ENTREPRENEURSHIP DEVELOPMENT

1. Name & Scope Role & Importance in Indian Economy, Theories

of Entrepreneurship traits of entrepreneur, entrepreneurs
versus professional managers, problems faced by
entrepreneurs.

2. Entrepreneurial Development Entrepreneurial Development,

Significance and role of environment infrastructural network,
environmental analysis, E.D. Programmes (EDP), problems of
EDP.

3. Transportation-North West Corner Rule, matrix Minima & VAM

Methods, Degenerating, MODI Method. Assignment Problems.

4. Project & Reports Search for business idea, transformation of

idea into reality: projects and classification. Identification of
projects, project design and network analysis, project appraisal
plant layout.

5. Small industry setup Types of organization-sole proprietorship,

partnership, Joint Stock Company, co-operative organization,
their merits, limitations, suitability. Organizational locations,
steps in starting a small industry, incentives, and subsidies
available, export possibilities.
 Unit 1
Introduction

Entrepreneurship refers to all those activities which are to be carried out

by a person to establish and to run the business enterprises in
accordance with the changing social, political, and economic
environments.

Entrepreneurship development refers to the process of enhancing

entrepreneurial skills and knowledge through structured training and
institution-building programs. It aims to empower individuals to start
and grow their businesses, thereby contributing to economic
development and innovation.

Entrepreneurship includes activities relating to the anticipation of the

consumers likes and dislikes, feelings and behaviours, tastes and
fashions and the introduction of business ventures to meet out all these
expectations of the consumers.

Entrepreneurship is considered as a ‘new product’ that would enable

businessmen to develop new form of business organization and new
business activities catering to the changing needs of the society. The
liberalization of cultural rigidities is mainly due to this new product
‘entrepreneurship’.

Entrepreneurship is the ability of entrepreneurs to assess the risks and

establish businesses which are risky but at the same time suits perfectly
to the changing scenarios of the economy.

The two major factors determine the entrepreneurship developments

are:

 Risk taking ability of entrepreneurs and

 Power of achievement of entrepreneurs

The other factors are:

1. The performance of speculative functions to gain edge over others.

2. Considering new factors of production, time, technology, and

quality for success.

3. Availing new sources of capital

4. Performing functions of employer, master, merchant, and

undertaker.
 5. Supply goods and services which are hitherto unknown to
consumers.

6. Find a new market which is hitherto unexploited.

7. Seizing new opportunities for exploitation.

8. Developing the less developed countries and developing nations

9. Decision making under uncertain situations.

Entrepreneurship development could be made through a collective

approach of the qualified individuals and the entrepreneurial role played
by the Government and other agencies. They strive for betterment and
provide conducive infrastructure including the technology that is
unheard and unthought so far.

Definition of Entrepreneurship

In a changing environment, the entrepreneurship development activities

are getting multiplied. Since the dawn of industrial revolution to till
date, we encountered certain drastic changes in the economic activities.
Thus, it is not an easy task to give a comprehensive definition for the
word ‘entrepreneurship’.

“Entrepreneurship as the function of seeking investment and production

opportunity, organising an enterprise to undertake a new production
process, rising capital, hiring labour, arranging the supply of materials,
finding site, introducing new techniques and commodities, discovering
new sources of raw materials and selecting top managers of day-to-day
operations of the enterprise”.

Key Components of Entrepreneurship Development

Education and Training:

 Entrepreneurship Education: Integrating entrepreneurship into

curricula at all educational levels to develop entrepreneurial
mindsets early on.

 Skill Development: Offering specialized programs that teach

essential business skills such as management, finance,
marketing, and strategic planning.

Support Systems:

 Incubators and Accelerators: Providing startups with

resources, mentorship, and networks to scale their businesses.
  Financial Support: Facilitating access to funding through
venture capital, angel investors, government grants, and loans.

Policy and Regulatory Environment:

 Supportive Policies: Implementing policies that reduce barriers

to entrepreneurship, such as simplifying business registration
processes and offering tax incentives.

 Intellectual Property Protection: Strengthening IP laws to

protect entrepreneurs’ innovations and encourage more
investment in R&D.

Infrastructure:

 Physical Infrastructure: Developing industrial parks, special

economic zones, and innovation hubs to provide conducive
environments for business growth.

 Digital Infrastructure: Ensuring robust internet and

communication networks to support tech-driven businesses.

Market Access:

 Local and Global Markets: Helping entrepreneurs access local

and international markets through trade agreements, export
promotion, and market research.

 Networking Opportunities: Creating platforms for

entrepreneurs to connect with peers, mentors, and investors to
build strategic alliances.

Mentorship and Networking:

 Industry Connections: Facilitating relationships between

entrepreneurs and industry experts to share knowledge and
experiences.

