THE CONCEPT OF ENTREPRENEUR

Introduction:

After finishing your graduation you will be at the crossroads of life. You will face the

dilemma of choosing what you have to do in life. The vast majority of human beings

direct their activities towards earning a living, generating wealth and improving their

standard of living. You can choose your career from two broad categories of options –

Wage Employment or Entrepreneurship. The term ‘career’ signifies a continuous, ever

evolving, ever expanding opportunity for personal as well as business growth and

development.

We may refer entrepreneurship as a career in your own business [YOB] rather than wage

employment [JOB] .If you opt for a job then you will work for others. In case you opt for

entrepreneurship you will be your own boss.

In case of wage employment one is engaged in routine work carried on for others for

which he receives salary or wages. He has to follow instructions and execute plans laid

down by his superior. One can choose to be employed in Government Service or the

Public Sector or the Private sector. Some of the main differences between

entrepreneurship and wage employment career options are as under

Differences between entrepreneurship and wage employment

Wage Employment Entrepreneurship

Work for Others

Follow Instructions

Routine Job

Earning is fixed, never

negative

Does not create wealth

Can choose from-

Own Boss

Make own plans

Creative activity

Can be negative sometimes, generally

surplus

Creates Wealth, contributes to GDP

Can choose from-

Government service

Public Sector

Private Sector

Industry

Trade or

Service Enterprise

Entrepreneur - Concept and Meaning:

The term “Entrepreneur” is derived from the French verb “entreprendre” which means

“to undertake a business venture”. An entrepreneur is one who plays a significant role in

the economic development of a country.

Basically an entrepreneur can be regarded as a person who has the initiative skill and

motivation to set up a business of his own and who always looks for high achievements.

He is a catalyst of social change and works for the common good.

The word entrepreneur came into use in the 18th century with advent (coming) of

industrial revolution in England. During this period people began to show an innovative

spirit in their business activities. E.g. the invention of colour photography and colour

television was the outcome of the innovative skills and efforts of those people, who had

the ideas and developed them to their success. He evaluates a new situation for profitable

investments.

The term entrepreneur is used in various ways and various views.

These views are broadly classified into three groups namely,

1) Risk-bearer 2) Organizer 3) Innovator.

1) Entrepreneur as a Risk-Bearer

Richard Cantillon, an Irish man living in France was the first one to introduce the term

entrepreneur in the early 18th century.

He defined entrepreneur ‘as an agent who buys factors of production at certain prices to

combine them into a product with a view to selling it at uncertain prices in future’.

Thus he makes decisions about obtaining and using the resources while consequently

admitting the risk of enterprise.

There are two types of risks

A. Insurable risks:

Risks that can be insured against fire, accidents, death, etc

B. Non-Insurable risks:

Risks that cannot be insured. Eg. Risk of change in future prices, change in fashion,

risks of loss, etc.

2) Entrepreneur as an organizer.

One who organizes or mobilizes the four factors of production (Man. Machine, Money

and Materials also called as 4 M’s of production) for the production of the goods or

services.

3) Entrepreneur as an Innovator:

In the year 1934 Joseph A. Schumpeter assigned a crucial role of innovation to the

entrepreneur. He defined an entrepreneur as “an individual who introduces something

new in the economy.

According to J. Schumpeter innovation touches the following situations.

The introduction of a new product in the market

Instituting of new methods or new technologies of production, which are not yet

tested by experience in the field of concerned manufacturing.

The opening of a new market into which the specific product has not previously

entered.

The discovery of a new source of supply of raw material.

Bringing out changes in the organization and management.

Entrepreneurship

According to Peter Drucker “Entrepreneurship is defined as ‘a systematic innovation

which consists in the purposeful and organized search for changes, and it is the

systematic analysis of the opportunities, such changes might offer for economic and

social innovation.’

Entrepreneurship is a discipline with a knowledge base theory. It is an outcome of

complex socio-economic, psychological, technological, legal and other factors. It is a

dynamic and risky process. It involves a fusion of capital, technology and human talent.

Entrepreneurship is equally applicable to big and small businesses.

In simple words Entrepreneurship can be described as a process of action an entrepreneur

undertakes to establish his enterprise.

The above description of entrepreneurship brings out the following points:

Entrepreneurship is a process of systematic and innovative actions.

