Concept of Entrepreneurship
The concept of entrepreneurship has been around for a
very long time, but its resurgent popularity implies a “sudden discovery”, as
if we had stumbled onto a new direction for American enterprise. This is a myth, as we shall see, because the
American system of free enterprise has always engendered the spirit of
entrepreneurship. America was discovered
by entrepreneurs, and the United States became a world economic power through
entrepreneurial activity. More important,
our future rests squarely on entrepreneurial ventures founded by creative
individuals. They are inspired people,
often adventurers, who can at once disrupt a society and instigate
progress. They are risk takers who seize
opportunities to harness and use resources in unusual ways, and entrepreneurs
will thrust us into the twenty-first century with a thunderous roar.
By definition, entrepreneurship is the practice of
starting a new business/venture or reviving an existing organization.
Entrepreneurial actions vary depending on the nature of business. Entrepreneurs
seek funding from venture capitalists and NGOs. Usually, such investors expect
higher returns on their investments. The very reason they invested in the
venture of a greenhorn is because they intend to make as much as possible out
of the venture.
An Entrepreneurial Perspective
Entrepreneurship is one of the four mainstream
economic factors: land, labor, capital, and entrepreneurship.
·
The word itself, derived from 17th-century
French entreprendre, refers to individuals who were
“undertakers”, meaning those who “undertook” the risk of new enterprise. They were “contractors”
who bore the risks of profit or loss, and many early entrepreneurs were soldiers of fortune, adventurers,
builders, merchants, and, incidentally, funeral directors.
·
Early reference to the entrepreneur in the
14th century spoke about tax contractors’ individuals
who paid a foxed sum of money to a government for the license to collect taxes in their region.
·
In the 19th century, entrepreneurs were
the “captains of industry”, the risk takers, and the decision makers, the individuals who aspired to wealth
and who gathered and managed resources
to create new enterprises.
·
Notable early French, British, and
Austrian economists wrote enthusiastically about entrepreneurs as the “change agents” of progressive
economies.
·
Meaning of entrepreneurship has evolved
over the centuries
·
What is meant by entrepreneurship? The
concept of entrepreneurship was first established in the 1700s, and the meaning has evolved ever since. Many
simply equate it with starting one's
own business. Most economists believe it is more than that.
·
To some economists, the entrepreneur is
one who is willing to bear the risk of a new venture if there is a significant chance for profit. Others emphasize
the entrepreneur's role as an innovator
who markets his innovation. Still other economists say that entrepreneurs
develop new goods or processes that
the market demands and are not currently being supplied.
Generally, entrepreneurship is a tough proposition as
a good number of the new businesses fail to take off. Entrepreneurial
activities differ based on the type of business they are involved in. It is
also true that entrepreneurial ventures create a number of new job
opportunities. A large number of entrepreneurial projects look for venture
capital or angel funding for their startup firms in order to finance their
capital requirements. Besides, government agencies and some NGOs also finance
entrepreneurial ventures.
Entrepreneurship is often associated with uncertainty,
particularly when it involves creating something new for which there is no
existing market. Even if there is a market, it may not translate into a huge
business opportunity for the entrepreneur. A major aspect in entrepreneurship
is that entrepreneurs embrace opportunities irrespective of the resources they
have access to.
Entrepreneurship involves being resourceful and
finding ways to obtain the resources required to achieve the set objectives.
Capital is one such resource. Entrepreneurs need to think out-of-the-box to
improve their chances of obtaining what they need to succeed. According to
management experts, vast majority of entrepreneurs desire to be in control of
their own life and they can’t find this beyond entrepreneurship. Studies have
demonstrated that people derive great satisfaction from their entrepreneurial
work.
Today, there is the increasing awareness about
entrepreneurship. People aren’t confining themselves to one business. They are
following one business with another. Such entrepreneurs are referred to as
“serial entrepreneurs.” Sometimes these entrepreneurs become angel investors
and invest their money in startup companies. As a person gains greater insight
into business and entrepreneurship, his chances of succeeding in business
improve.