 Collaborative Projects: Promoting collaboration between

academia, industry, and government to drive innovation and
business growth.

Social Entrepreneurship:

 Support for Social Ventures: Encouraging and supporting

entrepreneurs who focus on solving social, environmental, and
community issues.
  Impact Investing: Promoting investments that aim for social
and environmental impact alongside financial returns.

1.1Need and Scope of Entrepreneurship Development

The word ‘Entrepreneurship’ is very often confused with the word

Entrepreneur’. They look alike but carry different meanings.
Entrepreneurship is nothing but all those activities which are to be
undertaken by an entrepreneur. The prevailing socio, political and
economic activities act as a propelling force for the aspiring
personalities to become entrepreneurs. Entrepreneurship development
is the outcome of the entrepreneurs. In other words, the entrepreneurs
give birth to entrepreneurship. This statement is partially true because
certain activities of the entrepreneurs are due to the existing policies
and programmes of the Central as well as the state governments and
not only by the entrepreneurs themselves. Under such circumstances, it
is not the entrepreneurs who give birth to entrepreneurship. Instead, it
is the existing entrepreneurship development programmes that give
birth to entrepreneurs. The emergence of entrepreneurs and the level of
entrepreneurship development are also the far-reaching changes that
are taking place in the social and political activities rather than changes
taking place in the economic activities.

Entrepreneur cannot emerge from the vacuum. Entrepreneurship

development depends upon the environment (both external and
internal) within which the entrepreneurs have to do their business.
Entrepreneurs are closely associated with the existing as well as the
past entrepreneurial activities of the society.

Business opportunities are identified from the social, political, and

economic crisis and in turn these crises become the favourable climate
for the entrepreneurs to innovate new business ventures. From this
perspective, it is true that entrepreneurial activities are the resultant
efforts of the prevailing entrepreneurship development programmes.

On the other hand, entrepreneurs keenly observe the society and its
economic activities and try to elicit innovative business opportunities.
They try to make use of the modern technology and manufacture new
products which are hitherto unknown to the market and induce the
consumers to buy them and thereby improving their standard of living.
It is possible for entrepreneurs to find new market, new product and
introduce a new form of organization. Therefore, the entrepreneurship
development is due to the innovative thoughts and actions of the
entrepreneurs. Thus, the term entrepreneur and entrepreneurship are
different and complementary with each other. Let us see the need and
scope of entrepreneurship development in the forthcoming pages.

Need for Entrepreneurship Development

Economic Growth:

 Job Creation: Entrepreneurs create new businesses, which

leads to job creation. This is particularly important in
economies with high unemployment rates.

 Innovation: Entrepreneurs drive innovation by introducing

new products, services, and technologies. This innovation can
lead to improved productivity and efficiency.

 Wealth Creation: Successful entrepreneurial ventures

generate wealth not only for the entrepreneurs but also for
employees and the community, through the multiplier effect.

Social Development:

 Improved Quality of Life: Entrepreneurship can improve the

quality of life by providing essential goods and services and
enhancing living standards.

 Empowerment: It empowers individuals, including women and

minorities, by providing opportunities to pursue their ideas and
achieve financial independence.

 Community Development: Entrepreneurs often invest back

into their communities, supporting local initiatives and
infrastructure improvements.

Diversification:

 Economic Diversification: Entrepreneurship leads to

economic diversification by reducing dependence on a few
sectors or industries. This helps stabilize the economy and
reduce risks associated with economic downturns in specific
sectors.

Adaptation to Change:

 Market Adaptation: Entrepreneurs are often more agile and

responsive to changes in market demands and trends, helping
 economies adapt to globalization and technological
advancements.

 Resilience: Entrepreneurial ecosystems foster resilience by

encouraging innovation and the development of new industries
that can better withstand economic shocks.

Scope of Entrepreneurship Development

Entrepreneurship development could be made in all walks of the society
and in all fields of activities. The scope of entrepreneurship
development encompasses the following

 To Identify Entrepreneurial Activities

 The entrepreneurial activities ‘and opportunities could be

identified by the planner of the Government. The Government
through various economic policies and programmes like
‘Globalisation’, ‘Privatisation’, ‘Liberalisation’, ‘Free Export and
Import of Goods and Services’ inviting NRI’s capital
introduction of innovation in the stock market activities, and
the establishment of SSI identifies entrepreneurship
opportunities. These programmes give ample opportunities for
the entrepreneurship development.

 To liberalise the existing licensing policies and offer incentives

and thereby attract multinational companies of various
countries to develop new industries in the backward regions.

 To encourage the researchers of entrepreneurship

development to find new opportunities for the business and
industrial development.

