ENTREPRENEURSHIP

DEVELOPMENT

 Entrepreneurship
 Entrepreneurial
 Environment
 Accounting
 Small-scale Industries

Vasant Desai

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 Dedication
“na jayate mnyate va kadachin
nayam bhuktva bhavita va na bhukyah
Ajo nitya sasvoto yam purano
Na hanyate hanyamane sarire”

“For the soul, there is neither birth nor death at any time.
He has not come into being, does not come into being and
will not come into being.
He is unborn, eternal, ever existing and primeval.
He is not slain when the body is slain.”

This study is dedicated to my dear younger brother.

Late Shri Bhujang Ranganath Mutalik – Desai
(25-11-1951 – 11-08-2014)

And my dear younger sister

Late Kumari Nagratna Ranganath Mutalik – Desai
(10-03-1949 – 13-01-2017)

Their vision continues to guide us.

Their words continue to encourage us.
Their deeds continue to inspire us.
Their achievements continue to motivate us.
Their presence continues to surround us.
 PREFACE

Successful new business ventures and economic development do not just happen. They are the result of
the combination of right environment, planning, effort and innovation. And this right mix can only be achieved
by the entrepreneurs. They provide a clear blueprint for stimulating research, technology and finance to help
promote matured enterprises. At the same time, they enrich the eco-system and give a boost to economic
growth. Economic growth refers to an increase in a country’s production or income per capita with economy’s
total output of goods and services being measured by Gross National Product (GNP). At the present juncture,
the country needs much more than growth. Economic development, on the other hand, goes beyond economic
growth to include changes in output, distribution and economic structure, which may affect such things as
improvement in material well-being of the poor, technical breakthrough, increase in economic activities, increase
in the educational level and improvement in health.
Another related challenge is to develop leaders of tomorrow. The economic environment has necessitates
the organisations to develop a new generation of leaders in a short span of time. Organisations are relying
increasingly on captive leadership development institutes to groom future leaders. Leadership training combined
with skills training and developmental training positively impacts. The ability of organisations to grow amidst
competition and propel their journey towards “high performance”. Learning is an essential talent management
capability, but it has often been the target of cost-cutting in tough times.
Joseph Alios Schumpeter captures the essence of entrepreneurial activity in his 1934 treatise ‘The Theory
of Economic Development’. Although many entrepreneurs become celebrities through their success, others
become ridiculed for their failed dreams. But there is no doubt that all of them contribute to the spirit of free
enterprise. Entrepreneurship is the engine of economic endeavour that drives industrial democracy. It has been
the foundation of the Indian economic development.
Entrepreneurship is about coping with change. It has become so important in recent years is that the
business world has become more competitive and more volatile. Faster technological change, greater international
competition, the deregulation of markets, overcapacity in capital intensive industries, an unstable oil cartel,
raiders with junk bonds and the changing demographics of the workforce are among the many factors that have
contributed to the shift. More change always demand more entrepreneurship.
Empirical studies clearly shows that emotional intelligence is the sine quo non of entrepreneurship
(leadership in business). Without it, a person can have the best training in the world, an incisive, analytical
mind, and an endless supply of smart ideas, but he still won’t make a great entrepreneur. Emotional intelligence
can be learned. The process is not easy. It takes time and most of all, commitment. But the benefits that come
from having a well-developed emotional intelligence, both for the individual and for organisation, make it worth
the effort. This book is written keeping in fact that emotional intellisence is sine quo non of entrepreneurship
firmly in mind.
The rapid economic development process depends upon the proper functioning of enterprises, which
inter alia depends upon entrepreneurship. India has great entrepreneurial and commercial reserves. India
could be Asia’s greatest economic miracle, if entrepreneurial efforts are given a chance, but it is being crippled
by its unscrupulous politicians. This necessitates a proper understanding of the concept at its micro-level. The
need of the hour is scientific outlook, structural adjustment and scientific management. Though a comprehensive
knowledge of rules, regulations, incentives and procedures is quite essential, the development of innovative,
professional management skills in the faculty of planning, budgeting, organisation, marketing research, research
and development and training will produce a band of dedicated and innovative entrepreneurs to set up new
ventures and make them a success. The need is to create an entrepreneurial climate, sharpen the entrepreneurial
skills and stimulate the entrepreneurial spirit for bringing about economic development through new and
nature enterprises.
Entrepreneurship, the de facto barometer of overall economic, social and industrial growth, has brought
revolutionary changes in the society. It is the sine quo non of a nation’s progress. It has facilitated large-scale
production and distribution. It has widened the area and scope of the marketing of goods and services.
Perhaps, it is for these reasons that the small business sector has been given priority in our national development
programmes, for entrepreneurship flourishes when the size of business remains relatively small and viable.
Modern business studies have a distinct entrepreneurial discipline. The approach to the study of
entrepreneurship is multi-disciplinary. It images on such areas as demography, economic anthropology, business
history, politics, sociology, psychology, marketing and finance. That is why, entrepreneurship development
becomes an integral part of the overall economic, social and industrial development of a country. This is what
makes the identification and management of entrepreneurial functions a highly complex exercise.
Entrepreneurial organisations transit to a suite of new learning, which combines innovative approaches
and technologies. It is performance-driven as opposed to the traditional learning format which is compliance
driven. It delivers just-in-time, point of need, byte sized learning through both time-tested and innovative new
channels like on-the-job mentoring, coaching, collaboration tools, access to expert networks and learning
delivery through front-end devices.
The purpose of the text is to enrich students with an understanding of the entrepreneurial process. There
is no presumption, however, that entrepreneurship can be “taught”, because entrepreneurs have their own
peculiar way of doing things. Yet, it is possible to help them be better prepared for transforming dreams into
realities. Consequently, the book is organised to explore the nature of entrepreneurship and describe ways to
help entrepreneurs succeed.
I am grateful to those who have helped me in compiling the matter for this book. While I take this
opportunity to thank all of them — they are too numerous to be mentioned in this brief preface — I would like
to acknowledge my deep sense of gratitude to the many veteran professional entrepreneurs and consultant
economists for their precise guidance. Thanks are also due to Shri K.N. Pandey, Anuj Pandey and Niraj Pandey
for their suggestions for effecting a number of stylistic improvements.
Lastly, no words can adequately express my debt of gratitude to my father, late Shri Ranganath Balwant
Mutalik Desai (1909-2006), and my mother, late Smt. Laxmidevi (1914-2000), for generating in me a perennial
interest in higher studies. I will be failing in my duty if I do not mention here the tremendous co-operation
I received from my wife Mrs. Mandaramala in the completion of this voluminous work, in particular, whose
patience, support, encouragement, understanding and love helped to bring this effort to fruition.