Entrepreneurship is a creative activity.

Entrepreneurship is the ability to create and build something from practically

nothing.

Entrepreneurship is the art of sensing opportunity where others see chaos,

contradiction and confusion.

Entrepreneurship is the attitude of mind to seek opportunities, take calculated

risks and derive benefits by setting up a venture.

Entrepreneurship comprises of numerous activities involved in conception,

creation and running an enterprise.

Entrepreneurship is the purposeful and organized search for change, conducted

after systematic analysis of opportunities in the environment.

Enterprise:

Entrepreneur is a person who starts an enterprise. The process of creation is called

entrepreneurship. The entrepreneur is the actor and entrepreneurship is the act. The

outcome of the actor and the act is called the enterprise.

An enterprise may be defined as ‘the business organization that is formed as the outcome

of entrepreneurs actions and which provides goods and services, creates jobs,

contributes to national income, exports and overall economic development.’

Differentiating Entrepreneurs and Intrapreneurs

Who are Intrapreneurs?

The term Intrapreneur was first used by Macre in the year 1976 to refer to those

Entrepreneurs who emerge form with in the existing enterprises and organizations.

Recently, a new breed of entrepreneurs is coming to the forefront in large industrial

organizations, who emerge from within the confines or boundaries of an existing

enterprise. They are commonly referred to as intrapreneurs.

In big organizations the top executives are encouraged to catch hold of new ideas and

then change these into products through research and development (R & D) activities

within the framework of organization. These top officials are known as “Intrapreneurs”.

The concept of “Intrapreneurship” has become very popular in developed countries.

It is found that an increasing number of intrapreneurs is leaving their jobs in big

organizations and starting own enterprises. And many of such intrapreneurs have

become exceedingly successful in their ventures.

Differences between Entrepreneur and Intrapreneur:

Points of Differences

Entrepreneur Intrapreneur

Dependency An entrepreneur is an

independent business

man.

An intrapreneur is dependent on the

entrepreneur. He works under the

chief executive / promoter.

Funds / Capital An entrepreneur himself

raises the funds / capital

needed.

Funds are not raised by the

intrapreneur. He uses the capital

raised by the company.

Risk Entrepreneur bears the

risk involved in the

business.

An intrapreneur may not be

required to fully bear the risk

involved in the enterprise.

Operation An entrepreneur operates

from outside.

An intrapreneur is an organizing

man operating from within the

organization itself.

2) Entrepreneur and Manager:

Are all small entrepreneurs managers? Are all small business managers entrepreneurs?

The terms entrepreneur and manager are many times used interchangeably yet they are

different. An entrepreneur starts a venture then a manager takes over to organize and co-

ordinate continuous production. An entrepreneur is being enterprising as long as he starts

something new then the routine day-to-day management of the business is passed on to

the manager.

Thus, an entrepreneur is a person who finds out an idea of doing the business. He invests

his funds, starts the business, takes the risk, and organizes business activities.

A manager is appointed by an entrepreneur as an employee to look after administrative

activities.

The main differences between the two are summed up below:

Differences between a manager and an entrepreneur:

Points of

Differences Entrepreneur Manager

Motive The main motive of an entrepreneur

is to start a venture by setting up an

enterprise.

The main motive of a manager is to

render his services in an enterprise

already setup by someone else.

Status An entrepreneur is the owner of the

enterprise.

A manager is the servant in the

enterprise owned by the entrepreneur.

Risk - bearing An entrepreneur being the owner of

the enterprise assumes all risks and

uncertainty involved in running the

enterprise.

A manager as a servant does not bear

any risk involved in the enterprise.

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.

Innovation Entrepreneur himself thinks over

what and how to produce goods to

meet the changing demands of the

customers. Hence he acts as an

innovator also called a change agent.

Or catalyst of social change.

But what a manager does is simply to

execute the plans prepared by the

entrepreneur. Thus a manager simply

translates the entrepreneurs ideas

into practice (a new product /service)

Qualification An entrepreneur needs to possess

qualities and qualifications like high

achievement motive, originality in

thinking foresight, risk bearing

ability and so on.

On the contrary a manager needs to

possess distinct qualifications in terms

of sound knowledge in management

theory and practices.

