FOUNDATIONS OF

ENTREPRENEURSHIP
DEVELOPMENT
Entrepreneurship

DEVELOPMENT
Entrepreneur

 The word entrepreneur is derived from the French word

‘enterprendre’ it means “to undertake” and literally
translated means “between-taker” or “go-between”.

 Entrepreneur is an individual who takes risk and starts

something new.
 Who is an Entrepreneur?
 He or she is an individual who actively form or lead their own business
and nurture them for growth and prosperity.

 A person who creates and manages change by the recognition of

opportunities (needs, wants, opportunities, problems, and challenges)
and develops people and manages resources to take advantage of the
resources to take the opportunity and creates a venture (profitable
business).
Definition

 “ An entrepreneur is one who always searches for changes,

responds to it and exploits it as an opportunity”.
by Peter Drucker

 J.B. Say “ An entrepreneur is one who brings together the

factors of production and combines them into a product”.
by J.B.Say
Introduction to Entrepreneurship

 Simple Definition
Processof creating something new and
assuming the risks and rewards.
Robert D.Hisrich, M.P.Peters & D.A.Shepherd
Entrepreneurship
 Entrepreneurship is neither a science nor an art. It is a practice.
It has knowledge base. Knowledge in entrepreneurship is
means to and end; that is by the practice.”
by Peter Drucker.

 Entrepreneurship is the investing and risking of time, money

and effort to start a business and make it successful. By
by Musselman & Jackson.
 Distinction

Entrepreneur Entrepreneurship
 Person  Process
 Organizer  Organization
 Creator  Creation
 Motivator  Motivation
 Visualizer  Vision
 Leader  Leadership
 Imitate  Imitation
 Risk bearer  Risk bearing
Need of Entrepreneurial Development

 Employment

 Capital Formation

 Regional Development

 Higher living standards

 Economic independence

 Improvement in income
Importance & Significance of Growth
of Entrepreneurial Activities

 Employment Generation  Import Substitution

 Innovation  Capital Generation

 Economic Development  Fair Regional Development

 Social Development  Nation Building

 Increase in Foreign Trade

CHARACTERISTICS OF ENTREPRENEURS
Characteristics of Entrepreneur

 Decision making  Passion and hard work

 Confidence  Flexibility

 Innovative  Ethical

 Well-informed  Competitive

 Vision/Foresight  Motivated

 Strong interpersonal skills  Persistent

Qualities of Entrepreneur

 Disciplined  Determination

 Confidence  Strong people skills

 Open minded  Strong work ethics

 Self starter  Passion

 Competitive

 Creativity
THEORIES OF
ENTREPRENEURSHIP
Innovation Theory of Schumpeter
 Innovation theory of Schumpeter(1949)

Schumpeter’s theory focuses on creativity and innovation.

According to him Entrepreneur is a man who sees opportunity for:

➢ Introducing new techniques or commodity
➢ Improving organization.
➢ Development resources.
➢ Entrepreneur embarks upon new combination of factors of
production resulting in new product--termed as innovator.
➢ Entrepreneur is Dynamic
TYPE OF INNOVATIONS

 The introduction of new product.

 The introduction of new method of production
 The opening of new market
 The conquest of new source of raw material
supply.
 Reorganization of any industry.
Features of Schumpeter Theory

 Invention and Innovation

 Creative destruction

 Exploitation of Opportunity

 Breaking the economic equilibrium

Evaluation Schumpeter’s Theory

 Focus on Innovation

 Large-scale operations

 Relevant to Developed Nations

 Lack of clarity on other types of entrepreneurs.

2. Need for Achievement Theory of
McClelland
McClelland’s Achievement Motivation
Theory

 This is a psychological theory.

 Developed by David Mc Clelland as an Achievement motivation theory.

Mc Clelland proposed that there are three major needs or motives for
personnel accomplishments. They are as follows:
1. The need for Achievement(nAch)
2. The need for Affiliation.(nAff)
3. The need for Power.(nPow)
Need for Achievement: refers to the drive within an individual to excel in
life in order to achieve success.
 Acc to him the need for achievement is internal which he calls him as “
inner spirit” which is developed during childhood and sought
throughout the lifetime of the individual.
Need for Power: Individuals with a strong need for power seek control
over others.
Need for Affiliation: Individuals with a strong need for affiliation seek to
make and maintain good and harmonious social relationships.
Implications of Motives
➢ Need for affiliation and need for power are driving force towards
entrepreneurship.
➢ High level of achievement makes an entrepreneur.
➢ Dreams of entrepreneur appear to be not to ‘get rich’ but to ‘get
big’.
Views of McClelland’s theory

1. Economic developments depends on vigorous activities of a

number of individuals who behave in an entrepreneurial fashion.
2. Entrepreneurs are motivated by strong need for achievement.
3. There is direct evidence that this motivational complex has been
in shorter supply in poor countries than in rich countries.
4. To improve the condition of poor countries entrepreneurs are to
be increased.
3. Harvey Leibenstein’s X-Efficiency Theory
 Leibenstein X-Efficiency Theory
“When an input is not used effectively the difference between the actual output
and the maximum output attributable to that input is measure of Degree of X—
Efficiency.”
X - efficiency arises either because the firm’s resources are used in the
wrong way or because they are wasted, that is, not used at all.

