Introduction to Entrepreneurship & Small Businesses, Entrepreneurship & Small Businesses | Entrepreneurship & Small Businesses - B Com PDF Download

Introduction

The concept of entrepreneurship has been around for a very long time. In the last two decades it has resurged. The concept of entrepreneurship is an age-old phenomenon that relates to the vision of an entrepreneur as well as its implementation by him. Entrepreneurship is a creative and innovative response to the environment. It is also the process of setting up a new venture. Entrepreneurship is a composite skill that is a mixture of many qualities and traits such as imagination, risk taking, ability to harness factors of production, i.e., land, labour, technology and various intangible factors.

Usually any one who runs a business is called an entrepreneur. The more precise meaning of entrepreneur is one who creates his own business, i.e., a person who organizes, operates and assumes the risk of a business venture. An entrepreneur is a person who perceives a need and then bri9ngs together manpower, material and capital required to meet that need.

Entrepreneurship implies a set of values, norms and traits that are conductive to the growth of a business enterprise. It is the organisational culture that focuses on new opportunities and creation of an organisation where these opportunities can be perused earnestly. An entrepreneur seeks the opportunities, looks for ways and means to capitalize on the newer opportunities by organizing the structure and the resources and gaining control on them. As against this, a manager is primarily concerned with the resources under his control, the structure of his organisation and its relations to the market. He is also concerned with matching the opportunities with organizational abilities.

The entrepreneurs are driven by the perception of opportunities. They seek changes in the political rules, social values, consumer preferences, technology etc. On the other hand resources like money, manpower and material they control, drive the managers.

Entrepreneur and Entrepreneurship

An entrepreneur is a person who searches for change and responds to it by starting an enterprise. In the words of Adam Smith, “Entrepreneur is an individual who undertakes the formation of an organisation for commercial purposes by recognizing the potential demand for goods and services and thereby acts as an economic agent and transforms demand and supply.”

Entrepreneurship is the process that involves all actions an entrepreneur undertakes to establish an enterprise to give reality to his business ideas. According to John Kaso and Howard Stavenson, “Entrepreneurship is the attempt to create value through recognition of business opportunity, the management of risk-taking appropriate to the opportunity and through the communicative and management skills to mobilize human, financial and material resources necessary to bring a project to fruition,” This definition recognizes that entrepreneurship involves the fusion of capital, technology and human talent to complete a project successfully and with reasonable degree of risk.

Entrepreneurship is also defined as the ability to create and build something from practically nothing. It is a knack of sensing opportunity where others see chaos, contradiction and confusion. Entrepreneurship is the attitude of mind seek opportunity, take calculated risks and derive benefits by setting up a venture. Thus, it comprises of numerous activities involved in conception, creation and running an enterprise.

According to Higgins, “Entrepreneurship means the function of seeking investment and production opportunity, organizing an enterprise to undertake a new production process, raising capital, hiring labour, arranging the supply of raw materials, finding site, introducing a new technique, discovering new sources of raw materials and selecting top managers for day-to-day operations of the enterprise.” This definition highlights risk-taking, innovating and resource organizing aspects of entrepreneurship.

Entrepreneurship can be described as a creative and innovative response to the environment. Such responses can take place in any field of social endeavour-business, agriculture, education, social work and the like. The entrepreneur is an innovator, action-oriented and highly motivated, he visualizes business opportunities, gathers the necessary resources to take advantage of the environment and initiates appropriate action to ensure success.

The foregoing definition indicate that entrepreneurship is associated with the following activities or functions:

1. Perceiving opportunities for profitable investment;
2. Initiative in establishing a business;
3. Risk bearing;
4. Introduction of innovations;
5. Provision of capital; and
6. Co-ordination of different factors of production.

Difference between Entrepreneur and Entrepreneurship 

The term ‘entrepreneur’ is used to describe the people who establish and manager their own business. The process involved is called entrepreneurship. Entrepreneurship is an abstraction whereas entrepreneurs are living people.

Entrepreneurship is the outcome of complex socio-economic, psychological and other factors. Entrepreneur is the key individual central to entrepreneurship who makes things happen. Entrepreneur is the actor, entrepreneurship is the act. Entrepreneurship is the most effective way to bridging the gap between scientific innovations and the market place by creating new enterprises. An entrepreneur is the catalyst who brings about the change.

Types of Entrepreneurs

Clarence Danhof, on the basis of his study of 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. Basing on this, he classified entrepreneurs into four categories:

(a) Innovating Entrepreneurs: An innovating entrepreneur is one who introduces new goods, inaugurates new method of production, discovers new market and reorganizes the enterprise. It is important to note that such entrepreneurs can work only when a certain level of development is already achieved, and people look forward to change and improvement. Generally, they are typical of developed countries.

(b) Imitative Entrepreneurs: These are characterized by readiness to adopt successful innovations inaugurated by successful innovating entrepreneurs. They lap up innovations originate 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 development regions.

(c) Fabian Entrepreneurs: Fabian entrepreneurs are characterized by very great caution and skepticism in experimenting and change in their enterprise. They imitate only when it becomes perfectly clear that failure to do so would result in a loss of the relative position in the enterprises. They are lazy and shy and lack the will to adopt to new methods of production.

(d) Drone Entrepreneurs: Drone entrepreneurs 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 losses but they are not ready to make changes in their existing production methods. They struggle to exist, not to grow. Thus, they are laggards as they continue to operate in their traditional way and resist changes.