Mumbai – VASANT DESAI

01-01-2009
 SYLLABUS

Module-I: Entrepreneurship: Concept of Entrepreneurship and Intrapreneurship, Types of

Entrepreneur, Nature and Importance, Entrepreneurial Traits and Skills, Entrepreneurial Motivation
and Achievement, Entrepreneurial Personality.
Module II: Entrepreneurial Environment: Identification of Opportunities, Converting Business
Opportunities into Reality. Start-ups and Business Incubation, Setting Up a Small Enterprise.
Issues Relating to Location, Environmental Problems and Environmental Pollution Act, Industrial
Policies and Regulations.
Module III: Need to Know about Accounting: Working Capital Management, Marketing
Management, Human Resource Management and Labour Laws, Organizational Support Services
– Central and State Government, Incentives and Subsidies.
Module IV: Sickness of Small-scale Industries: Causes and Symptoms of Sickness, Cures of
Sickness, Role of Banks and Governments in Reviving Industries.

Reference Book:
1. Entrepreneurship Development and Management, Vasant Desai, HPH
2. Entrepreneurship Management, Bholanath Dutta, Excel Books
3. Entrepreneurial Development, Sangeeta Sharma, PHI
4. Entrepreneurship, Rajeev Roy, Oxford University Press
 CONTENTS

MODULE I – ENTREPRENEURSHIP

1. The Concept of Entrepreneurship 1 – 17

2. Intrapreneurs – Concept and Development of Intrapreneurship 18 – 24
3. Classification of Entrepreneurs 25 – 42
4. Nature and Importance of Entrepreneurs 43 – 59
5. Entrepreneurial Traits, Characteristics and Skills 60 – 85
6. Entrepreneurial Motivation 86 – 98
7. Entrepreneurial Achievement and Personality 99 – 111

MODULE II – ENTREPRENEURIAL ENVIRONMENT

8. Entrepreneurial Environment 112 – 127

9. Identification of Opportunities 128 – 161
10. Steps for Starting a Small Enterprise 162 – 202
11. Location Issues 203 – 216
12. Environmental Problems 217 – 226
13. Policies Governing Small-scale Industries 227 – 243

MODULE III – NEED TO KNOW ABOUT ACCOUNTING

14. Accounting and Book-Keeping 244 – 257

15. Working Capital Management 258 – 286
16. Marketing Management 287 – 305
17. Human Resource Management and Labour Laws 306 – 311
18. Institutions in Aid of Entrepreneurship Development 312 – 329
19. Incentives and Subsidies 330 – 349

