Entrepreneurship Management{bba 5th Sem}

Entrepreneurship: the word is derived from the French word ‘Entrependne’ and the German word ‘Uternchmen’ both of which refers to individuals who are undertakers i.e. who can undertake ‘risk’ by setting up a new enterprise. They are contractors who bear the risk of profit as well as loss. They are soldiers of fortune, adventurers or merchants. Benefits of Entrepreneur: 1. provides opportunities for self expression and realization of one’s own passion of doing something new and different. 2. Offer opportunities for growth and self development. 3. Monetary rewards are more. 4. he has the power of decision making. 5. Rewards of working for oneself is highly satisfying and motivating. 6. Contributes to the development of the community as one generates employment for others. 7. Entrepreneur initiates and constitutes change in the economic development and structure of business. Characteristics ENTPSHP: 1. Hardworking 2. Desire for high achievement 3. Highly optimistic 4. Independent 5. Have excellent foresight 6. Good organizers 7. Innovative 8. Excellent communication skills 9. Excellent technical knowledge 10. Have very clear objectives 11. High risk taking capability. Types of risk faced by entrepreneur: 1. Financial risk 2. Family and social risk 3. Career risk 4. Psychological risk. Roles of entrepreneur: 1. Combining factor of production 2. Risk acceptance. 3. maximizing shareholders’ return 4. Using market information for opportunities. Steps in the process of entrepreneurship: 1. Identifying opportunities 2. Establish vision 3. Persuade others 4. Gather resources (Capital, land and manpower) 5. Organize these resources to develop new product 6. Create the product 7. Adapt according to market changes. Difference between Entrepreneur and Entrepreneurship: Entrepreneurship: 1. process 2. organized form of initiation 3. risk taking activity 4. innovative process 5. crux of leadership 6. decision making activity 7. planning process of a new enterprise 8. Result of a vision 9. initiating activity of setting up an enterprise. Entrepreneur: 1. person 2. organizer 3. risk taker 4. innovator 5. leader 6. decision maker 7. good planner 8. a visualize 9. initiator. Types of entrepreneurs: 1. Based on ownership {a. Pure entrepreneur b. Second generation business owned entrepreneur c. Franchisee d. Owner manager} 2. Based on personality Traits {a. Personal achievers b. Induced entrepreneurs c. expert idea generators d. Real manager e. Real achievers} 3. Based on type of business {a. Business enterprise entrepreneur b. Trading entrepreneur c. Industrial entrepreneur d. corporate entrepreneur e. Agricultural entrepreneur} 4. Based on use of technology {a. Technical Entrepreneur b. Non-technical entrepreneur} 5. Based on Motivation {a. Pure entrepreneur b. Induced entrepreneur c. Spontaneous entrepreneur d. motivated entrepreneur} 6. Based on growth {a. Growth entrepreneur b. Super-growth entrepreneur}7. Based on stages of development {a. First generation entrepreneur b. Modern entrepreneur c. Classical entrepreneur d. Women entrepreneur} 8. Other kinds of entrepreneurs {a. Innovative entrepreneur b. Initiative entrepreneur c. Fabian entrepreneur d. Drone entrepreneur}

Schumpter’s innovation theory: John Schumpter an economist was the first to put human agents at the centre of the process of economic development. To him an entrepreneur is an ‘innovator’ i.e. he has the potential to do things in a new way. This economic development is not a spontaneous or automatic process. It must be deliberately and actively promoted by some agency within the system. According to Schumpter, there are five different ways to act as an entrepreneur: 1. Introduction of better quality or new product or services. 2. Introduction of new production technology. 3. Discovery of new market. 4. Discovery of new sources of supply of raw materials. 5. New form of organization structure in industry. -- The entrepreneur provides leadership. By nature, he is neither a technician nor a financer. Entrepreneurship is not a profession nor it is the permanent occupation. Psychologically entrepreneurs are not motivated by profits or rewards. The profits come out of the economic progress. Such kind of entrepreneurs are mostly motivated by the desire to establish a personal kingdom and the will to conquer. Criticism: 1. Conceived in the context of industrial revolution. 2. Modeled on big private enterprises and not applicable to developing countries. McClelland’s need for achievement theory: David McClelland an American, psychologist in 1960 gave the concept of need for achievement. It is the need for achievement (also known as n-Ach) which provides drive to the entrepreneur to set up a new enterprise, to achieve goals or targets, to innovate, to identify problems and opportunities, to take risk and most importantly to run the business successfully. The entrepreneurs strive for personal satisfaction rather than profits or rewards. They have a desire to do something new or something of better quality that has been done before, high achievement differentiate themselves from others by their desire to do something better, they seek situations where they can attain personal responsibility for finding solutions to the problems. High achievers are not gamblers. They take up reasonably challenging goals. They dislike succeeding by chance rather they like to take calculated amount of risks, they prefer the challenge of working for a problem and accepting personal responsibility for success or failure, rather than learning outcomes to chances or action of others. R. A. Sharma categorized the factors that motivate entrepreneurs into two types: 1. Internal factors: a. Desire to achieve something. b. Educational background. c. Experience. 