 To identify the existing and the emerging economic, social, and

political crisis and find out a suitable remedial measure to
overcome the crisis.

 To offer training to the first-generation entrepreneurs and

encourage them to enter into new business ventures.

 To find out the entrepreneurial activities of the neighbouring

countries and the international financial institutions and other
associated activities like bilateral agreements, SAARC countries
 Agreement, Common Wealth Countries agreements and Non-
Aligned Nations agreements and the like.

 To encourage the institutions engaged in the industrial

development to find avenues for entrepreneurship
development. The institutions informing entrepreneurial
opportunities are:
 The Government’s sponsored institutes.
 University Departments and entrepreneurship development
institutions.
 Voluntary organisations and research agencies.
 The commercial banks and
 Industrial Development Institutions.

 Imparting Training to Develop Entrepreneurial Talents

Entrepreneurs can be made by means of allowing them to undergo

rigorous training. The level of entrepreneurship development especially
in all underdeveloped countries depends upon the extent with which the
aspiring men are given training. Through training, they can be able to
improve their power of achievement and power of affiliation. Training of
this type shall be given to the young pupil even at the school level. The
training enables entrepreneurs:

a. To know as how to search the innovative business ideas.

b. To know the various sources available for new business ideas.
c. How to process and find out the best ideas.
d. To know the various input requirements for the proposed
business.
e. To find out the location for the proposed business.
f. To know as how to fulfil the various legal formalities.
g. To know as how best to make use of the existing
infrastructural facilities.
h. To know the various sources of finance available for the new
business venture.
i. To know as how best to overcome the resistance, and
j. To know as how to assess the market and future trend.

 To Develop Infrastructural Facilities

Entrepreneurship development could be possible through the setting up

of both social and economic infrastructural facilities for the aspiring
entrepreneurs. The following infrastructural facilities are worth noting:
Impart entrepreneurship education to the pupils at the school level so as
to enable them to develop the entrepreneurial talents.

Establish a separate Department of Entrepreneurship Development or

School of Entrepreneurship Development at the College/ University level
and allow the academics to’ undertake researches on ‘Entrepreneurship
Development’ and its allied activities.

Conduct the ‘Entrepreneurship Development Programmer’s through the

setting up of Entrepreneurship Training Institutions at least at the taluk
level in all parts of the country.

The State Governments shall give special attention to the

entrepreneurship development programme. They can in collaboration
with the neighbouring states, chalk out a programme of action for
developing entrepreneurial activities in a phased manner.

The existing financial institutions especially the commercial banks

situated in rural areas shall take utmost care in identifying the aspiring
entrepreneurs and offer not only the required financial assistance but
also the required managerial techniques so as to enable them to
establish new business and withstand in the market.

Institutions which are engaged in the development of small industries

shall frame long range planning in developing entrepreneurial talents.
They should monitor the changing industrial and business scenarios and
determine the future course of actions to be taken to improve the
entrepreneurship development.

The role of R & D institutions is not only to innovate but also to inform
the entrepreneurs as how best to make use of the innovation and apply
in the manufacturing process. These institutions should act as
entrepreneur and all its activities constitute entrepreneurship.

Entrepreneurship development depends upon the existence of a stable

Government so that industrialists and business magnets could have
long range planning. Foreign investors would not hesitate to go over to
any other country if there is an existence of a stable Government.

The availability of finance in time is yet another support for the

entrepreneurship development. The existing tools for the better
financial management are not adequate. They could be used in the
giant business concerns only. Hence, the immediate need of the hour is
to develop new tools that must be suitable for the effective utilisation of
finance in the small scale industrial units.
Identification of the effective utilisation of the available finance itself
creates ground for the development of entrepreneurial activities. The
entrepreneurs could be able to mobilise funds from existing stock
market arid the market shall imbibe confidence in the minds of small
investors that their investments are protected and used for profitable
business opportunities.

There must be an existence of the skilled labourers and experts who are
able to make use of the latest technology. Timely adaptation of the new
technology ensures entrepreneurship development, since there are
chances for making use of the new technology for alternative purposes.

Entrepreneurship could be developed through an effective

communication network. It avoids scarcity of information and ensures
equilibrium in updating the knowledge of the people of the entire globe.
It enables a uniform growth of the economy. The entire globe in these
days is considered as a village owing to the fast communication new
work system.

Absence of one or more of the above said infrastructures hinder the

growth of entrepreneurship development. What is needed at present is a
comprehensive planning as how best to help the young entrepreneurs to
avail these infrastructure facilities.

