CHAPTER ONE

NATURE AND DEVELOPMENT ENTERPRENEURSHIP

1.1. Historical Perspective of Entrepreneurship
The term entrepreneur comes from French term entreprendre which means " undertaker or or
"go-between." For example, Marco Polo, who attempted to establish trade routes to the Far East,
was a go-between. As was the custom, he signed a contract with a money person (forerunner
of today's capitalist) to sell his goods. A common contract during this time involved a loan to
the merchant adventurer by a capitalist, who was a passive risk-bearer. The merchant
adventurer took on an active role in trading, bearing all the physical and emotional risks. The
historical development of the entrepreneurship is viewed from the following perspectives.
Time dimensions
In the middle Ages, the term entrepreneur was used to describe both an actor and a person
managing large production projects. In the case of a large production project, the person would
not take any risks but would merely manage the project using the resources provided. A typ-
ical entrepreneur in the middle Ages was the cleric—the person in charge of great
architectural works such as castles and fortifications, public buildings, or abbeys and
cathedrals.
The concept of risk in the notion of entrepreneurship developed in the 17th century, involved
an entrepreneur being viewed as a person who entered into a contractual arrangement with the
government to perform a service or to supply stipulated products. Since the contract price was
fixed, any resulting profits or losses reflected the efforts of the entrepreneurs. One
entrepreneur in this period was John Law, a Frenchman, who was allowed to establish a royal
bank, which eventually evolved into an exclusive franchise to form a trading company in the
New World—the Mississippi Company.
Richard Cantillon, a noted economist and author in the 1700s, developed one of the early
theories of the entrepreneur and is regarded by some as the founder of the term. Cantillon
viewed the entrepreneur as a risk-taker, seeing the merchants, farmers, craftsmen, and other
sole proprietors "buy at a certain price and sell at an uncertain price, therefore operating at a
risk."

1
Finally, in the 18th century the person with capital was differentiated from one needing
capital. In other words, the entrepreneurial role was clearly distinguished from the capital-
providing role. The latter role is the basis for the present-day venture capitalist. One reason
causing this differentiation was the industrialization occurring throughout the world. Many of
the inventions developed during this time were reactions to the changing world, as was the
case with Eli Whitney and Thomas Edison. Both Whitney and Edison were entering new
technologies and were unable to finance their inventions themselves. While Eli Whitney
financed his cotton gin with expropriated British crown property, Thomas Edison raised
capital from private sources to experiment and develop in the more complex fields of
electricity and chemistry. Both Edison and Whitney were capital users (entrepreneurs), not
providers (venture capitalists). A venture capitalist is a professional money manager who
invests in risky investments from a pool of equity capital to obtain a high rate of return on the
investments.
In the late 19th and early 20th centuries, entrepreneurs were frequently not distinguished from
managers and were mainly viewed from an economic perspective:
Briefly stated, the entrepreneur organizes and operates an enterprise for personal gain. He pays
current prices for the materials consumed in the business, for the use of land, for the personal
services he employs, and for the capital he requires. He contributes his own initiative, skill and
ingenuity in planning, organizing, and administering the enterprise. He also assumes the chance
of loss and gain consequent to unforeseen and uncontrollable circumstances. The net residue of
the annual receipts of the enterprise after all costs have been paid, he retains for himself.
Andrew Carnegie is one of the best examples of this definition. Carnegie invented nothing.
Instead, he adapted and formed new technology and products into economic vitality and
results. Carnegie, who descended from a poor Scottish family, made the American steel industry
one of the wonders of the industrial world, primarily through his unremitting competitiveness
rather than his inventiveness or creativity.

In the middle of the 20th century, the notion of an entrepreneur as an innovator was
established. The function of entrepreneurs is to reform or revolutionize the pattern of production
by exploiting an invention or, more generally, an untried technological possibility for producing