2. External factors: a. Government assistance and support. b. Easy availability of raw materials and cheap labor. c. Encouragement from big business houses. d. Promising demands for the product. Hoselitz’s theory of entrepreneurship based on managerial skills and leadership: According to him, a person desirous of becoming an industrial entrepreneur, must have additional personality traits extending beyond a desire to gather wealth in addition of being motivated by an expectation of profit. He must have managerial and leadership abilities. Financial skills have secondary role. There are 3 types of business leaders (merchant money lenders, manager type leader, entrepreneur type leader). Harbison’s theory of entrepreneurship as an organization building function: According to F. Harbison, organization building is the most important and critical skill needed for industrial development. Entrepreneurship is the skill which is essential to build an organization. The crux of entrepreneurship consists in the ability to multiply oneself by effectively delegating responsibilities to others, he lays more emphasis on managerial skills and creativity and harnesses innovative ideas for use in organization. To him, entrepreneur is an organization builder and if organization is absent, it cannot stimulate economic growth.

Entrepreneurial motivation: The term motivation has been derived from the word ‘motive’ which means drive i.e. motivation is the drive and efforts to achieve goals. There may be several reasons as to why an entrepreneur may undertake risk and start a new enterprise. It may be financial scarcity, family or social status, or dissatisfaction from present life. Classifying entrepreneurial motivation according to Maslow’s need theory, they would fall in the category of the higher order needs (sociological, esteem and self actualization needs) but this does not mean that the lower order needs of physiological and safety needs don’t contribute to entrepreneurial motivation. If we categorize the same in McClelland’s theory of needs, the entrepreneur would generally be labeled as an individual with a high need for achievement, moderate need of power and low need for affiliation. Researchers have pointed out varied ranges of entrepreneurial motivation like need for achievement, dissatisfaction from present job, work and family situations etc. but most of them have agreed that need for achievement is the most important motivation for an entrepreneur. Objectives of Government policy measures: 1. create immediate employment opportunities on a massive scale at low cost. 2. to meet the demands of the customer by producing simpler goods at low cost. 3. help in modernization of resources which may otherwise remain unutilized. 4. helps in increasing the income and the standard of living of village entrepreneurs. 5. to make export orientation of small industries and help in export promotion. Industrial policy measures: 1948: supported deve of cottage and SSI and played a big role for overall development of country. advocated that healthy expansion of cottage and SSI depends on a number of factors like provision of raw materials, cheap power and labor, technical advice and organized marketing of products. 1956: it supported development of cottage and SSI by restricting the volume of production, differential rates of taxation and exercising direct subsidies. 1977: It supported development of cottage and SSI and their promotion and dispersal in small towns and rural areas. Industrious centers and tiny industry sectors were established. 1980: objectives: 1. Deve and boosting of economy. 2. Making steady flow of capital to SSI. 3. Encouraging markets to satisfy the needs of customers. 4. Creating various provisions for subsidies and facilities to SSI units. 5. Organizing appropriate training programs to strengthen the quality of entrepreneurs. 6. Providing preferential treatment for industries in backward regions. 1990: It was established for creating agro-based small industries in particular. Major objectives: 1. explore employment opportunities by promotion of SSI in backward regions. 2. disperse fruits of industries in rural areas order to improve quality and standard of living. 3. enhance the export feasibility of nation. For this purpose a new scheme known as the central investment subsidy was introduced exclusively for SSI unit. 1991: it was announced by the government of India to promote and develop tiny industries. essence of this policy lies in the growth of small sector with special reference to village and cottage industries. The major objective of the policy was to make easy provision of funds by simplifying the credit plan of nationalized banks. Relevance of EDP: 1. EDP proved that entrepreneurs can be made and are not born. 2. EDP are expected to bring about economic and social change in behavior of entrepreneur. 3. EDP can convert ordinary persons to risk takers, innovators and above all business leaders. 4. EDP can develop individuals to become the economic leaders upon whom the economic wellbeing of the society depends. 5. helps the people sense innovativeness and as a result the trainees are expected to produce things that common people have never dreamt of. 6. helps the entrepreneurs create conditions for env improvement. 7. EDP are expected to create the sense of social responsibility in the minds of budding entrepreneurs.