Entrepreneurship is the purposeful activity of an
individual or a group of associated individuals, undertaken to initiate
maintain or aggrandize profit by production, or distribution of economic goods
and services. Entrepreneurship is very often associated with adventurism, risk
bearing, innovating creativity etc. It is concerned with making dynamic changes
in the process of production, innovation in production, new usage for materials
etc. It is a mental attitude to take calculated risks with a view to attain certain
objectives. It also means doing something in a new and better manner.
The
Concept of Entrepreneurship:
Like other economic concepts,
entrepreneurship has long been debated and discussed. It has been used in
various ways and in various senses, while some call entrepreneurship as
‘risk-bearing’ others view it innovating and yet others consider it
‘thrill-seeking’.
Few
Definitions
Defining
entrepreneurship is not an easy task. There are almost as many definitions of
entrepreneurship as there are scholar books on the subjects.
According to
Higgins, “Entrepreneurship is meant 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 and commodities, discovering new
sources of raw materials and selecting top managers of day-to-day operations of
the enterprise”. In this definition entrepreneurship is described as the
function of handling economic activity, undertaking risk, creating something
new and organizing and coordinating resources.
According to Hennery,
“Entrepreneurship is an 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 is both an art as well as a science
which involves the fusion of capital, technology and human talent and is a
dynamic and risky process.
According to
Diamond, “Entrepreneurship is equivalent to enterprise which involves the
willingness to assume risks in undertaking an economic activity particularly a
new one ____. It may involve an innovation but not necessarily so. It always
involves risk-taking and decision-making, although neither risk nor
decision-making may be great significance”. In this definition,
entrepreneurship is used to refer to the qualities required to innovate, start
a new enterprise, accept the challenge and bear the risk. Few individuals have these
qualities and, therefore, entrepreneurs are found in limited numbers in any
society.
According to
A.H. Cole “Entrepreneurship is the purposeful activity of an individual or a
group of associated individuals, undertaken to initiate, maintain or aggrandize
profit by production or distribution of economic goods and services”.
Jaffrey A.
Timmons defined entrepreneurship as “the ability to create and build something
from practically nothing. Fundamentally, a human creative activity, it is
finding personal energy by initiating, building and achieving an enterprise or
organization rather than by just watching, analyzing or describing one. It
requires the ability to take calculated risk and to reduce the chance of
failure. It is the ability to build a founding team to complement the
entrepreneur’s skills and talents. It is the knack for sensing an opportunity
where others see chaos, contradiction and confusion. It is the know-how to
find, Marshall, and control resources and to make sure the venture does not run
out of money when it is needed most”.
According to
Peter F. Drucker, “Entrepreneurship is neither a science nor an art. It has a
knowledge base. Knowledge in entrepreneurship is a means to an end. Indeed,
what contributes knowledge in practice is largely defined by the ends, that is,
by the practice”. In Drucker’s view, entrepreneurship is considered less risky,
if the entrepreneur is methodical and does not violate elementary and well
known rules.
"Entrepreneurship
is the discovery of new combinations of resources under uncertain situations
that generate entrepreneurial rent as reward for risk taking." (Rumelt,
1987)
"A
firm-creating entrepreneur creates and perhaps operates a new business firm,
while an innovating entrepreneur transforms inventions and ideas into
economically viable entities." (Baumol, 1991)
“Entrepreneurship
is about marrying passion and process with a good dose of perseverance.” (Vijay
Thandani, CEO of NIIT Ltd.)
The
entrepreneurial steps includes inspiration (the concept), Respiration
(financing and process liability), and perspiration (delivering value to
customers).
According to
Robert D. Hisrich, Peters and Shepherd, “Entrepreneurship is the process of
creating something new with value by devoting the necessary time and effort,
assuming the accompanying financial, psychic, and social risks, and receiving
the resulting rewards of monetary and personal satisfaction and independence.”
This definition
stresses four basic aspects of being an entrepreneur. First, entrepreneurship involves
the creation process—creating something new of value. The creation has to have
value to the entrepreneur and value to the audience for which it is developed.
This audience can be (1) the market of organizational buyers for business
innovation, (2) the hospital’s administration for a new admitting procedure and
software, (3) prospective students for anew course or even college of
entrepreneurship, or (4) the constituency for a new service provided by a
nonprofit agency. Second, entrepreneurship requires the devotion of the
necessary time and effort. Only those going through the entrepreneurial process
appreciate the significant amount of time and effort it takes to create
something new and make it operational. As one new entrepreneur so succinctly
stated, “While I may have worked as many hours in the office while I was in
industry, as an entrepreneur I never stopped thinking about the business.”