Types of Entrepreneurship
➢ Routine entrepreneurship: deals with normal business functions.
➢ Innovational entrepreneurship: wherein an entrepreneur is innovative in his
approach.
Entrepreneurs must be able to perceive:
1. Buying and selling opportunities in different markets.
2. The possibility of transforming input into output
3. Determine the profitable activities

Leibenstein identifies two main roles for the entrepreneur:

1) A Gap-filler
2) An Input Completer
Features of X-Effeciency Theory

1. Organizational deficiency in utilization of resources

2. Dual entrepreneurial role

3. Traditional Vs New Entrepreneurial

Evaluation of Leibenstein’s theory

 It analyzes role of entrepreneur in terms of efficiency.

 It tells us why growth rate is different in different

countries.

 This theory shows that a firm will achieve maximum

efficiency when the firm minimizes cost.
4.Risk Bearing Theory of Knight
 A key element of entrepreneurship is risk bearing. Prof. Knight and John
Staurt Mill saw risk-bearing as the important function of entrepreneurs.
 Acc to Knight, profit is the residual return to the entrepreneur for bearing
uncertainties in business.
According to Risk –Bearing theory
1. Entrepreneur earns profits because he undertakes risk
2. The main function of an entrepreneur is to act in anticipation of future
events.
3. Uncertainty-bearing is essential to production; therefore it is factor of
production and the reward for it is a part of normal cost of production.
4. Profit is a payment for the assumption of risks the entrepreneur undertake.
Features of Risk Bearing Theory of Knight

1. Risk creates Profit: According to the risk-bearing theory, the

entrepreneur earns profits because he undertakes risks.

2. More Risk More Gain: The degree of risk varies in different

industries. Entrepreneurs undertake different degrees of risk
according to their ability ad inclination. The risk theory proposes
that the more risky the nature of business, the greater must be the
profit earned by it.
Features of Risk Bearing Theory of Knight

3. Profit as Reward and Cost: Profit is the reward of entrepreneur for

assuming risks. Hence, it is also treated as a part of the normal cost of
production.

4. Entrepreneur’s Income is Uncertain: This theory summarizes that

profit is the reward of an entrepreneur effort which arises for bearing
non insurable risks and uncertainties and the amount of profit
earned depends upon the degree of uncertainty bearing.
Evaluation of Knights Theory

 Entrepreneur has to cope with the various challenges which is

at once unknown and unpredictable i.e there lies uncertainty.
5. Theory of Social Change by Everett
Hagen
 Hagens considers the entrepreneur as a person with creative abilities
who is interested in the technological field to solve problems and
possesses a strong motivation to achieve.
 Hagen considers status withdrawal as a trigger for changes in the
human personality.

According to him “ status withdrawal occurs when members of some

social group perceive that their purpose and value in life are not respected
by other groups in the society whom they respect and whose esteem they
value”.
 Acc to Hagen, there are four types of events that can produce status
withdrawal.
1. Displacement by force: in this case a traditional group is displaced by
another group with the help of physical force.
2. Denigration of Valued Symbols: this is observed through change in the
attitude of a superior group or suppression by certain group.
3. Inconsistency of Status Symbols: this is observed due to changing
distribution of economic power.
4. Non-acceptance of expected status on migration to a new society: any
non-acceptance of expected status on migration to a new society can also
cause status withdrawal.
Once status withdrawal occurs, the process of personality transformation
occurs triggering the creative personality within the individual.
 Withdrawal of status respect would create four different types of response
and personality types:
1. Retreatist: is one who continues to work in the society but remains
uninterested towards his work as well as status or position.
2. Ritualist: he acts in a way which is accepted and approved by the society
and takes no efforts to improve his position.
3. Reformist: is one who sets out to change the set rules of the society.
4. Innovator: a creative individual who has most chances of being an
entrepreneur.
FACTORS INFLUENCES ON
ENTREPRENEURIAL DEVELOPMENT

External Influences on
Entrepreneurial
Development

Socio-Cultural Political/Legal Economic Personal

Socio-Cultural Factors

 Social norms and values

 Role models
 Social pressure
 Respect and Status
 Security
 Family background
 Education
 Attitude of the Society
 Cultural value
Political/Legal Factors

 Political Stability

 Political unrest

 Industrial and labour law

Economic Factors

 Economic Policy

 Economic Environment

 Foreign Investment
Personal Factors

 Goal Orientation

 Motivation

 Personality Traits
Role of Entrepreneurial Culture in
Entrepreneurship Development

 Culture refers to the unsaid rules and regulations in an environment.

 Culture is that complex whole which includes knowledge, beliefs, art, morals,
law, custom and other capabilities and habits acquired by man as a member of
society.

 An entrepreneurial culture is an environment where someone is motivated to

innovate, create and take risks.
 Entrepreneurial culture plays an important role in entrepreneurship development
Elements of Entrepreneurial Culture

 Ethical behaviour
 Productivity Culture
 Communication Culture
 Recognition and Rewards Culture
 Quality Culture
 Corporate Citizenship Culture
 Concern for Environment
 Concern for Social Development