Characteristics of an Entrepreneur

There are certain characteristics of entrepreneurs which are found usually prominent in

them. The principal ones are discussed below:

Hard Working:

Willingness to work hard distinguishes a successful entrepreneur from unsuccessful one.

His tireless, tedious and laborious work enables him to revive his business, even at the

face of failure.

Desire for high achievement:

The entrepreneurs have a strong desire to achieve high goals in business. This high

achievement motive strengthened them to surmount the obstacles suppress anxieties

repair misfortunes and run a successful business.

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. Optimism means seeing good side or brighter side of life or business.

Independence:

One of the common characteristics of the successful entrepreneurs has been that they don

not like to be guided by others and to follow their routine. They like to be independent in

the matters regarding their business.

Foresighted:

The entrepreneurs have a good foresight to know about future business environment.

They will visualize the likely changes to take place in market. Consumer attitude,

technological developments and take actions accordingly.

Organizing Capacity:

An entrepreneur must have the ability to organize all production resources like man,

money, material an to channel them in such a way as to star up the enterprise and produce

goods.

Innovative skills:

Production is meant to meet the customer's requirement. In view of the changing taste of

customers from time to time the entrepreneurs must initiate (to start) research and

innovative activities to produce goods to satisfy the customers changing demands for the

products.

Entrepreneurial Competencies or Traits

Introduction:

A competence is referred to the characteristic of a person which leads to his or her

effective or superior performance in a job. A job competence is a good combination of

one's underlying characteristics such as one's knowledge, skill, motive, etc which one

uses to perform a given job well. The underlying characteristics possessed by an

entrepreneur which result in superior performance are called the entrepreneurial

competencies or trait.

Knowledge: It means collection and retention of information in one's mind. It is

necessary for performing a task but not sufficient.

Skill: It is the ability to demonstrate a system and sequence of behavior which results in

something observable and something that one can see.

Motive: It is an urge to achieve ones goal. This continuous concern over goal

achievement directs a person to perform better and better.

Thus in order to perform any task effectively and successfully including establishing and

running an industrial unit a person needs to possess a set of knowledge, skill and motive

which could be together.

Major Entrepreneurial Competencies:

People used to believe that entrepreneurs are born not made. In other words, persons with

business family background could become successful entrepreneurs. Subsequently the

sharpened knowledge of entrepreneurial competencies over the last four decades made

people believe that entrepreneurs are made and not born. According to this view, persons

possessing proper knowledge and skill acquired through education and experience can

become successful entrepreneurs. The following are the major competencies that led to

superior performance of the entrepreneurs:

1. Initiative: It is entrepreneur who initiates a business activity. He does things before

being asked by events.

2. Looking for opportunities: He looks for an opportunity and takes appropriate

actions as and when arise.

3. Persistence: He follows the Japanese Proverb "Fall seven times; stand up eight".

He makes repeated efforts to overcome obstacles that get in the way of reaching

goals.

4. Information seeker: Takes individual research and consults experts to get

information to help reach the goal.

5. Quality Conscious: He has always strong urge to excel to beat the existing

standard.

6. Committed to Work: Does every sacrifice to get the task completed.

7. Efficiency Seeker: Makes always tenacious efforts to get the task completed with

in minimum costs and time.

8. Proper Planning: Formulates realistic and proper plans and then executes

rigorously to accomplish the task.

9. Problem Solver: Always tries to find out ways and means to tide over the difficult

times.

10. Self – Confidence: A strong believer in his strength and abilities

11. Assertive: Good in asserting his issues with others for the cause of his enterprise.

12. Persuasive: Able to successfully persuade people to do what he actually wants

from them.

13. Efficient Monitor: Personally supervises the work so that it is done as per the

standards laid down.

14. Employees' Well Wisher;; Has great concern and also takes necessary measures to

improve the welfare of the employees working in his enterprise. Treats employees

as a factor of production having emotions and feelings.

15. Effective Strategist: Introduces the most effective strategies to effect employees to

achieve the enterprise goals whatsoever it may be.

Developing Competencies: Competency results in superior performance. This is

exhibited by one's distinct behavior in different situations. Entrepreneurial competency

development is discussed as below:

1. Competency Recognition: Acquisition of a new behavior begins with

understanding and recognition of what a particular behavior means.

2. Self – Assessment: Once the particular competence is understood and recognized,

the next sep towards acquiring a particular behavior is to see whether one possesses

the particular competence or not. If yes, then to see how frequently one exhibits the

same in his practical life.

