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UNIT - 5. ENTREPRENEUR. Introduction : Think New, differently , Do everything in a new different way – Today’s Mantra of Success . Come Out Of Shell . Eliminate Conventional Thinking – A sort of R & D. challenge – Try finding alternative fuel.
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UNIT - 5 ENTREPRENEUR www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
Introduction : Think New, differently , Do everything in a new different way – Today’s Mantra of Success . Come Out Of Shell . Eliminate Conventional Thinking – A sort of R & D. challenge – Try finding alternative fuel. • Ideas drive Economies, no wonder that Innovation & Entrepreneurship are often seen as inseparable. • Science & Technology Students have to be Motivated & Trained to “Think Out Of The Box” so that an Entrepreneurial Culture is Built. The Ones feasible Ways of doing Business are no longer Guarantees for Future Economic Success, hence, the Govt’s around the World have started to realize that Entrepreneurship & Innovation need to be encouraged in order to sustain progress & improve a Country’s Economy. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
Entrepreneurs are responsible for Industrial Development & the fruits of Industrial Development are greater Employment Opportunities to the Unemployed, Increase in Income Levels of People, Improvement in Standard of Living, Increased Revenue to the Government in the form of Direct & Indirect Taxes & Balanced Regional Development. • India needs Entrepreneurs for Two Reasons : 1) To Capitalize on New Opportunities & to Create Wealth. 2) To Create Wealth & New Jobs. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
Definitions on Entrepreneur : 1) Peter F. Drucker defines Entrepreneur as One Who Always searches for Change, Responds to it & Exploits it as an Opportunity. Innovation is the Specific Tool of Entrepreneurs, the Means by which, they Exploit Change as an Opportunity for Different Business or Service. 2) Encyclopedia Britannica defines an Entrepreneur as an Individual who bears the Risk of Operating a Business in the Face Of Uncertainty about the Future Conditions. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
3) International Labor Organization (ILO) : This defines “Entrepreneurs as People who have the Ability to See & Evaluate the Business Opportunities ; together with the necessary Resources to take Advantage of them ; & to initiate Appropriate Action to ensure Success.” 4) Dr. Poornima M. Charantimath, Professor, Management Studies, KLS Institute of Management Education & Research (IMER), Belgaum says “ The World Entrepreneur is derived from a Sanskrit Word called “Antaraprerana” ! (Urge from within or Internal Urge). www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
5) Francis A. Walker observes that the True Entrepreneur is one who is endowed with more than Average Capacities in the Risk of Organizing & Coordinating the Various other factors of Production. He is a Pioneer & Captain of Industry. 6) E. E. Haggen defines “Entrepreneur is an Economic Man who tries to Maximize his profits by Innovations. Innovations involve Problem Solving & the Entrepreneur gets satisfaction from using his Capabilities in Attacking Problems. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
Conclusions : Definitions of an “Entrepreneur” are divided into 3 Streams : 1) The Ones describing Roles of an Entrepreneur. 2) The Other describing Characteristics & 3) Ones Focusing on Success Factors. Summarizing, the Entrepreneur can be described as a Person (a) Who carries out a Role in the Economic World by creating Added Value & who bears the Risk & Responsibility. (b) One with a Combination of Specific Personal Characteristics (Creative, Innovative, Dynamic etc.) Two Conditions seem to be Vital in Order to become an Entrepreneur : The Will to Succeed, Achieve etc., and Opportunities for Creating Value, Innovation etc. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
Evolution of the Concept of Entrepreneurship: • He is a Person who creates Enterprise. The Process Creation is called as “Entrepreneurship”. • This evolved from the French Word “Entreprende” in the 12th Century. In the early 16th Century, it was applied to those who were engaged in Military Expeditions. In the 17th Century, it was extended to cover Civil Engg Services. In the 18th Century, Richard Centillon described Entrepreneur as “One Who Bears Risk by buying at Certain Prices & selling at Uncertain Prices” which is closer to the Terms as Applied Today. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
In 1848, the famous John Stuart Mill described Entrepreneurship as the founding of a Private Enterprise. This encompassed Risk Takers, the Decision Makers, & the Individuals who desire Wealth by Managing Limited Resources to create New Business Ventures. Joseph Schumpeter (1934) stated Entrepreneur as one who applies “Innovation” within the Context of the Business to satisfy Unfulfilled Market Demand. Peter F Drucker perceived Entrepreneurship as the Creation of a New Organization, regardless of its ability to Sustain itself, let alone make a Profit. Evolution of the Concept of Entrepreneur is considered over nearly Four Centuries Old, the Characteristics of Entrepreneurs being Risk Taking Innovation, Organization Creation, Creating Value, Profit or Non Profit Growth, Uniqueness & the Owner – Manager. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
