Entrepreneurship development and Industrial Consultancy

Module.2 Concept and working of entrepreneur

Lesson 6
CONCEPT OF ENTREPRENEURSHIP AND MANAGERIAL CHARACTERISTICS

6.1 Introduction

The word entrepreneur is drawn from the French language meaning to designate an organizer of musical or other entertainment. Oxford dictionary also defines entrepreneur as the “director or a manager of a public musical institution.” In early 16^th century, the term was applied to persons involved in military operations. In the 17^th century, the term was broadened to include civil engineering activities. In 18^th century, the term was used to refer to economic aspects. This highlights that the concept of entrepreneurship was originated two centuries ago. Since then the term is used in various ways.

6.2 History

The term entrepreneurship can be traced back to as early as the Middle Ages, when the entrepreneur was simply someone who carried out tasks, such as buildings and construction projects by applying all the resources at his disposal. However, it was during the16th century when business was used as a common term, and the entrepreneur came into focus as a person who is responsible for undertaking a business venture. In the 18th century, early economists, for instance one known as Richard Cantillon, added that an entrepreneur bears risk as part of his work definition. It was during the 17 ^th and 18 ^th century Industrial Revolution, that business itself was becoming part of the new lifestyle, especially in Europe, where most of this development was taking place. The early economists, such as John Baptiste, John Stuart Mill, and Alfred Marshall all included entrepreneurship into the economic spectrum of the time by defining the various skills and features of an entrepreneur. These definitions vary from an entrepreneur being responsible for employing resources in high productivity areas to earn profits, to risk bearing, and finally to an entrepreneur being responsible for organization and control. However, the most substantial research into entrepreneurial theory was achieved in the 20^th century, under the aegis of Joseph Schumpeter, who claims that the entrepreneur has a creative destruction innovation by replacing destroying an existing economy by a better, advance one. Where some of the entrepreneurships emerged as a result of innovation based on new products, others were merely an expansion of existing businesses in markets that now showed areas of growth. For instance, railroads and shipping, cargo, transport; factors that became intertwined with growth in commerce during the late 18^th century and early 19^th century. The 20^th century saw the evolution of entrepreneurial history developing its most recent form and most of this research was done at the Center for Entrepreneurial History at Harvard. It was here that the theorist Arthur H. Cole defined an entrepreneur as an organization builder. In recent times, the concept of entrepreneurship has evolved from being a single individual to account for that of an entire organization or a corporation. In some of these modern theories, entrepreneurs also include the top tier of executives who are running a corporation. Along with entrepreneurial theory, it is observed that the growing importance of theories regarding entrepreneurship emerged side by side with historical events which integrated the entrepreneur as an essential part of a modern, capitalist society.

6.3 Definitions of Entrepreneur

1. Modern dictionary defines entrepreneur as “One who reorganizes and manages only enterprise especially involving high risk.”

2. According to economist entrepreneur introduces changes, innovations and new orders and combines resources, raw material, labour and other assets thereby increasing their value.

3. According to psychologist, Entrepreneur is driven by some forces which create a desire to obtain or attain something.

4. According to sociologist, Entrepreneur is a person who’s actions would determine his social status and who contribute to the development of society.

5. Management defines Entrepreneur as a person who has a vision and generates the action plan to achieve it.

6.4 Concept of Entrepreneurship

Fig. 6.1 Concept of entrepreneurship

Entrepreneurship is a process undertaken by an entrepreneur to propagate and foster his business interest. Innovation and creativity result into establishment of enterprise. Entrepreneurship involves a particular type of mindset which takes calculated risk with confidence so as to achieve predetermined business objective. Thus we see that the term Entrepreneur is used in various ways. These views can be group in to three categories: Risk bearer, organizer and innovator.

1. Entrepreneur as a risk bearer

Rechard Cantillion (1755) was the first person to describe entrepreneur as risk bearers. He stressed on function of entrepreneur and not his personality. Frank knight year 1921 describe entrepreneur as an economic functionary who undertakes such responsibility of uncertainty which by it’s vary nature can not be insured, nor capitalized nor salaried too.

2. Entrepreneur as an organizer :

Jean –Baptistc (1800) says entrepreneur as a person who combine the land of one, labour of another and the capital of yet another. By using all these recourses an entrepreneur produces a product and sales in the market. He pays interest on capital, rent on land and wages to labour. Then what ever saved is the profit. Thus the explanation of entrepreneur combines the functions of coordination, organization and supervision.

3. Entrepreneur is an innovator

Joseph. A. Schumpeter (1934) identified five different kinds of innovations or ways to act as an entrepreneur

a. The introduction of new product in the market

b. The introduction of new method of production

c. Venturing into a new market.

d. Using a new different variety of raw materials.

e. Adopting a new organization firm/ structure.

6.5 Characteristics of Entrepreneurs

Following are some of the characteristics (traits) identified by researchers based upon analyzing life of successful entrepreneurs.

1. Hard work: Entrepreneurs should be willing to work hard to achieve success for their enterprise.

2. Desire for high achievement: Entrepreneurs should be achievement oriented. They do hard work to achieve their goals/ targets for the organization.

3. Optimism: Entrepreneur faces many hard ships and difficulties. A successful entrepreneur tackles all kinds of such situations and is optimistic about bright future.

4. Independence: Entrepreneurs like to work independently. They do not like to be followers or guided by someone else.

5. Foresight: They can approximately visualize the future based upon analysis of existing environmental conditions. Based upon such a foresight they take appropriate decisions in the present context so as to make their enterprise successful.

6. Organizing power: Entrepreneurs have limited resources when they start their enterprises. They procure different resources from others and then organize them appropriately so as to make a profitable product.

7. Innovative: Customer demand/tastes go on changing. In order to satisfy diverse customer needs, entrepreneurs must be innovative.

8. Communication skills: In order to carry out business activities, the entrepreneur has to interact with many stakeholders’ viz., suppliers, employees, customers etc. In order to succeed entrepreneur should have excellent communication skills.

9. Technical knowledge: An entrepreneur can start business of diverse nature. Whatever business they start, in order to succeed it is necessary that entrepreneurs have a somewhat basic knowledge about that business.

10. Risk taking ability: Future is uncertain and risk is associated with it. Entrepreneurs take a calculated risk. Several social scientists have considered risk taking as the most important basic trait required by entrepreneurs.

11. Mental ability: It consists of intelligence and creative thinking. An entrepreneur must be reasonably intelligent and should have thinking ability. Entrepreneur individually faces many business problems. He must be able to analyze them and deal with them.

12. Human relations ability: Important personality traits required by entrepreneurs are emotional stability, personal relations, consideration and tactfulness. An entrepreneur should maintain good relations with all stakeholders so as to achieve growth in their business.