MODULE IV – SMALL-SCALE INDUSTRIES

20. Sickness in Small-scale Industries – Reasons and Remedies 350 – 367
21. Role of Banks and Governments in Reviving Industries 368 – 396
 MODULE-1
ENTREPRENEURSHIP

CHAPTER 1

THE CONCEPT OF
ENTREPRENEURSHIP

“The Essence of Entrepreneurship: The only effective antidote to poverty and deprivation lies in
encouragement to entrepreneurship.
Entrepreneurship is the dynamic process of creating incremental wealth. The wealth is created by
individuals who assume the major risks in terms of equity, time, and/or career commitment or provide
value for some product or service. The product or service may or may not be new or unique, but value
must somehow be infused by the entrepreneur by receiving and locating the necessary skills and resources.”

INTRODUCTION
Entrepreneurship introduces a critical element of dynamism into an economic system. It is no
coincidence that the world’s leading economy, the USA, is believed to be the most entrepreneurial
society in the world. The process of globalisation and liberalisation has introduced two sets of changes
— the first is the obvious introduction of dynamism into the system through the process of globalisation.
While new opportunities have opened up in international markets, the bar has been raised in the domestic
market through international products and services being available to Indian consumers. The domestic
market will no longer be lower-risk. It will force Indian entrepreneurs to regain their spirit of innovation.
Entrepreneurship is not just about the wealth-making opportunity; the biggest stimulus for an
entrepreneur is the journey itself, Entrepreneurship is all about striking the right balance between our fun
and fear so we can build the enterprise of our fantasy. We live in times that are exciting and challenging
for Indian entrepreneurs. New age entrepreneurs are readying themselves to face the rapidly shifting
scenario that defies long-term projections, denies conventional knowledge and demands something new
every day. On the whole, business ecosystem in India is now mature enough for people with the
intellectual capital and skills to be valued more than plant and fixtures.
The paramount task of today’s entrepreneur is to manage the risk and to do so, one needs to be
able to forecast the future opportunity while focusing on present operations. To build an enterprise one
needs to widen the canvas, and ask the question repeatedly, what does the business need now?

The Concept of Entrepreneurship 1

 The more subtle change is social: increase in literacy levels, greater consumer awareness, enhanced
media penetration, and basic changes in family structure. These changes are bound to result in a higher
level of entrepreneurial activity in future.
In keeping with the demands for greater innovation in Indian enterprises, several have fundamentally
redesigned structures. There are no easy answers to how the rate of change in entrepreneurial activity
can be increased. The solutions to eliminate some of the structural constraints to entrepreneurship are
really no different from the solutions to driving higher economic growth rates. Entrepreneurship extends
beyond a conventional business and economic perspective. Creativity, innovation, and bringing a vision
to life are as much entrepreneurial activities in a social sphere — and have the same impact on society
as does business entrepreneurship to the economy.
Indians have always been entrepreneurs: we have all heard about businesses growing from father
to son or the rags-to-riches story in conventional industry. But recently there has been a shift in the
nature of Indian entrepreneurship. It has come to stand for something that is out of the box and globally
oriented. It began with the infotech revolution a decade ago. Now all the signs point to another industry
joining this new wave of Indian enterprise. Venture capitalists and economic forecasters believe
biotechnology is India’s next big thing, its new IT.

A COMPLEX PHENOMENON
The concept of entrepreneurship is a complex phenomenon. Broadly, it relates to the entrepreneur,
his vision and its implementation. The key player is the entrepreneur. Entrepreneurship refers to a
process of action an entrepreneur (person) undertakes to establish his/her enterprise. It is a creative
and innovative response to the environment.
Entrepreneurship is thus a cycle of actions to further the interests of the entrepreneur. In this
chapter, the concept of entrepreneurship and the related issues are analysed, discussed and deliberated.
One of the qualities of entrepreneurship is the ability to discover an investment opportunity and to
organise an enterprise, thereby contributing to real economic growth. It involves taking of risks and
making the necessary investments under conditions of uncertainty and innovating, planning and taking
decisions so as to increase production in agriculture, business, industry, etc.
Entrepreneurship is a composite skill, the resultant of a mix of many qualities and traits. These
include imagination, readiness to take risks, ability to bring together and put to user other factors of
production, capital, labour, land, as also intangible factors such as the ability to mobilise scientific and
technological advances.
A hard practical approach is necessary to be able to implement and manage a project by securing
the required licences, approvals and finance from governmental and financial agencies. The personal
incentive is to make profits from the successful management of the project. A sense of cost consciousness
is even more necessary for the long-term success of the enterprise. However, both are different sides
of the same coin. Entrepreneurship lies perhaps more in the ability to minimise the use of resources and
to put them to maximum advantages. Without an awareness of quality and desire for excellence,
consumer acceptance cannot be achieved and sustained. Above all entrepreneurship today is the product
of teamwork and the ability to create, build and work as a team. The entrepreneur is the maestro of the
business orchestra, wielding his baton to which the band is played.

