Chapter 1Introduction to Entrepreneurship

Learning PointsWhat is Entrepreneurship and who is an Entrepreneur?Growth engines of EntrepreneurshipImportance of entrepreneurshipEntrepreneur in the history of Economic TheoryEntrepreneur in the history of Economic Theory- Major thoughts/ view pointsRole of Constellation of Forces

ENTREPRENEURSHIPIt is the process of starting, establishing and expanding an enterprise that produces and markets goods and/ or services.It is creative act --- finds opportunities and derive benefits.Process by which opportunities to create future goods and services are discovered, evaluated and exploited.

Entrepreneur- definitionAn economist defines him as one who brings resources, labor, material and other assets in to combinations that make their value greater than before and also one who introduces changes, innovation and a new order.

Entrepreneur- definition-Management experts define entrepreneur as a person who has vision and generates an action plan for it. Edward De Bono says that INNOVATION distinguishes Entrepreneur from others.Etimology- Entreprendre- a German word- which means undertaker.

Entrepreneur- definitionPeter Drucker says, Innovation is the specific tool of entrepreneurs, the means by which they exploit changes as an opportunity for a different business or service. It is capable of being presented as a discipline, capable of being learnt, capable of being practiced.

Importance of entrepreneurshipLiberalized world tradeShifting of jobs and whole industries Lack of innovation in economyProblem of unemployment and creation of jobsAlternate to search of jobsDistribution of economically relevant info. (von Hayek 1945)Wealth Generation and the GDP growth

Growth engines of EntrepreneurshipGrowing unemployment and underemployment- entrepreneurship as an alternative to search for jobsRise of Individualism- especially in USA (Schumcher,1994) as a mega trend in 1990sGrowing entrepreneurial behavior in developing and under developed countriesLiberalization and Globalization trends

Entrepreneur in the history of Economic TheoryEntrepreneurship is a least understood topic in economics.For most of the 20th Century, the entrepreneur disappeared from the economics literature due to the domination of equilibrium economic models demand and supply determine the price(The supply curve shows the quantity supplied at a given price by profit-maximizing firms. The demand curve shows the quantity demanded at a given price by utility-maximizing consumers. The intersection of the supply curve and the demand curve is the point that maximizes both profits and utility)

Entrepreneur in the history of Economic TheoryRichard Cantillion (1775) was the first to recognose the role of Entrepreneur. He stressed on the function of entrepreneur and not his personality- the farmer is an entrepreneur who promises to pay the land owner for his farm or land, a fixed sum of money without assurance of the profit he will derive from the enterprise.

Entrepreneur in the history of Economic TheoryJ.B. Say (1800)- A person who shifts economic resources out of an area of lower and into an area of higher productivity and greater yield - he stresses importance of change and innovation within an economic system but also describes entrepreneur as an agent of change.

Entrepreneur in the history of Economic Theory- contHebert and Link (1988) give overview of different roles given to entrepreneur over 200 years

1Who assumes risk associated with uncertainty (Cantillon, Knight etc)2Who supplies financial capital (Smith)3Is an innovator (Weber, Schumpeter)4Is a decision maker (Menger, Keynes)5Is an industrial leader (J.B.Say, Francis)6Is a manager or a superintendent (Mill, Marshall)7Is an organizer and coordinator of economic resources (Say, Schumpeter)8Is an owner of enterprise(Quesney)9Is an employer of factors of production (Walker, Keynes)10 Is a contractor (Bentham)11Is an arbitrageur (Cantillon )12Is an allocator of resources among alternate uses (Cantillon )

Entrepreneur in the history of Economic Theory- Major theories1. Uncertainty and being risk bearerThe profit of entrepreneur is compensation for bearing uncertainity (Knight, 1921).Risk is one of the main elements.Difference between risk and uncertainty is that the latter can not be measured in % - Risk is calculable, uncertainty is not (Knight, 1921).

