PRINCIPLES OF ENTREPRENEURSHIP

UNIT I: INTRODUCTION TO ENTREPRENEURSHIP

Introduction to Entrepreneurship

Entrepreneurship refers to the process of creating, developing, and managing a new business
venture to generate profit while taking on financial risks. It is driven by the identification of
opportunities, innovation, and the willingness to bring ideas to life, whether by introducing
new products, services, or business models.

Meaning of Entrepreneurship

At its core, entrepreneurship is about identifying problems or unmet needs in the market and
providing solutions that create value for customers. Entrepreneurs take the initiative to explore
new opportunities, often through innovation, to establish businesses that meet these demands.
The role of entrepreneurship is crucial for economic growth, job creation, and fostering
creativity and innovation.

Definition of Entrepreneurship

1. Joseph Schumpeter: Defined entrepreneurship as the "process of creative destruction,"

where entrepreneurs innovate by introducing new products or processes that disrupt
existing markets and create new ones.
2. Peter Drucker: Describes entrepreneurship as "the act of innovation that involves
endowing existing resources with new wealth-producing capacity."
3. General Definition: Entrepreneurship is the dynamic process of vision, change, and
creation. It requires energy and passion to introduce new ideas and solutions, develop
products, or improve services while taking on the associated risks to gain rewards.

Entrepreneurship embodies risk-taking, leadership, and a vision for the future.

WHO IS AN ENTREPRENEUR?

An entrepreneur is an individual who identifies business opportunities, takes the initiative to

bring those opportunities to life, and assumes the risks associated with launching and running
a business. Entrepreneurs play a vital role in the economy by introducing new products,
services, and innovations, which lead to job creation, economic growth, and increased
competition.

Key Characteristics of an Entrepreneur:

1. Innovator: Entrepreneurs often develop new ideas, products, or services that solve
problems or meet consumer needs in a unique way.
2. Risk-Taker: Entrepreneurs take on the financial risks of starting and managing a
business. They invest their own money, time, and effort, with no guarantee of success.
3. Visionary: Entrepreneurs have a clear vision of what they want to achieve and are
willing to take steps to realize that vision.
4. Leader: Entrepreneurs lead teams and manage resources to ensure the success of their
venture. They motivate, organize, and guide others toward achieving business goals.
 5. Problem Solver: Entrepreneurs are adept at identifying problems in the market and
devising creative solutions to address them.

DIFFERENT TYPES OF ENTREPRENEURS

Entrepreneurs can be classified into different categories based on various factors such as the
type of business they run, their use of technology, growth ambitions, motivation, stages of
business development, and other unique characteristics. Below are the classifications of
different types of entrepreneurs:

1. According to Business Type:

 Business Entrepreneurs: These entrepreneurs create businesses to develop and sell

products or services for profit. Examples include retail store owners, restaurant
founders, and tech startups.
 Trading Entrepreneurs: Focus on buying and selling goods. They don't manufacture
products but instead act as intermediaries between producers and consumers, such as
import-export businesses.
 Industrial Entrepreneurs: They are involved in manufacturing and producing goods.
Industrial entrepreneurs create tangible products like cars, machinery, or appliances.
 Agricultural Entrepreneurs: These entrepreneurs focus on agricultural activities like
farming, forestry, and horticulture. They may introduce modern techniques and
innovations to enhance productivity.

2. According to Technological Use:

 Technical Entrepreneurs: Entrepreneurs who are technologically oriented and

involved in developing new products or improving existing technology. They often
come from engineering or technical backgrounds. Examples include software
developers, AI developers, and biotech innovators.
 Non-Technical Entrepreneurs: These entrepreneurs focus on marketing, distribution,
and other non-technical aspects of a business. They leverage existing technologies but
focus on improving customer experience, branding, or distribution networks.
 Techno-preneurs: Entrepreneurs who use cutting-edge technology to disrupt
industries, such as mobile apps, cloud computing, and artificial intelligence. They are
often in the tech industry, such as those who create platforms like Uber or Airbnb.

3. According to Growth:

 Growth-Oriented Entrepreneurs: Entrepreneurs who start small but have the vision
and ambition to grow their business into a large enterprise. They aim for expansion,
scalability, and possibly global outreach.
 Lifestyle Entrepreneurs: These entrepreneurs start businesses that align with their
personal interests and goals, often to achieve a particular lifestyle rather than rapid
growth. For example, someone starting a small consulting firm to maintain work-life
balance.
 Scalable Startup Entrepreneurs: Entrepreneurs with a focus on scaling their business
to significant levels, often by acquiring venture capital funding. Examples include tech
startups with global ambitions like Google or Facebook.
4. Other unclassified entrepreneurs

 Innovative Entrepreneurs: Motivated by the desire to create something new or bring

change. They focus on innovation, whether in product, process, or business model.
Examples include inventors and scientists who commercialize their innovations.
 Imitative Entrepreneurs: These entrepreneurs replicate existing business models or
products, often in new geographical areas or niches. They focus on adapting successful
concepts rather than creating new ones. Franchise owners are a good example.
 Fabian Entrepreneurs: Cautious and skeptical, these entrepreneurs avoid risks and
tend to follow others. They are slow in adapting to market changes or innovations unless
they see strong proof of profitability.
 Drone Entrepreneurs: Stubborn or conservative entrepreneurs who stick to traditional
methods and resist changes, even when the business is declining.

5. According to Stages of Development:

 First-Generation Entrepreneurs: These are self-made entrepreneurs who do not

inherit a business but start from scratch. They often come from non-entrepreneurial
families and build businesses through personal effort and vision.
 Second-Generation Entrepreneurs: Entrepreneurs who inherit a family business and
continue to grow and develop it. They may introduce changes or improvements to the
established business.
 Serial Entrepreneurs: Individuals who continuously come up with new ideas and start
multiple businesses over time. They often sell one business to start another and are
highly involved in the startup phase of enterprises.

6. According to motivational level

1. Pure Entrepreneurs

Pure entrepreneurs are individuals who enter entrepreneurship solely based on their passion,
creativity, and desire to innovate. They are driven by a personal vision to create something
new, independent of external influences or support. Pure entrepreneurs are characterized by
their inherent desire to take risks, experiment, and seize opportunities to turn their ideas into
successful ventures. Example: An inventor who develops a new product and establishes a
company to market it, based solely on their passion for innovation.

2. Induced Entrepreneurs

 Induced entrepreneurs are individuals who become entrepreneurs due to external

factors such as government policies, incentives, subsidies, or favorable economic
conditions. They are often "induced" to start their ventures because of the support or
opportunities created by these external influences. This type of entrepreneur typically
capitalizes on economic benefits or environmental factors rather than an innate passion
for entrepreneurship. Example: An entrepreneur who opens a manufacturing unit
because the government offers subsidies on industrial production or special tax benefits
for startups in specific sectors.

3. Motivated Entrepreneurs
  Motivated entrepreneurs are driven by a strong desire to fulfill a personal goal, such
as achieving financial independence, career advancement, or social recognition. They
are "motivated" by specific circumstances or events in their lives, which inspire them
to take up entrepreneurship. These individuals are not born with entrepreneurial
instincts but are triggered by their aspirations or a significant life event. Example:
Someone who quits their job to start a consulting business because they see a gap in the
market and want financial independence, or a person who begins a business to bring a
solution to a local community problem.

4. Spontaneous Entrepreneurs

Spontaneous entrepreneurs are individuals who become entrepreneurs by instinct or natural

talent. They have an inherent ability to identify business opportunities, take risks, and manage
a business. These entrepreneurs don’t necessarily plan to start a business; rather, they seize
opportunities as they come, often acting on impulse or based on their gut feeling. Example: A
person who suddenly decides to start a business after identifying a profitable opportunity while
traveling or someone who starts a new business venture as a hobby, which unexpectedly turns
into a successful company.

VARIOUS ELEMENTS OF ENTREPRENEURSHIP

Entrepreneurship involves a combination of various elements that contribute to the success of

starting and managing a business. These elements are crucial in shaping the entrepreneurial
process, driving innovation, and ensuring the sustainability of a venture. Below are the key
elements of entrepreneurship:

1. Innovation

Innovation is at the heart of entrepreneurship. Entrepreneurs introduce new ideas, products,

services, or processes that differentiate them from competitors and address market needs in
unique ways. Innovation can be in the form of:

 Product Innovation: Developing new or improved products.

 Process Innovation: Creating more efficient or cost-effective ways to produce or
deliver goods and services.
 Business Model Innovation: Introducing new ways of doing business, such as
subscription models or peer-to-peer platforms.

2. Risk-Taking

Entrepreneurship involves taking calculated risks. Entrepreneurs invest their time, money, and
resources without a guaranteed return. Risk-taking is essential to seize opportunities, innovate,
and bring new ideas to life. Types of risks include:

 Financial Risk: The potential loss of invested capital.

 Market Risk: The uncertainty of market demand and competition.
 Operational Risk: The risk of inefficient processes or resource management.

3. Opportunity Recognition
Entrepreneurs are skilled at identifying gaps in the market or unmet consumer needs and
turning them into business opportunities. This ability to spot opportunities involves market
research, trend analysis, and understanding consumer behavior.

4. Resource Mobilization

An entrepreneur must be able to gather and manage resources efficiently to launch and grow
the business. These resources can include:

 Financial Resources: Securing capital from investors, loans, or personal savings.

 Human Resources: Hiring talented employees or building a team.
 Technological Resources: Utilizing appropriate technology to support operations and
innovation.

Effective mobilization and management of these resources are critical for sustainability.

5. Vision and Leadership

Entrepreneurs need a clear vision of what they want to achieve and the direction they want their
business to take. This vision guides strategic planning and decision-making. Additionally,
entrepreneurs must exhibit strong leadership to inspire, motivate, and manage their teams.
Leadership also involves setting goals, delegating tasks, and creating a positive organizational
culture.

6. Creativity

Creativity is essential for generating new ideas and solving problems in unconventional ways.
Entrepreneurs often think outside the box to develop products or services that stand out in the
market. Creativity drives innovation, enabling entrepreneurs to devise unique solutions to meet
customer demands or market challenges.

7. Customer Focus

A successful entrepreneur places a high priority on understanding and meeting customer needs.
This involves gathering customer feedback, analyzing market trends, and continuously
improving products and services to provide greater value. Customer-centric businesses are
better positioned for long-term success.

8. Adaptability and Flexibility

Entrepreneurs must be able to adapt to changes in the market, industry, or technology.

Flexibility allows them to pivot their business strategies, adjust product offerings, and respond
to external challenges or opportunities. Adaptability is crucial for surviving in competitive and
dynamic environments.

9. Persistence and Determination

Entrepreneurship is often filled with challenges and setbacks. Successful entrepreneurs

demonstrate persistence and determination to overcome obstacles, whether it's dealing with
financial difficulties, operational issues, or market competition. The ability to stay motivated
and committed is key to achieving long-term goals.

10. Networking and Relationship Building

Entrepreneurs need to build strong networks and relationships to access resources, gain
support, and open new opportunities. Networking can include relationships with:

 Investors and Financial Institutions: For funding and financial support.

 Mentors and Advisors: For guidance and advice.
 Customers and Clients: For continuous business growth and customer loyalty.
 Suppliers and Partners: For efficient supply chain management and strategic
partnerships.

11. Financial Management

Effective financial management is a core element of entrepreneurship. Entrepreneurs must:

 Budgeting: Create and maintain a financial plan for the business.

 Cash Flow Management: Ensure the business has enough liquidity to operate.
 Cost Control: Manage expenses to maintain profitability.
 Fundraising: Secure capital from investors, banks, or other sources.

Good financial management ensures the sustainability and scalability of the business.

12. Passion and Drive

Passion fuels entrepreneurs' commitment to their business. Passion helps them stay focused on
their goals and maintain enthusiasm even during tough times. It is often the motivating force
behind their willingness to take risks and face challenges.

13. Decision-Making

Entrepreneurs need to make critical decisions, often under pressure and with limited
information. Effective decision-making involves assessing risks, evaluating options, and
choosing the best course of action to move the business forward. Good decision-making skills
are vital for navigating uncertainty and ensuring business growth.

14. Strategic Thinking

Entrepreneurs must think strategically to identify long-term goals and set a roadmap for
achieving them. Strategic thinking includes:

 Market Analysis: Understanding market dynamics, competition, and consumer

behavior.
 Business Planning: Developing short-term and long-term strategies for growth.
 Competitive Positioning: Creating a unique value proposition that differentiates the
business from competitors.
Strategic planning ensures that resources are allocated effectively and that the business stays
on the right track for growth and success.

15. Ethics and Social Responsibility

Entrepreneurs must conduct business with integrity, honesty, and social responsibility. Ethical
entrepreneurship builds trust with customers, employees, and partners. Social responsibility,
such as giving back to the community or focusing on sustainable practices, enhances the
entrepreneur's reputation and brand.

Conclusion

Entrepreneurship is a dynamic and multifaceted process that involves a mix of innovation, risk-
taking, strategic planning, leadership, and resource management. These elements form the
foundation of a successful entrepreneurial journey and contribute to the creation of a
sustainable, scalable, and impactful business.

ROLE OF ENTREPRENEURSHIP AND ENTREPRENEURS IN

DIFFERENT FIELDS

Entrepreneurs play a crucial role in society, the economy, and large firms by driving
innovation, economic growth, job creation, and improving societal well-being. Their
contributions span multiple dimensions, positively impacting all stakeholders. Here's a
breakdown of the role of entrepreneurs in these three areas:

1. Entrepreneurs’ Role in Society

Entrepreneurs significantly shape society by addressing social needs, creating jobs, improving
living standards, and fostering innovation. Their influence helps societies advance both
economically and socially.

a. Job Creation and Reducing Unemployment:

 Entrepreneurs create new businesses, which generate employment opportunities. This

helps reduce unemployment rates, leading to improved quality of life and financial
stability for individuals and families.

b. Improving Living Standards:

 By offering new products, services, and technologies, entrepreneurs improve the

overall quality of life. For example, technological entrepreneurs develop
communication tools, healthcare solutions, and educational platforms that enhance
daily living.

c. Addressing Social Problems:

 Many entrepreneurs, especially social entrepreneurs, focus on solving pressing societal

issues such as poverty, healthcare access, environmental conservation, and education.
 They create business models that directly target these challenges, providing sustainable
and scalable solutions.
o Example: Muhammad Yunus and the Grameen Bank model, which helps
reduce poverty through microfinance and microloans.

d. Fostering Innovation and Progress:

 Entrepreneurs drive social progress by pushing the boundaries of innovation. New

inventions, products, and services shape modern lifestyles, from transportation (electric
cars) to communication (smartphones) to energy (solar power).
o Example: Innovations in clean energy technologies by entrepreneurs such as
Elon Musk have promoted environmental awareness and sustainable living.

e. Cultural and Community Development:

 Entrepreneurs often support cultural initiatives, sponsor local events, and contribute to
community development. Through corporate social responsibility (CSR) programs,
many businesses give back to the community, funding education, healthcare, and
infrastructure projects.
o Example: Entrepreneurs sponsoring local art, education programs, or charities
can enhance cultural and social experiences within communities.