These Views about Entrepreneur can be classified into 3 Groups viz., Risk Bearer, Organizer & Innovator. These Views have been discussed below : 1)Entrepreneur as a Risk Bearer : Richard Cantillon, French Economist was the first to introduce the term “Entrepreneur” & his Unique Risk Taking Function in Economics in the early 18th Century. Entrepreneur is One Who Buys Factors of Production at Certain Prices in Order to Combine them into a Product with a View to Sell it at an Uncertain Price. He illustrated a Farmer who pays out Contractual Incomes which are certain to the Landlords & Laborers & sell them (the Produce) at an Uncertain Price. So also the Merchants who make Certain Payments in expectation of uncertain receipts. Thus, they too are “Risk Bearing” agents of Production. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
Thus, we can say that “Entrepreneurs” are a Specialized Group of People who bear Uncertainty. Uncertainty is defined as a Risk which cannot be insured against & cannot be Calculated. Thus, “Entrepreneur” is a Economic Functionary who undertakes such a Responsibility of Uncertainty which by its very nature cannot be Insured, nor Capitalized nor Salaried too. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
2) Entrepreneur as an Organizer : Entrepreneur is associated with the functions of Coordination, Organization & Supervision. He is a Person who combines the Land of One, labor of the Other, & the Capital of Yet Another & thus produces a Product. By Selling a Product in the Market, he Pays Interest on Capital, Rent on Land, & Wages to Laborers & What Remains is his Profit. According to Jean - Baptist Say, in the Course of Undertaking a Number of Complex Operations like Obstacles to be surmounted, Anxieties to be Suppressed, Misfortunes to be Overcome, & Expedients to be devised, Three more Implicit Factors are deemed to be essential which are as given below : www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
1) Moral Qualities for Work Judgement, Perseverance & a Knowledge about the Business World. 2) Command Over Sufficient Capital. 3) Uncertainty of Profits. 3) Entrepreneur as an Innovator : Innovation can be perceived simply as the Transformation of Creative Ideas into useful Applications by combining Resources in New or Unusual Ways to provide Value to Society for Improved Products, Technology, or Services. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
By adding “Innovative” features to a Product or Service, & Setting up a Business based on these additional features to compete in the Existing Market, New Entrants may be able to gain a Competitive Edge over the Existing Market Players. Another Study stated that “Entrepreneur” is One Who Applies “Innovation” within the Context of Business to Satisfy Unfulfilled Market Demand. Entrepreneur is an Innovator who implements changes within Markets thro carrying out of the New Combinations which can take Several Ways as follows : www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
1) The finding of a New Market. 2) The finding of a New Source of Materials Supply. 3) The introduction of a New Product or a New Standard of Quality. 4) The introduction of a New & Best Method of Production. 5) The Opening of a New Kind of Business in an Industry. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
Eg : Jeff Bezos, the Founder of Amazon, the Very Successful Book Store. He was one of the first to Sell Books on a Large Scale using an On Line Store & also patented the One - Click System for Online Buying. Though Selling Books is not an Innovation in itself, Jeff Bezos was Innovative in the Use of the Internet then as a Viable Marketing & Sales Channel for Selling Books. To summarize, the Concept of Entrepreneur is closely associated with the 3 Basic Factors – Risk Bearing, Organizing & Innovating. Thus, an Entrepreneur can be defined as a Person who Tries to Create Something New, Organizes Production & in the Process Undertakes Risks & Handles Economic Uncertainty involved in his/her Enterprise. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
Functions of an Entrepreneur : • An Entrepreneur performs all the Functions necessary, right from generating the Idea for his proposed Enterprise where there is a Need, & Opportunity exists up to establishing his Enterprise & Subsequently Running it Successfully & Earn Profits. The Functions are listed below in a Sequential Manner : www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
1) Generation of Business Ideas & Choosing the Best Suitable Idea after Necessary Scanning. Many Entrepreneurs keep an Eye for Opportunity & start by finding a need & quickly satisfying it. This is the most important function of an Entrepreneur, as subsequent success or failure of his enterprise depends on his decision at this stage. Therefore the Entrepreneur has to exercise great care before deciding to choose a particular Business Idea for his proposed Enterprise. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
