Chapter - I

Entrepreneur

1.1 Meaning: The word entrepreneur is derived from the French word entreprendre , which refers to undertake , i.e., individuals who undertake the risk of new enterprise. It suggests spirit, zeal, ideas, diversity, etc. In loose sense, it is described as anyone who runs the business for example, the person who presides over a multinational company or owns a corner fruit stand, or who runs a coffee stall. In the past, it described only those who created their own business. 2

Richard Cantillon, an Irishman living in France in the early 18th century described entrepreneur as a person who pays a certain price for a product to resell it at an uncertain price, thereby making decisions about obtaining and using resources while consequently assuming the risk of enterprise. His argument was that entrepreneurs consciously make decisions about resource allocations. His vision is explained for farm produce in the next slide.
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Investment

Transformation

Profit or Loss

Entrepreneur buys farm produce at certain prices

Entrepreneur repacks and transports farm produce to market

Entrepreneur sells food produce in city at certain prices, which is uncertain

Fig. Cantillons Early View of Entrepreneurial Behavior

French economist J.B. Say (1803) says that an entrepreneur is economic agent who unites all means of production, the labor, the capital or land and who finds the value of the product which results from their employment, the reconstitution of the entire capital that he utilizes and the value of wages, the interest and the rent that he pays as well as profit belonging to himself. According to Carl Menger of Australia (1871), economic changes do not arise from the circumstances but from the individual s awareness and understanding of the circumstances. Entrepreneur transforms the available resources 5 into useful goods and services.

Priority 1

Delivered baked bread is highestvalue use

Priority 2

Bread at bakery for sale has high value

Priority 3

Milled flour for baker has high value

Intermediate steps in transformation

Bulk grain from farmer has low value Grain in field has very low value

Priority 7

Priority 8
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Fig. - Mengers Model of Value-Added Transformation of Resources

On the basis of various definitions by different persons, it can be concluded that an entrepreneur is one who evaluates the new situations in his environment and directs the making of such adjustments in the economic systems as he deems necessary. In the process of bringing the new project into the market, the entrepreneur undertakes number of responsibilities such as perceiving opportunities for profitable investments, explores the prospects of starting a enterprise, obtains the license, arranges the required initial capital, provides personal guarantees to the financial institutions, supplies the required technical know-how, etc. 7

Entrepreneur is an economic agent who unites all means of production to maximize his profits by innovations. 1.2 Importance of Entrepreneur Entrepreneur puts to use capital, labor and technology and acts as an economic agent. Entrepreneurs are key to the creation of enterprise. They play vital role for the economic development of a country in the following ways:
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i. Formation of Capital Entrepreneur helps to mobilize the capital, which results in motivating the investors to divert their idle savings in industrial securities. Investment of public money in industrial sector helps the country to use such resources for productive purposes. The growth rate of capital formation will be increased, which is highly essential for rapid economic development of a 9 country.

ii. Balanced Regional Development They help to remove regional disparities by setting up industries in the backward areas. Government extend various concessions and subsidies to the entrepreneurs who take initiative to set up industries in the underdeveloped regions. iii. Generates Employment Generating indirectly. employment directly and
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Directly employ themselves by starting their own enterprise. Indirectly provide jobs to many unemployed by setting up large and small scale industries. iv. Improvement of Per Capita Income They have the skills of locating and identifying opportunities to establish their own enterprise. They posses the capacities to convert the resources like land, labor and capital into 11 goods and services.

This will result in increase in the national income and wealth of a nation, and increase in the per capita income of the country. v. Improvement of Standard of Living The initiative taken by entrepreneurs to set up industries helps in removing scarcity of essential commodities. New products, varied products and qualitative products would be manufactured to suit the requirements of different segments of market.
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The efforts of entrepreneurs to set up large scale and small scale industries offer goods at a lower price to the consumers and increase variety in their consumption. vi. National Self-reliance They help to manufacture indigenous substitutes to imported products which reduces the dependence on foreign countries. There is possibility of exporting goods and services which leads to earning 13 foreign exchange for the country.

The import substitution and export promotion ensure economic independence and the country will become self-reliant. vii. Planning Production Entrepreneurs are considered as economic agents since they unite all the means of production, i.e., land, labor and capital. This will help to make use all the factors of production with a proper judgment, perseverance and with a knowledge of 14 the world of business.

