Concept of Entrepreneurship

The concept of entrepreneurship has been around for a very long time. In the last two decades it has resurged. The concept of entrepreneurship is an age-old phenomenon that relates to the vision of an entrepreneur as well as its implementation by him.

The concept also bears testimony to courage, creativity, determination, networking, hardworking etc. Over the years the social scientists have interpreted the phenomenon of entrepreneurship differently in accordance with their perception and economic environment.

Some of the important concepts of entrepreneurship are:-

Economic Approach of Concept
Sociological Approach of Concept
Psychological Approach of Concept

Concept of Entrepreneurship

Entrepreneurship is an important factor of industrial development of a country. It is the primary trait of an entrepreneur. The degree and quality of entrepreneurship differ from entrepreneurs to entrepreneurs. However, there are certain cogent determinants which affect the development, progress and growth of entrepreneurship.

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In practice, entrepreneurship changes the direction of national economies, industries or markets. It initiates new products and develops organisations and means of production to make them marketable. It introduces quantum leaps in technology and forces the reallocation of resources away from existing uses to new and productive uses. It also disrupts the status quo and reshapes the process of economic development and society on a new course.

Following approaches are used to explain the concept of entrepreneurship:

1. Economic Approach:

Entrepreneurship is the process of initiating a new venture, organising the resources it requires and assuming the risks it entails. Thus, the word ‘entrepreneurship’ itself derived from 17th century French “entreprendre” which refers to individuals who were undertakers meaning chose who undertook the risk of new enterprise.

In his essay ‘Sur la Nature Du Commerce In General’, Richard Cantillon remarked that “entrepreneur is a person who pays a certain price for a product to resell it at an uncertain price, thereby making decisions about obtaining and using resources while consequently assuming the risk of enterprise”.

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Adam Smith, in his 1776, ‘Wealth of Nations’ observed that “entrepreneur is an individual who undertook the formation of an organisation for commercial purposes. He is a person with unusual foresight who could recognise potential demand for goods and services. He reacts to economic change, becoming the economic agent who transformed demand into supply”.

J.B. Say again a French economist in his 1803 ‘Traited Economic Politique’ (English version ‘A Treatise on Political Economy’ published in 1945) reported that an entrepreneur is one who possessed certain arts and skills of creating new economic enterprises, yet a person who had exceptional insight into society’s need and was able to fulfil them.

In ‘The Principles of Economics’, 1871 in which Austrian economist Carl Menger remarked that economic change does not arise from circumstances but from an individual’s awareness and understanding of those circumstances. The entrepreneur becomes, therefore, the change agent who transforms resources into useful goods and services often creating the circumstances that lead to industrial growth.

Joseph Schumpeter, another Austrian economist, remarked in his work “The Theory of Economic Development”, 1934 that Entrepreneurs as a force of creative destruction whereby established ways of doing things are destroyed by the creation of new and better ways to get things done. It is a process and entrepreneurs as innovators who use the process to shatter the status quo through new combinations of resources and new methods of commerce.

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Peter F. Drucker In his work Innovation and Entrepreneurship, 1985 observed that entrepreneurship occurs when resources are redirected to progressive opportunities not used to ensure administrative efficiency. This redirection of resources distinguishes the entrepreneurial role from that of the traditional management role.

2. Sociological Approach:

Sociologists consider entrepreneurship as a process of role performance. Entrepreneurs are expected to be governed by the wishes of the society, customers, ethics values, child rearing practices etc.

Thomas Cocharan concluded in his study ‘The Entrepreneur in. Economic Change—Explorations in Entrepreneurial History’, 1965 that the entrepreneur represents society’s model personality. His performance depends upon his own attitudes towards his occupation, the role expectations of sanctioning groups and the occupational requirements of the job. Society’s values are the most important determinant of the attitudes and role expectations.

According to Peter Marris, a sociologist, in his study ‘The Social Barriers to African Entrepreneurship’, 1967, Entrepreneurship requires to assemble or reassemble from what is available very concrete kind of imagination to see what others have missed, sensitivity to business and social environment rest in industrial development and entrepreneurial courage. These are the important factors that make an entrepreneur.