2) Determination of Business Objectives i.e., What he wants to achieve in his proposed Business Enterprise. 3) Product Analysis & MR to make sure that there is a Good Market Potential for the proposed Product / Service. 4) Determination of form of Ownership / Organization. i.e., Proprietorship / Partnership / Private Limited Company. 5) Completion of Promotional Formalities , they are : www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
Identifying a Location. • Looking for a Suitable Land / Building in the Proposed Location. • Obtaining Provisional Registration (PRC) from District Industries Centre of the District in which the proposed Business is to be established. • Preparation of Plant Layout & Building Plan, if reqd to be constructed. • Taking effective steps for reqd infrastructural facilities like Power, Water, Communication Facilities etc. • Preparing a Detailed Project Report or Business Plan. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
6) Making necessary arrangements for Finance to implement the Project by approaching State Financial Corporation for Long Term Loan & Banks for Working Capital Loan. In addition, Entrepreneur has to arrange his Own Financial Resources as Equity or Margin Money for the Project. This can be 25 to 30% of the Cost of the Project. 7) Undertaking Building Construction, if Ready Shed is not taken. 8) Plant & Machinery : Ordering, Procuring, & Installation. 9) Getting Electrical Power Connection & Other Utilities. 10) Arranging for Various Raw Materials & Consumables. 11) Arranging Key Managerial / Supervisory Persons. 12) Recruiting reqd Manpower viz., Skilled, Semi - Skilled & Helpers (Un – Skilled). www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
13) Undertaking Trial Productions, Overcoming Initial Teething Problems & Stabilizing the Production Operations. 14) Commencing the Commercial Business Operations. 15) Marketing the Products. 16) Taking Feedback from the Market for Customer Satisfaction, because “Customer is the King”.Effective Remedial Steps to be taken if there are Customer Complaints on Quality, Performance, Delivery Schedule etc. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
17) After Stabilizing the Commercial Business Operations, Provisional Registration Certificate (PRC) issued by District Industries Centre has got to be converted into Permanent Registration Certificate (PMT) by filing the necessary reqd Application. 18) All other Statutory Licenses / Registrations as per the Govt Regulations have to be obtained during Implementation & after Successful Commencement of Commercial Production. 19) Approaching the District Industries Centre for Grant of Concessions / Incentives as per the Govt Industrial Policy Regulations. For this, the Entrepreneur has to fill up the Necessary Forms & Submit the same to the District Industries Centre with all the reqd Documents. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
20) Entrepreneur has to always keep an Eye on the Market Conditions & be prepared to innovate to face the Competition because Market Conditions are Fast Changing, Customer Needs are Changing. Success today is No Guarantee of Success Tomorrow. 21) Entrepreneur should never be Happy about his Achievement. He must always try for Growth & Expansion of his Business Activities. He should Plan at least 20 to 25% growth over his previous years performance, because stagnation in Business leads to sickness & slow death of his enterprise. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
22) Finally, a Very Important Function of an Entrepreneur is dealing with People because “Business is People.” An Entrepreneur has to maintain a Very Cordial & Healthy Relationship with his Managers, Supervisors, Workmen, Customers, Materials, Suppliers, Vendors, Bankers, Financial Institutions, Govt Officials & all those who are connected Directly or Indirectly with his Business Enterprise. Now we can summarize that, the Functions of an Entrepreneur have to incorporate Coordination of the Business Management of the Enterprise, Risk Taking, Controlling the Enterprise, Innovation for Change, Motivation & Other Related Activities. In reality, an Entrepreneur has to carry out a Combination of these in keeping with Time & Environment. He has to consider New Ideas, Demands & Exploit the Opportunities & thereby contribute to the Technical & Economic Progress . He is thus the Nucleus of High Growth of the Enterprise. The Entrepreneurial Functions are depicted Schematically as Shown below : www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
Types of Entrepreneur : There are Different Types of Entrepreneurs & so also the Important Classifications of Entrepreneurs. Some of the Important Classifications of Entrepreneurs & Different Types of Entrepreneur in each Classification are enumerated below: I) Classification of Entrepreneurs based on Functional Characteristics: a) Innovative Entrepreneur. b) Imitative or Adoptive Entrepreneur. c) Fabian Entrepreneur. d) Drone Entrepreneur. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
II) Classification of Entrepreneurs on the Development Angle : a) Prime Mover. b) Manager. c) Minor Innovator. d) Satellite. e) Local Trading. III) Classification of Entrepreneurs based on Types of Business : a) Manufacturing. b) Wholesaling. c) Retailing. d) Service. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
