
input is not used effectively the difference between the
actual output and the maximum output attributable to that
input is a measure of the degree of X-efficiency.

X-efficiency arises either because the firm’s resources are

used in the wrong way or because they are wasted, that is,
not -used at all. Leibenstein identifies two main roles for
the entrepreneur: (i) a gap filler and an input completer.
These functions arise from the basic assumptions of X-
efficiency theory. Thus it is clear that “if not all factors of
production are marketed or if there are imperfections in
markets, the entrepreneur has to fill the gaps in the
market. To put the enterprise in motion, the entrepreneur
should fill enough of gaps.” The second role is input
completion, which involves making available inputs that
improve the efficiency of existing production methods or
facilitate the introduction of new ones. The role of the
entrepreneur is to improve the flow of information in the
market.
The theory concludes that an entrepreneur has to act as
gap filler and an input completer if there are
imperfections in markets. For using their unusual skills,
he gets profits as well as a variety of non-peculiar
advantages. According to him there are two types of
entrepreneurship.
(i)Routine entrepreneurship – deals with normal
business functions like co-ordinating the business
activities.
(ii) Innovative entrepreneurship – wherein an
entrepreneur is innovative in his approach. It includes
the activities necessary to create an enterprise where
not all the markets are well-established or clearly
defined.
4. Risk Bearing Theory of Knight:
A key element of entrepreneurship is risk bearing. Prof.
Knight and John Staurt Mill saw risk-bearing as the
important function of entrepreneurs. Some important
features of this theory are as follows:

1. Risk creates Profit: According to the risk-

bearing theory, the entrepreneur earns profits because
he undertakes risks.

2. More Risk More Gain: The degree of risk

varies in different industries. Entrepreneurs undertake
different degrees of risk according to their ability ad
inclination. The risk theory proposes that the more
risky the nature of business, the greater must be the
profit earned by it.

3. Profit as Reward and Cost: Profit is the reward

of entrepreneur for assuming risks. Hence, it is also
treated as a part of the normal cost of production.
4. Entrepreneur’s Income is Uncertain: He
identifies uncertainty with a situation where the
probabilities of alterative outcomes cannot be
determined either by a priori reasoning or by
statistical inference. A priori reasoning is simply
irrelevant to economic situation involving a unique
event. This theory summarizes that profit is the
reward of an entrepreneur effort which arises for
bearing non-insurable risks and uncertainties and the
amount of profit earned depends upon the degree of
uncertainty bearing. Knight argues that business
enterprises the level of uncertainty can be reduced
through ‘consolidation’. Consolidation is to
uncertainty is what insurance is to risk; it is a method
of reducing total uncertainty by pooling individual
instance. The elasticity of the supply of self
confidence is the single most important determinant
of the level of profit and the number of entrepreneurs.
 5. Max Weber’s Theory of
Entrepreneurial Growth:

Max Weber in his theory says religion has a large impact

on entrepreneurial development. According to Weber
some religions have basic beliefs to earn and acquire
money and some have less of it. He calls them a ‘spirit of
capitalism’ and ‘adventurous spirit’. The spirit of
capitalism will be generated when mental attitude in the
society is favourable to capitalism. According to Max
Weber, driving entrepreneurial energies are generated by
the adoption of exogenously-supplied religious beliefs. It
is these beliefs which produce intensive exertion in
occupational pursuits, the systematic ordering of means to
ends, and the accumulation of assets. His theory suggests
the belief systems of Hinduism, Buddhism ad Islam do
not encourage entrepreneurship. His stand has been
challenged by many sociologists. Max Weber’s Theory is
shown in Figure 2.5
Max Weber’s theory suited the colonial rulers who
wanted to encourage European entrepreneurship in India.
But it has been criticised by subsequent researchers. The
theory is based on the invalid assumptions, which are:
 (a) There is a single system of Hindu value,

(b) The Indian community internalised those values

and translated them to day-to-day behaviour, and

(c) These values remained immune to and insulated

against external pressures and change. The rapid
growth of -entrepreneurship in India since
independence proves that Hinduism is not averse to
the spirit of capitalism and to adventurous spirit.