3. Psychological Approach:

In this approach we can mention the concept developed by McClelland and Hagen. In his work ‘The Achieving Society’, 1961, David C McClelland stated that it is the high need for achievement which drives people towards entrepreneurial activities. Achievement motive is basically measured through child rearing practices which stress standards of excellence, material warmth, self-reliance, training and low father dominance.

Individuals with high achievement motives tend to take keen interest in situations of high risk, desire for responsibility and desire for a concrete measure of task performance.

E. E. Hagen also in his study on the theory of social change ‘How Economic Growth Begins’, 1964 deals about the withdrawal of status respect as the trigger mechanism for changes in personality formation. Status withdrawal is the perception on the part of members of some social group in the society whom they respect and whose esteem they value.

Thus, entrepreneurship is the end result of a complex and varying combination of socio-economic, psychological and other variables.

What is the Concept of Entrepreneurship

Entrepreneur is one who creates his own business i.e., a person who organises, operates and assumes the risk of a business venture. An entrepreneur is a person who perceives a need and then brings together manpower, material and capital required to meet the need.

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The concept of entrepreneurship is an age-old phenomenon that relates to the vision of an entrepreneur as well as its implementation by him. Entrepreneurship is a creative and innovative response to the environment. It is also the process of setting up a new venture by an entrepreneur.

Entrepreneurship is a composite skill that is a mixture of many qualities and traits such as imagination, risk taking ability to harness factors of production, i.e., land, labour, technology and various intangible factors. Entrepreneurship culture implies a set of values, norms and treats that are conducive to the growth of entrepreneurship.

It is the organisational culture that focuses on new opportunities and creation of a set up where these opportunities can be perused earnestly.

Entrepreneurship plays a dominant role in the growth and development of an economy. Entrepreneurship can solve problems like unemployment, concentration of economic power in the hands of very imbalanced regional development.

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Entrepreneurship is the ability to start a new enterprise to make more profits by way of producing or marketing goods and services to meet the needs and requirements of customers. It is the ability and quality of entrepreneurs to identify an investment opportunity and to organise an enterprise in order to contribute to real economic growth.

Meaning and Concept of Entrepreneurship

The spirit of entrepreneurship is enduring, Says Ashok Soota, CEO, Mindtree Consultancy, one of the most talked about startups,

“Entrepreneurship is the sheer pleasure and enjoyment of putting things together and making sure that you do not let down the shareholders who have placed their trust in you. Today, I am sure there are people who would love to start their own ventures but are waiting for the right time. We have the right team in place and we knew what it was we were looking for.” Entrepreneurship – Financial Times, New Delhi, 15 Oct., 2002

In the two decades there has been a resurgence of entrepreneurship in higher education. This revival is not from the traditional discipline of economics but from the discipline of business management. The business schools have instituted new courses in entrepreneurship.

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While entrepreneur is a person who sets-up a business, ‘Entrepreneurship’ is considered as the process or action of setting up of the new venture and the venture so set-up is called the ‘enterprise’. Entrepreneurship has been considered as the propensity of mind to take a calculated risk with confidence to achieve a predetermined business objective. It is the risk taking ability of an individual coupled with the correct decision making. Schumpeter described it as a process and the entrepreneurs as innovators who use the process to shatter the status quo through the combination of resources and new methods of commerce.

In brief, the concept of entrepreneurship includes three phases—namely:

i. Initial entrepreneurial phase or inception phase which is related to perception of an opportunity to establish the business.

ii. Operational phase which includes the theory and practice of management functions in the organisation of a business unit.

iii. Managerial phase which includes the profitable application of the mental executive health in taking relevant managerial decisions to run the business unit as a profitable, going and growing concern.

Concept and Need of Entrepreneurship

1. Concept of Entrepreneurship:

The concept of entrepreneurship is a complex phenomenon. Broadly it relates to the entrepreneur, his vision and its implementation. Entrepreneurship refers to a process of action undertaken by an entrepreneur to establish an enterprise. It is a creative activity and response to the environment. It is more concerned with the ability to minimise the use of resources to maximise advantages.

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Entrepreneurship is the ability of the mind to take calculated risk with confidence to achieve a predetermined business objective. It is a multi-dimensional task performed by an entrepreneur to develop and to maintain economic growth. An entrepreneur is one who creates a new business in the face of risk and uncertainty of achieving profit and growth.