IV) Classification of Entrepreneurs as per the Behavioral Scientists : a) Solo Operators. b) Active Partners. c) Inventors. d) Challengers. e) Buyers. f) Life Timers. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
I) a) Innovative Entrepreneurs: Such an Entrepreneur introduces New Goods / Products / Services or New Methods of Production or discovers New Markets or Reorganizes his Enterprise. Entrepreneurs in this Group are Characterized by an aggressive collection of information for trying out Novel Combination of Factors. Such Entrepreneurs do well when a certain level of development is already achieved; they look forward to improve upon the Past. b) Imitative or Adoptive Entrepreneurs : Such Entrepreneurs do not Innovate themselves, but Imitate or Copy Techniques & Technology innovated by other Innovative Entrepreneurs. They are Characterized by their readiness to adopt Successful Innovations by other Entrepreneurs. They are particularly suitable for Under Developed Regions as Adoption saves Costs of Trial & Error. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
c) Fabian Entrepreneur : They display great caution & skepticism in experimenting with any change in their Enterprise. They adopt changes only when there is an imminent threat to the very Survival of their Enterprise. d) Drone Entrepreneur : These Entrepreneurs are characterized by a Die – Hard Conservative Attitude. They do not easily seize opportunities to make changes in their production techniques or the Technology employed, even at the Cost of Low Returns on their Investments compared to other similar enterprises. Such entrepreneurs may even incur Huge Losses but they will not be ready to make Changes in their existing production techniques. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
II) a) Prime Mover : This Entrepreneur sets into Motion a Powerful Sequence of Development, Expansion & Diversification of Business. b) Manager : Such an Entrepreneur does not initiate Expansion & is content just Staying in Business. c) Minor Innovator : He contributes to Economic Progress by finding better use for Existing Resources. d) Satellite : The Entrepreneur assumes a Supplier’s Role & slowly moves towards a Productive Enterprise. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
e) Local Trading : Such an Entrepreneur limits his enterprise to the Local Market. III) a)Manufacturing: Entrepreneur is involved in Production of Value Added Goods by using Various Inputs – Raw Materials, Consumables, Labor, Power & Other utilities. Goods can be a Variety of Products like Castings, Forgings, Soaps, Detergents, Various chemicals, Textiles, Plastic Components, Footwear, School Bags, Electronic & Electrical Items, Computer Related Products etc. etc., www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
b) Wholesaling : An Entrepreneur with such a Business sells Products to the Middle Men or Retailers. c) Retailing : An Entrepreneur with such a Business sells Products directly to the Consumer’s or End Users. d) Service : An Entrepreneur in this Business sells Services & not the Products. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
IV) a) Solo Operators : Such Entrepreneurs usually Work Alone & if needed at all, employ a few employees to assist. Most of the Entrepreneurs begin their Entrepreneurial Career in this fashion. b) Active Partners : These Entrepreneurs start their enterprise in Partnership. All the Partners actively participate in the Operation of the Enterprise. Entrepreneurs who only contribute funds to the enterprise but do not actively involve in Business Activity are called simply “Partners”. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
c) Inventors : Such Entrepreneurs with their Competence & Inventive Nature, Invent New Products. Their Basic Interest lies in Research & Innovative Activities. d) Challengers : Such Entrepreneurs plunge into Business because of the Challenges it Presents. When One Challenge is satisfied, they will be on the lookout for New Challenges. e) Buyers : Such Entrepreneurs do not wish to bear much Risk. Hence, in order to reduce Risk involved in establishing a New Enterprise, they wish to buy an Ongoing One. f) Life Timers :Such Entrepreneurs take Business as an Integral Part of their Life. Usually, the Family Enterprise & Businesses which call for Personal Skills fall in this Category of Entrepreneurs. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
Intrapreneur - An Emerging Class. • These “New Breed” of Entrepreneurs are emerging from Big Companies. • In this Case the Entrepreneurial Spirit of Small Companies is transferred to Big Companies. • Such Entrepreneurs of Big Companies are called as “Intrapreneurs”, an Emerging Class of Entrepreneurs. • Intrapreneurship is a Method of Stimulating & then Capitalizing on Individuals in an Organization who think that something can be done differently & better. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