 Ascertain the demand and Supply of Entrepreneurs

It is true that the economic growth depends upon the existence of the
technical progress. The level of technical progress in turn depends upon
the existence of the entrepreneurs. In other words, the economic growth
is the resultant effect of the existing as well as future demand for and
supply of entrepreneurs. Disequilibrium between these two affects the
economic growth. Excess supply of entrepreneurs over demand leads to
exploitation of natural resources beyond the required level. Of course it
leads to ‘super development’. This is one side of argument.

The other side of the argument is how to measure the excess supply. If
the measure it with the help of the variable’ development’, we can say
that excess supply is found in all the industrially advanced countries. In
real life, what is advanced today in industrially advanced countries
becomes a common phenomenon tomorrow in all other developing and
less developed countries.

If such is the case, it is proved that excess supply of entrepreneurs is

only an imagination and it will never become true. In other words, the
demand for entrepreneur is a constant factor and is in existence for
ever. The supply of entrepreneurs could be enhanced through
motivation. As propounded my Mc Clelland, any society with generally
high level of achievement will produce more real entrepreneurs who can
accelerate the growth of the economy. Max Weber suggested that
entrepreneurship is the outcome of the existing social conditions of the
society. He was of the opinion that the entrepreneurs’ personality has
been determined and shaped by the existing social customs and values
of the society. The living conditions of the society have been influenced
by the existing cultural and religious norms, economic status of the
people, their castes and inter group relations.

However, it has been observed from the history that achievement of

individuals is always greater than the achievement of groups.
Entrepreneurship development too could be achieved more by
individuals.

Entrepreneurship development is essential for fostering economic

growth, innovation, and social progress. By addressing the need for job
creation, wealth generation, and adaptation to market changes, and by
leveraging the scope of educational initiatives, government support,
financial resources, technological advancements, and global
opportunities, societies can build robust entrepreneurial ecosystems
that drive sustained development and prosperity.

1.2 Role of Entrepreneurship in Indian Economy

Entrepreneurship plays an influential role in the economic growth and

standard of living of the country. As a startup founder or small business
owner, you may think that you are simply working hard to build your
own business and provide for yourself and your family. But you are
actually doing a whole lot more for your local community, state, region,
and the country as a whole.

Wealth, Sharing & Caring

By establishing the business entity, entrepreneurs invest their own
resources and attract capital (in the form of debt, equity, etc.) from
investors, lenders, and the public. This mobilizes public wealth and
allows people to benefit from the success of entrepreneurs and growing
businesses. This kind of pooled capital that results in wealth creation
and distribution is one of the basic imperatives and goals of economic
development.
Employment Generation:

 Job Creation: Startups and small businesses are major

employers in India, providing jobs to millions of people, including
unskilled and semi-skilled workers.

 Self-Employment: Entrepreneurship encourages self-

employment, reducing dependence on traditional employment
and addressing unemployment issues.

Innovation and Technological Advancement:

 Innovation Hubs: Entrepreneurs establish innovation hubs and

research centers that drive technological advancements and
introduce new products and services.

 Digital Transformation: Entrepreneurship plays a key role in

India's digital transformation, especially in the fields of e-
commerce, fintech, and information technology.

Economic Growth:

 GDP Contribution: Entrepreneurs contribute significantly to

India's GDP by creating new businesses that generate economic
activity.

 Industrialization: Entrepreneurship fosters the growth of

industries, especially in sectors like IT, manufacturing, and
services, leading to a diversified economic structure.

India’s MSME sector, comprised of 36 million units that provide

employment for more than 80 million people, now accounts for over
37% of the country’s GDP. Each new addition to these 36 million units
makes use of even more resources like land, labor, and capital to
develop products and services that add to the national income, national
product, and per capita income of the country. This growth in GDP and
per capita income is again one of the essential goals of economic
development.

Balanced Regional Development

Entrepreneurs setting up new businesses and industrial units help with

regional development by locating in less developed and backward
areas. The growth of industries and business in these areas leads to
infrastructure improvements like better roads and rail links, airports,
stable electricity and water supply, schools, hospitals, shopping malls
and other public and private services that would not otherwise be
available.

Every new business that locates in a less developed area will create
both direct and indirect jobs, helping lift regional economies in many
different ways. The combined spending by all the new employees of the
new businesses and the supporting jobs in other businesses adds to the
local and regional economic output. Both central and state governments
promote this kind of regional development by providing registered
MSME businesses various benefits and concessions.

Foreign Exchange Earnings:

 Exports: Entrepreneurs involved in export-oriented businesses

contribute to foreign exchange earnings, strengthening India's
balance of payments.

 Global Competitiveness: By integrating into global markets,

Indian entrepreneurs enhance the country's competitiveness on
the international stage.

Social Impact:

 Social Enterprises: Many Indian entrepreneurs focus on social

issues, creating enterprises that address problems like poverty,
education, healthcare, and environmental sustainability.

