CHAPTER ONE

ENTREPRENEURSHIP AND FREE ENTERPRISE

Objectives of the chapter
At the end of this chapter, students will be able to;
 Define the terms entrepreneur, entrepreneurship and entrepreneurs.
 Understand the differences between entrepreneur and owner, entrepreneur and
entrepreneur, entrepreneur and inventor.
 Understand the major traits and functions of an entrepreneur.
 Identify different kinds of entrepreneurs and the challenges faced by women entrepreneurs.
 Discuss the main and major processes of entrepreneurship.
Chapter description
This chapter discusses more about who are entrepreneurs and their responsibilities with their
special characteristics than other business individuals like managers, entrepreneurs, investors, etc.
furthermore it describes about the major functions and success criterion for an entrepreneur.
Contents of the chapter
[Link] and Philosophy
[Link] entrepreneur Vs Owner Manager
[Link] Traits, (What personality traits in the successful entrepreneurs)
[Link] Vs Intrapreneur
[Link] Functions
[Link] of Entrepreneurs
[Link] Vs Inventor
[Link] Process
[Link] of Entrepreneurs

1.1. Definition and philosophy

The term ‘entrepreneur’ first of all appeared in the French language. The word ‘Entrepreneur’ is
derived from the French word ‘Entrerprendre’ meaning ‘to undertake’. In fact, in the 16th century,
the Frenchmen who undertook military expenditures were referred to as ‘Entrepreneurs.’ It was
extended to cover construction and other civil engineering activities in the 17th. Later on, in the
18th century, this term got associated with persons who started their own enterprises. Richard
Cantillon, an Irish man living in France, was the first economist who introduced the term
‘entrepreneur’ referring to the risk taking function of establishing a new venture.
The ‘entrepreneur’ is very much related to the term ‘entrepreneurship.’ Both these terms are often
used interchangeably. But, they are conceptually different. Hence, before dealing at length about
entrepreneurship, it is better to have an exposure to the term entrepreneur. Generally speaking,
entrepreneur refers to a person who establishes his own business or industrial undertaking with
a view to making profit. An entrepreneur is considered to be an originator of a business venture.
He takes the role of an organizer in the process of production. An entrepreneur is one of the
important segments of economic growth. Basically an entrepreneur is a person who has the
initiative, skill for innovation and who looks for high achievements. He/she is a catalyst agent of
change and works for the good of people.
There have been hundreds of definitions in dozens of books. Some of them are given as:
Entrepreneurs are action-oriented, highly motivated individuals who take risks to achieve goals.
Entrepreneurs are people who have the ability to see and evaluate business opportunities; the
ability to gather the necessary resources to take advantage of them, and the ability to initiate
appropriate action to ensure success.
Various experts have defined the term entrepreneur in different words. Some of the definitions are
as follows:
 Karl Vesper has research entrepreneurship and explains that its nature is a matter of individual
perception: Economists may view entrepreneurs as those who bring resources together in
unusual combinations to generate profits: Psychologists tend to view entrepreneurs in
behavioral terms as those achievement-oriented individuals driven to seek challenges and new
accomplishments;
 Marxist philosophers may see entrepreneurs as exploitative adventures, representatives of all
that is negative in capitalism; Corporate managers too often view entrepreneurs as small
business persons lacking the potential needed for corporate management. Vesper suggests that
those of us who strongly favor a market-economy view entrepreneurs as pillars of industrial
strength-the movers and shakers who constructively disrupt the status quo.
 Oxford English Dictionary (1933) defined entrepreneurs as “one who undertakes an
enterprise, especially a contractor-acting as intermediary between capital and labour.”
Undertaking of an enterprise involves combining capital and labour for the purpose of
 production. Anyone who undertakes this task is an entrepreneur. The entrepreneurial class is
an ‘employing class’ as it creates jobs.
 Richard Cantillon was the first to introduce the term ‘entrepreneur’. He defines it as “the
agent who buys means of production that he is going to sell at prices that are uncertain at
the moment at which he commits himself to his costs”. He illustrated his concept of
entrepreneur by taking the case of a farmer: A famer pays out contractual incomes, which are
‘certain’ to the landlords and laborers, and sells at prices that are ‘uncertain’. Similarly,
merchants who commit themselves to certain payments in expectation of uncertain receipts are
essentially “risk bearing directors of production and trade.”