2. Entrepreneurs’ Role in the Economy

Entrepreneurs are the backbone of economic development. They help stimulate economic
activity, increase productivity, and influence national and global markets.

a. Driving Economic Growth:

 Entrepreneurs introduce new products and services that create market demand and
contribute to national GDP. Their businesses, both small and large, fuel the economy
by increasing production, trade, and investment activities.
o Example: The rise of the tech industry in regions like Silicon Valley has
significantly boosted the US economy, contributing to its global economic
dominance.

b. Capital Formation:

 Entrepreneurs attract investments from various sources, including venture capitalists,

angel investors, and banks. This capital flow contributes to the overall financial health
of the economy, helping to stimulate further business growth and development.

c. Creating New Markets:

 Entrepreneurs often develop entirely new markets by identifying unmet consumer

needs. They create demand where none previously existed, opening up new business
opportunities and channels for economic activity.
o Example: The e-commerce revolution led by Amazon and Alibaba has created
a global market for online goods, transforming traditional retail.
d. Boosting Innovation and Productivity:

 Entrepreneurs introduce innovations that enhance productivity, lower production costs,

and improve efficiency in various sectors. This not only benefits businesses but also
leads to lower prices and better services for consumers.
o Example: Entrepreneurs in the AgriTech space have revolutionized farming,
using AI and data-driven methods to improve crop yields, benefiting the
agriculture sector.

e. Promoting Global Competitiveness:

 Through entrepreneurship, economies become more competitive on the global stage.

Entrepreneurs bring in foreign investment, develop export markets, and create a
competitive edge by adopting advanced technologies and business strategies.
o Example: Companies like Apple, Google, and Microsoft have positioned the
U.S. as a leader in technology and innovation, enhancing its global economic
standing.

f. Stimulating Other Sectors:

 Entrepreneurs indirectly impact other industries by creating demand for various goods
and services. For instance, the establishment of a tech company may create demand for
office space, IT infrastructure, logistics, and professional services (legal, accounting,
marketing).

3. Entrepreneurs’ Role in Large Firms

Even within large firms, entrepreneurial thinking, often referred to as intrapreneurship, plays
a key role. Entrepreneurs in large firms drive innovation, help the company stay competitive,
and lead growth initiatives.

a. Fostering Innovation and R&D:

 Entrepreneurs within large firms lead innovation efforts, helping companies develop
new products, services, and processes. They push for creative solutions that can help
the company stay ahead of competitors and adapt to market changes.
o Example: Google’s innovation labs (e.g., Google X) encourage
intrapreneurship by allowing employees to work on high-risk, high-reward
projects such as self-driving cars and Google Glass.

b. Exploring New Business Opportunities:

 Entrepreneurial employees (intrapreneurs) help large firms identify and explore new
business opportunities, markets, and revenue streams. By acting like entrepreneurs
within the firm, they ensure the company can diversify and expand.
o Example: Amazon started as an online bookstore but intrapreneurial efforts led
to the creation of new services like Amazon Web Services (AWS) and Amazon
Prime, expanding its reach and profitability.

c. Enhancing Organizational Flexibility:

  Entrepreneurs within large firms challenge bureaucratic norms, fostering a more agile
and flexible organizational culture. They help the firm stay nimble and responsive to
changing market conditions, customer needs, and technological disruptions.
o Example: Facebook’s emphasis on an entrepreneurial culture, even as it grew
into a large corporation, allowed it to remain adaptable and innovative, leading
to the acquisition of companies like Instagram and WhatsApp.

d. Driving Strategic Growth:

 Entrepreneurs in large firms often lead strategic growth initiatives, such as launching
new product lines, entering new markets, or forming strategic partnerships. Their ability
to take calculated risks and spot opportunities helps the firm achieve long-term growth
goals.
o Example: Microsoft’s intrapreneurial effort to develop cloud computing
services helped the company remain a leader in the tech industry despite
competition from other firms.

e. Promoting Corporate Entrepreneurship:

 Large firms encourage corporate entrepreneurship to stay relevant in a competitive

environment. By fostering an entrepreneurial mindset among employees, companies
can create a pipeline of innovative ideas and continuous improvement.
o Example: 3M’s policy of allowing employees to spend 15% of their time on
personal projects led to the creation of Post-it notes, one of the company’s most
successful products.

Conclusion

Entrepreneurs play an essential role in society, the economy, and even large firms. They are
the drivers of job creation, economic growth, and innovation, both on a macro and micro level.
Their ability to identify opportunities, take risks, and solve problems leads to economic
development, societal improvement, and sustained competitive advantage in large
organizations. Whether they are founding startups, influencing policy, or acting as
intrapreneurs within large corporations, entrepreneurs shape the future of industries,
economies, and societies.

ROLE OF ENTREPRENEURSHIP IN ECONOMIC DEVELOPMENT

Entrepreneurship plays a pivotal role in economic development, acting as a catalyst for

innovation, job creation, and overall economic growth. Entrepreneurs drive structural changes
in the economy, introduce new technologies, and help allocate resources more efficiently.
Below are the key ways in which entrepreneurship contributes to economic development:

1. Creation of Employment Opportunities

 Job Creation: One of the most significant contributions of entrepreneurs to economic

development is the creation of jobs. Entrepreneurs establish new businesses that require
manpower, thereby generating employment opportunities for a wide range of skill
levels.
  Reduction of Unemployment: By providing jobs, entrepreneurship helps reduce
unemployment and underemployment, directly improving people's income levels and
standard of living.
o Example: The rise of the technology startup ecosystem in places like Silicon
Valley created millions of high-paying jobs globally.

2. Economic Growth and GDP Contribution

 Increased Productivity: Entrepreneurs contribute to economic growth by increasing

the production of goods and services. Their activities lead to higher levels of output,
contributing to the gross domestic product (GDP) of a country.
 Market Expansion: Entrepreneurs create new products, services, and even entire
industries, leading to expanded markets and economic activity. As more businesses
grow, they drive demand for goods and services, fueling further growth.
o Example: The creation of the smartphone industry revolutionized global
markets, adding significant value to economies worldwide.

3. Innovation and Technological Advancement

 Introduction of New Products and Services: Entrepreneurs are innovators who bring
new ideas, products, and services to the market, leading to technological advancements
and improvements in consumer lifestyles.
 Encouraging R&D: Entrepreneurs stimulate research and development (R&D) as they
constantly seek ways to differentiate their products and improve processes. This helps
the economy stay competitive in global markets by adopting advanced technologies.
o Example: Companies like Tesla have pushed innovation in electric vehicles,
renewable energy, and battery technologies, advancing green technologies
worldwide.

4. Resource Mobilization

 Efficient Use of Resources: Entrepreneurs mobilize resources, including capital, labor,

and technology, for productive uses. By efficiently allocating these resources,
entrepreneurs help enhance productivity and drive economic growth.
 Capital Formation: Entrepreneurs attract investment from venture capitalists, banks,
and angel investors. This capital formation contributes to the overall financial health of
the economy and promotes further industrial and economic development.
o Example: E-commerce platforms like Amazon and Alibaba have
revolutionized retail, logistics, and supply chain management, optimizing
resource use across sectors.

5. Development of New Markets

 Creating Demand: Entrepreneurs develop new markets by introducing innovative

products and services that cater to untapped consumer needs. They create demand
where none existed before, leading to the growth of new industries and opportunities
for further economic activity.
  Global Market Access: Many entrepreneurs expand internationally, helping their
economies enter the global market. This international trade improves foreign exchange
reserves, expands businesses, and boosts GDP.
o Example: The global expansion of companies like Uber and Airbnb has opened
up new service markets, changing traditional industries like transportation and
hospitality.

6. Enhancing Competition and Productivity

 Increased Competition: Entrepreneurship fosters a competitive business environment,

pushing existing firms to innovate and improve efficiency. Competition leads to better
products, services, and prices for consumers, enhancing overall economic welfare.
 Increased Productivity: Entrepreneurs often bring process innovations that streamline
production, increase efficiency, and reduce costs. This increased productivity leads to
higher profitability for businesses and economic growth.
o Example: The entry of disruptive businesses like Netflix into the entertainment
industry forced traditional media companies to innovate and adapt to new
consumption patterns.

7. Promoting Regional Development

 Decentralization of Economic Activities: Entrepreneurs often set up businesses in

various regions, including rural and semi-urban areas, which can lead to more balanced
regional development. By investing in underdeveloped areas, they help to decentralize
economic activities and spread prosperity across regions.
 Infrastructure Development: As new businesses emerge in these regions, there is a
need for infrastructure, such as roads, schools, hospitals, and power supply. This leads
to improvements in public services and infrastructure development.
o Example: Industrial zones set up in regions like China’s interior provinces have
helped spread economic growth from coastal cities to inland areas.

8. Wealth Creation and Distribution

 Wealth Generation: Entrepreneurs generate wealth not only for themselves but also
for society by increasing business activities. They pay taxes, which contribute to
government revenues, allowing for public spending on infrastructure, education, and
healthcare.
 Redistribution of Wealth: Entrepreneurs provide opportunities for individuals from
various socio-economic backgrounds to improve their livelihoods. This contributes to
a more equitable distribution of wealth in society.
o Example: Small and medium-sized enterprises (SMEs) in developing countries
help lift communities out of poverty by creating jobs and wealth at the local
level.

9. Export Promotion and Foreign Exchange Earnings

 Boosting Exports: Entrepreneurs who successfully tap into international markets

contribute to the export growth of a country. Increased exports help improve the balance
of trade, strengthening the economy by earning foreign exchange.
  Global Competitiveness: Entrepreneurs often introduce innovative products and
services that make their countries competitive in international markets. This enhances
the country’s global economic standing and ability to trade.
o Example: Countries like South Korea have promoted entrepreneurship to
develop global tech giants like Samsung, contributing significantly to the
national economy through exports.

10. Social Entrepreneurship and Development

 Solving Social Problems: Social entrepreneurs focus on creating businesses that

address societal challenges such as poverty, healthcare, education, and environmental
issues. These ventures not only generate economic value but also contribute to social
development.
 Improving Human Capital: Through their ventures, entrepreneurs invest in skills
development and training, which enhances the capabilities of the workforce. This leads
to higher levels of human capital in the economy, promoting long-term economic
development.
o Example: Social entrepreneurs like those behind microfinance institutions have
provided access to credit for the underprivileged, helping foster economic
growth in low-income communities.

Conclusion

Entrepreneurship is a key driver of economic development, contributing to job creation,

innovation, capital formation, and regional development. Entrepreneurs mobilize resources,
create new markets, and introduce new technologies, enhancing productivity and fostering
global competitiveness. Their role in economic growth is vital for advancing both developed
and developing economies, making entrepreneurship a crucial component of sustainable
economic development.
ENTREPRENEURIAL DECISION PROCESS

The entrepreneurial decision process is the series of steps and considerations that an
individual or team undergoes to move from recognizing a business opportunity to the actual
creation of a new venture. This process is essential for ensuring that entrepreneurs make
informed decisions at each stage. Here's a breakdown of the entrepreneurial decision
process:

1. Opportunity Recognition

 Problem Identification: Recognize a gap or a problem in the market. This could

come from personal experiences, customer pain points, or emerging trends.
 Idea Generation: Develop an innovative solution to the identified problem. This is
often the starting point of entrepreneurship, where creativity and critical thinking
come into play.
 Market Need: Determine if there is a genuine demand for the solution.
Understanding whether customers need or want the product or service is crucial
before moving forward.

2. Feasibility Analysis

 Technical Feasibility: Assess whether the idea can be technically developed. For
instance, is the necessary technology available, or can the product be manufactured at
a reasonable cost?
 Market Feasibility: Analyze the target market, size, customer preferences, and
competition. Determine the likelihood of capturing market share.
 Financial Feasibility: Estimate the startup costs, revenue potential, and profitability.
Understand how much capital is needed and when the business is likely to break even.

3. Risk Evaluation

 Personal Risk: Entrepreneurs often have to weigh the risk of leaving a stable job,
investing personal savings, or committing significant time.
 Market Risk: Assess the risk of market demand not materializing, competition
entering the market, or economic changes affecting customer behavior.
 Operational Risk: Consider potential risks in supply chains, production, technology,
and staffing.
 Financial Risk: Evaluate how much you can afford to lose if the venture fails. It’s
essential to have contingency plans or alternative financing options.

4. Decision to Proceed

 Commitment to Action: If the idea proves feasible and the risks are manageable, the
entrepreneur makes the decision to proceed. This is a critical point where passion,
determination, and self-belief play a significant role.
 Business Model Development: Create a business model that outlines how the venture
will create, deliver, and capture value. This includes pricing strategies, revenue
models, distribution channels, and customer acquisition plans.
5. Resource Acquisition

 Human Resources: Assemble a team with the necessary skills and expertise. This
might include co-founders, employees, or external consultants.
 Financial Resources: Secure funding through personal savings, investors, loans,
grants, or crowdfunding. The type of funding depends on the business model, the
amount needed, and the stage of development.
 Operational Resources: Set up infrastructure, such as office space, technology,
production facilities, or supply chains. Ensure you have the necessary resources to
launch the business effectively.

6. Implementation

 Business Launch: Execute the plan by launching the product or service into the
market. This may involve a soft launch (testing with a small audience) or a full-scale
launch, depending on the business type.
 Marketing and Sales: Promote the venture through marketing campaigns, build
relationships with customers, and establish distribution channels.
 Operational Execution: Start the day-to-day operations, including production, sales,
customer service, and financial management.

7. Performance Review and Adaptation

 Monitor Performance: Measure key performance indicators (KPIs) such as revenue

growth, customer acquisition, market share, and profitability.
 Learn and Adjust: Entrepreneurs must constantly assess their performance and make
adjustments based on market feedback, customer behavior, and emerging challenges.
 Pivot or Scale: Depending on the results, entrepreneurs may decide to pivot (change
strategy or product direction) or scale the business to grow in new markets or expand
operations.

8. Exit Strategy

 Exit Planning: Entrepreneurs should also consider potential exit strategies, such as
selling the business, merging with another company, or going public (IPO).
 Long-Term Goals: Decide whether the long-term goal is to stay involved in the
business or to build and sell it for a profit.

