Module 3

Chapter 5: Entrepreneur
Meaning of Entrepreneur:
• An entrepreneur is defined as a person who innovates,
organizes, operates, and assumes the risk for a new business
venture.
• The term entrepreneur has been derived from old French
entrependre, which means to undertake.
• A venture is a business enterprise involving risk in expectation
of gain.
 • A definition of entrepreneur as 4 components, which highlights
the facet of an entrepreneur.
1. An entrepreneur innovates, i.e. comes up with a new concept,
product or service.
2. An entrepreneur organizes a new business venture, i.e.
initiates or start a new business enterprise.
3. An entrepreneur operates, i.e. runs new business venture and
strives hard to sustain and grow it.
4. An entrepreneur assumes the risk, i.e. takes the responsibility
of the outcomes of the business enterprise.
• Cantillion described the entrepreneur as a rational decision
maker “who assume the risk and provided the management of
the firm”.
• Thus, in this view the entrepreneur’s role encompasses the
activity of managing the firm after having started it.
• “And what are they done: they have not accumulated any kind
of goods, they have created no original means of production,
but I employed existing means of production differently, more
appropriately, more advantageously.
• They have carried out new combinations! They are the
entrepreneurs. And their profit, the surplus to which no liability
corresponds, is the entrepreneurial profit” by Schumpeter.
 • “Whatever the type, everyone is an entrepreneur only when he
actually carries out new combinations, and loses that character
as soon as he has built up is business, when he settles down to
running it as other people run their business” by Schumpeter.
• According to Schumpeter, innovations- the carrying out of new
combinations-can be categorised into a 5 groups:
1. Introduction of new good or of a new quality of a good,
2. Introduction of a new method of production which is unproven,
3. Opening up of a new market,
4. Conquest of a new source of supply of raw materials or part
manufactured goods, and
5. Carrying out of a new organization of industry.
Functions of an Entrepreneur:
• There are various functions of an entrepreneur:
1. Risk measurement and risk taking:
• Palmer suggested that the entrepreneurial function primarily
involves risk measurement and risk taking.
• The risks are not only in relation to the uncertainty to the
success of the new business venture, but also on the personal
and professional frontline career opportunities foregone for the
sake of starting the new venture, family relations, and psychic
well-being.
• Risk taking is not a desire to try one’s gambling skill in Las
Vegas.
• Instead, entrepreneurs prefer to take moderate risks in
situations where they have some degree of control or skill in
realising a profit.
• They do not prefer situations which involves either extremes of
risk or uncertainty.
2. Innovate/create/discover:
• Innovation, creativity, and discovery are at the art of the
functions of an entrepreneur.
• According to Schumpeter, the key ingredient of
entrepreneurship is innovativeness of the individual and may
not involve ownership at all.
• If the principal function of entrepreneur is to carry out new
combinations of means of production, then these “combiners”
need not necessarily be owners.
3. Analyse the opportunities:
• An entrepreneur as to have the opportunity-seeking style of
management that sparks innovation(Peterson).
• The environment may throw up various types of opportunities for an
entrepreneur to take advantage of in creating a new venture.
• Thus, the entrepreneur needs to analyse such opportunities from
time to time and choose the most appealing one at the right time.
4. Strategize for a venture:
• Entrepreneur needs to strategize, i.e. perform long term planning for
the venture to be started.
• He or she as to analyse the markets to penetrate, challenge tough
competitions and devise ways to reach out to the potential customers
etc.
• Thus, the entrepreneur should add the capability and skills to
formulate strategies for the new business venture.
5. Develop a business plan:
• A Business plan is a written document containing the details
about every aspects of the proposed business venture.
• It serves 2 purposes:
a. to provide a road map for the people internal to the
organization, i.e. the employees, stakeholders, etc.; and
b. to convince the potential investors and financial institutions
about the viability of the venture so that they may agree to
invest in it.
• Thus, the entrepreneur as to be adapt and performing this
critical function of drafting a convincing and viable business
plan.
6. Acquire the resources:
• The entrepreneur has to acquire various types of resources like
capital, manpower, machinery/equipment, land, buildings, etc. to
start a venture.
• Many of these resources may not be easily available for the
proposed new venture.
• Thus, the entrepreneur needs to have suitable skills to line up
the resources as and when required.