Therefore, an entrepreneur is the individual who bears uncertainty and takes risk. According to
Peter Drucker “Entrepreneur is someone who always searches for change, responds to it, and
exploits it as an opportunity.” Entrepreneurs are successful to the extent they define risks and
confine risk. Successful innovators are conservative. They have to be. They are not ‘risk focused’;
they are ‘opportunity focused’. The entrepreneur is a combination of the thinker and the doer.
The entrepreneur sees an opportunity for a new product/service, a new approach, a new policy,
or a new way of solving a historic problem. But, the entrepreneur also does something about what
is seen (do something to change the bad he see). The entrepreneur seeks to have an impact on the
system with his/her idea, product, or service. It is this thinking-doing combination that gives
entrepreneurial efforts their special appeal.
In the words of J.B. [Link], “the entrepreneur is the economic agent who unites all means of
production….the labour of the one, the land of another and the capital of yet another and the capital
of yet another and thus produces a product. By selling the product in the market he pays rent of
land, wages to labour, interest on capital and what remains is his profit.” Thus, [Link] used the
term entrepreneur in the sense of an organizer who combines the various factors of production. He
produces a socially valuable product and sells the produce in the market from which he pays to the
suppliers of land, labour and capital. What remains is his profit. Say makes a clear distinction
between the capitalist as financier and the entrepreneur as a coordinator and organizer of a
business enterprise, which the entrepreneur needs the art of superintendence and administration.
The above combining role is a distinctive one when applied to the organization of a new concern.
But when applied to a going concern it denotes little more than routine supervision and control.
According to Noah Webster, entrepreneur is “one who assumes the risk and management to
business” According to Evans “entrepreneurs are persons who initiate, organize, manage, and
control the affairs of a business unit that combines the factors of production to supply goods and
services, whether the business pertains to agriculture, industry, trade or profession: ”
According to Joseph Schumpeter, an entrepreneur is an innovator who brings economic
development through new combinations of factors of production. In other word, a person who
introduces innovative changes is an entrepreneur and he is an integral part of economic growth.
However, this interpretation of the entrepreneur has been criticized. Underdeveloped countries like
Ethiopia where private capital is shy and small, skill and technical knowledge is highly deficient
and socio-economic infrastructure is inadequate do not have many innovators. Such countries need
‘imitators’ who can implement the innovations made in developed countries. The meaning of
entrepreneur may also depend upon the level of development of a country. For instance, in a
developed country only people carrying out innovations are termed entrepreneurs. But in
underdeveloped countries, imitators are also considered entrepreneurs.
Dewing has rightly put it as follows: “The function of entrepreneur is one that promotes ideas into
business.” The usually accepted meaning of entrepreneur in economics refers to an ideal type
rather than the real person. In addition to the coordination of the factors of production, high level
of achievement also makes an individual entrepreneur. Therefore, McClelland defined an
entrepreneur as “someone who exercises some control over the means of production and produces
more than what he can consume in order to sell (or exchange) it for individual (or household)
income.”
To sum up:
Therefore, the term ‘entrepreneur’ has been defined in various ways- an innovator, a risk taker,
a resource assembler, an organization builder, and so on. Truly speaking, an entrepreneur is all
combined into one. An entrepreneur introduces new ideas, carries on new activities, coordinates
the factors of production and decides how the business shall run. He anticipates the future trend
to demand and price. He has a vision originally of thought and ability to take calculated risks.
An entrepreneur perceives an opportunity in a new field or in an existing one. For example, Mr.
Akio Morita, the president of Sony Corporation of Japan created the Walkman personal stereo. On
the other hand, Henry Ford, the founder of Ford Motor Co-of USA, applied the division of labor
to the production automobiles in a new way, the assembly line. Therefore, an entrepreneur
perceives a need and then brings together the manpower, materials and capital required to satisfy
that need. An entrepreneur either originates a new business venture or carries out productive
changes in an existing venture. However, entrepreneur often play other roles, especially those for
capitalists and manager.
Entrepreneurs take the risks necessary in producing goods and services. In this way they act as the
energizers of the business system. They are instruments of change.
[Link] Entrepreneur Vs Owner Manager
Entrepreneur –take existing resources and redeploy them, often in a creative way, to give them
greater economic value. This original meaning of the word implies that they are agents of change,
innovators of new products, methods, or markets. They are less concerned with managing what
exists in the most efficient manner, and they are more involved in looking for and exploiting new
opportunities. They can work in small and large companies.
Owner–managers-may or may not be entrepreneurs. They own and manage a small enterprise, in
a way, which fits with their personal motivations. They may therefore, be opportunist,
entrepreneurial type owners, or they may be conservative, artisan type managers more intent on
survival than seeking innovative change and growth.
They are many different types of entrepreneurs and owner managers from the ‘soloist’ who prefers
to go it alone, to the ‘grouper’ or team builder who thrives on shared decision making; from ‘high-
tech’ engineer to the ‘alternate life style’ craftsman: Entrepreneurial activity is not confined to the
small business sector, nor it is always found in small firms.
Entrepreneur Vs Manager
Generally, an entrepreneur and a manager are considered to mean the same and are used as
interchangeable terms. In many cases the roles of entrepreneur and manager may overlap. In
proprietorship and partnership and even in small companies the entrepreneur himself acts as the
chief executive. But a rapid manager cannot be described as an entrepreneur. The main points of
distinction between entrepreneur and manager are described as follows.
1. Innovation- the entrepreneur does not live with the status-quo (current or existing state….
the existing state of affairs (at a particular time)" or "the situation as it currently exists). He
works to change in accordance with his or her personal vision and values. He is more than
an inventor. An inventor only originates the invention. But the entrepreneur goes much
further by exploiting the invention commercially or by applying the invention. On the other
 hand, the manager keeps running a business on established lines. He is neither an inventor
nor an innovator. An entrepreneur changes the factors combinations and thereby increases
productivity and profit. But a manager only deals with day to day affairs of a going concern.
An entrepreneur is a change agent while a manager is the product of change. An
entrepreneur is not a mere executive though he may also be appointed as one of the
promotion of his company. A manager mainly acts as an executor of plans prepared by the
entrepreneur.
2. Risk-Taking - an entrepreneur takes calculated risks. He is not a gambler but he faces
uncertainty and assumes risks. He may jeopardize his own financial security and the
security of others. By contrast, the manager is less tolerant or uncertainty. He does not face
the uncertainty of a new venture with its potential for failure and financial loss. He does
not share in business risks.
3. Reward - an entrepreneur is motivated by profits while the manager is motivated by
extremely imposed goals and rewards. The gains of an entrepreneur are uncertain and
irregular and can at times be negative. The salary of a manager is on the contrary, fixed
and regular and can never be negative.
4. Skills - the roles of entrepreneur and manager demand different types of personal skills.
An entrepreneur needs intuition, creative thinking and innovative ability among other
skills. On the other hand, a manager depends more on human relations and conceptual
abilities.
5. Status-role- an entrepreneur is self-employed, he is his own boss and enjoys an
independent status as the owner of the enterprise. By contrast, a manager is a servant, i.e.,
salaried person serving in the enterprise of someone else i.e., entrepreneur. Thus, he is not
independent but the dependent of the entrepreneur.
6. Response to authority - one of the main features that distinguish managers from
entrepreneurs is their ability to identify in a positive constructive way with authority figures
using them as role models. This type of behavior is largely absent in entrepreneurs. Case
histories of many entrepreneurs suggest that it was their inability to submit to authority and
accept organizational roles that drove them to become entrepreneurs. In a sense they were
‘misfits’ who had to enact their own environment.
 7. Continuity – entrepreneurial activities are discontinuous appearing to initiate change in
the production process and then disappearing until another change is initiated. Managerial
activities are mainly continuous involving an ongoing coordination of business operations.
8. Venture – an entrepreneur sets up a new enterprise or undertakes a venture for his personal
gratification. A manager does not take a new venture and renders services in an existing
enterprise.
9. Prerequisites – inconsonance with the entrepreneurial role, an entrepreneur needs pre-
requisites like mission, creative thinking, risk-bearing ability, etc. but a manager needs
distinct qualifications such as knowledge of human behavior, a management theory, etc.
because, managers are made not born.
10. All functions – as entrepreneur has to perform many functions on order to run the
enterprise successfully. A manager renders only the managerial services in an enterprise.
1.3. Entrepreneurial Traits, (What personality traits in the successful entrepreneurs)
Entrepreneurial Traits
The successful entrepreneur can have a number of traits, which single them out.
Need for achievement – their social backgrounds may give them an overriding need to achieve.
This can come from childhood deprivations, or competitive urges born of self-confidence.
Self-Determination – they probably have great faith in their ability to control their personal
environment, rejecting too high an influence to chance or fate.
Desire for Independence – they wish for autonomy believing that independence of action is the
only sure way to get what they need.
Innovation – they constantly market demands. Seek opportunities to be innovative in meeting
market…
Whilst entrepreneurs may share some of these characteristics, no one single trait can be said to be
the secret of entrepreneurial success.
1.4. Entrepreneur Vs Intrapreneur
In recent time, a new brand of corporate entrepreneurs called “intrapreneurs” has come into picture.
Since they emerge within the frontiers of an existing enterprise, they are called intrapreneurs. In
refers to ‘within’. In big organizations, the top executives with intrapreneurial talents are
encouraged to generate new ideas and then convert them into products through research and
development carried out within the organization itself. If the talents inside an organization are
regarded, the entrepreneur could avoid stagnation and decline in his enterprise.
This concept of intrapreneurship has gained much popularity in developed countries like America.
If the managements are not receptive to their new ideas, they tend to leave their parent organization
and start ventures of their own. When Steve Wozniak could not get his dream of making a small
computer fulfilled at Hewlett Packard, he left that popular company. He then teamed up with Steve
jobs to form Apple Computers, which has subsequently become a very prestigious organization. It
is found that many of such intraprenuers have become exceedingly successful in their ventures to
the extent of even causing a threat to their parent organization. Generally, intrapreneurs breed new
and innovative ideas to the entrepreneurs who inaugurate new products.
Companies should provide intrapreneurs with adequate financial resources and freedom so that
their ideas can be developed. Hence, selected top executives should be given a status within the
organization similar to that of an entrepreneur in the society. What drives talent within an
organization is of monetary gain, but, a deep desire of personal achievement. Thus, an intrepreneur
works within an established organization. Most often he belongs to the family member of the
founder.
The differences that exist between these two types of business leaders are given below in the
following table.