CREATING AND STARTING A VENTURE

Creating and starting a venture involves a series of well-planned steps that lead from idea
generation to business launch. Here’s a simplified roadmap to help you get started:

1. Idea Generation

 Identify a problem or need in the market.

 Brainstorm potential solutions that are innovative, scalable, and feasible.
 Validate your idea by researching if there’s a demand, how unique it is, and what
competitors exist.
2. Market Research

 Conduct surveys or focus groups to understand your target audience.

 Analyze industry trends, customer behavior, and the competitive landscape.
 Define your unique value proposition (UVP) — what makes your product or service
stand out.

3. Business Plan Development

 Executive Summary: Overview of your business, mission, vision, and objectives.

 Product/Service Description: What you’re offering, key features, and benefits.
 Market Analysis: Detailed research on your target market and competition.
 Marketing Strategy: How you will attract and retain customers (branding,
promotion, pricing).
 Operations Plan: How the business will function day-to-day (logistics, supply chain,
staffing).
 Financial Projections: Estimate of startup costs, revenue, profits, and break-even
analysis.
 Funding Needs: How much capital is required and the sources (investors, loans, etc.).

4. Legal and Structural Setup

 Choose a business structure: Sole proprietorship, partnership, LLC, corporation, etc.

 Register your business with local authorities.
 Obtain necessary permits and licenses.
 Open a business bank account and get insurance.

5. Funding

 Bootstrapping: Use your own savings to fund the business.

 Investors: Seek angel investors, venture capitalists, or crowdfunding platforms.
 Loans/Grants: Apply for small business loans or government grants.
 Partnerships: Consider strategic alliances to gain capital or resources.

6. Product Development

 Build your product or service. For tech ventures, start with a Minimum Viable
Product (MVP).
 Gather feedback from beta users and iterate to improve based on real-world testing.
 Finalize your product for market launch.

7. Marketing and Branding

 Develop a strong brand identity (logo, colors, tone, and messaging).

 Launch a website and establish a presence on social media.
 Run digital marketing campaigns (SEO, PPC, social media ads).
 Attend networking events, trade shows, and webinars to promote your business.

8. Launch
  Choose a launch date and create a launch plan.
 Generate buzz through press releases, influencer collaborations, and teaser campaigns.
 Offer discounts or incentives for early adopters.
 Monitor the market response and adjust your marketing and operational strategies
accordingly.

9. Growth Strategy

 Expand your customer base through partnerships, referrals, and strategic marketing.
 Introduce new products or services to diversify your offerings.
 Scale your business by expanding to new markets or optimizing operations for
efficiency.

10. Continuous Learning and Adaptation

 Stay updated with industry trends, market shifts, and customer preferences.
 Gather regular feedback and adapt your business model as necessary.
 Invest in ongoing learning to refine your skills and business strategies.

Starting a venture requires persistence, risk management, and a strong vision for the future.
Make sure you stay flexible and open to learning from both successes and failures along the
way.

APPROACHES FOR CREATING NEW VENTURE

The New-New Approach and New-Old Approach are two different strategies used in
entrepreneurship to create new ventures, based on the level of innovation and market
opportunities.

1. New-New Approach

 Description: In the New-New Approach, entrepreneurs create a completely new

product or service that has never existed in the market. This approach involves high
levels of innovation, where the venture is based on a unique idea, technology, or
solution that solves a problem in a new way.
 Focus: Innovation and the creation of something original that doesn’t yet have a
direct comparison in the market.
 Characteristics:
o High degree of novelty and originality.
o Targets unmet needs or latent demands that current products or services do not
address.
o Entrepreneurs often need to educate the market about the new offering, as
customers may not be familiar with the product or its benefits.
 Examples:
o The introduction of the smartphone when it first entered the market
revolutionized how people communicate, browse the internet, and use apps.
o Tesla creating electric vehicles with innovative battery technology and
autopilot features that redefined the automotive industry.
 Advantages:
 o Potential for creating a monopoly or dominant market position due to first-
mover advantage.
o Opportunity to set industry standards and shape customer expectations.
o High potential for rapid growth if the market embraces the innovation.
 Challenges:
o High risk of failure due to uncertainty in market acceptance and customer
education.
o Significant research and development (R&D) costs.
o Difficulty in predicting the demand for entirely new products.

2. New-Old Approach

 Description: In the New-Old Approach, entrepreneurs take an existing idea or

product and improve, adapt, or modify it to fit a new context, market, or target
audience. The focus is on enhancing or updating an established product or service
rather than creating something entirely new.
 Focus: Improvement or adaptation of an existing product to serve different
markets, solve a specific problem better, or meet emerging needs.
 Characteristics:
o Builds on proven ideas or existing business models.
o Entrepreneurs may find gaps in the current market or identify areas where the
product can be improved (e.g., functionality, price, design).
o Can be an evolution of a business or product to target a new segment or
geography.
 Examples:
o Uber took the existing idea of transportation (taxis) and applied a new
business model (ride-sharing) using smartphone technology and apps.
o Apple’s iPhone was an evolution of existing mobile phones, incorporating
new features like a touchscreen interface, app ecosystem, and advanced
camera.
 Advantages:
o Lower risk since the idea has already been proven in the market.
o Easier customer acceptance because the product is familiar, though improved
or tailored.
o Potential to target niche markets, geographical expansions, or underserved
customer segments.
 Challenges:
o More competition from established businesses offering similar products.
o Limited potential for radical growth unless the improvements significantly
disrupt the market.
o May require extensive market research to identify opportunities for
improvement.

Key Differences:

Aspect New-New Approach New-Old Approach

Improving or adapting an existing
Focus Creating something entirely new
idea
Innovation Level High (disruptive innovation) Moderate (incremental innovation)
 Aspect New-New Approach New-Old Approach
Risk High (uncertain market acceptance) Moderate (proven concept)
Market Unfamiliar (requires market Familiar (based on existing
Familiarity education) demand)
Example Introduction of the smartphone Uber improving the taxi business

Which Approach to Choose?

 New-New Approach is suitable when there is a strong demand for innovation, and
the entrepreneur has identified a completely new way to address a problem. It’s ideal
for disruptive industries or when technological advancements enable new
possibilities.
 New-Old Approach is better when an existing business model or product can be
improved or adapted to better meet the needs of a specific customer base or
geography. This approach is often less risky and faster to market.

STEPS IN ACQUIRING ESTABLISHED ENTREPRENEURIAL

VENTURE

Acquiring an established entrepreneurial venture involves several steps that ensure a smooth
transition and help mitigate risks. Here are the key steps in acquiring an existing business:

1. Self-Assessment and Goal Setting

 Description: Before starting the acquisition process, it is essential to conduct a

thorough self-assessment to understand your motivations, goals, and capabilities as a
potential business owner.
 Key Considerations:
o Why do you want to acquire an existing business instead of starting one from
scratch?
o What industry or type of business are you interested in?
o What skills, experience, and financial resources do you bring to the table?
o What are your long-term business and personal goals?
 Outcome: A clear understanding of what type of business aligns with your skills,
interests, and financial goals.

2. Search and Identify Potential Businesses

 Description: The next step is to research and identify businesses that are available for
sale and match your goals.
 Key Considerations:
o Where to look: Business brokers, online business marketplaces, industry
connections, and networks.
o Type of business: Consider location, industry, size, profitability, and growth
potential.
o Criteria: Look for businesses that fit your budget, skillset, and desired level of
involvement.
  Outcome: A shortlist of businesses that align with your preferences and financial
capabilities.

3. Preliminary Research and Initial Due Diligence

 Description: Conduct initial research to gather more information about the shortlisted
businesses. This helps assess whether the business is worth further investigation.
 Key Considerations:
o Review basic financial information (e.g., revenue, profit margins, debts).
o Investigate market conditions and the business’s competitive landscape.
o Understand the reasons for the sale (e.g., retirement, declining performance, or
personal reasons).
o Evaluate the business model, customer base, and any legal or regulatory
concerns.
 Outcome: Identification of businesses that warrant deeper due diligence and
engagement.

4. Valuation of the Business

 Description: Estimate the value of the business to determine if the asking price is fair.
Business valuation can be done through various methods, depending on the nature of
the business.
 Valuation Methods:
o Asset-Based Valuation: Based on the value of the company’s assets (e.g.,
equipment, inventory, real estate).
o Earnings Valuation (Income Approach): Based on the business’s earnings
potential and cash flow.
o Market Comparison: Comparing the business to similar companies that have
been sold recently.
o Discounted Cash Flow (DCF): Estimates the present value of future cash
flows generated by the business.
 Outcome: A realistic valuation of the business, allowing you to make an informed
offer.

5. Financing the Acquisition

 Description: Explore different financing options to fund the purchase. Depending on

the size of the business and your financial situation, you may need external financing.
 Common Financing Options:
o Self-financing: Using personal savings or investments.
o Bank loans: Traditional financing from a bank, often requiring collateral and
a solid credit history.
o Seller financing: The seller agrees to accept payments over time instead of a
lump sum.
o Investors: Bringing in external investors or partners to finance the acquisition.
o Small Business Administration (SBA) Loans: Government-backed loans
that offer favorable terms.
 Outcome: A financing plan that aligns with the size and cost of the acquisition.
6. Due Diligence

 Description: Conduct thorough due diligence to investigate the business's operations,

financials, legal standing, and other factors that may affect the acquisition.
 Areas of Focus:
o Financials: Review income statements, balance sheets, cash flow, and tax
returns for at least the past three years.
o Legal: Verify business licenses, contracts, intellectual property, and any
pending legal issues.
o Customer Base: Assess the stability and diversity of the customer base, key
clients, and long-term contracts.
o Employees: Understand the workforce structure, key employees, and labor
agreements.
o Assets: Verify the ownership, condition, and valuation of tangible and
intangible assets (e.g., property, inventory, patents).
o Liabilities: Identify outstanding debts, loans, legal obligations, or contingent
liabilities.
 Outcome: A comprehensive understanding of the business’s strengths, weaknesses,
and potential risks.

7. Negotiate the Purchase Agreement

 Description: Once due diligence is complete, negotiate the terms of the acquisition
with the seller. This includes discussing the final purchase price, payment terms, and
other key aspects of the deal.
 Key Elements of the Agreement:
o Purchase Price: The final price agreed upon for the business.
o Payment Terms: Full payment upfront or staggered payments through
financing or seller financing.
o Transition Period: Details of how the business transition will be handled,
including the seller’s involvement in training or consulting.
o Non-Compete Clause: Prevents the seller from starting a competing business
after the sale.
o Warranties and Representations: Assurances from the seller about the
accuracy of financial statements and other critical information.
 Outcome: A legally binding purchase agreement that outlines the terms of the deal.

8. Finalize Financing and Close the Deal

 Description: After negotiating the terms, finalize the financing and prepare for the
closing process.
 Steps Involved:
o Finalize all loan approvals or financing arrangements.
o Ensure that legal documentation is prepared by your attorney.
o Both parties sign the purchase agreement.
o Transfer of ownership is completed, including the transfer of any licenses,
contracts, and assets.
 Outcome: Legal ownership of the business is transferred to the buyer, and the deal is
officially closed.
9. Post-Acquisition Integration and Transition

 Description: After the acquisition is complete, the next step is to integrate yourself
into the business and ensure a smooth transition.
 Key Considerations:
o Employee Management: Communicate clearly with existing employees and
manage any changes in leadership or operations.
o Customer Relationships: Maintain relationships with key customers,
suppliers, and stakeholders to ensure continuity.
o Operational Changes: Identify areas for improvement but avoid making
drastic changes immediately to avoid disrupting the business.
o Seller’s Involvement: If agreed upon, ensure that the seller assists with the
transition and provides support during the handover period.
 Outcome: A successful transition, with the new owner taking full control and
continuing business operations smoothly.

Summary of Steps:

1. Self-Assessment and Goal Setting

2. Search and Identify Potential Businesses
3. Preliminary Research and Initial Due Diligence
4. Valuation of the Business
5. Financing the Acquisition
6. Due Diligence
7. Negotiate the Purchase Agreement
8. Finalize Financing and Close the Deal
9. Post-Acquisition Integration and Transition

By following these steps, you can minimize the risks associated with acquiring an established
entrepreneurial venture and increase the chances of a successful transition and business
continuity.

SOURCES OF NEW IDEAS

Entrepreneurs often rely on a variety of sources to generate new business ideas. These
sources can help identify opportunities for innovation, new markets, and unmet needs. Below
are some of the most common sources of new ideas for entrepreneurship:

1. Market Research

 Description: Market research helps identify trends, gaps, and unmet needs within a
target audience. Analyzing customer behavior, preferences, and market dynamics can
provide valuable insights for generating new ideas.
 Types of Market Research:
o Surveys and questionnaires.
o Focus groups.
o Competitor analysis.
o Industry reports.
 Example: Entrepreneurs analyzing the shift towards environmentally friendly
products may identify a gap for sustainable packaging solutions.
2. Personal Experience

 Description: Many entrepreneurs derive business ideas from their own experiences,
whether from work, hobbies, or everyday life. They identify pain points or problems
they have personally encountered and seek to provide solutions.
 Example: An individual who experiences difficulties finding a specific product might
start a business to fill that gap, like Sara Blakely, who founded Spanx after her own
frustration with traditional undergarments.

3. Customer Feedback

 Description: Listening to customers’ feedback on existing products and services can

spark new ideas for improvement or innovation. Complaints, suggestions, and reviews
often reveal opportunities to enhance the user experience.
 Example: Tech companies frequently update their products based on user feedback,
leading to new features and product lines. For instance, Apple launched new iPhone
models based on user demands for better cameras and battery life.

4. Brainstorming and Creativity Sessions

 Description: Group brainstorming and creativity sessions allow teams or individuals

to think freely and generate a wide range of ideas. These sessions often encourage
out-of-the-box thinking and lead to innovative concepts.
 Techniques:
o Mind mapping.
o SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats).
o SCAMPER method (Substitute, Combine, Adapt, Modify, Put to another use,
Eliminate, Reverse).
 Example: Many design companies like IDEO use creative brainstorming techniques
to develop new products and service concepts by focusing on user needs and design
thinking.

5. Industry Trends and Technological Advances

 Description: Keeping an eye on emerging industry trends and technological

advancements is a crucial source of ideas. Entrepreneurs can leverage new
technologies or capitalize on growing trends to develop innovative products or
services.
 Examples:
o The rise of artificial intelligence (AI) has led to the creation of AI-powered
solutions for industries like healthcare, finance, and retail.
o The trend towards remote work during the COVID-19 pandemic inspired the
development of new collaboration tools like Zoom or virtual office platforms.