7. Organize and start the venture:
• An entrepreneur should be a good organizer, i.e. he should
deploy suitable resources in the right activities at the right time
in order to avoid wastage and to optimally utilise the resources
in starting-up the new venture.
8. Develop and grow the venture:
• Just starting the venture does not complete the role of the
entrepreneur, as it is necessary to provide it with able support to
develop and grow it in the times to come.
• Many of the startup ventures are not able to survive for long.
Therefore, active involvement of the entrepreneur during the
development and growth stage is important.
9. Delegate, direct and lead the firm:
• During the growth stage of a new startup firm, it starts growing in
size and thus, requires that the entrepreneur delegates the
routine matters to other colleagues in the organization, while
providing strategic direction to the firm as a leader.
• This function demands leadership skills on the part of the
entrepreneur.
10. Supervise and control:
• Delegation of authority and responsibility of routine matters to
the subordinates does not mean that the entrepreneur should
not exercise any control.
• In fact, it becomes imperative to add suitable control
mechanisms in place so that the entrepreneur may track the
overall health of the enterprise.
• Occasionally personal supervision is also required to be done
by the entrepreneur to ensure that all is well with the firm and
the standard procedures created are being followed religiously
by one and all.
Types of Entrepreneurs:
• The various types of entrepreneurs with 4 major classifications
are:
1. Socio-Cultural Classification
2. Motivational Classification
3. Technical Experience Classification
4. Entrepreneurial Experience Classification
Types of
1. Socio-Cultural Classification:
• Specification of the types of entrepreneurs is based upon socio-
cultural factors.
a. Immigrant entrepreneur:
• An individual who has a recent arrival in a country and starts a
business as a means of economic survival is called an
immigrant entrepreneur.
• This group may involve a migration network linking migrants,
former migrants, and non-migrants with a common origin and
destination.
• Example, Sabeer Bhatia of [Link] fame would fall in this
category of immigrant entrepreneur, as he migrated from
Bangalore to the US and started this venture there. Later,
Hotmail was acquired by Microsoft and Sabeer made a good
money out of the deal.
b. Ethnic Entrepreneur:
• Ethnic entrepreneur have “.. a set of connections and regular
patterns of interaction among people sharing common national
background or migration experience”.
• The Marwaris humiliated long back from their native place
Marwar and Rajasthan to create business in West Bengal would
fall in this category.
• Prominent Marwari entrepreneurs are the Birlas, Singhanias,
Lakshmi Niwas Mittal, Kishore Biyani(of Big Bazaar), etc.
• Similarly, the Parsi businessman in the western part of India
originally hailed from erstwhile Persia (now Iran).
• Tatas are the most prominent Parsi, with their founder Jamshetji
Tata as the first-generation entrepreneur.
c. Minority Entrepreneur:
• Minority entrepreneur is an entrepreneur who is not of the
majority population.
• U.S. Federal categories include Black, person of Hispanic or
Latin American ancestry, and person of Asian, Pacific Islander,
American Indian, or Alaska Native descent.
• There are many Indian entrepreneurs in the U.S., who fall in this
category.
• Amar Gopal Bose, a professor of MIT and the founder of
immensely successful Bose corporation or qualify to fall in this
category.
d. Women Entrepreneur:
• As the name of this type of entrepreneur suggests, it involves
women at the forefront of entrepreneurship.
• Shri Mahila Griha Udyog Lijjat Papad is one such organization.
• They pride themselves in being a woman's organization-of the
women, by the women, and for the women.
• It was started in 1959 with 7 lady members with borrowed some
of ₹80 at Girgaum in Mumbai.
• Example: Kiran Majumdar Shaw (Biocon Limited)
2. Motivational Classification:
• This classification is based upon the motivation of the
entrepreneur to start a new venture.
• Broadly, this classification as 2 categories, namely
first-generation entrepreneur and family-business
entrepreneur.
a. First-generation entrepreneur:
• First-generation entrepreneur does not have any family
business prior to starting his/her own business venture.
• Dhirubhai Ambani(Reliance), Kiran Mazumdar Shaw(Biocon),
N.R. Narayana Murthy(Infosys), Naresh Goyal(Jet Airways) all
belongs to this category.