Table 1.1 Differences between Entrepreneur and Intraprenuer

Entrepreneur Intrapreneur
Independent: An entrepreneur is an independent Dependent: On the other hand an
person in his business operations. intrapreneur is a semi dependent on the
promotes/owners of the organization.
Need not be highly educated: it is not necessary Highly educated: Intrapreneur enters into
that an entrepreneur should have a high education. existing organization with a high education
He can learn everything by experience provided he and qualification. He is indeed a business
has the basic qualities of a successful entrepreneur. specialist in the chosen field.

Fund raising: an entrepreneur himself raises No fund raising: an intrapreneur neither

funds necessary from various sources and raises the capital nor guarantees any
guarantees the return to investors/creditors for returns to the suppliers of capital. He is
starting and establishing. completely free from the botheration of
raising funds.
 Risk bearing: an entrepreneur has to bear all the No risk bearing: an intrapreneur need not
risks involved in the business by himself. bear any risk involved in the business he
develops and operates.
Routine work: an entrepreneur is more concerned Specialist: an intrapreneur acts as a
with doing routine work and sometimes he may specialist in his chosen field and serves as
not know the important details of his own an outside professional.
business.

Operation from outside: an entrepreneur always Operation from inside: But, an

operates from outside. The owner is different and intraperneur operates from within the
the enterprise he owns is different. organization itself. He is a part and parcel
of the organization.
Strong authorization: generally, an entrepreneur Less authorization: on the contrary,
operates with a strong authorization back-up. intraprneur is less authoritarian he is more
“adaptable” in the organization.