6. Competitor Analysis

 Description: Studying competitors can reveal gaps in the market or areas where
existing products fall short. Entrepreneurs can capitalize on these gaps by offering
improved or differentiated products.
  Key Considerations:
o Identify areas where competitors are underperforming.
o Analyze customer complaints about competitors' products or services.
o Look for unaddressed segments of the market.
 Example: Netflix identified a gap in the market when its competitors were focused on
physical video rentals and shifted its business model to a streaming service.

7. Frustrations and Problems

 Description: Problems and frustrations that people face in daily life are powerful
sources of entrepreneurial ideas. Entrepreneurs who identify these problems and find
innovative solutions can create successful ventures.
 Example: Dropbox was founded by Drew Houston after he became frustrated with
the difficulty of accessing his files while traveling. This frustration led to the
development of a cloud-based file storage and sharing platform.

8. Observation and Trendspotting

 Description: Simply observing everyday activities, behaviors, or societal changes can

generate new ideas. Entrepreneurs often spot trends or cultural shifts that signal new
business opportunities.
 Key Areas to Observe:
o Changes in consumer behavior.
o Social, economic, and environmental trends.
o New uses of technology.
 Example: Airbnb was born when the founders noticed a growing trend of people
seeking short-term accommodation alternatives to hotels, especially during large
events.

9. Existing Products or Services

 Description: Enhancing or modifying existing products or services to meet a new

demand or solve a problem is a common way to generate new ideas. Entrepreneurs
often take what already exists and make it better or different.
 Example: Uber took the traditional taxi model and improved it by offering ride-
sharing through an app, providing greater convenience and customer control.

10. Trade Shows and Conferences

 Description: Trade shows, exhibitions, and industry conferences are excellent sources
of inspiration. These events allow entrepreneurs to see new products, technologies,
and innovations firsthand, providing insight into industry trends and potential
business ideas.
 Example: Attending a consumer electronics show may inspire entrepreneurs to
develop new products that align with emerging trends, such as wearable technology or
smart home devices.

11. Franchising Opportunities

  Description: Some entrepreneurs opt for franchising as a way to start a business with
an established brand and business model. Franchising can be an attractive option for
those who want to leverage a proven concept.
 Example: McDonald's franchisees operate under a well-established brand and
business model, reducing the risks associated with starting a completely new venture.

12. Gaps in the Market (White Space)

 Description: Market gaps represent areas where customer needs are not being fully
met by current offerings. Identifying and filling these gaps can lead to highly
successful business ventures.
 Example: Tesla identified a market gap in the electric vehicle market, where there
were few options for high-performance electric cars. They filled this gap with
innovative, luxury electric vehicles.

13. Government Policies and Regulations

 Description: Changes in government policies or regulations often create opportunities

for new businesses. For example, new environmental regulations may inspire
entrepreneurs to develop green technologies or sustainable solutions.
 Example: Government incentives for renewable energy spurred the growth of
companies specializing in solar power and energy-efficient products.

14. Accidental Discovery (Serendipity)

 Description: Sometimes, new business ideas come from accidental discoveries or

unexpected situations. Serendipity plays a role when an entrepreneur stumbles upon a
solution or innovation unintentionally.
 Example: The invention of Post-it Notes by 3M was a result of accidental discovery
when a scientist trying to create a super-strong adhesive accidentally created a low-
tack, reusable adhesive.

15. Networking and Mentorship

 Description: Interactions with mentors, advisors, industry experts, or other

entrepreneurs can inspire new ideas. Networking events, incubators, and accelerators
can connect entrepreneurs to new opportunities and collaborative ventures.
 Example: Many entrepreneurs, like Mark Zuckerberg (Facebook), have benefited
from mentorship and networks to refine their ideas and launch successful ventures.

Summary of Key Sources of New Ideas:

1. Market Research
2. Personal Experience
3. Customer Feedback
4. Brainstorming and Creativity Sessions
5. Industry Trends and Technological Advances
 6. Competitor Analysis
7. Frustrations and Problems
8. Observation and Trendspotting
9. Existing Products or Services
10. Trade Shows and Conferences
11. Franchising Opportunities
12. Gaps in the Market (White Space)
13. Government Policies and Regulations
14. Accidental Discovery (Serendipity)
15. Networking and Mentorship

By leveraging these sources, entrepreneurs can generate new and innovative ideas for
products, services, or business models that can lead to successful ventures.
Creativity In Entrepreneurship

Creativity in entrepreneurship is the driving force behind innovation and business growth. It
allows entrepreneurs to think outside the box, identify opportunities, and develop unique
solutions to challenges. Here’s how creativity plays a pivotal role in entrepreneurship:

1. Innovation and Problem Solving

 Creativity fuels innovation by enabling entrepreneurs to generate new ideas, improve

 existing products, or create entirely new solutions. It helps in identifying customer
pain points and crafting unique ways to solve them, leading to innovative products or
services.

2. Differentiation in the Market

 In a competitive market, creative entrepreneurs find ways to stand out. They develop
unique selling propositions (USP) or brand identities that make their products or
services memorable. Creativity can turn even mundane products into something
special by focusing on design, branding, or experience.

3. Adapting to Change

 Entrepreneurs often face unpredictable challenges. Creativity enables them to adapt

quickly by finding alternative approaches or pivoting their business models to meet
changing market conditions. It helps in exploring unconventional solutions when
traditional methods fail.

4. Cost-Effective Innovation

 Startups and new ventures often have limited resources. Creativity allows
entrepreneurs to find low-cost, efficient ways to test their ideas and bring them to
market. Concepts like the Minimum Viable Product (MVP) or Lean Startup rely
on creativity to build a foundation with minimal resources.

5. Marketing and Customer Engagement

 Creative approaches to marketing, such as storytelling, viral campaigns, or unique

social media strategies, can help attract attention and build a loyal customer base.
Entrepreneurs use creativity to connect emotionally with customers, creating lasting
relationships.

6. Risk-Taking and Vision

 Creativity is essential for envisioning the future. It allows entrepreneurs to take

calculated risks, foresee potential trends, and develop visionary concepts that can lead
to breakthrough innovations.
7. Collaborative Thinking

 Entrepreneurs often collaborate with teams, partners, or stakeholders. Creative

thinking promotes collaboration by encouraging diverse perspectives, allowing for
better brainstorming sessions, and fostering a culture of innovation within the
organization.

In summary, creativity is a core asset for entrepreneurs, enabling them to innovate, adapt, and
differentiate themselves in dynamic business environments.

Creative Problem Solving

Creative problem solving (CPS) is the process of finding innovative and effective solutions to
complex or unfamiliar problems. It involves thinking beyond conventional approaches, using
imagination, and applying creative strategies to address challenges. This approach encourages
exploration, flexibility, and innovation in problem-solving.

Key Characteristics of Creative Problem Solving:

1. Open-Mindedness: It involves considering unconventional ideas and being open to

exploring different possibilities.
2. Divergent Thinking: Generating multiple solutions or ideas without immediate
judgment, allowing creativity to flow freely.
3. Convergent Thinking: After exploring various options, narrowing down the choices
and evaluating which solution is the most effective.
4. Innovation: Finding new and unique approaches that might not have been previously
considered.
5. Adaptability: Creative problem-solving requires adjusting strategies as new
information or challenges arise.

Steps in Creative Problem Solving:

1. Identify the Problem: Clearly define the problem or challenge that needs to be
solved.
2. Gather Information: Collect relevant data, insights, and context to understand the
problem better.
3. Generate Ideas: Brainstorm potential solutions without evaluating them too early.
4. Evaluate and Select Solutions: Analyze the ideas and choose the best possible
solution based on feasibility and effectiveness.
5. Implement the Solution: Put the selected solution into action.
6. Evaluate the Results: Assess the outcome to ensure the problem is solved and make
any necessary adjustments.

Creative problem solving is essential in entrepreneurship, innovation, and business

development, where new approaches are often needed to overcome obstacles and achieve
goals.
Creative Problem-Solving Techniques

Creative problem-solving techniques help individuals and teams generate innovative

solutions to challenges. Here are some widely used techniques:

1. Brainstorming

 What it is: A group activity where participants generate as many ideas as possible
without judgment or criticism.
 How it helps: Encourages free thinking and idea generation. Participants build on
each other's suggestions, leading to a wide range of potential solutions.
 Best for: Generating diverse ideas in a short time, especially when tackling new
problems.

2. Mind Mapping

 What it is: A visual technique that starts with a central idea and branches out into
related thoughts or sub-ideas.
 How it helps: Helps to visually organize thoughts and identify connections between
ideas, leading to a broader understanding of the problem.
 Best for: Complex problems that require exploring multiple aspects or connections.

3. SCAMPER

 What it is: A technique that stands for Substitute, Combine, Adapt, Modify, Put to
another use, Eliminate, and Reverse. It encourages users to ask questions based on
these verbs.
 How it helps: Guides the thinking process to modify existing ideas, improve
products, or solve problems creatively.
 Best for: Enhancing or improving existing products, processes, or ideas.

4. Six Thinking Hats

 What it is: Developed by Edward de Bono, this technique assigns different "hats" to
group members, each representing a different mode of thinking (logic, emotion,
creativity, etc.).
 How it helps: Encourages viewing the problem from multiple perspectives, ensuring
a well-rounded solution.
 Best for: Group discussions where different viewpoints need to be considered.

5. Reverse Brainstorming

 What it is: Instead of solving the problem, participants brainstorm ways to cause or
worsen the problem.
 How it helps: Identifies potential issues and obstacles, then reverses the ideas to find
solutions.
 Best for: Identifying hidden problems or underlying causes of an issue.
6. The 5 Whys

 What it is: A method of asking "why" five times (or more) to dig deeper into the root
cause of a problem.
 How it helps: Moves past symptoms to uncover the underlying causes of a problem.
 Best for: Finding the root cause of complex or recurring issues.

7. Fishbone Diagram (Ishikawa)

 What it is: A visual tool that organizes potential causes of a problem into categories,
creating a “fishbone” shape.
 How it helps: Helps to identify the root cause of a problem by categorizing possible
factors.
 Best for: Analyzing cause-and-effect relationships in a structured way.

8. Role Storming

 What it is: A variation of brainstorming where participants assume different roles

(e.g., customer, competitor, etc.) while suggesting ideas.
 How it helps: Encourages out-of-the-box thinking by viewing the problem from
different perspectives.
 Best for: Creative ideation for product development or user experience
improvements.

9. Random Word Technique

 What it is: A random word is selected, and participants try to connect it to the
problem at hand to spark new ideas.
 How it helps: Stimulates lateral thinking and encourages new associations.
 Best for: Breaking mental blocks or when teams are stuck on the same old ideas.

10. Lotus Blossom Technique

 What it is: Starts with a central idea, surrounded by eight related concepts. Each of
those eight ideas is expanded further with sub-ideas.
 How it helps: Systematically explores related ideas and connections, expanding
thinking in a structured way.
 Best for: Exploring multiple layers of a problem or idea in detail.

11. Force Field Analysis

 What it is: A method that identifies forces that drive or restrain change. The analysis
looks at both sides (positive and negative) to balance the solution.
 How it helps: Visualizes the forces at play and helps in finding ways to reduce
obstacles while enhancing positive factors.
 Best for: Decision-making in situations where change or resistance is involved.

12. Rapid Prototyping

  What it is: Quickly building a simple model or version of a product or idea to test and
iterate based on feedback.
 How it helps: Allows for quick experimentation and validation of ideas.
 Best for: Developing new products or processes where testing is crucial.

These techniques provide various ways to approach challenges creatively, helping to unlock
innovative and practical solutions. Depending on the nature of the problem, teams or
individuals can choose the most suitable technique to foster creative thinking.

Business Plan

A business plan is a formal document that outlines a company's goals, strategies, and the
steps required to achieve those goals. It serves as a roadmap for the business, detailing how
the company intends to operate, grow, and achieve profitability. Business plans are essential
for startups seeking investors or loans, as well as for guiding a company’s management and
operations.

Key Components of a Business Plan:

1. Executive Summary
o Purpose: A high-level overview of the business plan, summarizing the most
critical points.
o Content: Business name, mission statement, a brief description of products or
services, market opportunity, financial highlights, and business goals.
o Importance: Provides potential investors or stakeholders with a snapshot of
the company, enticing them to read further.
2. Company Description
o Purpose: Explains what the business does, the industry it operates in, and its
target market.
o Content: Company history, legal structure (e.g., sole proprietorship,
partnership, LLC), location, and vision for the future.
o Importance: Defines the company's identity and objectives.
3. Market Research & Analysis
o Purpose: Analyzes the market in which the business will operate, including
trends, competitors, and customer demographics.
o Content: Industry overview, target market analysis, customer needs,
competitor analysis, and market size.
o Importance: Helps validate the business opportunity and demonstrates an
understanding of the market environment.
4. Organization and Management
o Purpose: Outlines the company’s organizational structure and key personnel.
o Content: Ownership details, company hierarchy, profiles of the management
team, and the roles of key employees.
o Importance: Shows how the company is structured and the qualifications of
those running it, assuring investors of strong leadership.
5. Products or Services
o Purpose: Describes the business’s products or services and explains how they
solve problems or fulfill market needs.
o Content: Description of products or services, pricing strategy, lifecycle, and
any research and development efforts.
 o Importance: Clarifies what the business offers and how it stands out from
competitors.
6. Marketing and Sales Strategy
o Purpose: Details how the company will attract and retain customers and
generate revenue.
o Content: Marketing strategy (branding, pricing, promotion, advertising), sales
strategy (distribution channels, sales process), and customer acquisition plan.
o Importance: Demonstrates how the business will reach its target market and
achieve sales growth.
7. Operations Plan
o Purpose: Outlines how the business will run on a day-to-day basis, from
production to delivery.
o Content: Operational workflow, suppliers, production process, inventory
management, and quality control measures.
o Importance: Shows how the company will operate efficiently and meet
customer demands.
8. Financial Plan
o Purpose: Provides a detailed financial forecast, including revenue projections
and funding needs.
o Content: Income statement, balance sheet, cash flow projections, break-even
analysis, and funding requirements.
o Importance: Demonstrates the financial viability of the business and outlines
when it will become profitable.
9. Funding Request (if applicable)
o Purpose: Specifies how much funding is needed, how it will be used, and the
terms of repayment.
o Content: Amount of funding required, use of funds (e.g., equipment,
marketing, staffing), and repayment plans or investor returns.
o Importance: Essential for businesses seeking loans or investments, as it
shows a clear plan for utilizing funds and repaying investors or lenders.
10. Appendix
o Purpose: Provides supporting documents or additional information that
supplements the business plan.
o Content: Resumes of key team members, legal documents, product images,
market research data, and contracts.
o Importance: Provides credibility and further insights into the business.