An entrepreneur is one of the important segments of economic growth. Basically, an entrepreneur is a person who is responsible for setting up a business or an enterprise. Thus, entrepreneurship is a complex phenomenon. Some kinds of entrepreneurs are primarily innovators, some act as managers of enterprises. Some as bearers of risk and others place major emphasis on their function as mobilisers and allocators of capital.

The word entrepreneur is derived from the French word ‘entreprendre’. It means ‘to undertake’. In the early 16th century the Frenchmen who organised and led military expeditions were referred to as entrepreneurs. Around 1700 A.D the term was used for architects and contractors of public works.

Quesney regarded the rich farmer as an entrepreneur who manages and makes his business profitable by his intelligence, skill and wealth. The French economist Cantillon applied the term entrepreneur to business initially in the 18th century, to designate a dealer who purchases the means of production for combining them into marketable products. Frenchman J.B. Say expanded on Cantillon’s ideas and conceptualised an entrepreneur as an organiser of a business firm central to its distributive and productive functions.

Entrepreneurs play a very important role in the socio-economic welfare of the country. They identify the needs of the business, purchase the other factors of production and coordinate them for some productive purposes.

They are the innovators, researchers and risk-takers of the company. Due to the mixed economy in India, both public and private entrepreneurship exists here. Large scale sectors are under public entrepreneurship. The middle and small scale sectors are under private entrepreneurship.

2. Need for Entrepreneurship:

In a country like India social and cultural issues hold their importance besides issues related to infrastructure. Any innovation to succeed in our society needs to be accepted by our value systems and cultural issues. An acceptance by the masses in itself is a kind of social innovation.

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Further, in our country, where the population is more concerned about making both ends meet, entrepreneurial activity will achieve sustainability only when support is provided both at the societal and governmental levels.

Entrepreneurial competence makes all the difference in the rate of economic growth. In India, state and private entrepreneurship coexist. The small scale industrial sector and business are left completely to private entrepreneurs. It is, therefore, necessary to identify some of the vital needs of entrepreneurship.

Some are listed below:

1. Prompting Entrepreneurship:

In India, where over 70 percent of the people are living below the poverty line. It is simply impossible for any government to provide means of livelihood to everyone. Such situations surely demand for a continuous effort from the society, where the people are encouraged to come up with their entrepreneurial initiative.

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2. Encouragement at Attitudinal and Social Level:

In the future innovation and entrepreneurship needs to be encouraged at social levels, governmental levels and managerial levels. There must be a social attitude that views innovations with a positive attitude and rejects an innovation only when it is not acceptable.

3. Encouragement at Physical Level:

At this level the encouragement will refer to two aspects necessary for entrepreneurship to thrive, one is the provision of venture capital and the other being infrastructure rural support. For example- is Export Processing Zones which are performing extremely well when given the support.

4. Entrepreneurship in the Future:

The transformation of opportunity into performance is contingent on several factors like industry attractiveness, strategy, execution and required resources. These factors in effect are again influenced by social and physical factors.

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5. Opportunities:

There can be various avenues for innovation like:

(i) Education is a sector, which is waiting for an entrepreneur to exploit the possibilities; especially in the country like India where in addition to the rural areas the small towns also are found lacking the right kind of infrastructure for education.

(ii) In the area of health, the entrepreneur may look into establishing hospitals.

(iii) There is an opportunity of entrepreneurial activity in India because even today only 30% of the agricultural area is irrigated and the rest depends on the monsoon.

(iv) Small entrepreneurship has tremendous potential. Association like self-help guys, Self- Employed Women Association (SEWA) is a striking example of entrepreneurship at the grass root level.

(v) An initiative of marketing in traditional sectors like handloom and the unorganised industries will bring in ways for development of entrepreneurship.

6. Future Perspective:

Entrepreneurship as in the past will determine technical innovations, status of social institutions and political management systems. On the basis of these factors, one can expect the future to be a place where basic needs will remain and only the wants will change.

7. Social and Economic Perspectives on Entrepreneurship:

Entrepreneurship is reflected in all the major dimensions of civilization viz., social, political and economic. It involves creativity that is consistent with the healthy edge required to change the basis of competition.

What is the Key Concept of Entrepreneurship

The Key concept of entrepreneurship has been around for a very long time. In the last two decades it has resurged. The concept of entrepreneurship is an age-old phenomenon that relates to the vision of an entrepreneur as well as its implementation by him. Entrepreneurship is a creative and innovative response to the environment. It is also the process of setting up a new venture.

