Influencing Factors - Session Iii

ENTREPRENEURSHIP CHAPTER 1: ENTREPRENEURSHIP & ENTREPRENEURSHIP MANAGEMENT

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FACTORS INFLUENCING ENTREPRENEUR & ENTREPRENEUSHIP

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FACTORS INFLUENCING ENTREPRENEUR What makes an entrepreneur create a successful new business? Researchers, sociologists, economists have been exploring several avenues – characteristics of an entrepreneur, lifepath circumstances of an individual, environmental factors & finally they examined the desirability & feasibility of becoming an entrepreneur which also affects the decision to engage in entrepreneurship. Following three basic factors are mainly responsible for an individual’s desirability & feasibility of becoming an entrepreneur. • Personal Characteristics • Life-Path Circumstance • Environmental Factors

Personal Characteristics One fascinating question surrounding entrepreneurship is whether entrepreneurs possess Personal Characteristics personality traits & background experience that sets them apart from others. (a) Personality Characteristics – Given Perception the variety of businesses that New Venture Of Desirabilitythat entrepreneurs have in entrepreneurs have created, identifying characteristics Life-Path Circumstances common is a formidable task. Search has yielded &only a few common personality Feasibility characteristics. Psychologist David C McClelland has argued that entrepreneurs tend to have high need for achievement (nAch). Such individual gravitate towards situations in which Environmental Factors they can achieve results through their own efforts, pursue moderately difficult goals &

receive immediate feedback on how they are doing. Though high nAch is found in performing managers, salespersons, professionals etc, it remains the most significant ingredient in entrepreneurial success. Another characteristic that has been found in entrepreneurs is an internal locus of control. Such people tend to have belief that that they control their fate largely through their own efforts. This kind of belief guides other high performer managers, professionals, salespersons etc. also. One characteristic that sets entrepreneurs apart from managers etc. is high tolerance for ambiguity, ability to continue functioning effectively & persist even when situations are highly uncertain. Since entrepreneurship involves starting new organizations, a great deal of uncertainty is frequently experienced. Manager may not have the same degree of tolerance for ambiguities & uncertainties. (b) Background Characteristics - Inquiries into child hood family environment have considered factors like, birth order of the child & parent’s occupation. First born or the only child is considered to have greater share of parent’s time leading to increased self confidence. On the other hand, there is considerable evidence that entrepreneurs tend to have self employed fathers & quite a few time self employed mothers also or jointly owned business. Having one or both parents as business owners provides a salient incentive for potential entrepreneur. Education & level of awareness is another important factor. Though entrepreneurs may be less educated than managers or professional, they have accumulated good knowledge about the type of enterprise they intend to start. It is seen that female entrepreneurs generally have high level of education. Common range of age for entrepreneurs is between 25 – 40 years. This is not rigid though; entrepreneurs below 25 years & up to the age of 55 years have also endeavoured to start new ventures. Work history & related experience is a significant factor in initiating a new venture. It has been observed that in a new venture, one of the founders had worked in the same industry for long enough to gain adequate experience & expertise in the field. Creating new venture seems to be easier after the first one. This is the corridor principle which says that the process of beginning a new venture helps entrepreneurs visualize other opportunities that they could not envision or take advantage of until they started the initial venture. Understandably individuals who start their entrepreneurship at lower age are better placed to exploit the corridor principle because of their potentially longer career. Understandably individuals who start their entrepreneurship at lower age are better placed to exploit the corridor principle because of their potentially longer career.

Life-Path Circumstances Several types of experiences or life-paths increase the probability of an individual take up entrepreneurship. Major factors are discussed as follows: (a) Unsatisfactory Work Environment – This fosters discontent in the worker & impels him to think about leaving & starting a new venture. Reasons for discontentment in current job may be lack of job satisfaction or not pulling on well with the management or even lack of potential for growth in the company as the worker assesses himself. (b) Negative Displacement – Negative displacement or disruption occurs when circumstances in the life of a person cause him to make major changes in his life-style. These situations could include being fired from the job or downsized, getting a divorce, losing lifetime partner, emigrating to another country, natural calamities forcing displacement etc. These circumstances may prove to be catalyst for an entrepreneur. (c) Career Transition – These are the circumstances in which a person moves from one career-related activity to another activity. Such situation could be acquiring a professional qualification, retiring from regular service, finishing a major project, grown up children leave home & become independent relieving parents of their responsibilities etc. (d) Positive-Pull Influencers – Positive-pull influencers are individuals such as mentors, investors, customers or potential partners who urge an individual to start a new venture. There are numerous examples on this account. Favourable Environmental Conditions

A number of environmental conditions appear to influence entrepreneurs. Generally, they deal with the basic perquisites of running a business, such as adequate financing, technical skilled labour force, accessibility of suppliers, accessibility of customers or new market, easy availability of land, transportation & support services. Other indirect conditions those who provide support may be presence of incubator organizations, government influences, experienced entrepreneurs, support network, proximity of universities, attitude of the population & their living conditions etc. Incubator organizations are those whose purpose is to nurture new ventures in their early stages by providing space, stimulation, support & a variety of basic services at reasonable charges. Support networks typically important to entrepreneurs are moral-support network and professional-support network. Moral support network would include family members & friends who provide continuous encouragement, understanding & even assistance whenever needed. Professional support network encompasses cooperative relationship with experts who provide advice & counsel that help an entrepreneur function effectively.