Why a Business Plan is Important:

 Clarifies Vision and Direction: Helps the founders or management define the
company’s goals, strategies, and key actions required to succeed.
 Secures Funding: Investors or lenders require a clear, comprehensive business plan
before committing capital.
 Manages Risk: Anticipates potential challenges and develops strategies to mitigate
risks.
 Attracts Talent: A well-thought-out business plan can attract partners, employees,
and collaborators by showcasing a viable opportunity.
 Measures Success: Acts as a benchmark for tracking the company’s progress and
making adjustments as needed.
A business plan is a living document that should be revisited and updated as the business
grows or market conditions change. It serves not just as a tool for launching a business but as
an ongoing guide for decision-making and growth.

Steps involved in writing a business plan

Writing a business plan involves several key steps, each focused on outlining different
aspects of your business. Here is a structured approach to help guide you through the process:

Steps to Writing a Business Plan

1. Conduct Market Research

 Purpose: Understand your industry, target market, and competition.

 Actions:
o Research market size, trends, and growth potential.
o Analyze competitors: strengths, weaknesses, market position.
o Identify your target audience: their needs, behaviors, and demographics.
 Output: Use the insights gathered here to inform your market analysis, sales
strategies, and product positioning.

2. Clarify the Business Purpose and Vision

 Purpose: Define the purpose of your business and long-term goals.

 Actions:
o Develop a clear mission statement that outlines your business’s values, goals,
and objectives.
o Define your vision for the future of the company and the impact you aim to
make in your industry.
 Output: This will be used in the Company Description and Executive Summary
sections of the plan.

3. Outline the Business Structure

 Purpose: Clarify how your business will be organized.

 Actions:
o Decide on the legal structure (e.g., sole proprietorship, partnership,
corporation).
o Define the organizational hierarchy and management roles.
o Identify the key members of your team and their responsibilities.
  Output: This information will be included in the Organization and Management
section.

4. Define Your Products or Services

 Purpose: Explain what your business offers and how it stands out.
 Actions:
o Provide a detailed description of the products or services you offer.
o Highlight the unique features and benefits of your products/services.
o Outline any future development or innovations planned.
 Output: This will go into the Products or Services section.

5. Develop a Marketing and Sales Strategy

 Purpose: Show how you’ll attract and retain customers.

 Actions:
o Outline your target market and marketing channels.
o Define how you’ll promote your business (advertising, social media, PR, etc.).
o Establish a sales process, pricing strategy, and distribution channels.
 Output: This information will form the Marketing and Sales section of the plan.

6. Create an Operational Plan

 Purpose: Detail the day-to-day operations of your business.

 Actions:
o Define your location(s), facilities, and operational workflow.
o Outline your production process, suppliers, and inventory management.
o Plan for staffing, logistics, and technology needs.
 Output: This becomes the Operations Plan section of your business plan.

7. Develop Financial Projections

 Purpose: Show the financial health and potential of your business.

 Actions:
o Develop a sales forecast based on market research and pricing strategy.
o Create financial statements (income statement, balance sheet, and cash flow
statement).
o Perform a break-even analysis to determine when your business will be
profitable.
 Output: These financial projections form the Financial Plan section.
8. Determine Funding Needs (if applicable)

 Purpose: Identify how much funding you need and where it will be allocated.
 Actions:
o Calculate your startup or growth capital requirements.
o Identify how funds will be used (e.g., equipment, marketing, hiring).
o Determine your funding sources (loans, investors, savings).
 Output: Include this in the Funding Request section if you’re seeking financing.

9. Write the Executive Summary

 Purpose: Summarize the key points of your business plan.

 Actions:
o Briefly describe your business idea, products, target market, and goals.
o Include your mission, vision, and why the business will succeed.
o Provide a snapshot of your financial projections and funding needs.
 Output: This becomes the Executive Summary, placed at the beginning of your plan
but written last.

10. Organize Supporting Documents

 Purpose: Add extra materials that validate your business plan.

 Actions:
o Gather important documents such as resumes, legal agreements, market data,
and product images.
o Include these in the appendix of your business plan for reference.
 Output: These materials will go in the Appendix section of the business plan.

11. Review and Revise

 Purpose: Ensure the business plan is clear, accurate, and comprehensive.

 Actions:
o Review each section for clarity, consistency, and professionalism.
o Edit for grammar, spelling, and readability.
o Get feedback from trusted advisors or colleagues.
 Output: A polished business plan ready to present to investors, partners, or internal
stakeholders.

12. Finalize and Present

  Purpose: Prepare the business plan for formal presentation.
 Actions:
o Format the business plan with a professional layout and clear headings.
o Print or save it in a suitable format (e.g., PDF) for sharing.
o Prepare to discuss key sections in detail, especially financials and strategy,
during presentations.
 Output: A complete, professional business plan ready for stakeholders or partners.

By following these steps, you will create a structured, thorough business plan that effectively
communicates your business idea, strategies, and goals.

Contents of a Business Plan

A business plan typically includes several key sections, each addressing different aspects of
the business. Below is a breakdown of the essential contents of a business plan:

1. Executive Summary

 Purpose: A brief overview of the entire business plan.

 Contents:
o Business name, location, and mission statement
o Products or services offered
o Market opportunity and target audience
o Financial highlights (e.g., revenue, profit projections)
o Summary of business goals and vision
o Funding needs (if applicable)

2. Company Description

 Purpose: Provides detailed information about the company.

 Contents:
o Company history or background
o Legal structure (sole proprietorship, LLC, corporation, etc.)
o Mission, vision, and values
o Business model and goals
o Unique selling proposition (what makes the business stand out)
o Location(s) and facilities

3. Market Research and Analysis

 Purpose: Presents an analysis of the industry, target market, and competition.

 Contents:
o Industry overview (size, growth trends, and dynamics)
o Target market analysis (demographics, needs, behaviors)
o Competitor analysis (strengths, weaknesses, opportunities, and threats)
o Market opportunities (gaps your business can fill)
o Customer needs and how your business meets them
4. Organization and Management

 Purpose: Details the structure of the company and introduces key team members.
 Contents:
o Organizational chart (management hierarchy)
o Profiles of founders, executives, and key team members
o Ownership structure and shares
o Roles and responsibilities within the company
o Advisory board or external consultants (if applicable)

5. Products or Services

 Purpose: Describes the products or services offered by the business.

 Contents:
o Product or service description (features, functionality, benefits)
o The problem the product/service solves
o Unique selling points and competitive advantages
o Pricing strategy
o Product lifecycle and development plans
o Intellectual property (patents, trademarks, etc.)

6. Marketing and Sales Strategy

 Purpose: Explains how the business will attract and retain customers.
 Contents:
o Marketing strategy (advertising, social media, promotions, etc.)
o Sales strategy (sales process, lead generation, customer acquisition)
o Distribution channels (how and where products/services will be sold)
o Pricing model and rationale
o Customer retention and growth strategies

7. Operations Plan

 Purpose: Outlines how the business will operate on a daily basis.

 Contents:
o Business location and facilities
o Operational workflow and production process
o Equipment and technology needs
o Inventory management and supply chain details
o Key suppliers and partnerships
o Staffing requirements and schedules

8. Financial Plan

 Purpose: Demonstrates the financial health and projections of the business.

 Contents:
o Revenue model (how the business will make money)
o Financial projections (income statement, cash flow statement, and balance
sheet)
 o Break-even analysis (when the business will become profitable)
o Funding requirements (if applicable) and how funds will be used
o Profit margins and key financial ratios
o Exit strategy (if applicable, for investors)

9. Funding Request (if applicable)

 Purpose: Outlines the business’s funding needs and how the funds will be used.
 Contents:
o Amount of funding needed
o Breakdown of how the funds will be used (e.g., inventory, marketing, hiring)
o Desired terms (loan, equity investment, etc.)
o Potential returns or benefits to investors or lenders

10. Appendix

 Purpose: Provides supporting documents and additional materials.

 Contents:
o Resumes of key team members
o Product images or diagrams
o Legal documents (e.g., patents, contracts, permits)
o Market research data and charts
o Financial spreadsheets and projections

Additional Elements (Optional but Useful):

 SWOT Analysis: A breakdown of the business’s strengths, weaknesses,

opportunities, and threats.
 Risk Analysis: Identification of potential risks and mitigation strategies.
 Social Responsibility: How the business addresses corporate social responsibility or
environmental concerns.

By including these sections in your business plan, you create a comprehensive and organized
document that conveys your business’s strategy, goals, and financial outlook clearly to
potential investors, partners, or internal stakeholders.

Evaluation of Business plan

Evaluation of a Business Plan refers to the process of critically analyzing and assessing the
feasibility, viability, and potential success of a business idea as outlined in a written business
plan. The evaluation is done to determine whether the business can achieve its objectives,
attract funding, and operate sustainably in the long term. It involves reviewing various
aspects such as the business model, market research, financial projections, operations, and
management.
Key Purposes of Evaluating a Business Plan

1. Feasibility: Determines if the business idea is practical and can be executed as

described.
2. Viability: Assesses whether the business can generate sufficient revenue to cover its
costs and be profitable.
3. Risk Assessment: Identifies potential risks and challenges the business might face
and how it plans to mitigate them.
4. Financial Health: Examines the financial plan, including projections, break-even
analysis, and funding needs, to assess the business’s economic sustainability.
5. Growth Potential: Evaluates how scalable the business is and its potential for
expansion in the future.
6. Attracting Stakeholders: Helps investors, banks, and partners determine if the
business is worth supporting, lending to, or investing in.

Evaluating a business plan ensures that all critical aspects of the business are thoroughly
considered, reducing the risk of failure and improving the likelihood of success.

Evaluation of Business Plan - Evaluation by supplier, Evaluation by

Financer/Banker, Evaluation by Investors, Evaluation by Customers

Evaluating a business plan from different perspectives (suppliers, financiers/bankers,

investors, and customers) helps to assess various aspects of the business, such as its viability,
financial health, and market potential. Here’s a breakdown of how each stakeholder evaluates
a business plan:

1. Evaluation by Suppliers

Focus: Suppliers look for reliability, long-term business relationships, and financial stability
to ensure smooth transactions.

Key Areas of Evaluation:

 Creditworthiness:
o Suppliers assess the business’s financial stability, especially its ability to pay
on time.
o They may look at cash flow statements, balance sheets, and payment history.
 Business Viability:
o Suppliers evaluate the overall sustainability and success potential of the
business. A business that is expected to grow and remain operational long-
term is seen as a good client.
 Order Volume and Frequency:
o Suppliers are interested in understanding the potential volume of orders and
the frequency at which the business will place them.
o Larger and consistent orders attract better terms and more favorable
conditions.
 Supplier Relationships and Terms:
 o The business’s plan to manage supplier relationships is important. Suppliers
want to know how the business will maintain partnerships, negotiate terms,
and ensure mutual benefit.
 Operational Stability:
o Suppliers assess the operational plan to see how efficiently the business
operates. If the business faces operational issues, it may impact the demand for
supplies or the timing of payments.

2. Evaluation by Financer/Banker

Focus: Banks or financiers look for financial viability, risk management, and repayment
capability when evaluating a business plan for lending purposes.

Key Areas of Evaluation:

 Creditworthiness and Risk:

o Banks examine the business’s credit history, financial standing, and risk
factors.
o They assess whether the business can meet debt obligations, including interest
and principal repayment.
 Financial Projections:
o Financiers carefully review income statements, cash flow projections, and
balance sheets.
o They check the business’s profitability, solvency, and liquidity to ensure it can
sustain loan repayments.
 Collateral:
o If the business is seeking a secured loan, banks will evaluate the assets
pledged as collateral.
o They assess whether the collateral is sufficient to cover the loan amount in
case of default.
 Business Model and Revenue Generation:
o Banks evaluate the robustness of the business model and its revenue-
generation potential.
o They want to ensure that the business has a sustainable and predictable income
stream to meet financial obligations.
 Break-Even and Growth Potential:
o Lenders assess how long it will take for the business to become profitable and
its growth potential.
o This helps them determine whether the business can cover both operational
expenses and loan repayments in the short and long term.

3. Evaluation by Investors

Focus: Investors evaluate business plans to gauge return on investment (ROI), growth
potential, and scalability. They are more focused on long-term value creation and exit
strategies.
Key Areas of Evaluation:

 Return on Investment (ROI):

o Investors look at financial projections, profit margins, and growth rates to
assess potential returns on their investment.
o They are interested in understanding how and when they will get their return
(dividends, stock growth, etc.).
 Scalability and Growth Potential:
o Investors evaluate the ability of the business to scale and grow, both in terms
of market expansion and revenue.
o They look for businesses that can expand rapidly with limited increases in
costs (scalable business models).
 Competitive Advantage:
o Investors want to see how the business differentiates itself from competitors.
A strong competitive advantage suggests long-term success.
o They assess barriers to entry, innovation, and intellectual property protections
(if any).
 Management Team:
o Investors scrutinize the management team’s experience, track record, and
ability to execute the business plan.
o A strong, capable team increases investor confidence in the business’s success.
 Exit Strategy:
o Investors, especially venture capitalists and angel investors, are concerned
with exit strategies, such as acquisition or an IPO, which will allow them to
realize returns.
o They evaluate how the business plans to scale to a point where such
opportunities are feasible.

4. Evaluation by Customers

Focus: Customers indirectly evaluate the business plan through the quality, pricing, and
availability of products or services. Their evaluation focuses on value, convenience, and
satisfaction.

Key Areas of Evaluation:

 Value Proposition:
o Customers assess whether the business provides value in terms of the benefits
it offers relative to the cost.
o They look for unique products or services that meet their needs better than
competitors’ offerings.
 Product/Service Quality:
o Customers evaluate the quality and reliability of the products or services. The
business plan’s product or service section should clearly demonstrate how the
business ensures high quality and consistency.
 Pricing:
o Customers are sensitive to pricing. They assess whether the price of the
product or service aligns with the value and quality they perceive.
 o A business plan must show how pricing is competitive while still maintaining
profitability.
 Customer Service and Support:
o Customers value strong customer service and post-purchase support.
o The plan should outline how the business will handle customer inquiries,
returns, or complaints to ensure satisfaction and loyalty.
 Convenience and Availability:
o Customers also evaluate how easy it is to access the products or services
(availability, location, online presence, delivery options).
o The business plan should address how it will meet customer needs in terms of
convenience and accessibility.

By considering these different perspectives, a business plan can be made robust, addressing
the concerns of all key stakeholders, which ultimately improves the chances of business
success and gaining support from suppliers, financiers, investors, and customers.