1.5. Entrepreneurial Functions

The main functions of an entrepreneur are as follows:
1. Innovation
An important function of an entrepreneur is “innovation”. Entrepreneur introduces new
combinations in any branch of economic activity. Innovation implies doing new things or doing
things that are already being done in new ways. It may occur in the following forms:
a. Introduction of a new product or new quality of an existing product.
b. Introduction of new methods of production or distribution
c. Opening of a new market
d. Conquest of a new source of raw materials
e. New form of organization of industry
Entrepreneurship is a creative activity and the entrepreneur introduces something new in any
branch of economic activity.
According to Schumpter, the basic function of an entrepreneur was to innovate. He wrote
“everyone is an entrepreneur only when he actually carries out new combinations and losses that
character as soon as he has built up his business, which he settles down running it as other people
run their business.”
Invention and innovation – though both inventions and innovation involve a tremendous amount
of creativity, they are entirely different processes. On the other hand, innovation refers to the
application of inventions and discovery to make new combinations and thereby produce
satisfaction and profit. Inventions may facilitate innovation but an invention in itself is of little
benefit to marking unless it is marketable. The innovator provides this missing link. An invention
becomes an innovation only when it is embodied in a product or service that can be successfully
sold in the market.
The resulting product of an inventor did not exist before. For example, mathematical calculators
and microelectronics were inventions. On the other hand, innovation is a new combination of
natural elements that results in a useful and commercially viable product. For example,
microcomputer is an innovation made by combining the inventions mentioned above.
2. Marketing
Marketing is a distinguished unique function of the business. A business is set apart from all other
human organizations by the fact that it markets a product or a service. A Church or an Army or a
School or a State does not do any marketing of a product or service. Any organization that fulfils
itself through marketing a product or a service is business. Any organization in which marketing
is either absent or not relevant is not a business and should never be run as if it were one.

The first man to see marketing clearly as the unique and central function of the business enterprise
and the creation of a customer as the specific job of management was Cyrus McCormick. The
history books mention only that he invented a mechanical harvester. But he also invented the basic
tools of modern marketing: marketing research and market analysis, the concept of market
standing, modern pricing policies, the modern service salesman parts and service supply to the
customers and installment credit. He is truly the father of business management. And he had done
all this by 1850. It was not until fifty years later that he was widely imitated even in his own
country.

The economic revolution of the American economy since 1900 has in large part been a marketing
revolution caused by the assumption of responsibility for creative, aggressive, pioneering
marketing by American management. Fifty years ago, the typical attitude of the American
businessman toward marketing was still: The sales department will sell whatever the plant
produces. Today it is increasingly the job of a business to produce what the market needs. But
economists and government officials are just beginning to understand this.
In Europe there was no understanding that marketing is the specific business function until a few
decades ago which was a major reason for the stagnation of the European economies at that time.
Reaching full realization of the importance of marketing requires overcoming a deep rooted social
prejudice against “selling” as ignoble and parasitical and in favor of “production” as gentlemanly
with its resultant theoretical fallacy of considering production as the main and determining
functions of a business.

A good example of this historical attitude toward marketing are those big Italian companies which
have no domestic sales managers even though the home market accounts for 70% of their business.

1. Innovative functions: entrepreneurship is a innovative function as it involves doing things

in a new and better way. Innovation may take several forms, e.g., a new product, a new
source of raw material, a new market, a new method of production, not yet applied in a
particular branch of manufacturing, etc.
2. A function of risk-bearing- risk is an inherent and inseparable element of
entrepreneurship. An entrepreneur guarantees rent to the landlord, wages to employees,
and interest to investors in the hope of earning more than the expenses. He assumes the
uncertainty of future. In the pursuit of profits there is every possibility of loss.
A business man, who simply behaves in a traditional ways, cannot be an entrepreneur. The
entity is entrepreneurship if the entrepreneur makes decisions under uncertainty and has to
take actions with unknown and unpredictable results.
3. A function of high achievement: McClellland stressed the need for achievement or
achievement orientation as the most directly relevant factor for explaining economic
behavior. The economic activity tends to possess people having high need for achievement
which determines its success. Various studies on the psychological roots of
entrepreneurship reveal the presence of a high achievement orientation among successful
entrepreneurs. Such individuals believe that they can control their own lives as
distinguished from a belief in luck.
4. Economic activity: Entrepreneurship is primarily an economic function because it
involves the creation and operation of an enterprise. It is basically concerned with the
production and distribution of goods and services.
 5. Purposeful activity: the entrepreneur who creates and operates an emprise seeks to earn
profits through satisfaction of needs of customers. Therefore, entrepreneurship is a goal-
oriented activity.
6. An organizing function: an entrepreneur brings together various factors of production. He
coordinates and controls the efforts of all the persons engaged in his enterprise. He
harnesses land, labour, capital and other resources for the benefit of mankind. Therefore,
an entrepreneur is an organization builder.
7. Gap filling function: the gap between human needs and the available products and
services gives rise to entrepreneurship. An entrepreneur identifies this gap and takes
necessary steps to fill the gap. He introduces new products and services, new methods of
production or distribution, new sources of inputs ad new markets of this purpose.
Liebenstein identified two broad types of entrepreneurship. The routine entrepreneurship
is associated with the managerial function of the business where as the new
entrepreneurship is innovative in nature. The most significant feature of entrepreneurship
is gap filling. It is the job of the entrepreneur to fill the gap or make up the deficiencies,
which always exist in the knowledge about the production function. These gaps or
deficiencies arise because all the inputs on the production function cannot be marketed.
Some inputs like motivation and leadership are vague and their output is indeterminate. An
entrepreneur has to Marshall all the inputs to realize final products. Thus, entrepreneurship
is a function of input completing and gap filling. According to Liebenstein the supply of
entrepreneurship is governed by inputs completing capacity and inadequate motivation
state.
8. Dynamic process: entrepreneurship is a dynamic function. Entrepreneurs thrive on
changes in the environment, which bring useful opportunities for business. Flexibility is
the hallmark of a successful entrepreneur.
[Link] of Entrepreneurs
The field of small business encompasses a great variety entrepreneurs and entrepreneurial
ventures. This section examines this spectrum of entrepreneurs and entrepreneurship by
identifying the varied types of people and firms that exist.
There are various ways by which entrepreneurs have been classified.
Clarence Danhof’s Classification
In the initial stages of economic development, entrepreneurs tend to have les initiative and drive.
As development proceeds, they become more innovating and enthusiastic. Similarly, when
entrepreneurs are shy and humble the environment is underdeveloped. Business environment
becomes healthy and developed when entrepreneurs are innovating. Basing on this, Clarence
Danhof, in his study of American agriculture, classified entrepreneurs’ into four categories.
1. Innovating entrepreneurs: Innovative entrepreneurship is characterized by aggressive
assemblage of information and the analysis of results derived from sound combination of
factors. An innovating entrepreneur is one who introduces new goods, inaugurates new
method of production, discovers new market and reorganizes the enterprise. It is important
to note that such entrepreneurs can work only when a certain level of development is
already achieved, and people look forward to change and improvement. Generally, they
are typical of developed countries. A country with little or no industrial tradition can hardly
produce role in the rise of modern capitalism, through their enterprising sprit, hope of
money making, ability to recognize and exploit opportunities, etc. the innovating
entrepreneur does not invent rather commercializes the inventions or implements the
inventor’s ideas.
2. Adoptive or imitative entrepreneurs: these are characterized by readiness to adopt
successful innovations inaugurated by successful innovating entrepreneurs. They lap up
innovations originated by innovating entrepreneurs. Imitative entrepreneurs do not
innovate the changes themselves, they only imitate techniques and technology innovated
by others. Such types of entrepreneurs are particularly suitable for the underdeveloped
regions for bringing a mushroom drive of imitation of new combinations of factors of
production already available in developed regions.
In highly backward countries there is shortage of imitative entrepreneurs also. People who
can imitate the technologies and products to the particular conditions prevailing in these
countries are needed.
Imitative entrepreneurs face lesser risks and uncertainty than innovative entrepreneurs.
While innovative entrepreneurs are creative, imitative entrepreneurs are adoptive.
3. Fabian entrepreneurs: entrepreneurs of this type are very cautious and skeptical while
practicing any change. They have neither the will to introduce new changes nor the desire
to adopt new methods innovated by the most enterprising entrepreneurs. They imitate only
 when it becomes perfectly clear that failure to do so would result in a loss of the relative
position in the enterprise. They are lazy and shy and lack the will to adopt to new methods
of production. Their dealings are determined or dominated more customs, religions,
tradition, and past practices. They are not much interested in taking risk and they try to
follow the footsteps of the predecessors.
4. Drone entrepreneurs: drone entrepreneurs is characterized by a refusal to adopt and use
opportunities to make changes in production formulae even at the cost of severely reduced
returns relative to other like producers. Such entrepreneurs may even suffer losses but they
are not ready to make changes in the existing production methods. They struggle to exist,
not to grow. Thus, they are laggards as they continue to operate in the traditional way and
resist changes. They blindly follow traditional methods of production even when it causes
loss to him.
When their product loses marketability and their operations become uneconomical they are
pushed out of the market. They are conventional in the sense that they stick to conventional
products and ideas.