3. Competency Application: Having known where one stands with respect to a

particular competency one needs to practice the same on a continuous basis in

various activities. In order to make a new behavior as a part of one's personality. the

particular behavior or competency needs to be applied frequently even in the

simplest activities that one performs in ones day-to day life. This is because practice

makes a man perfect.

4. Feedback: After understanding, internalizing and practicing a particular behavior or

competency, one needs to make an introspection of the same in order to sharpen and

strengthen one's competency. This is called 'feedback'. In simple words feedback

means to know the strengths and weaknesses of one's new behavior. This helps to

know how the new behavior has been rewarding.

Thus the underlying characteristics of an entrepreneur which result in superior

performance are called the entrepreneurial competences. Knowledge, skill, and motive

are the components of competencies. Competencies can be injected in human being

through education and training. Practice helps develop competencies.

Entrepreneurship & Small Business

Introduction:

The importance of small business was highlighted by many thinkers like Schumpeter, and

others.

Schumpeter’s famous book: “Small is beautiful”, stressed on to convert big industries

into smaller, flexible business units due to its advantages.

The Small Scale Sector is the natural habitat of entrepreneurs. Most entrepreneurs start

small and then nurture their units into large industries. The SSI Sector provides an

opportunity for them to hone their skills and talents, to experiment, to innovate and

transform their ideas into goods and services needed by the society.

Over the last six decades the Small Scale Industry sector has emerged as a highly vibrant

and dynamic sector. It has acquired a prominent place in the socioeconomic development

of the country. Mostly this sector exhibited positive growth trends even during periods

when other sectors of the economy experienced either negative or nominal growth.

A very fast growth of small business units is witnessed all over the world especially in

USA, Japan, Taiwan, China etc.

The importance of small business:

1) Employment potential: Creation of maximum amount of employment

opportunities, including that of self employment.

2) Low capital requirements: Creation of ventures (business) that requires small

investment.

3) Quick yielding: Production of consumer goods on a large scale. The fruition lag

(gestation period) is shorter than large industries.

4) Mobilization of local skill and capital.

5) Balanced regional development: Equitable (equal) distribution of industrial

units into all areas of Oman.

Nature and Characteristics of Small Businesses:

Small-scale industries have certain unique features, which distinguish them from the

Large-scale sector. Some of the salient characteristics of small-scale businesses are

given below.

1. Personal Character: In most small businesses the owners themselves are managers

and so they can operate independently. They can give customized service to their

clients, which in many cases is their USP.

2. Flexibility: Since most small businesses are a one-man show they do not have to go

through a hierarchy to get permissions to make changes. Small business can

respond quickly to environmental trends. Nimbleness and agility are characteristics

that allow small entrepreneurs to understand market conditions and rapidly respond

to changes.

3. Labor Intensive: Small businesses have tremendous capacity for employment

generation through their labor intensive techniques. Small businesses actually create

more jobs than big businesses. This feature of a small-scale unit is of great

significance in a country like Oman where the number of unemployed people is

phenomenal.

4. Local Area of Operation: Small businesses are largely local in operation; however

the market for its products may be local, regional or even international.

5. Short Gestation Period: The capital investment in the small sector is generally low

and the time taken for production to commence is also less. As a result of short

gestation period the units give quick returns and consequently the pace of economic

development quickens.

Problems associated with Small Businesses

While the small entrepreneurs can set up a unit even with less capital, enjoy quick returns

and have the flexibility to handle the vagaries of the market, they have to face many

problems like the following:

1. Paucity of Finance: The small entrepreneurs possess a weak financial structure and

find it extremely difficult to obtain credit because of lack of collateral security. This

acts as a big handicap, especially in the initial stages, in most of their operations

like their ability to hire the best workers or to purchase the latest machinery and

equipment or to acquire sophisticated technology.

2. Poor availability of power and other infrastructure: Though infrastructural

bottlenecks are problems for big businesses too, yet they can overcome these

problems to some extent because of their financial strength e.g. generating their

own power, or even influencing the government in framing its policies sometimes.

The small entrepreneur on the other hand has to battle with them.