 • First generation entrepreneurs are of 2 types:
i. Self-actualizer entrepreneurs:
• Self-actualizer entrepreneurs are those who started their
business driven by thirst for achievement and a sense of
independence and autonomy. Example: Sunil Bharti
Mittal(Airtel)
ii. Discontented entrepreneur:
• Discontented entrepreneur is the one who is unhappy with
present working conditions in the organization where he is
serving and decides to move on to start his own enterprise.
• Example MD of Taj hotels, Ajit Kerkar was ousted
unceremoniously by Ratan Tata in 1997 due to the growing
discontent between the two.
• Immediately afterwards, Kerkar setup Tulip Star Hotels as an
entity to manage and own properties.
• In a short span after equate the Taj group in 1997, the Tulip star
either owns manages or markets a number of properties that
includes the Bogmallo Beach Resort and the Nizmar Resort in
Goa, the Kumarakom Lake Resort, Siena Village in Munnar,
Renaissance, Cochin which are all in Kerala.
• Other properties under Tulip star is Capitol in Bangalore, Tulip
Manohar in Hyderabad, and Revival in Baroda.
• Out of this the company has equity participation in Tulip star,
Mumbai; and the Bogmallo beach resort in Goa.
• It also has stakes in the Juhu Centaur, Mumbai.
b. Family-business entrepreneur:
• Family-business entrepreneurs are the followers of family
tradition role models.
• A typical example is that Aditya Vikram Birla, who created about
75 factories for U.S. business group in a career span of 25
years.
• Aditya Birla was the son of industrialist Basant Kumar Birla.
• This group is now known after him(Aditya Birla group) and
manage by his son Kumar Mangalam Birla.
3. Entrepreneurial experience classification:
• This classification of the types of entrepreneur is based upon
the extent of entrepreneurial experience.
• There are 2 broad categories in this classification- novice and
habitual entrepreneurs.
a. Novice entrepreneur:
• Novice entrepreneurs can be viewed as individuals with no prior
minority or majority business ownership experience, either as a
business founder, an inheritor, or a purchaser of an independent
business, but who currently owns a minority or majority equity
stake in an independent business that is new, purchased or
inherited.
• Example, N.R. Narayana Murthy was a novice entrepreneur
when he founded Infosys on 1981 along with 6 of his
colleagues.
b. Habitual entrepreneur:
• Habitual entrepreneurs are most often described as persons
who have experienced owning at least 2 different firms whether
temporarily(serial entrepreneurship) or simultaneously(portfolio
entrepreneurship).
i. Serial entrepreneurship:
• Serial entrepreneurs can be viewed as individuals who have
sold/closed a business in which they had a minority or majority
ownership stake, and they currently have a minority or majority
ownership stake in a single independent business that is either
new, purchased or inherited.
• According to Ryan, serial entrepreneurs thrive off the
psychological reward of making an impact as opposed to the
wealth to be gained from operating successful ventures.
• These entrepreneurs are risk takers, having built sufficient
wealth; they will invest their money on new ventures that often
tend to be vague visions of an unsolved problem.
• They view failure as an experience, which will make them
strong and boulder to take on new risks.
• Some entrepreneurs seems to thrive on the grueling early
stages of starting and building a business, and preferred to and
it over for others to manage while they return to the startup
process.
• Example, Sunil Bharti Mittal of Airtel.
ii. Portfolio entrepreneur:
• Portfolio entrepreneurs can be viewed as individuals currently
have minority or majority ownership stakes in 2 or more
independent business that are either new, purchased, and/or
inherited.
• Kishore Biyani can be categorised into this category of
entrepreneurs, as he owns big bazaar, pantaloon, add central
supermarkets(all found by him) simultaneously.
4. Technical Experience classification:
• Jones-Evans came up with this classification based upon the
previous occupational background of the entrepreneur in the
technology sector.
• A technical entrepreneur is defined as the founder and current
owner-manager of a technology-based business, i.e. primarily
responsible for its planning and establishment, and currently
having some management control of the organization.
a. The “research” technical entrepreneur:
• These entrepreneurs are involved in technological research
activities at an academic institution or a research laboratory
prior to creating their own venture.
• Professor Amar Gopal Bose of MIT is a typical example of this
category.
• He was into researching acoustic systems and later, created his
own corporation called Bose corporation.
b. The “producer” technical entrepreneur:
• These entrepreneurs have a history of involvement in direct
commercial production or development of a product or process,
usually in a large organization.