Some more categories of entrepreneurs are given below:

1. Women Entrepreneurs
The number of women becoming entrepreneurs, in USA, has risen dramatically during the last two
decades. News papers and business magazines frequently feature women as successful
entrepreneurs. Between 1982 and 1987, the number of women-owned businesses increased by 57.4
percent with recipients of these businesses rising by 81.2 percent. A study by economist David
Birch, released in 1992, reported than women owned 28 percent of the business in U.S. and that
they employed 10 percent of the country’s workers. Women’s businesses ownership has been
expanding much more rapidly than men’s business ownership, but women are expanding from a
smaller base of ownership.
Generally, where the supporting conditions have been favorable, there is a phenomenal increase
in the number of self-employed women (referring to women entrepreneurs) in the advanced
countries of the world. To quote, women own 20 percent of all businesses in France, 25 percent in
United States, and 33 percent in Canada. Whereas it seems less in developing countries, such as
India 9.01 percent of the total 1.70 million entrepreneurs during 1988-89. However, owning to the
various governmental schemes and efforts of various voluntary organizations, the number of
women entrepreneurs in India is growing but slowly.
With the spread of education and awareness, women entrepreneurs in India shifted from the
extended kitchen activities, i.e. 3Ps (pickles, powders, and paddad) to the higher level of activities,
i.e., 3Es, viz., Engineering, Electronics and Energy. Although the number of such units to
manufacture solar cookers (Gujarat), small foundries (Maharashtra), Capacitors (Orissa) and
electronic ancillaries (Kerala).
In India, since the inception of the National Awards to Small Entrepreneurs instituted in 1983, 10
women entrepreneurs have received special recognition awards. They attributed their success, to
their untiring hard work, perseverance, tenaciousness, determination, confidence in them and most
importantly, their compelling urge of wanting to do something positive in their lives. Added to
these was a man behind every successful women.
Women entrepreneurs obviously face problems common to al entrepreneurs. However, they must
also contend with difficulties associated with their newness in entrepreneurial roles. Lack of access
to credit has been a problem frequently cited by women who enter business. This is a troublesome
area for most small business owners, but many women entrepreneurs feel they carry an added
burden of discrimination. Another barrier for some women is the limited opportunity they find for
business relationships with others in similar positions. It takes time and effort for them to gain full
acceptance and to develop informal relationships with others in local, mostly male, business and
professional groups.
General problems Problems specific to women
 Raw material problems  Lack of need achievement,
 Marketing problems economic independence and
 Problem of finance autonomy.
 Infrastructural problems  Absence of risk-bearing capacity
 Problem of skilled manpower  Lack of education skills
 Delays in promotional procedures  Male dominating society
 Lack of business information
experience
  Cumbersome difficulties in availing  Heavily involved in family problems
of government concessions and  Lack of viable concept
subsidies.  Social stigma attached to certain
vocations.