Entrepreneurship is a composite skill that is a mixture of many qualities and traits such as – imagination, risk taking, ability to harness factors of production, i.e., land, labour, technology and various intangible factors.

Usually anyone who runs a business is called an entrepreneur. The more precise meaning of entrepreneur is one who creates his own business, i.e., a person who organises, operates and assumes the risk of a business venture. An entrepreneur is a person who perceives a need and then brings together manpower, material and capital required to meet that need.

Entrepreneurship implies a set of values, norms and traits that are conducive to the growth of a business enterprise. It is the organisational culture that focuses on new opportunities and creation of an organisation where these opportunities can be perused earnestly. An entrepreneur seeks the opportunities, looks for ways and means to capitalise on the newer opportunities by organising the structure and the resources and gaining control on them.

As against this, a manager is primarily concerned with the resources under his control, the structure of his organisation and its relations to the market. He is also concerned with matching the opportunities with organisational abilities. Entrepreneurs are driven by the perception of opportunities. They seek changes in the political rules, social values, consumer preferences, technology etc. On the other hand resources like money, manpower and material they control, drive the managers.

Entrepreneurship is an elusive concept that cannot be defined precisely.

However, people having different interests have defined ‘entrepreneurship’ in a number of ways:

Psychologists and sociologists are interested in why entrepreneurs act.
Economists focus on “what happens when entrepreneurs act”.
Management experts focus on how the entrepreneurs act, in the characteristics of entrepreneurs and the manner in which they achieve their goals.

Explain the Concept of Entrepreneurship

The concept and theories of entrepreneurship evolved over more than two centuries have undergone major changes. Yet the concept of entrepreneurship is not clear. As the concept of entrepreneurship is complex in its content, it is influenced by not only economical aspects, but also by sociological, political, psychological, ethical, religious and cultural values.

A coordinated and comprehensive theory of entrepreneurship is yet to come. Meanwhile let us understand the important theories of entrepreneurship propounded by social thinkers during the last two centuries.

The distinctive features of entrepreneurship over the years are:

Innovation,
A function of high achievement,
Organisation building,
Group level activities,
Managerial skills and leadership,
Gap filling,
Status withdrawal,
Entrepreneurial supply, and
Entrepreneurship — an emerging class.

Entrepreneurship as a process has and is undergoing changes in keeping with the continued 6 changes in different fields. In keeping with these changes, different theories of entrepreneurship have been evolved by different thinkers at different times.

It is a continuously evolving process of change:

1. Allow scope for flexible employment contracts to be negotiated, with remuneration arrangements and working conditions that are well adapted to the needs of dynamic enterprises. Relax employment protection measures that inhibit restructuring or discourage entrepreneurs from taking on new workers.

2. Examine the costs of complying with government-imposed administrative or regulatory requirements and identify where reductions could be made, either by removing the requirements to comply or by reducing the administrative burden involved (including through better coordination among various government agencies).

3. Examine the overall effects of the tax system on entrepreneurship, and identify features that discourage entrepreneurs or the financing of entrepreneurial activity. Ensure that the tax system is transparent and that compliance is straight forward.

4. Review and simplify the registration procedures required to create a business. Ensure that firms are able to close quickly should they wish to do so.

5. Ensure that personal bankruptcy legislation provides an appropriate balance between encouraging risk-taking and protecting creditors.

6. Re-examine the effects that social insurance provisions may have on encouraging or discouraging would-be entrepreneurs.

Ensure that specific programs designed to foster entrepreneurship operate as part of an integrated and coherent strategy that complements the framework conditions.

In particular:

1. Avoid policies that stem from a too-narrow definition of entrepreneurship (e.g., that entrepreneurship is only about start-ups or only about high-technology) and which may divert attention from getting the broader economic policy settings right.

2. Widen the target population for entrepreneurship programs, where possible, to attract the participation of women, the young and minorities.

3. Undertake regular and comprehensive evaluation of programs, and ensure that evaluation findings are acted on.

Improve the effectiveness of entrepreneurship programs by drawing on the knowledge of the local level of government.

In particular:

1. Ensure that resources for programs to foster entrepreneurship are decentralised where appropriate in order to better tailor programs to the specific needs of an area and its business.