Entrepreneurship and economic growth / development: economic development of any region is the outcome of purposeful human activities. According to Schumpter, the economic development consists of employing resources in a different way bringing in new factors of production or combination of the factors. The entrepreneur looks for innovative ideas and puts them into effect for economic development. The entrepreneur occupies a crucial place in the process of economic development by acting as a trigger head to give spark to economic activities. Some of the development activities are as follows: 1.increase in the income. 2. Brings change in the structure of business and society. 3. Wealth creation. 4. New products, services and business. 5. Generation of employment. 6. Increase in the standard of living. Entrepreneurial development program (EDP): it is designed to help a person in strengthening and fulfilling his entrepreneurial motives and in acquiring skills and capabilities necessary to play his role effectively and efficiently. Entrepreneurial development in India: Stage 1 (emergence of entrepreneurial classes; pre-independence period): During British era, large portion of India consisted of villages which were self sufficient. The villages and economy were constituted by farmers, craftsmen and gram-panchayats. They produced various products and provided services. They represented the culture and possessed the characteristics of an entrepreneur. The barter system mainly prevailed in the economy. The art, sculptures, crafts, textile, spices and minerals attracted worldwide attention. Village craftsmen used to receive patronages from kings for their work. Exports of these were also done throughout the world. Stage 2 (Decline of entrepreneurship during the British rule; pre-independence period): During this period, Indian entrepreneurship received a huge blow because of the mechanization in the British industries which initiated the industrialization process in Britain. Moreover, the British industries that required raw materials were supplied by India. The raw materials received from India were then converted into machine made cheap products that flooded the Indian markets pushing out the handmade (more expensive) products which contributed in the complete destruction of the Indian handicraft industry. Stage 3 (Post independence growth of entrepreneurship): Post independence, the Indian economy was full of interesting developments in the field of entrepreneurial development. It was conditioned by various economic, social and political factors. The industrial policy (1947) introduced government’s help in starting, supporting and maintaining small and medium scale industries. Objectives of EDP: 1. promote development of small and medium scale industries that encourages self employment among potential entrepreneurs. 2. To provide, in the rural areas, special programs designed to stimulate new ventures and encourage expansion of existing activities of small and medium scale industries. 3. generate employment and self employment opportunities in the society. – These objectives focused to help achieve the following objectives: 1. Develop and strengthen their quality and motivation. 2. Analyze environment related to small and medium scale industries. 3. Select the project or product. 4. Formulate the projects. 5. Understand the procedure of setting up of small and medium scale industries. 6. Acquire quality management skills.