 Inclusive Growth: Entrepreneurship promotes inclusive growth

by providing opportunities for women, minorities, and
marginalized communities.

Standard of living

Increase in the standard of living of people in a community is yet

another key goal of economic development. Entrepreneurs again play a
key role in increasing the standard of living in a community. They do this
not just by creating jobs, but also by developing and adopting
innovations that lead to improvements in the quality of life of their
employees, customers, and other stakeholders in the community. For
example, automation that reduces production costs and enables faster
production will make a business unit more productive, while also
providing its customers with the same goods at lower prices.

Community Development
Economic development does not always translate into community
development. Community development requires infrastructure for
education and training, healthcare, and other public services. For
example, you need highly educated and skilled workers in a community
to attract new businesses. If there are educational institutions, technical
training schools and internship opportunities, that will help build the
pool of educated and skilled workers. A good example of how this kind
of community development can be promoted is Azim Hashim Premji,
Chairman of Wipro Limited, who donated Rs. 27,514 crores for
promoting education through the Azim Premji Foundation. This
foundation works with more than 350,000 schools in eight states across
India.

So, there is a very important role for entrepreneurs to spark economic

development by starting new businesses, creating jobs, and contributing
to improvement in various key goals such as GDP, exports, standard of
living, skills development, and community development.

Exports

Any growing business will eventually want to get started with exports to
expand their business to foreign markets. This is an important
ingredient of economic development since it provides access to bigger
markets, and leads to currency inflows and access to the latest cutting-
edge technologies and processes being used in more developed foreign
markets. Another key benefit is that this expansion that leads to more
stable business revenue during economic downturns in the local
economy.

1.3 Importance of Entrepreneurship in Indian Economy

Entrepreneurship is not a word that describes the struggle of a

common person who puts all his efforts to build something of his/her
own, it is also something that reflects the growth of the country. When it
comes to entrepreneurship, several things come to the mind like the
day-to-day functioning of an organization, gathering funds, manpower,
resources and much more.

Entrepreneurs are thought of as national assets who are civilized,

remunerated, and motivated to a great extent. There is no doubt that
entrepreneurs are changing the way that we live and work. Those who
are successful entrepreneurs are helping the community to improve the
standard of their living and also assist a lot when it comes to adding and
creating wealth with their entrepreneurial ventures. Moreover, they are
also helping a lot in creating more jobs that is a good step towards a
prosperous society.

Entrepreneurs Create New Opportunities

Entrepreneurs are providing great offers in the form of opportunities to

many associated domains. No matter, in which sector the company
deals but it will surely provide new opportunities that will further assist
in economic development. The businesses of associated industries
include network maintenance, call center operations and hardware
providers. Even when it comes to education and training center, they
are hiring IT workers which is considered to be a high paying job.
Moreover, the infrastructure development organizations and real estate
companies as well are taking advantage of this growth. In simple words,
an entrepreneur benefits a large part of the economy.

Addition to National Income

There is no doubt in saying that all entrepreneurial ventures are creating

new wealth. The new and improved products, technology, or service in
which the new entrepreneurs are dealing are allowing the market to be
advanced. Moreover, the growing numbers of entrepreneurs result in
high earnings that directly contribute to the national income of the
country. It would be there in the form of higher tax revenue or
something related to government spending. The government can further
use this revenue in the needful sectors or the human capital.

Entrepreneurs Create Social Change

We all are aware of the fact that there are many unique offers provided
by the entrepreneurs that are breaking the traditional concept and
support freedom. It is also assisting a lot in reducing the dependency
level on outdated systems and technologies thus, helping in improving
the standard of living, culture, and great economic growth as well.

Apart from this, the globalization of technology which is growing day by

day is allowing lesser developed countries to use high –tech tools which
the developed countries are using. They are also getting the advantage
of lower cost of living. With the same, a young entrepreneur from an
underdeveloped country can take advantage of a product with a value
of multi-million-dollar from a developed country.

Entrepreneurs also invest in several other things that include

community projects. They are also providing financial assistance to local
charities. If we talk about famous entrepreneurs such as Bill Gates who
has used his hard-earned money for causes starting from education to
health.

Economic Resilience:

Adaptability: Entrepreneurs enhance the economy's resilience by quickly

adapting to market changes and innovations.

Crisis Management: During economic downturns, entrepreneurial

ventures can provide alternative employment and income sources.

Encouraging Innovation:

R&D Investment: Entrepreneurs invest in research and development,

leading to technological breakthroughs and innovative solutions.

Startup Ecosystem: A thriving startup ecosystem fosters a culture of

innovation and continuous improvement.

Policy and Regulatory Reforms:

Ease of Doing Business: The focus on entrepreneurship has led to

significant policy reforms aimed at improving the ease of doing business
in India.