2
a new commodity or producing an old one in a new way, opening a new source of supply of
materials or a new outlet for products, by reorganizing a new industry
The concept of innovation and newness as an integral part of entrepreneurship is at the heart
of this definition. Indeed, innovation, the act of introducing something new, is one of the most
difficult tasks for the entrepreneur. It takes not only the ability to create and conceptualize but
also to understand all the forces at work in the environment. The newness can be anything from a
new product to a new distribution system to simply a new organizational structure.
Developed and developing countries perspectives
Developed countries view- entrepreneur is the person who
 produce new product
 introduce new method of doing things
 Finds new sources of inputs
 Opens new market
Developing countries view-entrepreneur is the individual who
 start a business-old or new
 undertake risk
 bear uncertainty/live in uncertain condition
 perform managerial functions
Different economic system perspectives
 Capitalist/free market economic system’s view- entrepreneur is the person who has the
freedom to start business, save and invest. They see entrepreneurs as the catalyst for
economic growth.
 Mixed economic system-entrepreneur is considered as one agent of economic growth-
produce and distributes goods/services. Government produces capital goods and provides
basic social services.
 Socialist/communist economic system’s view-entrepreneur was considered as parasite of
economic growth-assume private sector/entrepreneur exploit resources unwisely.
Different discipline’s view
 Economist’s view-entrepreneur is the one who brings resources/combine to make greater
value than the value before. Introduce innovation and bring change. Economists may view
entrepreneurs as those who bring resources together in unusual combinations to generate
3
 profits. Joseph Schumpeter, noted economist viewing entrepreneurship as new combinations
of resources, in the form of a) a new good, b) a new method of production, c) opening of a
new market, d) discovery of new sources of supply, and e) development of a new venture.
 Sociologist’s view- entrepreneur is the person who is sensitive to business and social
environment- addressing the society’s problem/filling the gap
 Psychologist’s view-entrepreneur is the person who has the motive to attain/achieve
something/self-confident/initiative. Psychologists tend to view entrepreneurs in behavioral
terms as those achievement- oriented individuals driven to seek challenges and new
accomplishments. Individuals driven to seek challenges and new
What is entrepreneurship?
Although there is no single definition, entrepreneurship is the process of creating something different,
with value, by devoting necessary time and effort, by assuming the accompanying financial,
psychological, and social risks, and receiving the resulting rewards of monetary and personal satisfaction
(Bowen and Hisrich, 1986).
Who is an entrepreneur?
 Person conducting own business (Webster)
 Person who sets up business deals in order to make profits (Collins Cobuild)
 Organizer of resources, one who owns, organizes, manages, and assumes the risks of the business
(Chandrashekhar)
 Capacity to take risks/accept moderate risk
 Desire to be their own boss
 Special skills and abilities
 Ability to own and organize
 Desire and capability to innovate and diversify
Therefore, the relationship between entrepreneurship and entrepreneur is demonstrated in the following
manner.
Entrepreneur----entrepreneurship---enterprise
(Person) (Process) (Institution)

1.2. Characteristics/Traits of Entrepreneurs

Robert D.Hisrich has identified a few more capabilities or personal traits that an entrepreneur should
possess. According to him the entrepreneur must have an adequate commitment, motivation, and skills to
start and build an enterprise. The entrepreneur must determine if the management team has the necessary
4
 complementary skills necessary to succeed. Some of the traits successful entrepreneurs according to him
are
1. Optimistic: An optimistic person thinks the best possible thing will happen, and hopes for it
even if it's not likely.
2. Energetic and Motivator: An entrepreneur must build a team, keep it motivated and provide an
achievement for individual growth and career development. Success of an entrepreneur demands the
ability to work with long hours for sustained periods of time.
3. Seize the opportunity: You are already seized the opportunity once, so don’t stop there. Constantly be
looking for opportunities outside of and within the business. At the same time, stay prepared to take the
advantage of an opportunity when it arises.
4. Strong internal locus of control: According to J. B.Rotter, a psychologist, those who believe
that their success depends upon their own efforts have an internal locus of control. In contrast,
those who feel that their lives are controlled to a greater extent by luck or chance or fate have an
external locus of control. External locus of control believing that one’s life is controlled more by
luck or fate than by one’s own efforts. On the basis of research to date, it appears that
entrepreneurs have a higher internal locus of control than is true of the population in general.
5. Self-confidence: entrepreneur must have belief in themselves and the ability to achieve their goals.
Studies show that successful entrepreneurs tend to be self-reliant individuals who see the
problem in launching a new venture but believe in their own ability to overcome these problems.
Some studies of entrepreneurs have measured the extent to which they are confident of their own
abilities.
6. Persistent: An entrepreneur must have the intense desire to complete a task or solve a problem. Creativity
is an essential ingredient.
7. Initiative: An entrepreneur must have the initiative in accepting personal responsibility for action and
above all make good use of resources.
8. Goal oriented: An entrepreneur must be able to set challenging but realistic goals.
9. Moderate risk taker: An entrepreneur must be a moderate risk taker and learn from mistakes. The risks
that entrepreneurs take in starting and /or operating their own business are varied. By investing
their own money, they assume a financial risk. If they leave secured jobs, they risk their careers.
The stress and time required in starting and running a business may also place their families at
risk. And entrepreneurs who identify closely with particular business ventures assume psychic
risk as they face the possibility of business failure.