Libenstein’s gap filling or input completing theory: theory was postulated in 1968. He identified two broad categories of entrepreneurial activities: 1. Routine entrepreneurship: it is associated with the managerial functions of the entrepreneurs. 2. New entrepreneurship: Schumpter’s kind of innovation. Entrepreneurship consists of filling gaps in knowledge about the production function. The gaps here represent deficiencies. The gap in production function exists because some of the inputs like leadership and motivation are vague in their nature. Hence, the output cannot be exactly measured. The entrepreneur moves for work to fill up these gaps. His function is input completing. According to Libenstein, entrepreneur is an individual or a group of individuals having these 4 characteristics: 1. Establishment of connection between different markets. 2. Capability to identify and make up the market deficiencies i.e. gap filling activities. 3. Input completion. 4. Creation or expansion of inputs transforming entities like business firms. The supply of entrepreneurs is governed by: 1. Input completion capacity. 2. Motivational capacity. 3. Investment criteria. 4. Training. Hagen’s theory of entrepreneurship as a function of status withdrawal: Everett Hagen considered the process of change in a society as transition to economic growth on the basis of the analysis of traditional societies. He discovered that the position of authority is based not on ability but on status. Persons of status in societies have authoritarian personalities. Since traditional societies are stable, strong forces are needed to disrupt them. According to Hagen, such disruption is necessary for the emergence of creative personalities such kind of personalities emerge when members of social group experience status withdrawal i.e. displacement from their established positions by some other groups. On account of displacement of status, the affected group may give any of the following responses: 1. Ret realism: the group continues to work in the society but remains indifferent to its work. 2. Ritualism: the group develops defense mechanism and begins to act with the ways acceptable to the society but without the hope of improvement. 3. Reformism: the group develops rebellion power and attempts to establish a new society. 4. Innovation: The group members focus on creativity and develop the possibility of setting up a new enterprise. Hagen’s works are based on experiences of the back ward areas of Asia and Latin America, hence, in his theory he has identified status withdrawal to be the prime factor of becoming an entrepreneur. Max Weber’s theory of entrepreneurship as a function of religious beliefs: Max Weber analyzed religion and its impact upon the enterprise culture. The spirit of capitalism is a set of attitude towards acquisition of money and the activities necessary to achieve the goal. This spirit of capitalism can be generated only when mental attitude of the society is favorable to capitalism. Such an attitude is prevalent in the society and professional culture as well as protestant culture but had been singularly absent in Hinduism culture with its belief in karma and immunity to external values and influences. The spirit of capitalism infuses beliefs which lead to systematic and intensive exertion in occupational pursuits and systematic ordering of means and documentation of assets. The Hindu ethical ideas are more directed towards individuals than the society as a whole. Criticism: Tripathy has criticized Weber’s theory and assumptions as simplistic. Hinduism according to him is a collective name for many beliefs. Rapid growth of entrepreneurs in India after independence is a proof that Hinduism is not averse to the spirit of capitalism and that Weberian model is inadequate for explaining entrepreneurship in Indian context.

Linkage of innovation and creativity on entrepreneurship: innovation is different from invention and invention is the discovery of new methods whereas innovation is the utilization of invention to produce better quality of products. The importance of innovation and creativity has risen from the increased competition amongst the corporates. Successful entrepreneurs are realizing that creativity, innovation and implemental value addition are necessary ingredients to survive in the rising competition. (Now write Schumpter model) Difference between Entrepreneur and Manager: Entrepreneur: 1. undertakes the combination of resources to introduce change in production. 2. launches a new enterprise, main function is to change the factor combinations to increase productivity and profits. 3. takes calculated risks by defining and confining risk. operates in uncertain environment and gains are also uncertain and irregular. 4. Profits constitute the rewards of an entrepreneur (Profit / loss). 5. Innovation is the essence of entrepreneurship. It consists of bringing about changes in the factor combination to maximize profits. 6. skills are different from manager (innovator, creator and capable risk taking. 7. a relatively independent person who owns the enterprise. Manager: 1. combines the resources to produce. 2. operates in an enterprise and deals with the daily affairs. 3. has a low risk taking tolerance. does not participate in uncertainty. Failure means little more than looking for a job. 4. gets his reward as fixed and regular remuneration. rewards are never negative. 5. main function of manager is to translate the entrepreneur’s idea into practice, he simply executes the ideas prepared by the entrepreneur. 6. they are professionally trained persons who apply conceptual skills and theories for running enterprise. 7. He is a salaried employee who works under the instructions of the entrepreneur. Innovation: Innovation is the successor of creativity. When a series of actions and thoughts which create new ideas are given the shape of a physical objective or service, the action is called innovation. Types: 1. Invention 2. Extension 3. Duplication 4. Synthesis. Internal and External sources of innovation: 1. Unexpected occurrences. 2. Incongruities. 3. Process needs. 4. Demographic changes. 5. Market changes. 6. Knowledge based concepts. Creativity: it is the process of developing a new or original product, service or idea that makes a socially recognized contribution, hence creativity is the ability to bring something new into existence. Stages of creativity process: 1. Inception 2. Preparation 3. Incubation 4. Idea generation 5. Idea validation 6. Outcome assessment. Intrapreneurship: It refers to the entrepreneurial activities that acquire organization’s sanction and commitment of resources for the sole objective of innovative results. It aims at boosting the entrepreneurial activities and spirit with the limits of the organization. Thus creating a development oriented environment. It centers around restructuring and reemergence of the firm’s capacity to develop innovative skills and new ideas. Characteristics: 1. They bridge the gap between the investors and managers. They like new ideas and turn them into profitable ventures. 2. They have proper vision and courage to accomplish what they think. 3. They can imagine what business realities will follow from the way customers respond to their innovations. 4. They have the ability to plan necessary steps for the actualization of their ideas. 5. They have high need for achievement and can take moderate calculated risks.