2. Provide regular opportunities to exchange information at a national level on the experiences of local authorities in designing and implementing entrepreneurship programs.

3. Seek to identify’ and implement low-cost and effective programs with minimal distortionary effects on market incentives.

For example:

i. Promote public awareness of entrepreneurship and examine the role the education system would play in developing entrepreneurial skills and attitudes.

ii. Increase opportunities for the unemployed to create their own jobs through self-employment schemes.

iii. Facilitate networking among firms in order to foster a culture of mutual cooperation and risk-taking.

iv. Promote the entrepreneurial non-profit sector by contracting-out where possible the delivery of public service that meet pressing demands in economic and social development.

Different Concepts of Entrepreneurship

Several experts have tried to explain the concept of entrepreneurs and entrepreneurship and then supply in different ways.

Some of the important contributions made in this regard have been explained as follows:

1. Schumpeter:

The Schumpeterian model of entrepreneurs is closely linked with the theory of economic development.

According to Schumpeter, economic development is accompanied by a combination of the following five points:

i. The introduction of a new product i.e., one with which consumers are not yet familiar, or production of a new quality;

ii. The introduction of a new method of production i.e., a method not yet tested in the branch of manufacture concerned or based upon a new scientific discovery but capable of existing in a new way, or a new way of handling a commodity commercially;

iii. The opening of a new market i.e., a market which a particular type of manufacturer in the country has not previously entered;

iv. Finding a new source of supply of raw materials of half manufactured goods, irrespective of whether this source already existed or has to be newly created; and

v. The establishing of a new organization of industry such as – the establishment of a monopoly system through stratification or breaking up of existing monopoly system.

Evolving a combination of all these activities is referred to as enterprise by Schumpeter. Therefore, any person who makes this possible is an entrepreneur. An entrepreneur, in other words, is one who does something uncommon. The most important motivating factor in this activity is the entrepreneurs’ psychology.

They have a dream and will to establish a private kingdom. They also desire to experience the joy of creating something new and of getting something done. They want to make things actually happen.

2. Hoselitz:

According to Hoselitz, culturally marginal groups of persons play an important role in economic development. He holds the view that, because of their ambiguous position in society, marginal men forming a cultural or social standpoint are particularly suited to make creative adjustments in situations of change and developing innovations in social behaviour in the course of this adjustment process.

3. Thomas Cochran:

The theory advocated by Cochran highlights the sociological aspects of entrepreneurial supply. It maintains that the fundamental problems of economic development lie in such non-economic aspects as cultural values and expectations, social behaviour and social sanctions. These social factors determine the supply of entrepreneurs and their talents that are so vital for ushering in economic development.

The entrepreneur’s character is determined by the type of child-rearing and schooling facilities made available when he was young. Thomas Cochran demonstrates the dynamics of such an entrepreneurship model by selecting instances from American economic history. He highlights three important changes that have taken place in the last 150 years in the U.S. economy.

First, the rapid introduction of industrial machinery in the first half of the 19th century; secondly, the rise of large corporations and subsequent professional management during the second half of the 19th century; thirdly, the spread of mass production techniques during the 19th century.

During each of these major change periods, the social factors in American culture operated through the entrepreneur. Thus, the individual’s performance as an entrepreneur is influenced both by his own attitude toward his occupation and the operational requirements of the job. The attitude of a person, in turn, is largely determined by the social values and ethos.

4. Herbison:

According to Herbison, the entrepreneur is the essence of an organization which comprises all people required to perform entrepreneurial functions. Since entrepreneurship comprises the performance of several functions such as planning, organization, coordination, and control and routine supervision, these functions are termed by Herbison as – ‘managerial resources.’

However, the effectiveness of business organizations requires dynamic and innovative entrepreneurs. There are creative thinkers who can plan and initiate change. Thus, the creation of organisational relationships constitutes the fundamental basis of entrepreneurship. This is the edifice with the help of which different functions and objectives of an institution are realized.

Based on a survey conducted by him, Herbison arrived at certain conclusions, prominent among which was that a huge investment in capital equipment requires a similar investment in building organization. Organization, thus, is the single most determining factor in raising the productivity of labour.

5. David McClelland:

McClelland concentrated more on the economic growth and the factors that influenced such a growth. He also highlighted the factors that influence man to exploit opportunities and take advantage of favourable conditions that come his way. Of all the factors, he says, the desire to achieve is the most important motivating factor for entrepreneurial functions.