2. Founders and Other Entrepreneurs

Although categories tend to overlap, entrepreneurial leadership may be classified into three types:
a. Founders
b. General managers, and
c. Franchisees
a. Founding Entrepreneurs
Generally considered to be the pure entrepreneurs, founders may be inventors who initiate on the
basis of new or improved products or services. Founders refer to entrepreneurs who bring new
firms into existence. They may also be artisans who develop skills and then start their own firms.
Or backgrounds, who draw upon the ideas of others in starting new firms. Whether acting as
individuals or in-groups, these people bring firms into existence by surveying the market, raising
funds and arranging for the necessary facilities. After the firm is launched, the founding
entrepreneurs may preside over the subsequent growth of the business or sell out and move on to
other ventures.
b. General Managers
As new firms become well established, founders become fewer innovators and more
administrators. Thus, we recognize another class of entrepreneurs called general-managers.
General Manager presides over the operation of successful ongoing business firms. They manage
the week-to-week and month-to-month production, marketing, and financial functions of small
firms. The distinction between founders and general managers is often hazy. Nevertheless, it is
helpful to distinguish those entrepreneurs who found and substantially change firms (the movers
and shakers) from those who direct the continuing operations of established firms.

c. Franchisees
It is helpful to recognize a third category of entrepreneurs that of franchisees. Franchisees differ
from general managers in the degree of independence. Because of the constraints and guidance
provided by contractual relationships with franchising organizations, franchisees function as
limited entrepreneurs.
3. High Growth and Low Growth Firms
Small business ventures differ greatly in their potential for growth and profits. Some create
millionaires, while others produce less spectacular results. To account for these differences, we
may distinguish forms according to the following categories.
a. Marginal firms
b. Attractive small companies, and
c. High potential ventures
a. Marginal Firms
Marginal firms are only small firm that provides insignificant profits to its owner(s). very small-
dry cleaners, independent garages, beauty shops, service stations, appliance repair shops, and other
small firms that provide very modest returns to their owners are marginal firms. We do not call
them marginal because they are in danger of bankruptcy. Some marginal forms, it is true, are on
thin-ice financially, but the distinguishing feature of their limited ability to generate significant
profits. Entrepreneurs devote personal effort to such ventures and receive a profit return that does
little more than compensate them for their time. Part-time businesses typically fall into this
category of marginal firms.
b. Attractive Small Companies
Are nay small firms that provide substantial profit to its owners? In contrast to marginal firms,
numerous attractive small firms offer substantial rewards to their owners. Entrepreneurial income
from these ventures may easily range from $50, 000 to $200,000 annually. These are the strong
segment of small business the good firms that can provide rewarding careers.
c. High-Potential Ventures
Are firms that have great prospect for growth. Frequently these are also high-technology ventures.
At the time of the firm’s founding, the owners often anticipate-rapid growth, a possible merger, or
going public within a few years. Some of the spectacular examples within recent years include
Microsoft, Wal-Mart, and McDonalds. Entrepreneurial ventures of this type appeal to many
engineers, professional managers and venture capitalists who see the potential rewards and
exciting prospects.
4. Artisan Entrepreneurs and Opportunistic Entrepreneurs
 Perhaps because of their varied backgrounds, entrepreneurs display great variation on their
styles f doing business. They analyze problems and approach decision-making in drastically
different ways. Norman R. Smith has suggested two basic entrepreneurial patterns:
a. Artisan entrepreneurs, and
b. Opportunistic entrepreneurs
a. Artisan Entrepreneurs
According to Smith the artisan entrepreneur is a person who starts business with primarily
technical skills and little business knowledge. Artisan entrepreneur is limited to technical training.
Such entrepreneurs have technical job experience, but they lack good communication skills. Their
approach to business decision making is characterized by the following features:
 They are paternalistic (this means they direct their business much as they might direct their
own families)
 They are reluctant to delegate authority
 They use few (one or two) capital sources to create their firms.
 They define marketing strategy in terms of the traditional price, quality and company
reputation.
 Their sales efforts are primarily personal
 Their time orientation is short, with little planning for future growth or change.
The mechanic who starts an independent garage and the beautician who operates a beauty shop
illustrate the artisan entrepreneur.
b. Opportunistic Entrepreneurs
Smiths definition of the opportunistic entrepreneur is one who has supplemented technical
education by studying such non-technical subjects as economics, law of English. Opportunistic
entrepreneur- is an entrepreneur who enters business with both sophisticated managerial skills and
technical knowledge. Opportunistic entrepreneurs avoid paternalism, delegate authority as
necessary for growth, employ various marketing strategies and types of sales efforts, obtain
original capitalization from more than two sources, and plan for future growth. An example of the
developer who uses a relatively sophisticated approach to management. Because of the complexity
of the industry, successful contractors use careful record keeping, proper budgeting, precise
bidding and systematic marketing research.
 5. Entrepreneurial Teams
In the discussion so far, we have assumed that entrepreneurs are individuals. And, of course, this
is usually the case. However, the entrepreneurial team is another possibility that is becoming
popular, particularly in ventures of substantial size. An entrepreneurial team is formed by bringing
together two or more individuals to function in the capacity of entrepreneurs. Entrepreneurial team
refers to two or more people who work together as entrepreneurs.
By forming a team, founders can secure a broader range of managerial talents than is otherwise
possible. For example, a person with manufacturing experience can team up with a person who
has marketing experience. The need for such diversified experience is particularly acute in creating
new high-technology businesses.
6. Pure, Induced, Motivated and Spontaneous Entrepreneurs
Motivation is the force that influences the efforts of the entrepreneur to achieve his/her objectives.
An entrepreneur is motivated to achieve or prove his excellence in job performance. He is also
motivated to influence others by demonstrating hs power thus satisfy his ego. Hence, according to
the motivation of entrepreneurs, we can broadly classify these entrepreneurs as follows:
a. Pure entrepreneur
b. Induced entrepreneur
c. Motivated entrepreneur
d. Spontaneous entrepreneur
a) Pure entrepreneur
A pure entrepreneur is an individual who is motivated by psychological and economic rewards.
He undertakes an entrepreneurial activity for his personal satisfaction in work, ego, or status.
b) Induced Entrepreneur
Induced entrepreneur is one who is induced to take up an entrepreneurial task due to the policy
measures of the government that provides assistance, incentives, concessions and necessary
overhead facilities to start a venture. Most of the entrepreneurs are induced entrepreneurs who
enter business due to financial, technical and several other facilities provided to them by the state
agencies to promote entrepreneurship. A person with a sound project is provided package
assistance to his project. Today, import restrictions, and allocation of production quotas to small
units have induced many people to start a small-scale industry.
c) Motivated Entrepreneur
New entrepreneurs are motivated by the desire for self-fulfillment. They come into being of the
possibility of making and marketing some new product for the use of consumers. If the product is
developed to a saleable stage, the entrepreneur is further motivated by reward in terms of profit.
d) Spontaneous Entrepreneur
These entrepreneurs start their business out of their natural talents. They are persons with initiative,
boldness, and confidence in their ability, which motivate them to undertake entrepreneurial
activity. Such entrepreneurs have a strong conviction and confidence in their ability.
7. First-Generation, Modern, and Classical Entrepreneurship
Depending up on the stage of development entrepreneurs may also be classified as:
i. First generation entrepreneur
ii. Modern-entrepreneur
iii. Classical entrepreneur