Startup India Initiative: Government initiatives like Startup India provide

financial assistance, regulatory support, and mentorship to budding
entrepreneurs.

Sectoral Growth:

Emerging Sectors: Entrepreneurship drives growth in emerging sectors

such as biotechnology, renewable energy, and information technology.

Traditional Sectors: Entrepreneurs also revitalize traditional sectors like

agriculture and textiles through innovation and modernization.

Skill Development:

Entrepreneurial Skills: Entrepreneurship development programs

enhance skills such as leadership, management, and technical
expertise.

Workforce Development: By fostering a skilled workforce, these

programs contribute to overall productivity and economic efficiency.

Global Integration:
International Partnerships: Entrepreneurs often collaborate with
international firms, bringing in foreign investments and expertise.

Global Market Access: Indian products and services gain access to

global markets, boosting exports and international trade.

Another Side of Entrepreneurs

When it comes to entrepreneurs and entrepreneurship, there are

multiple pros and cons. All you need is focus and confidence to think
beyond the basic. Entrepreneurs really strive to be motivated towards
their work, they work hard for the growth of an organization that directly
improves the Indian economy.

The interesting communication of entrepreneurship and economic

development carries vital inferences for insurance companies,
development institutes, business owners, change agents and charitable
donors. If we understand the benefits and drawbacks, a balanced
approach to nurturing entrepreneurship can result in a positive impact
on economy and society.

Entrepreneurship development is a cornerstone of the Indian economy,

driving growth, innovation, and social progress. By fostering an
entrepreneurial spirit, India can harness its demographic dividend,
create employment opportunities, and achieve sustainable economic
development. The government and private sector must continue to
support and nurture entrepreneurial initiatives to ensure a vibrant and
resilient economy.

1.4 Theories of Entrepreneurship Traits of Entrepreneur

Traits Theories of Entrepreneurship

The theory holds that entrepreneurship developed because the

individuals called entrepreneur possessed certain specific traits or
characteristics or competencies which made them capable of
generating new ideas and creating new ventures. The major traits
responsible for the emergence of entrepreneurship are said to be :
creative and innovative skills, propensity to take risks, ability of building
on organization and managing it effectively perseverance, and
foreseeability. Different studies have emphasised different traits.
However, it may be said that there are opponents of the trait approach.
They ask a logical question as to whether those among us who do not
choose to be entrepreneur, have similar traits.
Theories of Entrepreneurship

An entrepreneur puts together a business and accepts the associated

risk to make a profit. While this definition serves as a simple but
accurate description of entrepreneurs, it fails to explain the phenomena
of entrepreneurship itself. A number of theories exist, but all of them fall
into one of five main categories

a. Economic Theories

Economic entrepreneurship theories date back to the first half of the

1700s with the work of Richard Cantillon, who introduced the idea of
entrepreneurs as risk takers. The classic, neoclassical and Austrian
Market process schools of thought all pose explanations for
entrepreneurship that focus, for the most part, on economic conditions
and the opportunities they create. Economic theories of
entrepreneurship tend to receive significant criticism for failing to
recognize the dynamic, open nature of market systems, ignoring the
unique nature of entrepreneurial activity and downplaying the diverse
contexts in which entrepreneurship occurs.

 Schumpeter’s Innovation Theory:

 Key Concept: Joseph Schumpeter argued that

entrepreneurs are innovators who disrupt market
equilibrium through new combinations of resources,
leading to creative destruction.

 Importance: This innovation drives economic

development by introducing new products, processes, and
markets.

 Classical and Neoclassical Theories:

 Key Concept: These theories view entrepreneurship as a

function of production, with entrepreneurs acting as
economic agents who organize resources to produce goods
and services.

 Importance: Profit maximization is considered the primary

motive of entrepreneurs in these frameworks.

b. Resource-Based Theories

Resource-based theories focus on the way individuals leverage different

types of resources to get entrepreneurial efforts off the ground. Access
to capital improves the chances of getting a new venture off the ground,
but entrepreneurs often start ventures with little ready capital.

Other types of resources entrepreneurs might leverage include social

networks and the information they provide, as well as human resources,
such as education. In some cases, the intangible elements of leadership
the entrepreneur adds to the mix operate as resource that a business
cannot replace.

 Resource-Based View:

 This theory posits that entrepreneurs create competitive

advantages by acquiring and utilizing valuable, rare,
inimitable, and non-substitutable resources.

c. Psychological Theories

Psychological theories of entrepreneurship focus on the individual and

the mental or emotional elements that drive entrepreneurial individuals.
A theory put forward by psychologist David McClelland, a Harvard
emeritus professor, offers that entrepreneurs possess a need for
achievement that drives their activity. Julian Rotter, professor emeritus
at the University of Connecticut, put forward a locus of control theory.
Rotter’s theory holds that people with a strong internal locus of control
believe their actions can influence the external world and research
suggests most entrepreneurs possess trait.