• Example of this type of entrepreneur is- Subroto Bagchi, the
co-founder of MindTree Ltd.
• Bagchi worked as the chief executive of Wipro global R&D
before co-founding MindTree in 1999.
• MindTree generated a revenue of rupees 12,375 million in a
financial year 2008-09.
c. The “user” technical entrepreneur:
• Such entrepreneurs may have been involved as an end-users,
in the application of the specific product or technology, but
without direct involvement in the actual development of the
technology.
• Example, Tulsi Tanti, the founder of wind power major Suzlon.
• Tanti was into his family business of textiles when power
shortages prompted him to install two wind turbines as captive
power.
• Later, buoyed by the success of this technology, he decided to
switch over from textiles to wind power generation.
• Hence, Suzlon energy was born.
d. The “opportunist” technical entrepreneur:
• As the name suggests, this kind of entrepreneur is an individual
who has identified a technology-based opportunity and, while
initiating and managing a small technology-based venture,
either as little or no technical experience or whose previous
occupational experience was within non-technical organization.
• Example, Azim Hasham Premji, inherited Wipro from his father,
who was into oil business.
• Later, Premji realise the potential of information technology and
ventured into this business.
Concept of Entrepreneurship:
• Entrepreneurship is the process of creating something different
with value by devoting the necessary time and effort; assuming
the accompany financial, psychological, and social risks; and
receiving the resulting reward of monetary and personal
satisfaction.
Evolution of
Entrepreneurship
:
• The various stages in the
evolution of order
entrepreneurship are broadly
classified into 2 stages:
a. Ancient and medieval roots
b. Modern entrepreneurship
thought
Ancient and Medieval roots of
Entrepreneurship:
a. 50 BC:
• Entrepreneurship started from time immemorial, however in the
recorded history, the oldest reference can be tracked back to
ancient Rome around 50 BC.
• During that time, entrepreneurship and business activity was not
considered prestigious.
• It was usually left to the former slaves to get into commercial
activities.
• Wealth generation append primarily, either by renting the land or
by earning interest on loans.
b. AD 500-1000:
• Europe experienced a radically new expression of
entrepreneurship during AD 500-1000.
• This was in the form of acquisition of land, castles, and other
assets through warfare.
• Thus, kings and barons took winning battles and wars as an
entrepreneurial means to wealth and prosperity.
c. AD 1000-1500:
• During AD 1000-1500, Europe witnessed a drastic revamping of
entrepreneurial activity, and fields like architecture, engineering,
and farming provided healthy bases for entrepreneurship.
• A new innovation in tax collection called tax farming came into
existence during this time.
• In this approach, bidding for tax collection on behalf of the
monarch was done and the highest bidder used to get the
contract.
• If the winner of the contract used to collect more tax than the bid
offered by him, the excess amount used to be net profit for him.
d. AD 1300-1500:
• During AD 1300-1500, entrepreneurial activity experienced major
setbacks in China, as the rulers used to confiscate the assets of
wealthy businessman during times of financial difficulties faced
by the empire.
• Engaging in PowerShell activities was deemed as wealth
accumulation and was looked down upon.
e. AD 1500-1700:
• Middle and Far East Asia was witnessing the prime of
experimental and skill-based knowledge during this. When the
western world was still catching up with this trend.
• The status of the merchant became high in the Muslim
dominated Arabic countries and entrepreneurship flourished in
this region with common language and central location in the
world.
f. AD 1725:
• Richard Cantillon was an Irish economist, we spend a major
part of his life in France.
• Is credited with highlighting the role of the entrepreneur in
economics.
• He was the first to define an entrepreneur as the “agent who
buys means of production at certain prices in order to combine
them into a new product”.
Modern Entrepreneurship Thought:
1. Jean Baptiste Say (1767-1832), a French economist add
businessman, there is known for his idea that ownership is
distinct from entrepreneurship. Thus, in his view, a person can
be an entrepreneur despite somebody else providing the
capital for the entrepreneurship venture. He was a staunch
supporter of free trade and competition.
2. Joseph Schumpeter (1883-1950) was an Australian
economist, who is known for the term creative destruction
coined by him. In his view, the entrepreneurs, by virtue
bringing about radical innovations/transformations, render the
existing system of established organizations obsolete. This
this phenomenon is termed as creative destruction.