Entrepreneur in the history of Economic Theory- Major theories2. Entrepreneur as Innovator- Schumpeter (1934)Criticized Knight for not distinguishing between entrepreneur and resource owner.Stressed Innovation as against resource.Categories of action covered by innovation:

Intro of new good or quality of goodIntro of new method of productionOpening of new marketUtilization of new source of supply of raw material or intermediate goodsCarrying out new organizational form

Entrepreneur in the history of Economic Theory- Major theoriesEntrepreneur as Innovator- Schumpeter (1934)Entrepreneur is defined as one what he does and not what he ownsHe does not invent or find opportunities but his role is to make them livingEntrepreneurial traits are not teachableHis motivation comes from the dream and the will to found his own kingdom

Entrepreneur in the history of Economic Theory- Major theories3. Entrepreneur as Alert Discoverer- Hayak (1949)Markets help people to communicate their discoveries to others and learn of others discoveries (Casson, 1982)Entrepreneur make use of asymmetry in information to his advantageCognitive learning ability of the individual decides market equilibrium process

Entrepreneur in the history of Economic Theory- Major theories4. Entrepreneur as Coordinator- Casson, 1988He is expert in judgmental decisions about coordination of scarce resourcesHe integrates elements of dynamism (Schumpeter) and bearing uncertainty (Knight)Casson tried to integrate human behavior in to economic theory

Entrepreneur in the history of Economic Theory- Major theoriesEntrepreneur as a person with special characteristics- The traits approach ( The Psychological contribution)- Gartner, 1989.Economic theory cannot explain entrepreneurial behavior all the times.Special characteristics- high need for achievement, self-confidence/ locus of control, risk taking, personal values, age etc.

Critique of Traits TheoryThe theory assumes that entrepreneur to be a particular person, a fixed state of existence. Once an entrepreneur- always an entrepreneurThere is no agreement among scholars whether the founder of a company alone is an entrepreneur or whether the employed manager is also an entrepreneur.

Behavioral ApproachIt revolves around the following:What kind of activities he performsWith whom he worksWhat basic rules can be inferred from the study of entrepreneurs activities?Where does the entrepreneur start?Where do his ideas come from?How does he try them etc

Critique of Behavioral TheoryMethodology- It is very difficult to observe the behavior of the entrepreneur.

The Myths of Entrepreneurship

Entrepreneurs are doers, not thinkersEntrepreneurs are born, not madeNot true! Talent gained and enhanced by experience is a foundation for entrepreneurial success.

Entrepreneurs are always inventorsEntrepreneurs are academic and social misfitsEntrepreneurs must fit the profileAll entrepreneurs need is moneyNot true! Money is no guarantee of success. Theres a lot more to it than that; many entrepreneurs start with very littleAll entrepreneurs need is luckIgnorance is bliss for entrepreneursEntrepreneurs seek success but experience high failure ratesEntrepreneurs are extreme risk takers (Gamblers)

Role of Constellation of forcesRise of Knowledge Intensive Industries resulting in the rise of technopreneursLiberalization and Globalization trends resulting in to dismantling of licence-raj and deterritoralization in business activitiesGrowing literacy and the rise of indigeneous enterpriseGrowth in infrastructure- thanks to 5 year plans

Role of Constellation of forces-contGrowing urbanizationGrowth of Service and Primary Sectors and the gradual decline of Primary SectorInformation Technology, growing Social Network, improved communications, data warehousing- World crumbling in to Global VillageReducing trend of cultural barriers

Role of Constellation of forces-contWomen empowerment resulting in Woman EntrepreneurshipElectoral Politics leading to empowerment of Dalits- Dalit EntrepreneurshipNucleus families, decline of joint families- growing entrepreniurial behavior and individualismFamily back grounds, gender, age etc

ConclusionEntrepreneurial behavior cannot be explained purely economic theory because psychological, cultural and sociological factors are important too (Campbell, 1992)Innovation is the specific tool of entrepreneurs, the means by which they exploit changes as an opportunity for a different business or service. It is capable of being presented as a discipline, capable of being learnt, capable of being practiced.

Conclusion- conThree critical characteristics of entrepreneur being moderate risk taking, innovation and venturing in to New BusinessEntrepreneurship is the professional application of knowledge, skills and competencies; and of monetizing a new idea, by an individual or a set of people by launching an enterprise de novo or diversifying from an existing one, thus pursuing growth while generating employment, wealth and social good- National Knowledge Commission, 2008

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