There are strong similarities between “Intrapreneurs” & “Entrepreneurs” as strongly contrasted with the Characteristics of traditional Managers. • In Large Organizations, the Senior Level Executives are encouraged to develop New Ideas & then convert their innovative ideas into New Products thro Research & Development Activities within the Frame Work of the Organization. • This Concept of Intrapreneurship is gaining Great Popularity in Developed Countries like the USA. In fact, Increasing Number of Intrapreneurs are leaving their Jobs in Big Organizations & are starting their Own Enterprises. • Many of such Intrapreneurs have become very successful in their newly established enterprises & in fact are competing with their Parent Organizations & are even posing as a Business Threat to them. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
Differences between Entrepreneurs & Intrapreneurs : www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
Concept of Entrepreneurship & its Evolution: • According to Peter F Drucker, “Entrepreneurship” is neither a Science nor an Art, it is a Practice. • It has a Knowledge Basis. Knowledge in Entrepreneurship is a Means to an End, Indeed what constitutes Knowledge in Practice is largely defined by the Ends, that is by Practice. • There are Several Definitions of “Entrepreneurship”, important ones being some of the Following : www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
1) It is a Purposeful Activity of an Individual or a Group of Associated Individuals, undertaken to initiate, Maintain or increase Profit by Production or Distribution of Economic Goods & Services. 2) It is an attempt to Create Value thro Recognition of Business Opportunity, the Management of Risk Appropriate to Opportunity & thro the Communicative & Management Skills to mobilize Human, Financial & Material Resources necessary to bring a Project to fruition. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
3) Entrepreneurship is the ability to create & build a Vision from practically nothing. It is a Dynamic Process of Creating Incremental Wealth. 4) According to One Study, the Definition is “Entrepreneurship is based on Purposeful & Systematic Innovation”. It includes not only the independent businessman but also company direction & managers who actually carry out innovative functions. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
Summary : Entrepreneurship can exist in Different Kinds of Business, on all levels of Company size & in different functions. In all above definitions, Entrepreneurship refers to the activities performed by an Entrepreneur in establishing an Enterprise. We can therefore say that Entrepreneurship is the Act of being an Entrepreneur. It is a Process involving various Activities to be undertaken to establish an Enterprise. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
The Two Basic Elements involved in Entrepreneurship are “Innovation” & “Risk Bearing”. These Two Factors are Given Below : 1) Innovation : This refers to coming out with a New Product or Process or doing something differently. This is a Basic Characteristic of Every Entrepreneur. There are a Few Innovations & New Products developed as given in the Egs below : www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
Egs : 1) “Bisleri” introduced Packaged Drinking Water, every one was wondering whether this Business Idea would ever succeed. Now you can see several other Entrepreneurs have copied this idea & have set up Enterprises to manufacture Packaged Drinking Water. In fact, many of them have been successful too. The reason being, People are Health Conscious & are ready to pay Extra Money for sake of their Health. Hence, a Good Market has developed for this Product. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
2) Introduction of “Taj Mahal Tea Bags” (Dip Tea) for use by Travelling Public, by various Big Manufacturers of Tea Powder. 3) Various Ready to Cook Packaged Food Items introduced by “MTR” Ltd., Bangalore to cater to the needs of Working Couples in Bigger Cities & Metros & other Consumers. 4) The Rs 1.00 Lakh “Nano” Car released by Tata Motors recently to meet the needs of 4 Wheelers for the Middle Class people in the Country who cannot afford Expensive Vehicles & who wish to switch to 4 Wheelers from 2 Wheelers. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
From the above Egs, We can infer that the Entrepreneurs need to innovate continuously to come out with Newer products to meet the Changing Demands of the Customers. 2) Risk Bearing : Any Business Proposition has an element of Risk, the Reason being very obvious that, an Enterprise may Earn Profits or Incur Losses because of Various Factors beyond the Control of the Entrepreneur like Increasing Competition, Labor Unrest. He needs to be Courageous to face the Risk & Challenges involved in running the Enterprise. His ability to Sustain Risk ultimately helps him to be a Successful Entrepreneur, against All Odds. www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
The Terms Entrepreneur & Entrepreneurship are often used Interchangeably but they are Conceptually Different. Relationship between these Two Terms are given below : www.BookSpar.com | Website for Students | VTU - Notes - Question Papers
As seen from the above Relationship, Entrepreneurship is concerned with Performance & Coordination of the Entrepreneurial Functions. This also means that Entrepreneur precedes Entrepreneurship. To give clarity to the concept of Entrepreneurship, the same is represented in Fig., below : www.BookSpar.com | Website for Students | VTU - Notes - Question Papers