A final approach, though unsupported by research, suggests personality

traits ranging from creativity and resilience to optimism drive
entrepreneurial behavior.

 McClelland’s Theory of Need for Achievement:

 Key Concept: David McClelland proposed that a high need

for achievement (n-Ach) drives individuals to become
entrepreneurs.

 Importance: Entrepreneurs are motivated by the desire to

excel and achieve challenging goals, which spurs economic
activity and innovation.

 Risk-Taking Propensity:

 Key Concept: Entrepreneurs are characterized by their

willingness to take calculated risks.
  Importance: This higher tolerance for risk is essential for
launching new ventures and exploring uncharted territories
in business.

d. Sociological/Anthropological Theories

The sociological theory centers its explanation for entrepreneurship on

the various social contexts that enable the opportunities entrepreneur’s
leverage. Paul D. Reynolds, a George Washington University research
professor, singles out four such contexts: social networks, a desire for a
meaningful life, ethnic identification, and social-political environment
factors.

The anthropological model approaches the question of entrepreneurship

by placing it within the context of culture and examining how cultural
forces, such as social attitudes, shape both the perception of
entrepreneurship and the behaviours of entrepreneurs.

 Max Weber’s Protestant Ethic:

 Key Concept: Max Weber linked the rise of capitalism to

the Protestant work ethic, which emphasizes hard work,
frugality, and economic success.

 Importance: This cultural framework fosters

entrepreneurial activity by instilling values that support
business creation and growth.

 Social Capital Theory:

 Key Concept: This theory highlights the importance of

social networks and relationships in entrepreneurship.

 Importance: Entrepreneurs leverage social capital to

access resources, information, and support crucial for
business success.

e. Opportunity-Based Theory

Prolific business management author, professor and corporate

consultant, Peter Drucker put forward an opportunity-based theory.
Drucker contends that entrepreneurs excel at seeing and taking
advantage of possibilities created by social, technological, and cultural
changes. For example, where a business that caters to senior citizens
might view a sudden influx of younger residents to a neighbourhood as
a potential death stroke, an entrepreneur might see it as a chance to
open a new club.

 Kirzner’s Theory of Entrepreneurial Alertness:

 Key Concept: Israel Kirzner emphasized the

entrepreneur’s role in discovering opportunities through
alertness to market inefficiencies.

 Importance: Entrepreneurial alertness is crucial for

identifying and exploiting previously unnoticed
opportunities.

 Resource-Based View:

 Key Concept: This theory posits that entrepreneurs create

competitive advantages by acquiring and utilizing valuable,
rare, inimitable, and non-substitutable resources.

 Importance: Effective resource management is key to

sustaining competitive advantages in the market.

f. Integrated Theories

 Shane and Venkataraman’s Theory of Entrepreneurship:

 Key Concept: Scott Shane and Sankaran Venkataraman

proposed that entrepreneurship involves the nexus of
enterprising individuals and valuable opportunities.

 Importance: This theory integrates various perspectives

by emphasizing both the characteristics of the individual
entrepreneur and the nature of opportunities.

 Effectuation Theory:

 Key Concept: Proposed by Saras Sarasvathy, this theory

suggests that entrepreneurs start with available means and
gradually build towards goals through iterative learning
and adaptation.

 Importance: It highlights the dynamic and flexible nature

of the entrepreneurial process, where goals evolve based
on emerging opportunities and stakeholder interactions.
Theories of entrepreneurship provide a comprehensive framework for
understanding the diverse factors that drive entrepreneurial activity.
From economic motivations and psychological traits to sociological
influences and opportunity recognition, these theories collectively offer
valuable insights into the multifaceted nature of entrepreneurship. By
studying and applying these theories, aspiring entrepreneurs,
policymakers, and educators can better support and foster
entrepreneurial endeavours, leading to economic growth and social
advancement.

Traits of an Entrepreneur

Successful entrepreneurs often exhibit a distinct set of traits that enable

them to navigate the challenges of starting and growing a business.
Here are some key traits commonly associated with entrepreneurs:

Innovativeness:

Entrepreneurs are creative and constantly seek new and better ways to
solve problems, improve products, or offer services. They embrace
innovation as a core aspect of their ventures.

 Creativity: Entrepreneurs are often creative thinkers who can

devise novel solutions to problems and come up with new ideas
for products and services.

 Problem-Solving: They excel at identifying problems and

turning them into opportunities for innovation and growth.

Risk-Taking:

While not reckless, entrepreneurs have a higher tolerance for risk and
uncertainty. They are willing to take calculated risks to achieve their
goals and drive their businesses forward.