The third
part of the
definition involves the
rewards of being
an entrepreneur. The most
important of these rewards is independence, followed by personal satisfaction.
For profit entrepreneurs, the monetary reward also comes into play. For some
profit entrepreneurs, money becomes the indicator of the degree of success
achieved. Assuming the necessary risks is the final aspect of entrepreneurship.
Because action takes place overtime, and the future is unknowable, action is
inherently uncertain. This uncertainty is further enhanced by the novelty
intrinsic to entrepreneurial actions, such as the creation of new products, new
services, new ventures, and so on.9 Entrepreneurs must decide to act even in
the face of uncertainty over the outcome of that action. Therefore,
entrepreneurs respond to, and create, change through their entrepreneurial
actions, where entrepreneurial action refers to behavior in response to a
judgmental decision under uncertainty about a possible opportunity for profit.
In all above
definitions, entrepreneurship refers to the functions performed by an
entrepreneur in establishing an enterprise. Just as management is regarded as
what managers do, entrepreneurship may be regarded as what entrepreneurs do. In
other words, entrepreneurship is the act of being an entrepreneur.
Entrepreneurship is a process involving various actions to be undertaken to
establish an enterprise. It is, thus, process of giving birth to a new
enterprise. Innovation and risk bearing are regarded as the two basic elements
involved in entrepreneurship.
Thus,
entrepreneurship is concerned with the performance and coordination of the
entrepreneurial functions. This also means that entrepreneur precedes
entrepreneurship.
Essence of Entrepreneurial Definitions
A. Almost all definitions of entrepreneurship include:
1. Initiative taking.
2. The organizing and reorganizing or
social/economic mechanisms to turn resources and situations to practical account.
3. The acceptance of risk or failure.
B. To an economist, an entrepreneur is one who brings
resources, labor, materials, and other assets into combinations that make their
value greater than before, and one who introduces changes, innovations, and a
new order.
C. Entrepreneurship is the dynamic process of creating wealth.
D. Our definition of entrepreneurship involves four aspects:
1. Entrepreneurship involves the creation
process—creating something new of value to the entrepreneur
and to the audience.
2. It requires the devotion of the necessary
time and effort.
3. It involves assuming the necessary risks.
4. The rewards of being an entrepreneur are
independence, personal satisfaction, and monetary reward.
E. The entrepreneurial experience is filled with enthusiasm,
frustration, anxiety, and hard work.
1. For many reasons there is a high failure
rate among business owners.
2. The financial and emotional risk can be
very high.
What
entrepreneurship involves? -
Entrepreneurship involves the following:
– Confidence in
an idea and a willingness to accept the hard work necessary for turning the
creativity of dreams into reality.
– Seeing the
opportunity presented by change that others have not had the courage to act on.
– Taking
controllable risks rather than gambling or relying on sheer luck. – Costs other
than money; time, energy, reputation, emotional drains.
– Reality
testing: recognizing realistic limits imposed by the economy or physical
resources available.
– Knowing and
understanding customers and their needs.
– A basic understanding
of business and products or services. – Keeping and interpreting business
records.
– Careful
planning to reduce risks.
– Knowing the
actions, strengths and weaknesses of competitors.
– Having right
location, and also right size and right price or lease rate for that location.
– Building a
team of people with complementary skills and talents.
– Sensing
opportunities, while others see chaos, contradiction, and confusion.
– Finding and
controlling resource (often owned by others) to pursue the opportunity.
– Having a
vision and than having the passion, commitment, and motivation to transmit
this.
– Vision to
others (employees, partners, suppliers and customers).
– A willingness
to take responsibility and ability to put mind to task and see it through from
inception to completion.
Nature
and Characteristics of Entrepreneurship:
Entrepreneurship is a multi-dimensional concept and it is unnecessary to
consider many factors and perspectives. The distinctive features of entrepreneurship
are as follows:
1. Innovation:
The process of commercializing an invention is innovation. For example, stern
as an alternative source of energy was invented as early as AD 100. Later, in
1712, when it was used to run engines then the process was called innovative.