3. David McClelland (1917-1998) was an American physiological
theorist, who defined an entrepreneur as “an energetic,
moderate risk taker”. In his view, an entrepreneur is primarily
motivated by an overwhelming need for achievement and
strong urge to build. His contributions to the field of
entrepreneurship focus on the attributes of an entrepreneur
and the motivations behind entrepreneurial behaviour. His
masterpiece “The Achieving Society” hinges on these ideas.
4. Peter Ferdinand Drucker (1909-2005), an Austrian-American
scholar, portends that entrepreneur maximizes opportunities.
He emphasized that entrepreneurship is about taking risks.
5. Gifford Pinchot is an American entrepreneur and consultant,
who coined the term intrapreneurship and defined it as “an
entrepreneur within an already established organization”. He
is known for his best-selling book- “Intrapreneuring: Why You
Don’t Have to leave the Corporation to Become an
Entrepreneur”.
Development of Entrepreneurship:
• The origin of programmes for the development of entrepreneurs
in India can be traced to the pioneering efforts of the Small
Industry Extension Training Institute(SIET), now known as the
National Institute for Micro, Small and Medium Enterprises
(NIMSME) with whose collaboration, Professor David
McClelland of Harvard University attempted to establish that
achievement motivation could be developed among adults.
• In a developing country like India, there ought to be some
issues in entrepreneurship development.
• According to Prahalad(2004), inability and inconsistencies in
enforcing laws, bureaucratic interpretation of rules, lack of firm
political commitment, lack of accountability, hooliganism and
political musclemanship, lack of rule of law, lack of control of
corruption are significant deterrents to entrepreneurship
development in developing countries.
The figure shows the ways in which entrepreneurship
development has been done in India.
1. Governmental/non-governmental support bodies:
• The National Institute for Entrepreneurship and Small Business
Development (NIESBUD) was established in 1983 by the
Ministry of Industry, Government of India, as an apex body for
coordinating and overseeing the activities of various
institutions/agencies engaged in entrepreneurship development,
particularly in the area of small industry and small business.
• In 1983, the Entrepreneurship Development Institute of
India(EDI), an autonomous body and not-for-profit institution,
was set up.
• It was sponsored by apex financial institutions, namely the IDBI
Bank Ltd, IFCI Ltd, ICICI Ltd, and the SBI.
• The possibility of establishing a mechanism to develop
entrepreneurs may have originated from the encouraging
results of an innovative scheme of financing new entrepreneurs,
begun in India in 1968, that relied on the competence of the
individual and the viability of the proposed project rather than on
the more conventionally applied criteria relating to the
applicant’s financial background.
• Under this scheme, a wide variety of projects were established
by entrepreneurs from non-business communities and castes.
• Some evidence of effectiveness of entrepreneurship
development (ED) has already been cited.
• Example: A 1984 sample study of forty units set up by trained
entrepreneurs in the state of Gujarat.
2. Incubation Facilities:
• Premier business schools and technical institutions in India
have entrepreneurship centres, many of which provide
incubation facilities to start-up small businesses.
• An incubator is a facility designed to assist start-up companies,
generally with respect to providing knowledge and technical
assistance.
• Example: Nadathur S. Raghavan Centre of Entrepreneurial
Learning (NSRCEL) at the Indian Institute of Management
Bangalore (IIMB) provides such incubation facilities in the form
of an office, computing and telecommunication facilities, and
faculty consultancy support at nominal charges.
• Similarly, Wadhwani Centre for Entrepreneurship Development
(WCED) at the Indian School of Business (ISB), Hyderabad,
has established an incubation center called K-Hub with the
support of the Government of Andhra Pradesh.
3. Educational Programmes:
• Entrepreneurship is increasingly becoming a popular choice or
as an elective in the MBA programmes of business schools in
India.
• Example: about 8% of the MBA students at ISB Hyderabad
recently majored in entrepreneurship.
• In addition, educational programmes, exclusively to develop
entrepreneurs in the country, have been created by some
business schools.
• With an aim to undertake training, research and consultancy
activities in the small industry sector focusing on
entrepreneurship development, the Indian Institute of
Entrepreneurship (IIE) was established in the year 1993 at
Guwahati by theerstwhile Ministry of Industry, Government of
India as an autonomous National Institute.
4. Entrepreneurship Networks:
• TiE- The Indus Entrepreneurs- was found in Silicon Valley in
1992 by successful entrepreneurs and professionals with roots
in the Indian subcontinent.