Launching Formalities of Business Plan

Launching a business plan involves a series of formal steps to ensure that the business idea is
properly executed and the plan is put into action. Here’s a guide to the key formalities
involved in launching a business plan:

1. Legal and Administrative Formalities

 Register the Business: Choose a legal structure (e.g., sole proprietorship, partnership,
corporation) and register your business with the appropriate government authorities.
 Obtain Licenses and Permits: Secure all necessary licenses and permits required for
operating your business in your industry and location.
 Set Up a Business Bank Account: Open a dedicated business bank account to
manage finances separately from personal accounts.
 Register for Taxes: Obtain an Employer Identification Number (EIN) and register for
state and federal taxes as needed.

2. Establishing the Business Structure

 Define Roles and Responsibilities: Assign roles and responsibilities to key team
members according to the organizational structure outlined in the business plan.
 Set Up Operational Processes: Implement the operational workflows and processes
described in the plan to ensure smooth business operations.
 Create Contracts and Agreements: Draft and finalize contracts with suppliers,
customers, and partners, and ensure they align with the terms outlined in the business
plan.

3. Financial Setup
  Secure Funding: If the business plan includes a funding request, secure the necessary
capital from investors, lenders, or other sources.
 Budget Allocation: Allocate the budget as detailed in the financial plan to cover
startup costs, marketing, operations, and other expenses.
 Implement Financial Systems: Set up accounting and financial management systems
to track income, expenses, and financial performance.

4. Marketing and Branding

 Develop Branding Materials: Create branding elements such as logos, business

cards, and marketing collateral based on the branding strategy outlined in the plan.
 Launch Marketing Campaigns: Implement the marketing strategies described in the
business plan, including online and offline campaigns to generate awareness and
attract customers.
 Establish Online Presence: Set up a professional website and establish social media
profiles to reach your target audience and promote your business.

5. Operational Setup

 Acquire Equipment and Resources: Purchase or lease the equipment, technology,

and resources needed for business operations as specified in the plan.
 Set Up Facilities: Prepare your business location, whether it’s a physical store, office,
or manufacturing facility, to be ready for operations.
 Recruit and Train Staff: Hire employees as needed and provide training to ensure
they understand their roles and the business processes.

6. Launching the Business

 Soft Launch: Consider a soft launch to test your operations, gather feedback, and
make necessary adjustments before the official launch.
 Official Launch: Plan and execute an official launch event or campaign to introduce
your business to the market.
 Monitor Performance: Track performance metrics and gather feedback to assess the
initial success and make improvements as needed.

7. Continuous Evaluation and Improvement

 Review Business Plan: Regularly review and update the business plan based on
performance data, market changes, and feedback.
 Adapt Strategies: Adjust marketing, operational, and financial strategies as needed to
address challenges and capitalize on opportunities.
 Seek Ongoing Feedback: Continuously seek feedback from customers, employees,
and stakeholders to refine and improve the business.

By following these formalities, you can ensure that your business plan is effectively
implemented and your business is well-positioned for success.
 Unit - 4 : Entrepreneur: Types and Functions
Structure of Unit:
4.0 Objectives
4.1 Introduction
4.2 Types of Entrepreneur
4.3 Functions of Entrepreneurs
4.4 Role of Entrepreneurs
4.5 Entrepreneur vs. Entrepreneurship
4.6 Entrepreneurial Failure
4.7 Summary
4.8 Self Assessment Questions
4.9 Reference Books

4.0 Objectives
After completing this unit, you will be able to:
 Classify different types of entrepreneurs on various bases.
 Look at the reasons for entrepreneurial failure.
 Describe the various functions of entrepreneurs.
 Understand the role and significance of entrepreneur in economic development
 Establish a relationship between entrepreneur and entrepreneurship.
 Come across the rewards and challenges of being an entrepreneur.

4.1 Introduction
The role of entrepreneurs in economic development varies from economy to economy, country to country,
depending upon its material resources, industrial climate and more importantly, the responsiveness of the
political system to the growth of entrepreneurs. Liberalization and the new economic policy have thrown
upon the doors for every entrepreneur to seek its own fortunes and thus contribute to the growth of the
economy. And entrepreneur is an important input of economic development. He is a catalyst of development.
Only the entrepreneurs create capital, wealth and resources in a country by their inventive and risk-taking
behaviour. They are the prime movers of industrial development in a country. Entrepreneurs are found in
every economic system and in every type of economic activity. Artisans, traders, importers, engineers,
exporters, bankers, industrialists, farmers, forest workers, tribal’s, professionals, politicians, and bureaucrats,
any one from these could be entrepreneur. The nature of entrepreneurs differs according to their functions.

4.2 Types of Entrepreneur

Researchers who have studied entrepreneurial behaviour suggest that there are different types of
entrepreneurs. Classifying entrepreneurs into various categories is a tricky issue. The taxonomy of
entrepreneurs can be carried out in various ways. Entrepreneurs can be classified on various basis. Clarence
Denhof Classifies entrepreneurs on the basis of stage of economic development: some others have classified
on the basis of their functions and characteristics. In the initial stages of economic development, entrepreneurs
tend to have less initiative and drive. As development proceeds, they become more innovating and
enthusiastic. The various types of entrepreneurs are classified on certain parameters. Some important
classifications are described below:

56
1. On the Basis of Economic Development: Clarence Danhof classified entrepreneurs into four groups
on the basis of economic development.
A. Innovating Entrepreneurs: This type of entrepreneurship is characterized by aggressive
assemblage of information and the analysis of results deriving from novel combination of factors of
production. Entrepreneurs falling in this class are generally aggressive in experimentation and exhibited
shrewdness in putting attractive possibilities into practice.
They are the entrepreneurs who have creative and innovative ideas of starting a new business. An
innovating entrepreneur sees the opportunity for introducing a new technique or a new product or a
new market. He may raise money to launch an enterprise, assemble the various factors, and choose
top executives and the set the organization going. Schumpeter’s entrepreneur was of this type.
Innovative entrepreneurs thus, results in the creation of something new. They are the contributors to
the economic development of a country.
Innovating entrepreneurs are very commonly frond in undeveloped countries. There is dearth of
such entrepreneurs in developed countries. Innovating entrepreneurs played the key role in the rise
of modern capitalism, through their enterprising sprit, hope of moneymaking, ability to recognize
and exploit opportunities, etc.
B. Adoptive or Imitative Entrepreneur: There is a second group of entrepreneurs generally
referred as imitative entrepreneurs. The imitative entrepreneurs copy or adopt suitable innovations
made by the innovative entrepreneurs. They does not innovate the changes himself. They only
imitates technology innovated by others.
Such entrepreneurs are particularly important in developing courtiers because they contribute
significantly to the development of such economies. Imitative entrepreneurs are most suitable for the
developing regions because in such countries people prefer to imitate the technology, knowledge
and skill already available in more advanced countries. In highly backward countries there is shortage
of imitative entrepreneurs also. People who can imitate the technologies and products to the particular
conditions prevailing in these countries are needed.
Sometimes, there is a need to adjust and adopt the new technologies to their special conditions.
Imitative entrepreneurs help to transform the system with the limited resources available. However;
these entrepreneurs face lesser risks and uncertainty then innovative entrepreneurs. While innovative
entrepreneurs are creative, imitative entrepreneurs are adoptive.

C. Fabian Entrepreneur: The third type is Fabian entrepreneur. By nature these entrepreneurs
are shy and lazy. This type of entrepreneurs have neither will to introduce new changes nor desire to
adopt new methods of production innovated by the most entrepreneurs. They follow the set
procedures, customs, traditions and religions. They are not much interested in taking risk and they
try to follow the footsteps of their predecessors. Usually they are second generation entrepreneur in
a business family enterprise.

D. Drone Entrepreneur: The fourth type is Drone entrepreneurs who refuse to copy or use
opportunities that come on their way. They are conventional in their approach and stick to their set
practices products, production methods and ideas. They struggle to survive not to grow. They may
be termed as Laggards. In such cases the organization looses market, their operations become
uneconomical and they may be pushed out of the market.

57
2. On the Basis of Type of Business: Under this category we can classify entrepreneurs as described
below:
A. Business Entrepreneurs: They are the entrepreneurs who conceive an idea for a new product
or service and then create a business to materialize their idea into reality. They tap the entire factor
of production to develop a new business opportunity. They may set up a big enterprise or a small
scale business. When they establish small business units they are called small business entrepreneurs.
In a majority of cases, entrepreneurs are found in small trading and manufacturing business.

B. Trading Entrepreneur: There entrepreneurs undertake trading activities and are not concerned
with the manufacturing work. They identifies potentiality of their product in markets, stimulates
demand for their product line among buyers. They may go for both domestic and overseas trade.
These entrepreneurs demonstrated their ability in pushing many ideas ahead which promoted their
business.

C. Industrial Entrepreneur: Industrial entrepreneur is essentially a manufacturer who identifies

the needs of customers and creates products or services to serve them. He is product-oriented who
starts through an industrial unit to create a product like electronic industry, textile unit, machine
tools.

D. Corporate Entrepreneur: These entrepreneurs used his innovative skill in organizing and
managing a corporate undertaking. A corporate undertaking is a form of business organisation
which is registered under some statute or Act like a trust registered under the Trust Act, or a
company registered under the Companies Act. These corporate work as separate legal entity. He is
thus an individual who plans, develops and manages a corporate body.

E. Agricultural Entrepreneur: Agricultural entrepreneurs are those who undertake agricultural

activities as through mechanization, irrigation and application of technologies to produce the crop.
They cover a broad spectrum of the agricultural sector and include agriculture and allied occupations.

3. According to the Use of Technology: The application of new technology in various sectors of the
national economy is essential for the future growth of business. We may broadly classify these entrepreneurs
on the basis of the use of technology as follows:

A. Technical Entrepreneurs: With the decline of joint family business and the rise of scientific and
technical institutions, technically qualified persons have entered the field of business. These
entrepreneurs may enter business to commercially exploit their inventions and discoveries. Their
main asset is technical expertise. They raise the necessary capital and employ experts in financial,
legal- marketing and other areas of business. Their success depends upon how they start production
and on the acceptance of their products in the market.

B. Non-technical Entrepreneur: Non-technical entrepreneurs are those who are not concerned
with the technical aspects of the product or service in which they deal. They are concerned only
with developing alternative marketing and promotional strategies for their product or service.

C. Professional Entrepreneur: Professional entrepreneur is an entrepreneur who is interested in

establishing a business but does not have interest in managing it after establishment. A professional
entrepreneur sells out the existing business on good returns and starts another business with a
58
 new idea. Such an entrepreneur is dynamic and conceives new ideas to develop alternative projects.

4. According to Motivation: Motivation is the main force that promotes the efforts of the entrepreneur to
achieve his goals. An entrepreneur is motivated to achieve or prove his excellence in their performance.
According to motivation we can classify entrepreneur as:.

A. Pure Entrepreneur: A pure entrepreneur is the one who is motivated by psychological

economical, ethical considerations. He undertakes an entrepreneurial activity for his personal
satisfaction in work, ego or status.

B. Induced Entrepreneur: This type of entrepreneur is one who induced to take up an

entrepreneurial task due to the policy reforms of the government that provides assistance, incentives,
concessions and other facilities to start a venture. Most of the small scale entrepreneurs belong to
this category and enter business due to financial, technical and several other facilities provided to
them by the various agency of Govt. to promote entrepreneurship. Today, import restrictions and
allocation of production quotas to small units have induced many people to start a small scale unit.

C. Motivated Entrepreneur: New entrepreneurs are motivated by the desire for self-fulfillment.
They come into being because of the possibility of making and marketing some new products for
the use of consumers. They are motivated through reward like profit.

5. According to Growth: The industrial units are identified as high growth, medium growth and low growth
industries and as such we have ‘Growth Entrepreneur’ and ‘Super Growth Entrepreneur.’

A. Growth Entrepreneur: He necessarily takes up a high growth industry and chooses an industry
which has sustained growth prospects. Growth entrepreneurs have both the desire and ability to
grow as fast as large as possible.

B. Super-Growth Entrepreneur: This category of entrepreneurs is those who have shown

enormous growth of performance in their venture. The growth performance is identified by the high
turnover of sales, liquidity of funds, and profitability.

6. According to Entrepreneurial Activity: Based on entrepreneurial activity, entrepreneurs are classified

as novice, serial, and portfolio entrepreneur.

A. Novice Entrepreneur: A novice is someone who has started his/her first entrepreneurial venture.
A novice entrepreneur is an individual who has no prior business ownership experience as a business
founder, inheritor of a business, or a purchaser of a business. It is not similar to early starter; a
novice can also be a 50 year old with over 25 years of experience in the industry.

B. A Serial Entrepreneur: A Serial Entrepreneur is someone who is devoted to one venture at a

time but ultimately starts many. It is the process of starting that excites the starter. Once the business
is established, the serial entrepreneur may lose interest and think of selling and moving on.

C. Portfolio Entrepreneur: A portfolio entrepreneur is an individual who retains an original business

and builds a portfolio of additional businesses through inheriting, establishing, or purchasing them. A
portfolio entrepreneur starts and runs a number of businesses. It may be a strategy of spreading risk
or it may be that the entrepreneur is simultaneously excited by a variety of opportunities. Also, the
entrepreneur may see some synergies between the ventures.

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7. Other Entrepreneurs:
A. First-Generation Entrepreneurs: This category consists of those entrepreneurs whose parents
or family had not been into business and was into salaried service. The booming economy of India
has led to a multitude of business opportunities, and with deregulation, it has become easier to set
up businesses. Also, with a change in the mindset of the middle class, it is now more acceptable to
become an entrepreneur. A first-generation entrepreneur is one who starts an industrial unit by
means of an innovative skill. He is essentially an innovator, combining different technologies to
produce a marketable product or service.
B. Modern Entrepreneur: A modern entrepreneur is one who undertakes those businesses which
go well along with the changing scenario in the market and suits the current marketing needs.
C. Women Entrepreneurs: Women as entrepreneurs have been a recent phenomenon in India.
The social norms in India had made it difficult for women to have a professional life. Now this has
changed. Progressive laws and other incentives have also boosted the presence of women in
entrepreneurial activity in diverse fields. In 1988, for the first time, the definition of Women
Entrepreneurs’ enterprise was evolved that termed an SSI unit/industry-related service or business
enterprise, managed by one or more women entrepreneurs in proprietary concerns, or in which
she/they individually or jointly have a share capital of not less than 51 per cent as partners /
shareholders / directors of a private limited company / members of a cooperative society, as a
Woman Enterprise.
D. Nascent Entrepreneur: A nascent entrepreneur is an individual who is in the process of starting
a new business.
E. Habitual Entrepreneur: Ahabitual entrepreneur is an individual who has prior business ownership
experience. The nascent entrepreneur can either be a novice or a habitual entrepreneur.