Many thinkers have accepted the Weber’s analysis of

linkage between religious belief and entrepreneurial
growth. But this view is not accepted universally.
Samuelson criticized Weber’s view on the ground that
capitalism also developed in those societies where
protestant ethic was ‘not prevalent. Hoselitz argued that
Protestant could not develop industries in France because
they were not given political security. It can be concluded
in the words of Carroll that “ethical values have some
effect on entrepreneurial growth but to consider them all
in all would be unrealistic.”

6. Hagen’s Theory of Entrepreneurship:

One important theory of entrepreneurial behavior has
been propounded by Hagen which is referred to as the
withdrawal of status respect. Hagen has attributed the
withdrawal of status respect of a group to genesis of
entrepreneurship. Hagen considers the withdrawal of
status, of respect, as the trigger mechanism for changes in
personality formation. Status withdrawal occurs when
members of some social group perceive that their
purposes and values in life are not respected by the groups
in the society they respect, and whose esteem they value.
Hagen postulates four types of events which can produce
status withdrawal:
 Displacement of a traditional elite group from its
previous status by another traditional supply physical
force.

 Denigration of valued symbols through some change
in the attitude of the superior group.

 Inconsistency of status symbols with a changing’
distribution of economic power.

 Non-acceptance of expected status on migration to a
new society.
 Hagen further postulates that withdrawal of status
respect would give to four possible reactions and
create four different personality types:
(a)Retreatist: Entrepreneur who continues to work in
society but remains indifferent to his work or status.
(b)Ritualist: One who works as per the norms in the
society hut with no hope of improvement in the
working conditions or his status.
(c)Reformist: One who is a rebellion and tries to
bring in new ways of working and new society.
(d)Innovator: An entrepreneur who is creative and try
to achieve his goals set by himself.

According to Hagen (1962), the creativity of a

disadvantaged minority group is the main source of
entrepreneurship. He developed this thesis from the case
of the samurai community of Japan. Traditionally, this
community had enjoyed a high status of which it was
deprived later. To regain this lost prestige, it became more
active and vigorous and gave rise to many entrepreneurs.
McClelland supported this thesis by admitting that a
suppressed community had more creativity. He said that
Jains could be successful entrepreneurs because of their
consciousness of their majority and superiority
complexes. McClelland had modified Hagen’s thesis
slightly in order to explain such cases. He stated that the
subordination of minority group could arouse
achievement motivation in its members but its extent
depended upon the initial level of motivation and the
means available to the group to active its achievement
motivations.

7. Thomas Cochran’s Theory of Cultural

Values
The key proportions in Thomas Cochran’s theory are
cultural values, role expectations and social sanctions.
According to him, the entrepreneur represents society’s
model personality. His performance is influenced by the
factors of his own attitudes towards his occupation, the
role expectations held by sanctioning groups, and the
operational requirements of the job. The determinants for
the first two factors are the society’s values. Changes over
time in such variables as population, technology, and
institutional drift will impinge on the role structure by
creating new operational needs. In most countries,
entrepreneurs have emerged from a particular socio-
economic class. The Protestant ethic of the West is said to
have contributed to the emergence of a new class of
industrialists. It can be noted that various communities
and castes like samurai in Japan, family pattern in France,
Yoruba in Nigeria, Kikuya in Kenya, Christians in
Lebanon, Halai Memon industrialists in Pakistan, Parsees,
Marwaries and Gujaratis in India have been the sources of
entrepreneurship.

8. Theory of Change in Group Level Pattern:

Young defines entrepreneurs as that the entrepreneur
characteristics are found in small groups wherein
individuals develop as entrepreneurs. Young arrived at
the group level pattern behavior entrepreneurs based on
his studies known as Thematic Appreciation Test (TAT)
on groups of entrepreneurs. The test revealed’ the
tendency to describe the situation as a problem to be
solved, an awareness of pragmatic effort required,
confidence in their own ability to solve the problem and a
tendency to take the viewpoint of each individual in turn
and analyze the situation as he might see it before
suggesting an outcome. Young’s theory is a theory of
change based on society’s incorporation of reactive
subgroups. A group becomes reactive when the following
three conditions coincide:
When denied of access to
important social networks;
When a group experiences
low ‘status recognition; and
When the group has better
institutional resources than
other groups in the society at
the same level.