• TiE it is also known as Talent Ideas and Enterprise and is today
spread over 53 chapters in 12 countries. It has over 12,000
members and 1800 plus charter members-including top
entrepreneurs, venture capitalist, private equity, angels, law
firms, technology and management professionals.
• TiE’s mission is to foster entrepreneurship globally through
mentoring, networking, and education.
• It claims itself to be the world's largest not-for-profit organization
for entrepreneurs.
• The national entrepreneurship network (NEN), found in 2002, is
a not-for-profit initiative of the Wadhwani Foundation, working to
inspire, educate and support the next generation of high growth
entrepreneurs in India.
• NEN was co-founded by 5 of India’s premier academic
institutions: IIT Bombay; IIM Ahmedabad; SP Jain Institute,
Mumbai; IBAB, Bangalore; and BITS Pilani.
• NEN works with over 425 top-tier academic institute members;
has developed a pool of more than 950 entrepreneurship faculty
members, growing the number from an initial group of about 50
across the country; Aslam inched more than 350 student e-cells;
and reaches over 4,00,000 young people across 30 cities in
India.
• NEN Provides critical support and community to India’s growing
pool of young and future entrepreneurs.
Stages in Entrepreneurial
Process:

• Barringer and Gresock

identified various
stages in the
entrepreneurial
process:
1. Genesis of a business idea:
• This is the first step in the entrepreneurial process and requires
critical thinking on part of the entrepreneur to select the most
viable business ideas from a set of available options.
• This not only includes critical analysis of the merits and
demerits of the innovative product/service created by the
entrepreneur, but also includes the study of the market
potential, marketing, finance, human resources, and operational
issues related to the business idea.
2. Conduct preliminary feasibility:
• The preliminary feasibility involves a quick assessment about the
potential of the business ideas and screening out an idea with the
highest potential.
• This step is necessary to ensure that comprehensive and detailed
feasibility analysis to be conducted in the next step is done only for
the single best idea.
• A checklist proposed by Timmons and Spinelli helps in selecting the
high-potential idea within a couple of hours on the basis of the
following four criteria:
a. Market and market related issues,
b. Competitive advantages,
c. Value creation and realization issues, and
d. Overall potential.
3. Detailed feasibility analysis:
• Having screened out an idea with high potential, it is subjected
to the detailed feasibility analysis which may take a couple of
days or weeks.
• The detailed analysis is helpful in making suitable modifications
in the business idea before taking it to the business plan stage.
• The detailed analysis comprises of the following components:
3a. Product /service feasibility
3b. Industry/Market feasibility
3c. Organizational feasibility
3d. Financial feasibility
3a. Product /service feasibility:
• The feasibility of product/service is performed by concept
testing, i.e. showing the concept or idea to a sample group of
potential customer to guage their reaction, to take their
suggestion for further development of the concept and to
assess its sales potential.
• A prototype or a sample unit of the product can also be created
in simple form depending upon the cost involved. Otherwise,
computer simulation or design can be used.
• A rough assessment of the production or service delivery
process to be followed should also be done to avoid abrupt
revelation about infeasibility of production at the later stage
when substantial investments of time and effort have been
made.
 3b. Industry/Market feasibility:
• The feasibility analysis of industry/market involves 3 considerations.
1. How attractive is the market for the new business idea or concept.
Market segment experiencing growth, but high profit margins and
less competition would naturally be attractive for the
entrepreneur.
2. Efforts should be expanded to identify the niche within a large
market, i.e. A narrow segment of customers with a common
expectation from the product or service. This way the
entrepreneur can buy some time for establishing as venture
before competing add on with existing stabilised players in the
market.
3. A candid assessment of the overall market potential of the new
concept should be made in a realistic manner.
 3c. Organizational feasibility:
• Two issues should be addressed here:
a. an assessment about the organizational prowess or capability
of the initial management team, and
b. the availability of non-financial resources (like office space,
talent pool in the area where the venture would be started,
etc.).
• Organizational prowess means passion for the new business
idea, professional managerial qualification, prior experience and
understanding of the market in which the venture would be
created.
3d. Financial feasibility:
• The total initial cash needed for starting the venture and overall
financial attractiveness of the investment are at the heart of
financial feasibility.