A true entrepreneur is endowed with more than average capacities in the task of organizing and coordinating the various factors of production to get higher profits for his enterprise. viii. Backward and Forward Linkages The entrepreneur always initiates change and tries to maximize his profits by innovations. Example: The establishment of generates several ancillary expands demand for cotton, dyes, spinning mills, etc. Linkages). textile unit units and chemicals, (backward 15

By increasing the supply of textiles, the textile unit facilitates the growth of opening sales units in different markets, stitching of clothes, machine building and other units (Forward Linkage). ix. Dispersal by Economic Power The modern world is dominated by economic power. Economic power is the natural outcome of industrial and business activity. Industrial development may lead to concentration of economic power in few hands which result in the growth of 16 monopolies.

The increasing number of entrepreneurs help in dispersal of economic power into the hands of many efficient managers of new enterprises. 1.3 Characteristics of an Entrepreneur Entrepreneurial qualities are in-born. However, some of the qualities can be enhanced by training and experience. He should be one who bears, innovates or initiates and organizes the business. He is expected to combine all factors of production in a manner as to maximize 17 output at minimum cost of production.

The principal characteristics of an entrepreneur are mentioned below: i. Hard Work: The entrepreneur with his tedious, sweatfilled hours and perseverance revive their business even from an verge of failure. Most of the entrepreneurs work hard endlessly, especially in the beginning and the same become their whole life. ii. Goal Setting: Entrepreneurs get happiness by setting and 18 striving for goals.

Reaching one goal set by entrepreneur will lead to the setting up of another goal. iii. Highly Optimistic: The successful entrepreneurs are not disturbed by the present problems faced by them. They are optimistic for future that the situations will become favorable to business in future.

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iv. Independence:
Successful entrepreneurs do not like to be guided by others and to follow their routine. They like to be independent in the matters of their business. v. Foresight: They have a good foresight to know about future business environment. They well visualize the likely changes to take place in market, consumer attitude, technological developments, etc. and take timely actions accordingly.

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vi. Innovative: Production is meant to meet the customers requirements. In view of the changing taste of customers from time to time, the entrepreneurs initiate research and innovative activities to produce goods to satisfy customers changing demands for the products. The research institutes/centers set up by Samsung, Sony, Akira, etc. are the examples of the innovative activities undertaken by the 21 successful entrepreneurs.

vii. Accountability: Entrepreneurs take success or failure to their side. It is the profit that best tell entrepreneurs how well they are doing. viii. Risk Taking: Any new business poses risks for entrepreneur. They may succeed or fail. Successful entrepreneurs tend to launch ventures that fall between these two extremes, a middle ground in which the risk 22 is neither too high nor too low.

1.4 Functions of an Entrepreneur i. Innovation: Innovation means doing new things or doing the things that are already done in a new way. It includes production of new products, creation of new markets, introduction of new method of production, discovery of new and better channels of supply of raw materials and creation of new organizational structure. Innovation should be different from research 23 and invention.

Research gives us the knowledge, innovation results in the application of knowledge to produce the objects. Innovation may not be based on research. It can be completely independent of research. Invention implies discovery of new ideas, new articles and new methods, whereas, innovation means the application of inventions to make new and desired products and services that can be successfully sold in the market.
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ii. Risk Bearing: Due to unforeseen contingencies like changes in consumer tastes, techniques of production, government policies and new inventions, there may be losses, which are borne by the entrepreneurs. Entrepreneurs in the game of business wherein risks and rewards are a plenty will be ready to accept them. iii. Organization and Management: The entrepreneur has to decide the nature and type of goods and services to be 25 produced.