i) First Generation Entrepreneur

A first generation entrepreneur is one who starts an industrial unit by means of an innovative skill.
He is essentially an innovator, combining different technologies to produce a marketable product
or service.
ii) Modern-Entrepreneur
A modern entrepreneur is one who undertakes those ventures which go well along with the
changing demand in the market. They undertake those ventures which suit the current marketing
needs.
iii) Classical Entrepreneur
A classical entrepreneur is one who is concerned with the customers and marketing needs through
the development of self-supporting ventures. He is a stereotype entrepreneur whose aim is to
maximize his economic returns at a level consistent with the survival of the firm with or without
an element of growth.
8. Ontreprenuer/Netpreneur
In these days information technology, one can become an entrepreneur very easily by launching
on-line business. The internet has changed the concept of everything including the business. It has
reduced the task of entering into a business. With a meager investment, any person can set up a
website and look for potential customers in the line of business or an innovation through the
internet has been called by Adam Bryant as the “Ontrepreneur” or “on-line entrepreneur”. He can
also be called ‘Netpreneur’.

[Link] Vs Inventor
An entrepreneur and an inventor both have their own financial rewards. Being an inventor takes a
lot of creativity and innovation to be able to come up with an idea that no one has thought of yet;
a unique idea for a product or service that has never been introduced in the market; an idea that
could be the next big thing. An entrepreneur, meanwhile, is a business-minded person that can use
existing products and services and customize them according to the specific needs of target market
of his business. The entrepreneur will put his own brand onto the product or service and make it
uniquely his own.
Being an inventor, your ideas could be of use to consumers in the commercial market. Companies
would be willing to buy that idea and make it their own for reproduction. Ideas can be licensed or
be rented by many companies. When you come up with novel idea, protection for the idea can then
be filed in the right government agency. You can then look for a company that will be interested
in your idea and will greatly benefit from it.
If a certain company has shown interest, the inventor can then personally contact that company
and set up a meeting. If the inventor feels that the relationship with the company is comfortable
enough and the product idea will satisfy a need that has been identified in the market, the idea will
then be under license to that company. The inventors can just a collect a royalty from that idea
every quarter of the year. There are some licensed ideas that lasted for many years with the same
company while others can be short-lived. Licensing product ideas just deal with the numbers.
There is not a single company or person that can have all the ideas. Coming up with an idea or
inventing is a limitless activity. The trends for many companies have been to look for licensed
product ideas from inventors that are not employed by their company.
Being an entrepreneur can also be very lucrative. An inventor can decide to market his own idea
if he has the resources to do so. Turning that idea into a reality and a business can be certainly a
challenge. For the first time entrepreneur, a simple idea might be a good way to start because this
would not cost that much money to create.
An entrepreneur is in control of all his ideas and the way in which he brings those ideas to life and
markets them. An inventor, however, surrenders much of the control of the idea when it is under
license to a company. Running your own business requires complete control. You are in charge of
every aspect of the product, from production, marketing to distribution. There are financial risks
involved in venturing into a business. There is little risk in the licensing of an idea. One can only
gain from it. There is no big investment required in being an inventor.
It is really up to you if you will consider being an inventor or an entrepreneur. You have to weigh
all the advantages and disadvantages before you decide on the path to take. What is important is
that you will be able to convert your idea into something useful and at the same time reap financial
rewards for it.
An inventor is an individual who creates something for the first time. The typical inventor, who is
motivated by her work and personal ideas, tends to be well educated-often with postgraduate
degree. She has family and work experience that contributes to creative development and
freethinking. She is also a problems solver who is able to break complex problems into simple
ones and tolerate ambiguity and uncertainty. She is highly self-confident and willing to take risks.
Moreover, unlikely to regard money as a measure of success, she places high emphasis on being
an achiever.
From the above profile it can be seen that the typical entrepreneur differs considerably from the
average inventor. Unlike the investor who is in deep love with the inventions and
unenthusiastically modifies the invention to make it commercially feasible, the entrepreneur falls
in love with the new venture and takes all the risks to make sure it survives and grows. To develop
the inventor’s work into a new venture, it often requires the expertise of an entrepreneur.
[Link] Process
The prospective entrepreneur, in order to establish and run a successful business, goes through a
process known as entrepreneurial process. During this process the entrepreneur carries out a
number of activities that lead to the successful establishment and management of the business. The
entrepreneurial process, which is made up of related activities, consists of the following phases.
1. Identifying and evaluating a business opportunity

2. Developing the business plan

3. Determining the resources required for the business and

4. Managing the resulting enterprise

These activities overlap, meaning an activity will be started before the one that has already been
started is completed. Therefore, the entrepreneur may need to consider the third or the fourth phase
while still carrying out phases one. For instance, to evaluate the profitability of the business
opportunity well, the entrepreneur need to know the cost of the resources required to establish the
business.