Role of EDP: A. Stimulatory Roles: 1. Entrepreneurial education. 2. Publicity for identifying opportunities. 3. Identification of potential entrepreneurs through various scientific methods. 4. Motivational training for new entrepreneurs. 5. Guides in selecting products and project report formulation. 6. Availability of local professional agencies with trained personnel for training and development of new entrepreneurs. B. Supporting Roles: 1. Registration of units. 2. Arranging sources of finance. 3. Providing factors of production. 4. Guidance for selecting and identifying suitable machinery. 5. Supply of scarce raw materials. 6. Providing common facilities. C. Sustaining Roles: 1. Helps in modernization. 2. Helps in diversification or expansion. 3. Helps in assisting with additional finance for sustained growth of enterprise. 4. Help in maintaining quality through Total Quality Management (TQM). D. Socio-Economic Roles: 1. Augmenting or introducing the qualities of a person to become an entrepreneur. 2. Providing and utilizing raw materials for building entrepreneurship. 3. Helps in regional development. 4. Creating employment opportunities in small scale industries. 5. Ensuring equal distribution of national income and wealth in different regions. Entrepreneurship development institutions: A. NIESBUD (National Institute for Entrepreneurship and Small scale Business Development): Location: New Delhi. Activities: 1. Helps in evolving model syllabus for training several groups. 2. Provides effective training strategies, methodologies, tools etc. 3. Helps in conducting training programs for trainers and entrepreneurs. 4. Helps in supporting and facilitating central and state government institutions. 5. Help in developing entrepreneurial culture in the society. B. EDII (Entrepreneurship Development Institution of India): Location: Ahmedabad, Gujarat. Activities: 1.conducts research, training and institutions building activities for encouraging participation of backward regions and special target groups in entrepreneurship. 2. Its EDP consists of: a. Practical training and work experience. B. Identifying and selecting potential entrepreneurs. C. Product selection and project report formulation. D. Training for motivation. E. Business management training. The program run by EDII is said to be the largest, most comprehensive, organized and successful EDP in the country. C. NISIET (National Institute for Small Scale Industry Extension and Training): Location: Hyderabad. Activities: 1. impart training to the persons engaged in small industry service institute sector. 2. undertake EDP and MDP for entrepreneurs. 3. undertake research studies relating to small scale industries. 4. provide small and medium scale enterprises. Conducts short term courses in business management, industrial management, management services and export management for benefit of entrepreneurs and an enterprises as a whole. D. Small Institute for Service Sector Industry: Location: 28 offices across country. Activities: 1. Provide assistance to trade related activities. 2. undertake consultancy services. 3. Helps prepare projects and profit report for SSI. 4. Organizing various EDPs and MDPs.