F. Lifestyle Entrepreneurs: Lifestyle entrepreneurs have developed an enterprise that fits their
individual circumstances and style of life. Their basic intention is to ear an income for themselves
and their families.

G. Copreneurs: It is related to the married couples working together in a business. When a married
couple share ownership, commitment and responsibility for a’ business, they are called “copreneurs”.
As copreneurs, couples struggle in ventures to establish equality in. their relationships. Such couples
represent the dynamic interaction of the systems of love and work.
H. IT Entrepreneurs: IT entrepreneurs are creating a new business platform that takes them
straight to the top. They are confident, ambitious innovative and acquired creativity in the competitive
global environment and created a niche of their self. They are the brave new bunch of entrepreneurs
who are raring to take on the world of information technology.

I. Social Entrepreneur: Social entrepreneur is one who recognizes the part of society which is
stuck and provides new ways to get it unstuck. Be it dedicated efforts for child upliftment, fighting
for the conservation of Assam’s rainforests, working for the betterment of the blind or initiatives to
empower women, the entrepreneur’s passion is very strong. Freedom, wealth, exposure, social
mobility and greater individual confidence are driving this huge wave of social innovation and
entrepreneurship. After all are tired with the Inefficiency of governments and the indifference of
corporate, and want to make a change and this is the case everywhere.

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 J. Forced Entrepreneurs: The money-lenders of yesterday, who are thrown out of their family
business because of govern­ment legislation, the neo­rich Indians returning from abroad and the
educated unemployed seeking self-employment form this class of entrepreneurs.

K. Individual and Institutional Entrepreneurs: In the small scale sector individual entrepreneurs
are dominant. Small enterprises outnumber the large ones in every country. Such entrepreneurs
have the advantage of flexibility, quick decision making. But a single individual can establish, operate
and control an organization up to a limit. Thereafter, it becomes necessary to institutionalize
entrepreneurship. The business will have to acquire a number of new entrepreneurial skills through
a corporate body. A group of entrepreneurs has to be developed to handle the increasingly complex
network of decision making. The central function of the entrepreneur remains the same but the basic
decisions like the line of business, the amount of capital employed, etc. are taken collectively by the
promoters at the helm of affairs. Thus, individual entrepreneur and institutional entrepreneur coexist
and support each other. Corporate sector the symbol of institutionalized entrepreneurship.

L. Entrepreneurs by Inheritance: At times, people become entrepreneurs when they inherit the
family business. In India, there are a large number of family controlled business houses. Firms in
these houses are passed from one generation to another.

The various types of entrepreneur based on certain basis are also explained in the figure 4.1:

On the basis of Innovative

Imitative
Economics development Fabian
Drone

Business
Trading
On the basis of Industrial
type of business Corporate
Agriculture

Technical
According to Non-technical
use of technology Professional

Pure
According ot Induced
motivation Motivated

According Growth
to growth Super growth

According to Novice
entrepreneurial activity Serial
Portfolio

Fist generation
Modern
Other Women
Nascent
IT entrepreneur Habitual
Social entrepreneur Life style
Institutionalized Copreneurs
Forced entrepreneur By inheritance

Figure 4.1 : Types of Entrepreneurs

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4.3 Functions of Entrepreneurs
Entrepreneur is an opportunity seeker and organizer and coordinator of the factor of production. He not
only perceives the business opportunities but also mobilizes the other resources like – man, money, machine,
materials and methods. According to some economists, the functions of an entrepreneur are establishing co-
ordination. In business enterprise, risk-taking, controlling the enterprise, innovation for change, motivation
and other related activities. In reality, an entrepreneur has to carry out a combination of these functions in
keeping with time and environment. Truly, he has to consider new ideas, demands and exploit the opportunities,
and thereby contribute to technical progress. A successful entrepreneur recognizes the potential of a product
or service, design operating policies in marketing, production, product development and the organisational
structure. He carries out the whole set of activities of the business. He has a high capacity for taking
calculated risks and has faith in his own capabilities.

An entrepreneur performs all the necessary functions which are essential from the point of view of operation
and expansion of the enterprise. We can explain this through the flow diagram described in figure 4.2:
Assessing the potential ·Gathering information
for the entrepreneurial ·Identifying potential opportunities
venture ·Assessing possible competitive advantages

Researching ·Uncovering business idea

venture ·Competitor analysis
feasibility ·Exploring financial options

Planning the venture ·Organizational vision and mission

(Planning issues) ·Creation strong and effective business plan

·Choosing legal form of business

Organizing the venture ·Legal Issue: patents & copyright
(start-up activities) ·Structuring organizational design

·Setting goal & strategies

·Working on technology operational methods
Launch the venture ·Working on marketing plans
·Designing information systems
·Designing financial accounting system like: cash flow mgt.
·Establishing action plan
·SWOT analysis
Managing processes ·Evaluating performance
·Stimulated change which are needed
Managing the
·Developing growth strategies
venture Managing growth ·Dealing with crises
·Exploring ways to finance growth
·Selecting, appraising, training, motivating
Managing people ·Managing conflicts
·Delegation of authority
Figure 4.2 : Functions of Entrepreneurs
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Kilby identify thirteen functions of an entrepreneur, which included some of the managerial functions also.
Kilby has classified these functions into four groups. These are as follows:
A. Exchange Relationship:
1. Perceiving market opportunities.
2. Gaining command over scarce resources.
3. Purchasing inputs.
4. Marketing of the products and responding to competition.
B. Political Administration:
1. Dealing with the public bureaucracy (concession, licenses & taxes)
2. Managing human relation within the firm.
3. Managing customer and supplier relations.
C. Management Control:
1. Managing finance
2. Managing production
D. Technology:
1. Acquiring and overseeing assembly of the factory.
2. Industrial engineering
3. Upgrading process and product quality.
4. Introducing new production techniques and products.
Kilby suggested these functions may vary according to the size, type and setting of an enterprise and could
be augmented through training and education. By summing up we can say that Entrepreneurs perform the
following functions:
1. Innovation: A very important function performed by entrepreneur is that of innovation. They analyze the
existing state of company’s affairs and try to reach a new level of equilibrium by trying new and productive
combinations of existing resources. They think of creative ideas and use their managerial and innovative
skills to put those ideas into reality. They combine the productive factors, bring them together and help in the
economic development of a nation.
According to Schumpeter, innovation can occur in the following forms:
 Introduction of new goods ;
 The use of new method of production ;
 The opening of a new market ;
 The conquest of a new source of supply of raw materials ; and
 The reorganization of any industry.
According to Robert Wilken entrepreneurs contribute change that can be categorized into five types:
1. Initial Expansion: the original production of goods.
2. Subsequent Expansion: the subsequent change in the amount of goods produced.
3. Factor Innovation: the increase in supply or productivity of the factors of production.
(a) Financial: the procurement of capital from new sources or in new form.
(b) Labour: the procurement of labour from a new source or of a new type; the upgrading of
existing labour.
(c) Material: the procurement of old material from a new source or the use of a new material.
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 4. Production Innovations: changes in the production process.
(a) Technological: the use of a new production technique.
(b) Organizational: change in the form of structure of relationships among people.
5. Market Innovation: changes in the size or composition of the market.
(a) Product: the production of a new good or the change in quality or cost of existing goods.
(b) Market: the discovery of a new market.
Innovation involves imagination and creativity. It is so basic that a person cannot be called an entrepreneur
unless’ he creates something new and something different in his venture.
2. Assumption of Risk: An idea that is put to reality does not guarantee success. Entrepreneurs assume
the risk of success or failure of the enterprise that they wish to launch. Such risks are not insurable. If they
materialize, the entrepreneur has to bear the loss himself. Thus, risk-bearing or uncertainty-bearing still
remains the most important function of an entrepreneur which he tries to reduce by his initiative, skill and
good judgement.
3. Idea Generation: Entrepreneurs do not immediately think of ideas and put them into practice. Ideas can
be generated through environmental scanning and market survey. It is the function of the entrepreneurs to
generate as many ideas as he can for the purpose of selecting the best business opportunities which can
subsequently be taken up by him as a commercially - viable business venture. They think of a variety of
ideas, apply quantitative techniques to test their applicability, supplement them with empirical findings, arrive
at the best alternative and apply it in practice. The selection of an idea, thus, involves the application of
research methodology by the entrepreneurs, vision, insight, observation, experience, education, training and
exposure of the entrepreneur. Idea generation precisely implies product selection and project identification.
4. Organizing and Management: An entrepreneur brings together various resources of production,
organizes them properly and converts them into a productive unit. As regards the proposed projects, an
entrepreneur manages the following activities:
 Scanning of the business environment (SWOT Analysis)
 Measuring the suitability of business idea.
 Market Research and Selection of Product Line: The next important function of the entrepreneur
is market research and product market research is the systematic collection of data regarding the
product which the entrepreneur wants to manufacture. Entrepreneur has to undertake market
research persistently in order to know the details of the intending product, i.e., the demand for the
product, selection of product line, the price of the substitute product, the size of the customer, etc.
while starting an enterprise.
 Studying the government rules, regulation and policies.
 Performing government formalities.

 Determination of Objectives: The next function of the entrepreneur is to determine and lay down
the mission, vision, objectives and goals of the business, which should be spelt out on clear terms.
In other words, entrepreneur should be very much clear about future prospect of the venture.
 Determination of Form of the Venture: The function of an entrepreneur in determining the form
of enterprise is also important. Entrepreneur has to decide the form of enterprise based upon the
nature of the product, volume of investment, nature of activities, types of product, quality of product,

64
 quality of human resources, etc. The major forms of ownership organizations are sole proprietorship,
partnership, joint stock company and cooperative society.
 Managing of Funds: Fund raising is the most important function of an entrepreneur. All the activities
of a business depend upon the finance and its proper management. It is the responsibility of the
entrepreneur to raise funds internally as well as externally.
 Selection of Location:
 Procurement of Raw Material Entrepreneur has to identify the cheap and regular sources of
supply of raw materials, which will help him to reduce the cost of production and face the competition.
 Procurement of Machinery: The next function of the entrepreneurs is to procure the machineries
and equipments for establishment of the venture. While procuring the machineries, he should specify
the following details:
(a) The details of technology
(b) Installed capacity of the machines
(c) After sales service facilities
 Recruitment Selection and Placement of Manpower : Entrepreneur has to perform the following
activities while undertaking this function :
(a) Estimating manpower need of the organization
(b) Laying down of selection procedure
(c) Placing the employee
Another important function of entrepreneur is ‘financial planning’, which translates all other activities into
monetary terms. Though an entrepreneur is more than a manager, he combines in him some managerial
functions. He deals with day-to-day affairs of a going concern by directing and controlling the employees.
5. Decision Making: Arther H. Cole has described the entrepreneur as a ‘decision maker’. He takes
various decisions regarding following matters:
 The determination of these objectives of the enterprise and the change of those objectives as conditions
required or made advantageous;
 The development of an organisation, including efficient relations with subordinates and all employees;
 Securing adequate financial resources, and maintaining good relations with the existing and potential
investors ;
 The requisition of efficient technological equipment and the revision of it as new machinery appeared
;
 The development of a market for the products and the devising of new products to meet or anticipate
consumer’s demand: and
 The maintenance of good relations with public authorities and with the society at large.

6. Leading: As an entrepreneurial venture florish, an entrepreneur takes on a new role of a leader. He acts
as a visionary leader. The entrepreneur’s leading function is drawing the best out of his human resources. He
must create teamwork, motivation among employees. As a leader, entrepreneurs must shift from the
command-and-control style of managing to a coach-and-collaboration style.

65
7. Managing Growth: The entrepreneur must manage the enterprise’s growth. It includes such activities as
developing and designing appropriate growth strategies, dealing with crises, exploring various ways for
financing growth and placing a value on the venture.
8. Support to Social Environment: Social environment is characterized by social customs, culture, values
and beliefs. Changes are not easily acceptable in a given socio-economic environment of a country.
Entrepreneurs discover new sources of materials, new markets, and new opportunities and establish new
and more lucrative forms of organizations. This is a reflection of their will power, enthusiasm and energy and
helps in overcoming the society’s resistance to change.
9. Economic Development: Entrepreneurs play an important role in accelerating the rate of economic
development of developed and under-developed countries. They exploit the country’s resources (land,
labour, capital and technology) and optimize their utilization to result in development of that country.

Idea Organizing and Decision

Generation Managing Making

Assumption Visionary
of Risk Leadership

Managing
Innovation
Growth

Support to Economic
Entrepreneur
Social Environment Development

Figure 4.3 : Functions of an Entrepreneur

An entrepreneur performs many useful functions. He undertakes a venture, assumes risk and earns profit.
He is the man having a strong motivation to achieve success. He is self-confident in his entrepreneurial
abilities. He exploits opportunities wherever and whenever they arise.
As you can tell from the above descriptions, being an entrepreneur is an exciting proposition! Entrepreneurs
do a variety of things and deal with a multitude of challenges. In fact, we can say that entrepreneurial
behaviour is complex, intentional, and passionate. Yet, it’s primarily because or these qualities that it is
prudent for you to know, from the start, the rewards and challenges of being an entrepreneur.
The Rewards and Challenges of Being an Entrepreneur
Rewards:

– High degree of independence – freedom from constraints

– Get to use a variety of skills and talents
– Freedom to make decisions
– Accountable to only yourself
– Opportunity to tackle challenges
– Feeling of achievement and pride
– Potential for greater financial rewards

66
Challenges:
– Must be comfortable with change and uncertainty
– Must make a bewildering number of decisions
– May face tough economic choices
– Must be comfortable with taking risks
– Need many different skills and talents
– Must be comfortable with the potential of failure

4.4 Role of Entrepreneurs

Entrepreneurs play a significant role in economic development of a country. He promotes the prosperity of
a nation by his innovation and dynamic leadership Skills. He creates wealth, opens up employment
opportunities and fosters the other segments. According to Harbison, entrepreneurs are prime movers of
innovation, growth and as such, entrepreneurship is a dynamic force. The role and significance of an
entrepreneur are explained below :
1. Bringing Economic Growth and Prosperity: Entrepreneur bring economic growth and prosperity
in the country through generation of employment opportunities, capital and wealth creation, increasing
per capita income and GDP, improvement in quality of life by raising the standard of living, growth
of infrastructural facilities, forward and backward linkages in society, development of backward
regions, economic independence. George gilder observes, “The ‘heroic creativity of entrepreneur
came to seem essential to our economic well-being in a global economy”. Baumback and Mancuso
write, “In underdeveloped nations, entrepreneurs often hold the key to economic growth for a
whole society. So entrepreneur is not a dirty word or a fast buck opportunist, but, rather the
backbone of the capitalist system”.
2. Brining Social Stability and Balanced Regional Development: Entrepreneurs play a crucial
and unique role in bringing about social stability and balanced regional development through absorption
of workforce in industries, removal of poverty, improving health and education facilities, creating
fair competition, equitable distribution of income, creation of social infrastructures, empowering
women and weaker sections of the society and supply of qualitative goods and services

Although entrepreneurs are criticized as self interested exploiters, Adam Smith, while recognizing
that they do some good for society, partly reflected this view when he wrote in The Wealth of
Nations: “In spite of their natural selfishness and rapacity, though they mean only their convenience,
though the sole end which they propose from the labours of all the thousands they employ be the
gratification of their own vain and insatiable desires they are led by a hidden hand, and without
intending it, without knowing it, advance the interest of society”.