A society with a large number of people having a high desire for achievement is conducive to economic growth. The type of entrepreneurs McClelland has in mind do not work hard at routine tasks. They take keen interest in the results of their decisions. They prefer to work hard on tasks that involve challenge and risk.

With regard to the method of generating entrepreneurs of this kind, McClelland like Cochran underscore the importance of social values. Further, McClelland also emphasizes two important points in connection with development of entrepreneurship in any society.

First, creation of a conducive social climate to enable children to grow and become individuals with the motivation of achievement and second, improvement in the performance of existing entrepreneurs through necessary inputs, training, and education.

6. Everett Hague:

Hague’s view is that ‘economic development is brought about by a change in social, political, cultural and personality-oriented interrelationships. According to him, initiation of change in society comes as a result of a shift in the attitude of groups or classes of people in society, particularly, the less elite.

The motive behind the shift is to gain status or control by undertaking rigorous entrepreneurial activity. According to Hague, the less elite in the society are a group of individuals, who are creative but alienated from traditional values. They are driven by a burning desire to assert their importance in the area of their choice.

Further, they prefer areas in which they can assert power, albeit symbolic, or achieve a position from which they can vent their fury against the elite who have caused them troubles. Their conscious or subconscious contempt is for that group of individuals in society who discourage them. In this way, they rejected traditional values and turned to innovation as entrepreneurs.

7. Max Weber:

Weber is in agreement with Hague and McClelland’s view that social change alone can lead to proper development of entrepreneurship. However, he goes a step further and adds that entrepreneurial abilities are also pestered by certain religious beliefs. According to him, religious functions are an important influence on individuals and the nurturing of an entrepreneurial culture in the society.

Certain favourable or unfavourable social attitudes or religious sanction pertaining to acquisition or renunciation of wealth determines conducive or detrimental circumstances in a given society for the spirit of capitalism to take roots.

In his examination of religious attitudes towards wealth acquisition, Weber observes that Protestant Christian ethics generates ‘favourable circumstances’ for entrepreneurial ventures, while Hinduism ‘discourages’ capitalistic ventures. Weber’s theory suited the colonial rulers who wanted to encourage European entrepreneurship in India.

But it has been severely criticised by subsequent researchers, who held that the theory was based on incorrect assumptions, such as:

There is a single system of Hindu value.
The Indian community internalised those values and translated them into day-to-day behaviour.
These values remained immune to and insulated against external pressures and change.
The rapid growth of entrepreneurship in India post-independence proves that Hinduism is not averse to adventurous spirit.

8. John H. Kunkel:

Kunkel’s behavioural model for entrepreneurship is mainly based on environmental factors. He maintains that in a society direct or indirect psychological conditioning of individuals determines the nature of their activities in society. The main conditioning factor in the social environment includes the social structure, the physical conditions, arts and literature.

When social structures are reinforced over a period of time or changed drastically, changes in individuals’ activities are modified. Behaviour of the individual in society also gets modified accordingly. Therefore, Kunkel concludes that an individual can manipulate the environment of his society in favour of his own chosen attitude to entrepreneurship.

9. Frank Young:

According to Frank Young, entrepreneurial activities are in the form of groups. He gives least importance to the influence of individuals’ attitudes to entrepreneurship. In his view, entrepreneurial characteristics are rooted in social clusters, ethnic communities, occupational groups, or politically-oriented factions of individuals. These groups, in turn, influence the emergence or development of entrepreneurs in a given society.

10. Peter F Drucker:

According to Peter Drucker, an entrepreneur is one who is always in search of change, responds to it and exploits it as an opportunity. The response to change is innovation. According to him, innovation is a specific instrument of entrepreneurship. Entrepreneurs have to learn to practise systematic innovation.

Systematic innovation consists of purposeful and organized search for changes and in the systematic analysis of the opportunities such changes might offer scope for economic or social innovation.

According to Drucker, entrepreneurship is a discipline that has a knowledge base. It is a purposeful task that can be organized and learned. He avers that focus should not be on traits of entrepreneurs but on their actions and behaviour. He also opines that entrepreneurship should not be confined to big business houses and institutions but it is equally important to small business as well as service-oriented ventures.