5
10. Need for Achievement: David C. McClelland, a Harvard Psychologist, discovered a positive
correlation between the need for achievement and entrepreneurial activity. According to
McClelland, those who become entrepreneurs have, on the average, a higher need for
achievement than do members of the general population. Entrepreneurs are driven by a need to
achieve. What they need to achieve varies, but it is often recognition rather than money. They set
themselves goals and targets, are self-motivated and take pleasure in achieving these goals.
Moreover, entrepreneurs have:
 Problem-solving skills/quick decision maker
 Tolerance for ambiguity
 Strong integrity
 Personal initiative
 Strong need for achievement
 Ability to secure resources
 Capability to learn from failure
 Strong internal locus of control
 Willingness to work hard
 Strong desire to be their own boss-don’t need to work in other company
1.3. Motivation for starting a business
Motivation is the basic drive for all of our actions and it directs our behaviours. A motive is a need for
specific experiences. Motives are stimulated by the situation. Thus, based on the motivation/driving force,
we can classify entrepreneurs as:
1. Opportunity driven entrepreneurs /by pulling factors
An opportunity is a favorable set of circumstances that creates a need for a new product, service or
business.
 want to exploit a perceived business opportunity
 strive for independence, self-actualisation
 on average they rise higher than necessity driven entrepreneurs
In general, the opportunities/pulling/positive factors can be:
o Conducive government rules/regulations
o Ease of access to resources
o Skill and knowledge such as marketing know how
o Availability of market/demand for product/services
o Advice from role model
6
o Influence from peer, family, relatives
o Influence of background such as age, education, family occupation
o Influence of culture/ attitude/value of the community towards self -employment
2. Necessity driven entrepreneurs/pushing factors
They are pushed into entrepreneurship because all other options for work are either absent or
unsatisfactory.
 dissatisfaction with working conditions, contents and time
 pursue entrepreneurship to secure their own existence
The pushing/negative factors can be:
 Unemployment/lack of job in the formal sector
 Dissatisfaction in employment situation, salary
 School dropout, retirement
 Conflict in the work environment/loss of job/work disruption
1.4. Terms related with Entrepreneurship
Some of the terms related to entrepreneur are:
1. Intrapreneur- is an employee in an organization and brings new idea to improve
product/service/working method/systems within the framework of an existed organization.
2. Innovator /Inventor- an individual who creates something new for the first time-highly creative and
educated.
3. Professional manager-the person who works and manages an organization within the framework of
policies/rules formulated by others.
-manage resources to achieve the goal of the organization.
Entrepreneur involves the activity of innovation through SCAMPER-different way of thinking. i.e.
Substitute-substituting the products by other with similar value/service
Combine-Using the pen: Combine - writing with cutting, holding with opening
Adapt/imitate
What can you adapt for to use as a solution?
Modify/magnify
Can you change the item in some way? Change meaning, color, motion, sound, smell, form, shape? Other
changes?
Put to another use--- use the pen to write on wood
Eliminate/minify
What can you eliminate? Remove something? Eliminate waste? Reduce time? Reduce effort? Cut costs?
Reverse/Rearrange
7
 What can be rearranged in some way? Interchange components? Other pattern? Other layout?

1.5. Role of Entrepreneurship in economic development

Entrepreneurs and small businesses contribute the nation’s economic welfare. They produce a substantial
portion of the total goods and services. Some of the areas where they are of vital importance are as
follows:
1. Providing New jobs: As the populations and economies grow small businesses provide new job
opportunities. It is clear that small businesses produce the majority share of the new jobs sometimes
adding new jobs while large corporations are downsizing and lying off employees.
2. Introducing innovations: New products that originated with independent inventors and small
organizations are significant some of the new products introduced by small companies include
photocopies, insulin, penicillin, Zippier, jet engine, Helicopter etc. It is interesting to note that R & D of
big companies tends to emphasize the improvements d existing products.
3. Stimulating economic competition: In a competitive business situation, individuals are driven by self-
interest to act in a socially desirable manner. Competition acts as the regulator that transforms their
selfishness into service. If competition has to be developed there is a crying need for small businesses.
4. Aiding big business: The fact is that some functions are more expertly performed by small businesses or
small firms better than big businesses. If small businesses are suddenly removed from the scene then the
big businesses would find themselves saddled with a myriad of activities, which they can only perform
inefficiently.
 Distribution function: Few large manufacturers find it desirable to own wholesale and retail outlets.
Wholesale and retail establishments many of them small perform a valuable service by linking
customers and producers of these producers.
 Supply function: Small businesses act as suppliers and subcontractors to large suppliers. Large firms
recognize the growing importance of their suppliers by using terms like partnership and strategic
alliances.
5. Produce goods and services efficiently: Efficient size of business varies with industry. Big businesses
are better off manufacturing automobiles and other big products but it is better that small businesses
concentrate on service industries.
6. The continued existence: of small businesses in a competitive economic system is in itself evidence of
efficient small business operation. If small businesses are hopelessly inefficient and make no useful
contribution, they would be forced out of business quickly by stronger competition.
7. Less capital and more labor: Small firms should be encouraged because they require less capital but
generate more employment. It is estimated that though the net output per worker in large and medium
8
 industries is more than twice as compared to that in small scale industries the investments of capital per
worker is about seven times in large scale industries. The small-scale sector has the capacity to generate a
much higher degree of employment than large-scale sector.
8. Removing regional imbalances: Another problem is the continuous shifting of people from rural to
urban areas, which cause overcrowding in cities. This problem can be solved by inducing people to set up
small industries in rural areas. The prolific setting up of agro-based industries can go a long way in
creating a balance in a country’s economy.