He brings together the various factors of production, i.e., land, labor, capital, which are separately owned and scattered all over the world, to work in production. In order to minimize the losses, he allocates the resources more judiciously. He makes required alternation in the size of the business, its location, techniques of production, etc. He undertakes the managerial functions like formulation of production plans, organization of sales and personnel 26 management.

iv. Business Planning: The entrepreneur must provide logical and scientific basis for planning the business operations, need of raw materials, and men, production schedules, sales, advertising, budgetary allocation, customer needs, competitors strength and weaknesses, etc. For a systematic business planning, the entrepreneur must be able to formulate goals, policies, procedures, programs and budget.
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Proper planning minimizes the cost, activities are taken up in an orderly manner, guides the business along predetermined channel and highly helpful in performance of other managerial functions. v. Decision Making: He has to take the decisions regarding the activities of the enterprise: Determine the objectives of an enterprise. Making necessary changes in the objectives to suit the changed conditions. 28

Developing good relations with all the employees for improving work efficiency. Securing adequate financial resources. Maintaining good relations with existing and potential investors. Introducing the new technology to cope up with the changed manufacturing techniques. Development of markets for the products. Developing the new products or modifying the existing product to suit the changing consumer fashion, tastes and preferences. 29

Undertaking consumer surveys to study the consumer requirements. Maintaining good relations with public authorities to get the things done easily and smoothly.

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1.5 Distinction between an Entrepreneur and a Manager i. Motive: The main motive of an entrepreneur is to start a venture by setting up an enterprise. He understands the venture for his personal gratification. The main motive of a manager is to render his services in an enterprise already set up by someone else.
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ii. Status: An entrepreneur is the owner of the enterprise. A manager is the servant in the enterprise owned by the entrepreneur. iii. Risk-bearing: An entrepreneur being the owner of the enterprise assumes all risks and uncertainty involved in running the business. A manager as a servant does not bear any 32 risk involved in the enterprise.

iv. Rewards: The reward an entrepreneur gets for bearing risks involved in the enterprise is profit which is highly uncertain. A manager gets salary as reward for the services rendered by him in the enterprise. Salary of a manager is certain and fixed. v. Innovation: Entrepreneur himself thinks over what and how to produce goods to meet the changing demands of the customers. 33

But, what a manager does is simply to execute the plans prepared by the entrepreneur. vi. Qualification: An entrepreneur needs to possess qualities and qualifications like high achievement motive, originality in thinking, foresight, risk-bearing ability and so on. A manager needs to posses distinct qualifications in terms of sound knowledge in management theory and practice.
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1.6 Types of Entrepreneur i. Innovating Entrepreneurs: One who introduces new goods, inaugurates new method of production, discovers new market and reorganizes the enterprise. Such entrepreneurs can work only when a certain level of development is already achieved, and people look forward to change and improvement.
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ii. Imitative Entrepreneurs:

They do not innovate the changes themselves, they only imitate techniques and technology innovated by other successful entrepreneurs. Such types of entrepreneurs are particularly suitable for the under-developed regions for bringing a mushroom drive of imitation of new combinations of factors of production already available in developed regions. iii. Fabian Entrepreneurs: These are very cautious people, and rigid and 36 fundamental in approach.

They are not the risk takers, and they follow the foot-steps of their successors. iv. Drone Entrepreneurs: They are more Entrepreneurs. rigid than Fabian

They may close down their business but they do not accept changes. v. Individual Entrepreneurs: These are found in small scale business firms.
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When an individual set arrange finance, bear the latest techniques in the intention to earn profits, individual entrepreneur.

up an enterprise, risk and adopt the business with an he is called as an

vi. Institutional Entrepreneurs: In the case of business organizations where complex decisions are required to be taken, group entrepreneurs or institutional entrepreneurs emerge to arrange finance, bear the risk and adopt latest technological changes with an intention to earn profits. 38

1.7 Entrepreneur and Intrapreneur Entrepreneur is one, who commences his own business with his innovative ideas. He works for himself and for profits. But intrapreneurs work for entrepreneurs. They emerge from within the confines of an existing enterprise. In big organizations, the top executives are encouraged to catch hold of new ideas and then convert these into products through research and development activities within 39 the framework of organization.

This concept is very popular in developed countries like America. An increasing number of intrapreneurs is leaving their jobs in big organizations and is starting own enterprises. Sometimes they are causing a threat to the organizations they left.

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Difference

Entrepreneur

Intrapreneur

Dependen Independent in the cy operations Raising of Funds Risk Himself raises funds required for the enterprise Bears the risk involved in the business

Dependent on the entrepreneur, i.e., owner Funds not raised by him

Operation Operates from outside

Does not fully bear the risk involved in the business Operates from within the organization itself
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