This type of network would include business associates, professional associations, personal affiliations such as sports activities, civic groups, school/college alumni group etc. Perception of Desirability & Feasibility When all above mentioned factors & circumstances act positively on an individual in providing him encouragement towards entrepreneurship, he increasingly perceives entrepreneurship as desirable. However, with perceived desirability potential entrepreneur must also make a dispassionate assessment of the feasibility of creating the new enterprise. While personal characteristics & life-path circumstances play a major role in making this judgment, environmental conditions are a critical aspect of feasibility assessment. Entrepreneurship Stimulants A variety of factors have helped to stimulate entrepreneurial activities & encourage economic development in our country. Some of these stimulants are: (a) (b) (c) (d) (e) (f)

Increasing focus on capital formation, making capital available to the entrepreneur to start the new enterprise. The environment to transform scientific & technical development in to economically viable projects. Supportive government policies & programs. Availability of sufficient training facilities. Collaborative relationship between business & research efforts & easy transferability of technology to the market place. Endeavour to create ideal climate for innovation & the entrepreneurial activities.

FACTORS AFFECTING ENTREPRENEURIAL GROWTH Entrepreneurship has opened avenues of great scope in Indian economy. Our national economy is most suited to the growth of small business enterprises. Small business units offer a more convenient means of nurturing & developing entrepreneurship by providing the means of entry into business for new entrepreneurial talents. Small scale industries are labour intensive & play an important role in solving the problem of unemployment. These industries provide industrial experience & serve as training ground for a large number of entrepreneurs. However, in spite of favourable policies, governmental support, change in attitude of the society, the growth of entrepreneurship in India suffers due to certain factors inherent in our social system. Growth of entrepreneurship in any country or region is generally affected by following factors:

(a)

Economic Factors – Economic factors those entrepreneurship in developing countries are: (i)

(ii)

(iii)

(iv)

(b)

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Infrastructural Facilities – Profitable innovations require certain basic facilities & services like uninterrupted power supply, reliable & dependable transport system, good communications, easy availability of technical & economic information, supportive political & bureaucratic environment & many other requirements connected with the type of venture an entrepreneur wants to set up. Easy availability of these facilities & services reduce the cost of production & encourage entrepreneurs to invest their efforts & capital in new ventures. Availability of Capital – Reduction in cost & maximizing output are the twin objectives of all innovators. Therefore, innovations tend to be capital intensive. In cases where capital equipment & raw material is not easily available, cost of procurement & transportation will require much higher capital investment which may act as a discouraging factor for an entrepreneur. Market Risks – Lack of adequate market for newly introduced product, creating awareness among local population, fluid nature of demand are few factors that an entrepreneur has to keep in mind before launching any new product or service. Availability of Skilled Labour – Though labour may be available aplenty, skilled labour to undertake specialized jobs may be in short supply. Elaborate selection process for new recruits, training programs for selected workmen are cost intensive & impinge adversely on investment.

Social factors – Social factors go a long way in encouraging entrepreneurs. A society that is rational thinking – where decisions regarding resource use are based on empirical facts & critical scientific standards – has more favourable environment for entrepreneurial growth. It would be non-rational if decisions regarding use of capital, hiring of labour, designing of product etc. are based on customs, traditions & transcendental powers. Such circumstances discourage entrepreneurs.

Social set up in some countries are not very encouraging for entrepreneurship. Education, research, training etc. are not given adequate importance & attention; appointments to responsible positions are made not on the basis of competence but by narrow parochial & caste considerations, there is therefore no vertical mobility of labour. Process of hiring skilled & even non-skilled labour also has skewed considerations of caste, region, affiliation to political parties & not the competence, aptitude, skill etc. (c)

Cultural Factors – Entrepreneur growth requires proper motives like profit making, acquisition of prestige, attainment of social status etc. Ambitious & talented men would take risks & innovate if motives are strong enough. The

strength of motives depends on the culture of the society. If society is economically & monetarily oriented, entrepreneurship would be appreciated. In societies where economic & monetary considerations are less significant, people look for opportunities of attaining social distinction by non-economic means. Talented people with good organizational skills opt for non-economic methods to achieve recognition. (d)

Personality Factors – In less developed countries, the entrepreneur is looked upon with suspicion. Public opinion gets biased against entrepreneur as only a profit maker & exploiter. This greatly affects the personality of the entrepreneur & his motivation & aspirations to progress & expand further. If public opinion is not very favourable to entrepreneurs, it tends to favour direct state activities in economy. Once state start playing pivotal role in achieving economic progress, it imposes restrictions on entrepreneurs’ initiatives.

(e)

Psychological & Sociological Factors – These two factors need to be considered together. (i)

(ii)

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Need Achievement – According to McClelland ‘need achievement’ (nAch) is a social motive to excel that tends to characterize successful entrepreneur especially when reinforced by cultural factors. It has been observed that some societies tend to produce larger percentage of people with higher nAch than other societies. People with high nAch like to take risks & these risks stimulate them to greater efforts. McClelland suggested that nAch is conditioned more by social & cultural reinforcement rather other factors. Psychosocial Factor – Many sociologists & researchers have theorized on psychological & sociological roots of entrepreneurship. A few of the opinions are enumerated below: Everett Hazen - Entrepreneurship is the psychological consequences of social change, radical loss of status of a social group. Cole - Besides wealth, entrepreneurs seek power, prestige, security & service to society. Stepanek - Entrepreneurs look for independence, self esteem, power & status in society. Evans - Managing entrepreneurs look for security, innovating entrepreneurs are interested in excitement & controlling entrepreneurs want power & authority. Rostow – first generation of entrepreneurs seek wealth, second generation prestige & third generation looks for art & beauty. Thomas Begley & David Boyd - Entrepreneur attitude based on psychological considerations has five dimensions. - Need Achievement is the first dimension. - Second dimension is “Locus of Control”. - Willingness to take risks is the third dimension. - Tolerance for ambiguity is the fourth one.

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Fifth dimension is what psychologists call “Type A” behaviour. It is chronic incessant struggle to achieve more & more in less & less.