Nature of Entrepreneurship

1. Economic Activity: Entrepreneurship involves the creation and operation of an enterprise. Therefore, it is essentially an economic activity concerned with of value or wealth.
2. Creative Response to Environment: Entrepreneurship involves innovation or introduction of something new. It is a creative response to the environment. An entrepreneur recognizes the need for change and initiates it. He does things in new and better ways.
3. Purposeful Activity: Entrepreneurship is the purposeful activity of an individual or a group of individuals who seek to earn profits through the production and distribution of economic goods and services.
4. Dynamic Process: Entrepreneurs thrive on the changing environment which brings new opportunities for business. Flexibility is the hallmark of a successful entrepreneur.
5. Risk Element: Entrepreneurs make decisions in the face of uncertainty. Therefore, risk is an inherent and inseparable element of entrepreneurship. Until the new venture idea becomes popular amongst the customers, it runs a family high degree of risk of incurring losses.
6. Creator or Organisation: An entrepreneur assembles and Co-ordinates other factors of production, i.e., land, labour and capital. Managerial skills and leadership are other very important facets of entrepreneurship.
7. Gap Filling Function: It is the job an entrepreneur to fill the gaps between needs and goods and services. He has to complete the inputs and provides the knowledge about the production process.
8. Optimum Use of Resources: An entrepreneur optimizes the use of resources by arriving at the most productive combination that will provide the society the needed goods and services.

Need of Entrepreneurship

(a) Entrepreneurship as Career Option: An educated person has broadly two career option. One is called wage or salary employment, wherein people are employed in government service, public and private sectors and get fixed wage or salary. The other career option is entrepreneurial employment under which people set up their new ventures. Wage employment does not generate resources and is organized which in the existing wealth. Wage employment is self-saturating. Once availed, it blocks the employment opportunity to others for another 10 years. On the other hand, the latter contributes towards national wealth and has a unique characteristic of selfgeneration. This starts a chain of activities that create unending employment opportunities. Entrepreneurship promotes small saving amongst middle class individuals for investment into new ventures. It also provides an outlet that creates an urge among individuals to attain excellence in product design and related innovation. Thus, entrepreneurship provides a lasting solution to the acute problem of unemployment. 

Table

In the context of employment generation, the three terms, i.e., Income Generation, Self-Employment and Entrepreneurship are often used interchangeably. Entrepreneurship refers to identification of innovative ideas, setting up of a new enterprise. Whereas, self-employment refers to full time involvement in ones own occupation. One may or may not be bearing the risk, mobilizing inputs, organizing production and marketing the product or service. Income generating activities, on the other hand, are part time, casual and practised with a view of raising additional income. All entrepreneurs are self-employed and income generating persons. But all self-employed and income generating persons may not be entrepreneurs.

Fig.: Income Generation, Self-employment and Entrepreneurship

The three, however, can be considered as initial, middle and final stages of Entrepreneurial Growth Process.

(b) National Income: National Income consists of goods and services produced in the country and imported. The goods and services produced are for consumption within the country as well as to meet the demand of exports. The domestic demand increases with ever increasing population and improving standard of living. The export demand also increases to meet the needs of growing import due to various reasons. An increasing number of entrepreneurs are required to meet this increasing demand for goods and services. Thus, entrepreneurship increases the national income. 

(c) Employment Generation: Growing unemployment, particularly educated unemployment is an acute problem of the nation. The available employment opportunities can cater to only 5 to 10 per cent of the unemployed. If a hundred persons become entrepreneurs they not only create a hundred jobs for themselves but also provide employment to many more. As the time passes these enterprises growth providing direct and indirect employment to many more. Thus, entrepreneurship is the best way to fight the evil of unemployment.

(d) Balanced Regional Development: The growth of industry and business leads to a large number of public benefits like road transport, health, education, entertainment etc. When the industries are concentrated in selected cities, the development gets limited to these cities. Till late sixties, 50 per cent of industrial enterprises were located in only six cities of India. A rapid development of entrepreneurship ensures a balanced regional development. When the new entrepreneurs grow at a faster pace, in view of the increasing competition in and around the cities, they are forced to set up their enterprises in the smaller towns away from big cities. This helps in the development of the backward regions.

If a region does not throw up a sufficient number of entrepreneurs, the needs of the local population for the goods and services remain unsatisfied. The entrepreneurs from other places step in and set up enterprises to fulfil the pent up demand of the local people. These alien entrepreneurs do not invest the major part of the profits in the areas in which the unit is located. Usually, the profit is invested at a place, from where the entrepreneurs come from. Such entrepreneurs invest their profits in constructing their houses etc., at the place of their origin. Thus, the backward areas do not get full benefits of business or industrial profits. This drainage of wealth results in further deterioration of the area. The practice of siphoning the profits earned through entrepreneurial activities based on local resources by alien entrepreneurs has been compared with the blood sucking process practised by leeches, and termed as ‘leech effect’ by Dr. M.M.P. Akhori.

Fig.: Siphoning of Profits through Entrepreneurship Activities by Alien Entrepreneurs

(e) Dispersal of Economic Power: The world affairs have been dominated by power. There have always been two types of power, i.e., muscle power and economic power. In the modern age, the muscle power has lost its relevance and the world is ruled by the economic power. Economic power is the natural outcome of industrial and business activity. Industrial development normally can lead to concentration of economic power in few hands. This concentration of power in few hands has its own evils in the form of monopolies. Developing a large number of entrepreneurs helps in dispersing the economic power amongst the population. This in turn causes hindrance to the growth of monopolies, which exist partly because of lack of sufficient number of entrepreneurs. Setting up of a large number of enterprises for the goods helps in weakening the
harmful effects of monopoly.

When a society produces a small number of entrepreneurs, the enterprises due to lack of competition grow into a few big business houses. This results in concentration of wealth in a few families. This can have serious social and national implication. When the number of enterprises is large national wealth is shared by a large number of entrepreneurs, thus, dispersing wealth. This dispersal of wealth promotes the real socialism and makes the economy healthy.