• It should be kept in mind that very rarely do new startup ventures
are able to secure funding from the financial institution as debt or
are able to find equity investors.
• Therefore, very clear identification about the sources of sufficient
funds to cover all the capital expenditures an operating expenses
to generate first unit of the sales should be done.
• Financial attractiveness of investment should be assessed by
estimating the expected rate of return on investment. This
estimation for the new concept would be subjective and can be
based upon comparison with similar existing businesses.
4. Write a business plan:
• The business plan is written document containing the details about
every aspect of the proposed business venture.
• It serves two purposes:
a. to provide a “road map” for the people internal to the organization,
i.e. the employees, stakeholders, etc., and
b. to convince the potential investor and financial institution about the
viability of the ventures so that they may agree to invest in it.
• A good business plan is based upon comprehensive data and
analysis rather than upon gut-feel or judgement of the entrepreneur.
• It should preferably include details about the screening process and
feasibility studies conducted by the entrepreneur to augment its
authenticity and appeal.
5. Launch the venture:
• This is the final step in the entrepreneurial process and involves
launching the venture as per the business plan.
• Due to the uncertainties of the business environment, the
entrepreneur should be prepared to face hurdles and
challenges during the launching of the venture as well as in the
subsequent periods of time.
Role of Entrepreneurs in Economic
Development:
• Entrepreneurs play an important role in the economic
development of a region.
• From the fall of Rome (AD 476) to the 18th century, there was
virtually no increase in per capita wealth generation in the West.
• With the advent of entrepreneurship, however, per capita wealth
generation and income in the West grew exponentially by 20%
in the 1700s, 200% in the 1800s, and 740% in 1900s.
The figure shows the various ways in which the
entrepreneurial activity results in economic development and
growth

Role of Entrepreneurs in Economic

1. Create Employment opportunities:
• By creating a new venture, entrepreneurs generate employment
opportunities for others.
• Unemployment is a major issue, especially in the context of
developing economies like India.
• Educated youth often are unable to get a suitable employment for
themselves.
• Thus, entrepreneurs do a Yeoman’s service by not only employing
themselves into their entrepreneurial ventures, but also by employing
others.
• Within the last 15 years, fortune 500 companies and large
corporations have endured major retrenchment and eliminated
millions of jobs, whereas discovering in the entrepreneurial sectors
have yielded an average of 6,00,000 new incorporations per year
and generated millions of job opportunities.
2. Inspire others towards entrepreneurship:
• The team created by an entrepreneur for his new venture often
provides the opportunity for the employees-cum-teammates to
have a first-hand experience of getting involved in an
entrepreneurial venture.
• This often leads eventually for these employees to become
honours themselves after being inspired by their early
experience of working for an entrepreneur.
• Thus, this process helps and forming a chain reaction of
entrepreneurial activity which directly contributes to the health of
the economy.
3. Create knowledge spillovers:
• When a scientist, an engineer, or a knowledge worker leaves
an organization to create a new firm, knowledge acquired by her
in the organization gets spilled over to the new firm.
• Hence, entrepreneurship service as a mechanism by which
knowledge spills over to a new firm in which it is
commercialized.
• Naturally, the new firm gets benefitted by the experience and
knowledge gained by the founder in her erstwhile organization.
• Knowledge is embodied in a worker and the new firm as created
through the workers effort to appropriate the value of knowledge
by way of innovative activity.
4. Augment the number of enterprises:
• When new firms are created by entrepreneurs, the number of
enterprises based upon new ideas/concepts/products in a
region increases.
• Not only does an increase in the number of firms enhance the
competition for new ideas, but greater competition across firms
also facilitates the entry of new firms specialising in a particular
new product niche.
• This is because the necessary complementary inputs are more
likely available from small specialist niche firms than from large,
vertically integrated producers.
5. Provide diversity in firms:
• Entrepreneurial activity in a region often results in creation of
varieties of firms in a region.
• These firms operate into diverse activities, and it has been
found that it is this diversity in firms which posters economic
development and growth rather than homogeneity.
• According to Jacobs, it is the exchange of complementary
knowledge across diverse firms and economic agents that
yields an important return on new economic knowledge.