3. Obsolete Technology: Most small businesses use old technologies because they

cannot afford better. As a result the quality of their goods is inferior and the cost of

production is higher than in case of other big ventures. This has acted as a serious

handicap especially after opening up of the economy when they have had to

compete with imported goods.

4. Marketing Problems: The small entrepreneur cannot supply standardized goods of

high quality and as a result cannot compete with products of large companies or

MNCs. They usually do not have a brand name or loyalty, as there are hardly any

funds for advertising or sales promotion. All these increase their marketing woes.

5. Poor Managerial and Organizational Skills: usually the entrepreneur has to

perform a multitude of diverse functions invariably without having any exposure to

professional education or formal training. The large sector on the other hand can

hire the best qualified and trained people.

6. High Incidence of Sickness: On an average 5 out of 10 small businesses usually

fall sick and die within 3 to5 years and this rate is even higher in Oman. Main

causes for this are a wrong choice of product, poor managerial skills, lack of

experience, poor quality of products because of the use of old technologies, etc.

Apart from the above-mentioned problems the small entrepreneur has weak bargaining

power to deal with suppliers and financial institutions, has to face bureaucratic red-

tapism and is unable to invest in R & D. After the opening up of the economy the small

sector has been finding it extremely difficult to compete with the high quality goods

available in the market.

Role of Small Businesses in National Economy

Small businesses have played a very crucial role in transforming the economies of many

countries from backward primary sector economies to their present stature. Its benefits

range from creating job opportunities for millions of people, including many with low

levels of formal education. It nurtures the inherent entrepreneurial spirit in far flung

corners of the nation resulting in the growth and development of all regions. The small

scale sector contributes specifically in the following areas:

1. Employment Generation: The Small Business sector has a greater potential of

employment generation per capita investment as compared to large-scale sector. For

example, In India every Rupees 1.0 million (OR 8000) of investment, the small-scale

sector provides jobs to 26 people as compared to 4 jobs created in the large-scale

sector.

2. Low Initial Capital Investment: Another common feature of most of the

developing economies is the scarcity of capital. The modern large-scale sector

requires colossal investments whereas the small sector is just the opposite. Not only

is the employment capital ratio high for the SSI but the output capital ratio is also

high.

3. Balanced Regional Development: Dispersion of small business in all parts of the

country helps in removing regional imbalances by promoting decentralized

development of industries. It helps in industrialization of rural and backward areas. It

also helps to reduce problems of congestion, pollution, housing, sanitation etc.

4. Equitable Distribution of Income: This is a natural corollary of the above. When

entrepreneurial talent is tapped in different regions and areas the income is also

distributed instead of being concentrated in the hands of a few individuals or

business families.

5. Promotes Inter-Sectoral Linkages: SSI units are supplementary and

complementary to large and medium scale units as ancillary units. Many small units

produce sub-parts, assemblies, components and accessories for the large-scale sector

especially in the electronic and automotive sectors.

6. Exports: The most significant contribution of the SSI has been in the field of

exports. There has been a significant increase in the exports from this sector of both

traditional and non-traditional goods including jewelry, garments, hand tools,

handicrafts etc.

7. Development of Entrepreneurship: Small business taps the latent potential

available locally. This way they facilitate the spirit of enterprise, which results in

overall growth, and development of all the regions /sectors of the nation.

Small Business as Seed-Bed of Entrepreneurship

Small business is the natural habitat of an entrepreneur. They serve as a nursery of

entrepreneurial and managerial talent. Initially the capital investment in small ventures is

nominal and the technology used is low, so it becomes easy for first time entrepreneurs to

set up a venture. In the beginning usually these ventures are a “one man show” where the

entrepreneur looks after the myriad functions of production, marketing, finance, legal etc.

The entrepreneur gets a chance to increase his knowledge, skill and competence. He takes

decisions independently and it is in these circumstances that entrepreneurial talent

blossoms.

In developing economies it is through a large number of such small enterprises started by

these imitator entrepreneurs that a chain reaction is set into motion, which leads to

cumulative progress. It is pertinent to note that nearly 70 percent of the total innovations

in the world have come from the Small Scale Sector. Many of the big businesses today

were all started small and then nurtured into big businesses.

Small business mobilizes small savings, taps the latent entrepreneurial talent across

regions and provides a platform for them to develop and fine-tune their entrepreneurial

spirit. In the process the entire country benefits in the form of goods and services and

higher standard of living.