9. Economic Theory of Entrepreneurship

Many economists revealed that entrepreneurship and
economic growth will take place in those
circumstances where particular economic conditions
are in favour of the business environment. The main
advocates of this theory were Papanek and Harris.
According to them economic incentives are the main
forces for entrepreneurial activities in any country.
There are a lot of economic factors which promote or
demote entrepreneurship in a country. These factors
are:

(a) The availability of bank credit

(b) High capital formation with a good flow of

savings and investments

(c) Supply for loanable funds with a lower rate of

interest.

(d) Increased demand for consumer goods and

services

(e) Availability of productive resources.

(f) Efficient economic policies like fiscal and
monetary policies

(g) Communication and transportation facilities.

Economic development was the result of

rationalization of technology and accounting systems
and the acquisition of capital and its productive use
was the main theme of the Weberian thesis. Some
scholars have tried to explain the growth of
entrepreneurship in terms of regional economic
factors, i.e., industrial support to environment in
these regions. A question which was analyzed by a
researcher is: “Since Jains and Vaisyas were in every
corner of India, why was it that only Marwari ad
Gujarati Vaisyas and Jains gave lead in
entrepreneurship, mostly in Gujarat”. This analysis
revealed that Gujarat had environment favorable to
business and industry. Thus, it can be concluded that
the industrial climate may have a very significant
impact on the response of entrepreneurs. However,
the group factors, as emphasized by various studies,
cannot be ignored altogether.
10. Exposure Theory of Entrepreneurship:
Many studies have shown that it is the exposure to new
ideas and opportunities towards creativity and innovation
which leads to create a new venture. There is adequate
empirical evidence to prove its validity. ‘Tripathi has
observed that exposure to new ideas and values were the
common factor between Parsi and Hindu entrepreneurs,
which led them to entrepreneurship. Education have
played very significant role in exposing the Indian
entrepreneurs to Western ideas leading them to
entrepreneurship. It is also the differential responses of
the social groups to opportunities provided by the
commitment of the political system to industrialization
that has led the process of entrepreneurial spread.
11. Political System Theory of
Entrepreneurial Growth:
Political system can create adequate infrastructure,
favorable laws, favorable taxation system and procedures,
provide incentives and subsides, security to entrepreneurs,
create promoting policies and can encourage people
towards entrepreneurship. Government can also build
supporting system for potential entrepreneurs. Thus, the
commitment of political system can contribute
significantly towards entrepreneurial development.

According to Hoselitz, Japanese entrepreneurs could

flourish because their political system was able to
properly integrate with various sectors such as the
industrial and agricultural, large, small and handicraft
industries, labour intensive and capital intensive
technology, traditional and modem social structure. Also,
there was no colonial disruption. According to Boulding
“political structure was the decisive factor in
entrepreneurial growth of France and Russia. But before
1917 it did not flourish because the creative ability of
masses could not find expression. Hoselitz argued that
France lagged behind entrepreneurially, because his
political system did not provide sufficient incentives and
security to entrepreneurs.


 Classification of
entrepreneurs

 Based on the types of business

 Trading entrepreneurs: As the name itself suggests,
they undertake the trading activities. They procure
the finished products from the manufacturers and sell
these to the customers directly or through the retailer.
These serve as the middleman as wholesalers,
dealers, and retailers between the manufacturers and
customers.

 Manufacturing entrepreneurs: They undertake the

manufacturing activities or manufacture products.
They identify the needs of the customers and, then,
explore the resources and technology to be used to
manufacture the products to satisfy the customer’s
needs. In simple they convert the raw materials into
finished products.
 Agricultural entrepreneurs: The entrepreneurs who
undertake agricultural pursuits are called agricultural
entrepreneurs. They cover a wide spectrum of
agricultural activities like cultivation, marketing of
agricultural produce, irrigation, mechanization and
technology.

 Based on the use of technology

 Technical entrepreneurs: the entrepreneurs who

establish and run science and technology-based
industries are called ‘technical entrepreneurs’.
Speaking alternatively, these are the entrepreneurs
who make use of science and technology in their
enterprises. Expectedly, they use new and innovative
methods of production in their enterprises.