Business plan: it is an outline of business which deals with all the aspects of the business such as finance, assets, staff, products and services, market etc. it guides the entrepreneur by identifying and solving suitable problems and is also used in finding applications. A business plan sets out how the owner of the business intends to achieve his objectives. Functions: 1. Enables the entrepreneur to think through the business in a logical and structured way and sets out the stages in the achievement of the business objectives. 2. Helps the entrepreneur to plot, progress against the plan. 3. Ensures the resources needed to carry out the plan. 4. Ensures that the entrepreneur has gone through the crucial aspects of the venture. 5. It is a means for making all the employees of the business aware of their function. 6. It is an important document for discussion with prospective investors and leaders of finance. 7. If the management intends to start a new phase of growth, the business plan is an important tool to articulate the activities with the ideas alongside suitable manpower in the place. Project: a project is a course of planned actions intended or considered for implementation. It is a scheme to be performed within a definite time and estimated cost. Characteristics: 1. Diversity in actions. 2. Planned activities. 3. Management. 4. Profitability. 5. Controlling. 6. Transferability of resources. Sources of business ideas: 1. Present and potential customers. 2. Existing companies. 3. Raw material providers. 4. Distributors and retailers. 5. Researchers. 6. Existing employees. Factors in preparation of project: 1. Environmental protection. 2. Economy in production. 3. Objective orientation: A. upgradation and optimum use of available technology. B. removal of poverty. C. generation of massive employment opportunities to create higher purchasing power and raise the standard of living. 4. Adequate provisions: A. use of non-conventional energy. B. good quality of control. C. safety and protection in operation. D. Consideration of water. E. Use of natural gas and coal. F. partial replacement of old or obsolete plant and machineries. G. better production system. H. Renewal of existing plant and machinery. 5. Social welfare. Objectives of a successful project report: 1. A project should be appropriately arranged with an executive summary, a table, of contents and its chapters in the correct order. 2. A project report should have an impressive and bright attractive appearance. 3. It should give a sense of what one and his company wants to accomplish. 4. It should explain in qualitative and quantitative terms the benefits to the user of the company’s products or services. 5. It should provide hard evidence of the marketability of the company’s products and services and also should justify financial means and channels of selling the product. 6. It should describe the manufacturing and operating process and its process and its associated cost. 7. It should portray the management as an experienced team with appropriate business skills. 8. It should contain believable financial projections with the key data and documentation.

Project feasibility study/report factors: 1. Applicability of the project. 2. Applicability of new products and services. 3. Technical application of the project. 4. Effectiveness or profitability of the project. 5. Financial viability of the project. 6. Marketability of the products and services. 7. Cost effectiveness of the project. 8. Social adaptability of the project. 9. Ecological adaptability of the project. Sources of Finance: 1. Debt. 2. Equity. 3. Other sources: i. Internal sources: A. Retained profit. B. Controlling working capital. C. Sale of assets. D. Owner’s personal savings. E. Reducing stock. F. Trade credit. Ii. External Sources: A. Debentures. B. Share issues. C. Commercial banks. D. Venture Capital. Project Feasibility study: the most important elements in the project feasibility study are: 1. Market analysis. 2. Technical analysis. 3. Financial analysis. Market Analysis: conducted for the following reasons: 1. to estimate the aggregate demand of proposed product or services. 2. estimate the mkt share of the proposed product or service in the future. The demand analysis and mkt share are the important facts of mkt analysis. These are based on number of factors like consumption pattern, availability of substitute products or services, type of competition etc. Steps to conduct mkt analysis: 1. setting objectives for mkt feasibility: first step of mkt feasibility analysis where a preliminary comprehensive discussion with retailers, distributors, suppliers and consumers are needed to answer all the basic questions. 2. collection of primary data: primary data are those which are directly collected from the field of enquiry. It is generally undertaken through mkt survey (census / sample survey). Entrepreneurs must perform the research on mkt survey effectively and efficiently as it is very crucial and important for preparation of feasibility report. Technical / Operational Analysis: It is done to assess the operational ability of the proposed business enterprise. The cost and availability of technology is of critical importance to feasibility of the project. It collects data on the following parameters: 1. material availability (availability of quality and quantity, factors on which availability depends, price sensitivity, time of transfer of material from source). 2. material requirement planning. 3. plant location. 4. analysis of the choice of technology. Financial analysis: it is undertaken to assess the financial issues of proposed business. Following cost estimates have to be done: 1. cost of land and building. 2. cost of plant and machinery. 3. preliminary cost estimation to assess the quantity of capital required. 4. working capital expenses required for running the business. 5. estimates of the cost of production which includes raw material, labor costs, power, fuel, water etc.