Identifying and Evaluating the Business Opportunity

This phase is the first and the most difficult since most business ideas do not suddenly appear.
Generally a new business opportunity may be the result of a technological change, market shift,
government regulation, or competition. Good business opportunities are often the results of the
entrepreneur being alert to her environment of extra effort in establishing opportunity
identification mechanisms. Most entrepreneurs do not have formal mechanisms to identify new
business opportunities. However, there are some sources such as consumers, members of
distribution channels, and technical people that are generally fruitful. Often, the most and best
business ideas come from customers. Complaints and remarks such as ‘I wish there were a better
product…..’ or ‘I wish I could find a product that is specially made for…’ may result in the
inception of a new business idea and a new product.

Distribution channel members such as whole sellers, distributors and retailers are also good
sources of business ideas. Their proximity to consumers of the product gives them the opportunity
to better see a market gap or a demand for a better product. Technical people are also good sources
of ideas for a new business. Technical individuals, while working on various projects, may come
across a new or better way to manufacture a product. Regardless f its source, however, a newly
generated business idea must be carefully examined. This evaluation of the business idea is perhaps
the most critical of the entrepreneurial process, as it is the phase in which the profitability of the
business idea will be determined.

This identification and evaluation phase deals with the assessment of the creation and length of
the opportunity, its real and perceived value, its risks and returns, its real and perceived value, its
risks and returns, its differential advantages s competitive environment, and its fit with the
personal skills and goals of the entrepreneur. Here it is very important to note than the opportunity
must also fit the personal interests of the entrepreneur. A person, without the necessary interest or
skill to start a new venture, may not become a successful entrepreneur even if she has a brilliant
business idea.

At this particular phase, as a matter of formal procedure, the entrepreneur may prepare an
opportunity assessment plan. The plan, also referred to as opportunity analysis, focuses on the
issues that enable the entrepreneur to make the decision whether to act on the opportunity or not.
Focusing entirely on the opportunity, this plan includes a description of the product or service; an
assessment of the entrepreneur, the team and the opportunity; specifications of all the activities
and resources needed to translate the opportunity into a viable business venture; and the sources
of capital to finance the establishment of the venture as well as its growth. The assessment of the
opportunity is not an easy task, however. In fact, it is the most difficult and critical aspect of the
opportunity analysis.

Through the assessment analysis, the entrepreneur answers questions such as ‘What market need
does the product satisfy?’, ‘What resources from which sources will be required to convert the
business opportunity into a business venture?’, ‘Is the entrepreneur fit to act on the opportunity?’,
‘How fierce is the local and international competition?’

Remember that a business idea is not a business opportunity until it is assessed objectives and
judged to be feasible. You may wish to choose one of the ideas that seem most promising for more
detailed study. Trying to consider too many would make your time, energy and attention devoted
to each too little. At the same time, if you focus on only on one business idea, you are more likely
to fall in love with it, and could lose your objectivity.

Developing a Business Plan

Once a business idea is selected, the concept must be sharpened by an in depth planning process.
The result of this step is a comprehensive business plan-the “blueprint” for the implementation
process.

A business plan is a document the entrepreneur prepares before going to the implementation stage.
It has details in every aspect of the business the entrepreneur aspires to establish: description of
the business, and the marketing, financial, organizational and operational plans necessary for the
foundation of the venture. The business plan is also useful to develop the opportunity and
determine the resources required for the business and their sources. In addition, the plan is helpful
to successfully manage the resulting venture. The business plan will be dealt in greater depth in
chapter 4. Developing the business plan is often difficult because the required resources for the
plan may not be readily available and/or the entrepreneur may not have rich experience in business
plan preparation.

Determining the Required Resources

The entrepreneur needs to identify the resources require for the business before embarking on the
business opportunity. The entrepreneur starts this phase with an assessment of her present
resources. Then, she carefully identifies all the resources required to get the business on its feet
and run it successfully. Here, the entrepreneur must be careful not to undertake the quality and
quantity of the required resources. She also needs to classify the required resources into two: the
ones that are vital and the ones that are just helpful. It is also important to evaluate the impact of
insufficient or inappropriate resources on the business. The next step will be to acquire the needed
resources in the right quality and quantity on a timely basis. The resources needed may be finance
(money), machinery, raw materials etc…

Managing the Venture

Once the required resources for the business have been acquired, the entrepreneur will deploy them
through the implementation of the business plan. At this stage, the entrepreneur examines the
operational problems of the growing enterprise, a task that involves the implementation of an
effective management approach and structure. An effective control mechanism also needs to be
set up in order to identify and tackle emerging problems and challenges on time. Some
entrepreneurs find managing and leading the venture they created very difficult-a distinction
between entrepreneurs and managers.

[Link] of Entrepreneurs

The entrepreneur faces problems perhaps starting from the day she/he identifies the business idea.
In fact, problems follow the entrepreneur like a shadow. Given the limited information and
experience of the entrepreneur, even the simplest challenge may emerge as a big problem
specifically at the initial stage.

The challenges faced by the entrepreneur can be classified as internal and external
Internal problems External problems

 Choice of business idea  Infrastructure

 Financial limitations  Finance
 Inadequate knowledge and  Administrative hurdles and
experience corruption
 Poor project planning  Tax
 Faulty planning: Lack of strategies  Raw material availability
and vision  Environmental regulation
 Poor production and marketing  Inspection
 Poor product quality  Technology
 Labor problems  Government policy
 Lack of vertical and horizontal  Competition
integration  Culture
 Inadequate underutilization
 Inadequate connection