 Non-technical entrepreneurs: based on the use of

technology, the entrepreneurs who are not technical
entrepreneurs are non-technical entrepreneurs. The
forte of their enterprises is not science and
technology. They are concerned with the use of
alternative and imitative methods of marketing and
 distribution strategies to make their business survive
and thrive in the competitive market.

 Based on ownership

 Private entrepreneurs: A private entrepreneurs is

one who as an individual sets up a business
enterprise. He/she it’s the sole owner of the enterprise
and bears the entire risk involved in it.

 State entrepreneurs: When the trading or industrial

venture is undertaken by the state or the government,
it is called ‘state entrepreneur’.

 Joint entrepreneurs: When a private entrepreneur

and the government jointly run a business enterprise,
is called ‘ joint entrepreneurs’.

 Based on gender
 Men entrepreneurs: When business enterprise are
owned, managed, and controlled by men, these are
called ‘men entrepreneurs’.

 Women entrepreneurs: Women entrepreneurs are

defined as the enterprise owned and controlled by a
woman or women having a minimum financial
interest of 51% of the capital and giving at least 51%
of employment generated in the enterprise to women.

 Based on the size of enterprise

 Small-scale entrepreneurs: An entrepreneur who

has made investment in plant and machinery up to
Rs. 1.00 crore is called ‘small-scale entrepreneur

 Medium-scale entrepreneurs: The entrepreneur

who has made investment in plant and machinery
above Rs. 1.00 crore but below Rs. 5.00 crore is
called ‘ medium-scale entrepreneur’.
  Large-scale entrepreneurs: The entrepreneur who
has made investment in plant and machinery above
Rs.5.00 crore is called ‘large-scale entrepreneur’.

 Based on Clarence Danhof

classification

Clarence Danhof (1949), on the basis of his study of the

American agriculture, classified entrepreneurs in the
manner that at the initial stage of economic development,
entrepreneurs have less initiative and drive and as
economic development proceeds, they become more
innovating and enthusiastic. Based on this, he classified
entrepreneurs into four typres.

 Innovating entrepreneurs: Innovating entrepreneurs

are one who introduce new goods, inaugurate new
method of production, discover new market and
reorganize the ‘enterprise’. It is important to note that
such entrepreneurs can work only when a certain
level of development is already achieved, people look
forward to change and improvement.
 Imitative entrepreneurs: These are characterized by
readiness to adopt successful innovation inaugurated
by innovating entrepreneurs. Imitative entrepreneurs
do not innovate the changes themselves, they only
imitate techniques and technology innovated by
others. Such types of entrepreneurs are particularly
suitable for the underdeveloped regions for bringing a
mushroom drive of imitation of new combinations of
factors of production already available in developed
regions.

 Fabian entrepreneurs: They are characterized by

very great union caution and skepticism in
experimenting any change in their enterprises. They
imitate only when it becomes perfectly clear that
failure to do so would result in a loss of the relative
position in the enterprise.

 Drone entrepreneurs: These are characterized by a

refusal to adopt opportunities to make changes in
production formulate even at the cost of severely
reduced returns relative to other like producers. Such
entrepreneurs may even suffer from losses but they
 are not ready to make changes in their existing
production methods.
Following are some more types of entrepreneurs listed by
some other behavioral scientist;

 Solo Operation: these are the entrepreneurs who

essentially work alone and, if needed at all, employ a
few employees. In the beginning, most of the
entrepreneurs start their enterprises like them.

 Active partner: Active partners are those

entrepreneurs who start/ carry on an enterprise as a
joint venture. It is important that all of them actively
participate in the operations of the business.
Entrepreneurs who only contribute funds to
enterprise but do not actively participate in business
activity are called simply ‘partner’.

 Inventors: Such entrepreneurs with their competence

and inventiveness invent new products. Their basic
interest lies in research and innovative activities.
 Challengers: These are the entrepreneurs who
plunge into industry because of the challenges it
presents. When one challenge seems to be met, they
begin to look for new challenges.

 Buyers : These are those entrepreneurs who do not

like to bear much risk. Hence, in order to reduce risk
involved in setting up a new enterprise, they like to
buy the ongoing one.

 Life-timers: These entrepreneurs take business as an

integral part to their life. Usually, the family
enterprise and business which mainly depend on
exercise of personal skill fall in this type/category of
entrepreneurs.
Thank you