 Entrepreneurshi
p- Its Barriers:
• Krasniqi identified various barriers to
entrepreneurship:
1. macroeconomic environment
2. legal and regulatory environment
3. corruption and unfair competition
4. financial obstacles
5. tax burden
6. challenges in attracting talent
7. difficult to source raw materials
8. expensive to access proprietary
technology
1. Macroeconomic environment:
• Macroeconomic environment conducive to entrepreneurship is
dependent upon the policies of the government in supporting
private participation in business.
• Macro means large and the term macroeconomic means the
larger view of the economy.
• It is different from the micro(small) view which concerns a firm
or a company in the market.
• For example, in India the process of liberalization started during
the mid-1980s whereby the government started the process of
encouraging foreign MNCs how to create joint ventures with
Indian domestic companies.
• This process created a macroeconomic environment in which
many new small and medium enterprises(SMEs) evolved to
become suppliers and vendors for the joint ventures so created.
• Prior to that, the macroeconomic environment in India was a big
deterrent to entrepreneurship, as there was number freedom for
entrepreneurs to set up their ventures without taking the
“licenses” (approval) from the government. That period is often
known as “Licence Raj”.
• Macroeconomic policy also affects the entrepreneur’s decision
to invest, especially in products that require a longer time to
produce a return.
2. Legal and regulatory environment:
• The legal and regulatory environment for entrepreneurship is
found by registration and licensing procedures, and contractual
laws, property rights laws, bankruptcy and collateral law, real
estate regulations and labour laws.
• If the administrative procedures and laws are unclear, time
consuming and cumbersome, they would pose barriers to
entrepreneurship.
• If these procedures and loss are changed/revised frequently, it
would create a sense of uncertainty and risk in the minds of
entrepreneurs trying to establish a new business venture in the
region.
3. Corruption and unfair competition:
• A corrupt economy can lead to unfair competition, which intern
can become a major deterrent to entrepreneurial activity.
• Excessive regulations and approvals from the government
required by entrepreneurs may make the government officials
corrupt.
• They develop this attitude of taking bribes from entrepreneurs in
return for speedy approvals.
• In this way, honest entrepreneurs suffer due to unfair
competition from other entrepreneurs who get early approvals
due to “under the table” payments to government officials.
• An unhealthy environment develops, which deters new
entrepreneurs from setting up new ventures.
4. Financial obstacles:
• Startup ventures are usually dependent upon capital to be
sourced from banks and financial institutions.
• It has been observed that in many economies, banks are
reluctant to give loans to small startup firms.
• Sometimes, banks often have gender bias.
• Banks often seek ICC collateral amount or charge high interest
rates, which pose a major obstacle to entrepreneurs.
5. Tax burden:
• In many regions, the government charges high taxes from even
small startup ventures and has tedious procedures for
compliance of tax submission formalities.
• In order to promote entrepreneurship, the governments would
need to have rational tax structures with easy tax submission
procedures.
• Otherwise, high taxes add to the cost of operations for the
startup company, thus weakening its competitive position for
survival and growth.
• High taxes in a region also pose entry barrier for entrepreneurs.
6. Challenges in attracting talent:
• This is another big issue faced by a small startup companies.
• The best of talent in engineering, management and other
disciplines wants to work for multinational corporations(MNCs)
rather than for small startups.
• This attitude of professionals makes it difficult for entrepreneurs
to attract them for their entrepreneurial ventures.
• Thus, there is a dire need to create an ecosystem for
entrepreneurship so that budding professionals start valuing
their association with entrepreneurial ventures compared to
working for the MNCs.
7. Difficult to source raw material:
• For entering a market with a product, an entrepreneur as to
identify if the suppliers of raw materials and components
existing in the market have adequate capacity or are willing to
expand capacity to meet the requirements of a new player in the
industry.
• If not, then it becomes imperative to establish new suppliers in
the market, which may be cumbersome for the entrepreneur.
• Thus, this difficulty to source raw materials and components
often deters entrepreneurs to enter the market.
8. Expensive to access proprietary technology:
• Kuratko & Welsch cite the expenses to access proprietary
technology as one of the barriers to entrepreneurship.
• For example, big companies like Texas Instruments invent
breakthrough technologies which have the potential of
applications in many fields.
• They give licenses of such state-of-the-art technology to other
companies worldwide to develop and mark it products based
upon it.
• They charge hefty license fee from such companies in return.
• Entrepreneurs find it hard to arrange for such staggering license
fee and thus, face entry barriers in such fields.