 Calculated Risks: Entrepreneurs are willing to take risks, but

they do so with careful planning and consideration. They assess
potential downsides and make informed decisions.

 Courage: They possess the courage to step into the unknown

and face uncertainty head-on.

Proactiveness:

Entrepreneurs are proactive and take initiative. They don’t wait for
opportunities to come to them; they actively seek out and create
opportunities.
  Initiative: Entrepreneurs take the initiative to start projects and
pursue opportunities without waiting for external prompts.

 Forward-Thinking: They anticipate future trends and prepare to

capitalize on them before others do.

Resilience:

The entrepreneurial journey is fraught with challenges and setbacks.

Resilience allows entrepreneurs to persist through failures, learn from
mistakes, and continue striving toward their objectives.

 Perseverance: Entrepreneurs often face setbacks and failures,

but their ability to persevere and keep going is critical to their
success.

 Adaptability: They can quickly adapt to changing circumstances

and pivot their strategies when necessary.

Vision:

Successful entrepreneurs have a clear vision of what they want to

achieve. They set long-term goals and develop strategic plans to reach
them.

 Goal-Oriented: Entrepreneurs have a clear vision of what they

want to achieve and set long-term goals to guide their efforts.

 Strategic Planning: They develop detailed plans and roadmaps

to turn their vision into reality.

Leadership:

Entrepreneurs often serve as leaders, guiding their teams and inspiring

others. Effective leadership involves communication, motivation, and
the ability to influence others.

 Inspiring Others: Entrepreneurs inspire and motivate their

teams, leading by example and fostering a positive work
environment.

 Decision-Making: They make decisions confidently and take

responsibility for the outcomes.

Adaptability:
The ability to adapt to changing market conditions, technologies, and
customer preferences is crucial. Entrepreneurs must be flexible and
willing to pivot their strategies when necessary.

Decisiveness:

Entrepreneurs need to make decisions quickly and confidently, even in

the face of uncertainty. Decisiveness helps in seizing opportunities and
responding to challenges promptly.

 Quick Decision-Making: Entrepreneurs make decisions quickly,

often with limited information, to capitalize on opportunities.

 Confidence: They trust their judgment and are not easily swayed
by doubt or external pressures.

Passion:

Passion for their business and its mission drives entrepreneurs to work
hard and persist despite obstacles. It fuels their commitment and
enthusiasm.

 Commitment: Passion drives entrepreneurs to work hard and

stay committed to their business, even during tough times.

 Enthusiasm: Their enthusiasm can be contagious, helping to

rally support from stakeholders and team members.

Networking Ability:

Building and maintaining strong networks is essential for entrepreneurs.

Networking provides access to resources, mentorship, and opportunities
that can be pivotal for business success.

 Building Relationships: Entrepreneurs are skilled at building

and maintaining relationships with clients, investors, mentors,
and other stakeholders.

 Leveraging Connections: They know how to leverage their

network to gain resources, information, and support.

Financial Acumen:

Understanding financial management is critical. Entrepreneurs must be

able to manage budgets, understand financial statements, and make
informed financial decisions.
  Financial Management: Successful entrepreneurs understand
how to manage their finances, including budgeting, forecasting,
and financial planning.

 Resource Allocation: They are adept at allocating resources

efficiently to maximize returns.

Ethical Standards:

Integrity and ethical behavior build trust and credibility, both of which
are vital for long-term success in business.

 Integrity: Entrepreneurs with high ethical standards build trust

and credibility with their customers, employees, and partners.

 Transparency: They conduct business transparently, fostering a

culture of honesty and accountability.

Self-Discipline:

 Time Management: Effective entrepreneurs manage their time

well, balancing various tasks and responsibilities efficiently.

 Focus: They maintain focus on their goals and avoid distractions

that can derail their progress.

Customer Focus:

 Understanding Needs: Entrepreneurs are attuned to their

customers' needs and preferences, striving to deliver value that
meets or exceeds expectations.

 Feedback-Oriented: They actively seek and incorporate

customer feedback to improve their products or services.

Persistence:

 Overcoming Obstacles: Entrepreneurs persist through

challenges, learning from failures and continually striving for
success.

 Long-Term Commitment: They are committed to their vision

and willing to invest the necessary time and effort to achieve it.

The traits of successful entrepreneurs combine creativity, resilience,

leadership, and financial acumen, among other qualities. By cultivating
these traits, aspiring entrepreneurs can enhance their ability to navigate
the entrepreneurial journey, overcome challenges, and achieve their
business goals. Understanding and developing these characteristics can
significantly increase the likelihood of entrepreneurial success.

1.5 entrepreneurs versus professional managers