3. Innovator in Economic Growth: by bringing new ideas, combinations, products techniques,

organizations, new markets, making full use of technical knowledge, balanced growth, systematic
innovation, technological advancement, implementation of mechanical skills, an entrepreneur play
very crucial role in encouraging entrepreneurship and economic development. Peter Drucker writes,
“Just as management has become the specific organ of all contemporary institutions and the integrating
organ of our society of organizations, so innovation and entrepreneurship have to become an integral
life-sustaining activity in our organizations, our economy, and our society”. He further says that the
emergence of a truly entrepreneurial economy is the most significant and hopeful event that have
occurred in recent economic and social history.
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4. Creation of Employment Opportunities: Entrepreneurs play a significant role in generation of
employment opportunities by establishing new units in manufacturing, trading and service sectors,
laying emphasis on small scale industries, utilizing the surplus labour force in varied industrial and/or
service activities, upholding self-employment as a core objective. Entrepreneur integrates resources
and technologies into profitable business ventures and creates job opportunities.
5. Increase Productivity with Modern Production System: Play an important role in raising
productivity. John Keudrick writes, “Higher productivity is chiefly a matter of improving production
techniques, and this task is the entrepreneurial function par excellence”. Two keys to higher productivity
are research and development and investment in new plant and machinery. But there is a close link
between R & D and investment programmes, with a higher entrepreneurial input into both”.
George Gilder in The Spirit of Enterprise said that: “Entrepreneurs are innovators who evoke
demand’. They are makers of markets, creators of capital, and developers of opportunity and
producers of new technology. They seek the unique product, the marketing breakthrough, the
startling new, feature or the novel design. They change technical frontiers and reshape public desires.
They create wealth and employment. They take exception to the received view that companies
should be market led. They lead the market”.
6. Export Promotion and Import Substitution: Liberalization, privatization and globalization [LPG]
has opened the arena of export promotion and import substitution to entrepreneurs by establishing
industries producing import substitution goods, establish new industries, especially for export,
products, exploration of new global markets, earning foreign exchange reserves, utilizing the available
productive resources, achieving self-reliance in production of as many goods as possible, entrepreneur,
are playing a pivot role in export promotion and import substitution.
7. Entrepreneur Plays a Role of Catalytic Agent: As Joseph Schumpeter says, entrepreneur’s
task is “creative destruction”. He destroys to create new things. He changes and transmutes values.
He searches change and responds to it. He is a change creator. Ralph Harwitz writes in his book
Realities of Profitability’, “The entrepreneur makes a happening, wants piece of action, is the growth
man. Without him there is no happening, no action, and no growth”.
8. Augmenting and Meeting Local Demands: Entrepreneurs also play a significant role in augmenting
local demands and meeting them satisfactorily. Towards this entrepreneurs focus their attention to
manufacture service through indigenous technology, skill, resources and experiences.
Social
Stability
Economics Growth Regional Development
Through Innovation Economics Growth

Export Import
Promotion Substitution
Role of
Entrepreneurs
Increase in Augmenting and
Productivity Meeting Demand

Catalytic Reinventing
Agent Entrpreneurial Venture

Employment
Creation

Figure 4.4 : Role of Entrepreneurs

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 9. Reinventing Entrepreneurial Venture: An entrepreneur work to reinvent his entrepreneurial
venture. He knows that change and innovation is good for his organization. Paul Wilken observes,
“Entrepreneurship is a discontinuous phenomenon, appearing to initiate changes in the production
process and then disappearing until it reappears to initiate another change”. Zoltan Acs writes,
“Entrepreneurs stir up the waters of competition in the market place. They are ‘agents of change in
a market economy”.

4.5 Entrepreneur vs. Entrepreneurship

The term entrepreneur is often used interchangeably with “entrepreneurship”. But conceptually, they are
different yet they are just like the two sides of a coin. Entrepreneur and entrepreneurship are co-related.
The relationship between entrepreneur and entrepreneurship is given in the table 4.1.
Table 4.1 Relationship between Entrepreneur and Entrepreneurship
Entrepreneur Entrepreneurship
Refers to a person Refers to a Process / Activity / Action
Leader Leadership
Planner Planning
Programmer Action
Motivator Motivation
Risk-taker Risk-taking
Creator Creativity
Visionary Vision
Innovator Innovation
Technologist Technology
Initiator Initiative
Organizer Organization
Decision-maker Decision Making
Administrator Administration
Adopter Adopting
Delegator Delegating
Ethical Ethics
Goal Setter Goal Setting
Imagination Imagining
Skilled Skills
Transformer Transformation
Wealth Creator Wealth Creation
Economic Developer Economic Development
Promoter Promotion

4.6 Entrepreneurial Failure

Getting success in entrepreneurial venture is not the result of a single person’s efforts. There isalways a team
involved in it. The team is made up of other group of people like investors, working partners, employees,
vendors, creditors, customers and clients. All play an important part in the success or failure of the enterprise.
Although other people are involved, but there is a tendency to believe that they play less important roles and
at the end of the day, success or failure of the enterprise will be largely depend on the entrepreneur’s vision,
skill, achievement level.

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Many entrepreneurs fail due to several barriers and problems. Karl H. Vasper has identified following
reasons:
 Lack of a viable concept.
 Lack of market knowledge
 Lack of technical skills.
 Lack of seed capital.
 Lack of business know-how.
 Competency-lack of motivation.
 Social stigma.
 Legal constraints and regulations.
 Monopoly and protectionism.
 Inhibitions due to patents
Because of limited productive resources, high levels of uncertainty and risk, in experienced management
personnel, employees, new ventures suffer fear mortality much higher than the, well established firms. There
are a number of reasons for failure of a new venture and these are discussed below:
1. Inadequate Management of Finance: Due to a lot of operational issues sometimes, financial
management is likely to get neglected. Sometimes entrepreneurs are more concerned about raising
the fund, they are less concerned about utilization of funds. Common errors in financial management
can be bad receivables management, improper cash management, unproductive investments, and
poor budgeting decisions, poor inventory management.
2. Lack of Professional and Experienced Management Team: One of the main problems faced
by new enterprises in that the management team is usually very new to their role. Due to the lack of
professional management the management of process, management of people go in a wrong direction.
Even in some rare cases, when the management has some individuals who have led a company in
the past, they are now faced with a situation where the company itself has no previous track record.
It is a very different kind of situation.
3. Weak Promotional Efforts: Entrepreneurial firms are very reluctant to spend on promotional
activities. Sometimes entrepreneur thinks that investing in this campaign is not going to give assured
returns and the link between the promotional expenditure and the sales is not very easy to establish.
This problem is mainly faced by the entrepreneurs who are in manufacturing business and there
target segment is the last customer.
4. Unplanned Rapid Growth: Unplanned growth is not always a desirable situation. Higher growth
will put greater stress on production facilities, manpower, and distribution and working capacity of
Venture. These are designed to cater to the rise in volumes up to a limit and to increase the limit and
productivity they might need further capital investments. It will lead to a stage of continuous firefighting
and ultimately, many things may not keep pace with the growth. Most commonly, the organization
may run out of cash.

5. Shortage Trained or Experienced Manpower: Shortage of skilled and experienced manpower,

shortage of technologist is faced by new ventures. Most people prefer to work with a well-established
organization employing hundreds of employees and having a stable track record and experienced
manpower has less desire to work with new venture. New ventures are also reluctant to invest in
training and development. Lack of experienced and skilled manpower can lead to a general drop

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 in productivity and quality of output. The absence of quality manpower is particularly felt during a
crisis.

6. Lack of Appropriate Information: Even in this era of free-flowing information, the quality of
information available to large corporations is superior then the information available to new small
entrepreneurial ventures. Quality information is always have some cost and small ventures may not
be able to invest so much in getting the high-quality information. For example, before entering a new
market, the new venture may send some sales persons to interview customers, retailers and
wholesalers. On the other hand, the large corporation may here the services of a market research
firm and carries out a through investigation of the potentiality of their future product or service and
the opportunities of the new market.

7. Improper Price Management: Price of the product / service plays a pivot role is marketing the
product / service. There are many sophisticated pricing policies a new venture can adopt, taking
into account its cost structure, productivity level, nature of demand, and extent of competition. The
entrepreneur can introduce new innovative pricing system also for example, Deccan Airways
revolutionized airline pricing in India by introducing low-priced air ways. But improper management
of price creates a lot problem to entrepreneur as price is directly associated with the volume of
sales.

8. Lack of Strong Business Relationship: Relationships with vendors, creditor, venture capitalist,
customers, and others is a huge advantage to established businesses. A new venture will have to
establish new relationships and work hard at strengthening them. Such business linkages help in
smooth conduct of business and are invaluable at times of distress. Otherwise conflict between
these relations may create a lot problem to the establishing venture.

9. Less Concerned about Management: Improper inventory management can lead to tough
problems. Production can be halted due to insufficient inventory, whereas excess inventory can lead
to wastages and financial loss. In case of perishable goods, high inventory can lead to expiration of
stock. Inflated valuation of inventory can give a very wrong picture of the financial position of the
firm and this may lead to wrong pricing policy.

10. Narrow Vision: A number of small new firms face huge problems on operational issues and these
problems can threaten the very existence of the venture at time of start up. In such circumstances,
the management of the venture focus on surviving the immediate crisis and resolving the conflict and
soon the long-term vision and strategy of the firm are forgotten. If this continues for long, the danger
is that long-term plans and strategies are discarded as impractical or irrelevant. Ultimately, the firm
acquires a shape very different from what was originally envisaged by the entrepreneur.

4.7 Summary
An entrepreneur performs many activities from time to time and also simultaneously depending on a complex
and combinations of economic, socio­political and other factors in an enterprise. The entrepreneur of the
world is the wisest minds who leave an indelible mark in the history of mankind. They make it possible
through their action, and not through words. They do things in a completely new way. They think beyond the
obvious. They go deeper. They think from different perspectives and angles. There are different types of
entrepreneurs. A nascent entrepreneur is an individual who is in the process of starting a new business. A

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novice entrepreneur is an individual who has no prior business ownership experience. A habitual entrepreneur
is an individual who has prior business ownership experience. A serial entrepreneur is an individual who has
sold or closed an original business, established another business, sold or closed that business, established
another business, sold or closed that business, and continues this cycle of entrepreneurial behavior. A portfolio
entrepreneur is an individual who retains an original business and builds a portfolio of additional businesses.
The entrepreneur is a key in entrepreneurship. His personality is a composite of innovator, risk taker,
motivator, planner, a creative problem solver and who makes things happen. Entrepreneurs are made and
not born. He is made by his family, environment and education. Because of limited resources, high levels of
uncertainty and inexperienced management and employees and man other such reasons, new ventures
suffer from a very high rate of failure – much higher than that of larger, well-established firms.
One should remain optimistic that entrepreneurship in India will develop to promote India’s economic
development on a sound basis, as an integral part of the world economy. The burst of creativity and innovation
in emerging technological industries holds tremendous promise for economic development and technological
business growth. When talent is linked with technology, people recognize and then push viable ideas and the
entrepreneurial process is under way.

4.8 Self Assessment Questions

1. What are the various ways of classifying entrepreneurs?
2. Distinguish between a portfolio entrepreneur and a social entrepreneur.
3. Outline the causes of entrepreneurial failure in detail.
4. Who is an entrepreneur? Explain the various types of entrepreneurs.
5. “An entrepreneur is a catalytic agent in economic development.” Explain the role and significance
of an entrepreneur in developing economy with reference to above statement.
6. “The entrepreneur is more than a manager. He is an innovator and promoter as well”. Explain this
statement and describe the various types of entrepreneur.
7. Entrepreneur is a ‘Captain of Industry’ and ‘Economic Leader’ of the society. Elucidate.
8. How does an entrepreneur contribute to the economy and the society?
9. Who is Entrepreneur? What are his functions?
10. Narrate the role and significance of an entrepreneur in an economy.
11. What are the functions performed by entrepreneurs? Explain the characteristics of
successful entrepreneur.

4.9 Reference Books

 Sharma Sudhir, Singh Balraj, Singhal Sandeep (2005), “Entrepreneurship Development”, Wisdom
Publications, Delhi.
 Badi R.V., Badi N.V. (2010), “Entrepreneurship”, Vrinda Publications (P) Ltd., Delhi.
 Desai Vasant (2009), “The Dynamics of Entrepreneurial Development and Management - Planning
for Future Sustainable Growth”, Himalaya Publishing House, India.
 Vasishth Neeru (2008), “Business Organization”, Taxmann Allied Services (P.) Ltd., New Delhi.
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 Holt David H. (2004), “Entrepreneurship – New Venture Creation”, Prentice Hall of India Private
Limited, New Delhi.
 Roy Rajeev (2009)], “Entrepreneurship”, Oxford University Press, New Delhi.
 Burns Paul (2001), “Entrepreneurship and Small Business”, Palgrave Mecmillan, China.
 Sudha G.S. (2005), “Management and Entrepreneurship Development”, Indus Valley Publications,
New Delhi.
 Basotia G.R., Sharma K.K. (1991), “Handbook of Entrepreneurship Development – An
Entrepreneurs Guide to Planning, Starting, Developing and Managing a New Enterprise”, Mangal
Deep Publications, Jaipur.
 Coulter Mary (2003), “Entrepreneurship in Action”, Prentice Hall of India Private Limited, New
Delhi.
 Zimmerer Thomas W., Scarborough Norman M. (2009), “Essentials of Entrepreneurship and Small
Business Management”, PHI Learning Private Limited, New Delhi.
 Hisrich Robert D., Peters Michael P. (2002), “Entrepreneurship – International Edition”, The
McGraw-Hill Companies, New York.

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