In simple words, in business activity, novelty may take any one or a
combination of the following:
a) New products;
b) New methods of production;
c) New markets;
d) New sources of raw material; or
e) New forms of organization.
Innovation is a
critical aspect of entrepreneurship. Entrepreneurs always try to create new and
different values and get satisfaction in doing so. They try to convert a
material into a resource or, combine the existing resources in a new and more
productive manner. The act of innovation thus provides resources with a new
capacity to create wealth.
2. Motivation:
Motivation comes from the word ‘motive’ (or goal). It means the urge in an
individual to achieve a particular goal. In other words, it is the need to
achieve that motivates a person. You may find many people with sufficient
financial resources and. family support who are interested in independent
ventures. Yet, very few actually start their business. Why is it so? Because
they are comfortable in doing routine jobs and have no higher goals in life.
They lack ‘motivation’. Entrepreneurs generally are highly active. They
struggle constantly to achieve something better than what-they already have.
They like to be different from others and are ready to work hard to reach their
goal. Persons experiencing constant need to achieve always try to understand
their strengths and weaknesses. This enables them to seek external help
whenever needed.
Let us take a
look at the ‘Vadilal’ group which is household name today in Gujarat. ‘Vadialal
Ice Cream’ is a premier brand in the consumer market. You may. be surprised to
know that Ramachandra Gandhi and Laxman Gandhi, the two brothers who founded
the Vadilal empire, could not even complete their school education. They
started in a small way by selling homemade ice cream in the city of Ahmadabad.
Now, Vadilal is the largest ice cream company in the country.
How did they do
it? They did not stop thinking big. They had the courage to do what they wanted
to. Entrepreneurial persons seek rewards or returns earned through their own
efforts and do not depend upon ‘luck’. They do not like to be idle.
3. Risk Taking:
Risk-taking implies taking decisions under conditions where the reward on a
certain action is known, but the occurrence of the event is uncertain. While
doing so, an entrepreneur becomes responsible for the result of the decision.
This responsibility however cannot be insured against failure.
Imagine that
you are a qualified pharmacist and that you have got a large sum of money from
your parents. Which of the following options would you choose?
a) Invest in a bank deposit with 8 per
cent annual interest;
b) Invest in a company with a possible
return of 15 per cent;
c) Start a medical shop in your locality
(because people there have to travel a long distance to get medicines) with a
fairly good chance of marking an immediate return of around 10 percent. (You
are also aware that the business is sustainable and can bring in more returns
say 20,30 or 50% in future if you put in your time and effort);
d) Try your hick in the share market.
Clearly, option
‘c’ calls for an entrepreneurial quality. Remember that successful
entrepreneurs usually choose the moderate or middle path. They are not
gamblers. At the same time, they are hot afraid of taking a decision if there
is a reasonable chance of success.
You must be
aware that businessmen spend considerable amount of time in planning their
enterprises. They study the market technology, examine and re-examine the
demand, the prices, machinery and processes involved, make detailed enquiries
about sources of finance and think about other business lines. Why do you think
they do through all these processes? In order to minimize the risks involved
and avoid difficulties that may arise in the future, as far as possible:
4. Organization Building: According to
Harbison entrepreneurship implies the skill to build an organization.
Organization building ability is the most critical skill required for
industrial development. This skill means the ability to ‘multiply oneself by
effectively delegating responsibility to others. Unlike Schumpeter, Harbison’s
entrepreneur is not an innovator but an organization builder who harnesses the
new ideas of different innovators to the rest of the organization. Entrepreneurs
need not necessarily be the men with ideas or men who try new combinations of
resources but they may simply be good leaders and excellent administrators.
5. Managerial-Skills and Leadership:
According to Hoselitz, managerial skills and leadership are the most important
facets of entrepreneurship. Financial skills are only of secondary importance.
He maintains that a person who is to become an industrial entrepreneur must
have more that he drives to earn profits and amass wealth. He must have the
ability to lead and manage. He identifies three types of business leadership,
namely merchant money lenders, managers and entrepreneurs. The function of the
first group is market oriented, that of the second is authority-oriented while
the third group has a addition to these a production-orientation.
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