2 Entrepreneurship Development
Empowering Entrepreneurship
In the new competitive environment, it is necessary to grow out of a mindset that thinks only of
control. Organisations have to learn to treat their employees not as mere implementors of decisions, but
as entrepreneurs — thus, intrapreneurs — who can all contribute to the growth of the company. But
entrepreneurial freedom is more than just the decentralisation or delegation of work.
Treating employees as entrepreneurs means both the ownership of work as well as opportunities
for self-management. Not only does an entrepreneur has more freedom, he also has greater responsibility
for successful performance. Thus, to stimulate entrepreneurs, organisations must develop systems that
combine rewards for creativity and risk-taking with accountability for performance.
Treating support functions as profit centres — which charge for the services they render to the
line function — has at least three advantages. First, it makes these functions more accountable for their
performance. Second, since the line functions pay for their services, they will make more specific
demands on them and, lastly, it will stir entrepreneurial initiative, which is often dormant in support
functions.

MANAGING FOR VALUE

Raising Sharpening the Value-Based Leadership Rewards

Performance Culture Management Capacity To align the
To raise the bar for To adopt a culture To implement the To develop an interests of the
perormance and of accountability, VBM Principles, outstanding management with
meet declared aggressiveness and framework and management team these of the
objectives adoptability tools across the shareholders
organisation

Finally, the appropriation of the free-market model to the small-scale world has critical imitations
for the role of the entrepreneur in an enterprise. To build an empowered and entrepreneurial organisation,
intrapreneurs must learn to adopt a hands-off approach. In a liberalised organisation, the role of the
intrapreneurs is akin to that of a venture capitalist who supports and strategises organisational initiatives
without interfering in the day-to-day management of the enterprise. Without this strategic shift, it is
impossible for an organisation to derive the full benefits of liberalisation.

What is Entrepreneurship?
Entrepreneurship is the propensity of mind to take calculated risks with confidence to achieve a
pre-determined business or industrial objective. In substance, it is the risk-taking ability of the individual,
broadly coupled with correct decision-making. When one witnesses a relatively larger number of
individuals and that too generation after generation in a particular community, who engage themselves in
the industrial or commercial pursuits and appear to take risks and show enterprise, it is acknowledged to
be a commercial class. The commercial class is a myth just like that of the so-called martial race. There
are neither, for all-time, martial races nor commercial classes. Communities, which in the course of

The Concept of Entrepreneurship 3

history once appeared to be martial in spirit have, in later periods, emerged as mercantile societies.
Those who were once more concerned with and relished in trade, later in history, seem to have taken to
the profession of the sword. Today, it is quite evident to anyone that national communities which have
developed worldwide industrial and consequent commercial interests are militarily powerful: nay, great
industrial powers have today become super-military powers as well. Enterprise finds manifestation in
different ways. The capacity to take risk independently and individually, with a view to making profits
and seizing an opportunity to make more earning in the market-oriented economy, is the dominant
characteristic of modern entrepreneurship. Enterprise, ready for the pursuit of business and responsive
to profit by way of producing and or marketing goods and commodities, to meet the expanding and
diversifying actual and potential needs and demands of the customers, is what constitutes entrepreneurial
stuff. But this kind of sensitivity of enterprising citizens throws up a species of entrepreneurs, who are
mostly mercantile in outlook and performance. In underdeveloped countries like India, a new species of
entrepreneurs is desirable, because here the economic progress has to be brought about along with
social justice. Entrepreneurship in India, therefore, has to subserve the national objective. There is an
apparent conflict between social objectives and economic imperatives. This conflict has to be resolved
first by the individual entrepreneur in his own mind and make economic growth, which induces industrial
development, as one of the instruments of attaining the social objective. A high sense of responsibility is
thus an essential attribute of emergent entrepreneurship in India.

Entrepreneur Entrepreneurship Enterprise

Person Process of Action Object

Fig. 1.1: Concept of Entrepreneurship

Stimulation of Entrepreneurship
Entrepreneurship development is probably one of the most elusive, complicated and perplexing
issues in the promotion and growth of small enterprises. Recently, a number of development agencies
have been involved. However, in spite of all these efforts, there have been only a few partially successful
programmes and many colossal failures in the field.
The stimulation of entrepreneurship is a function of both internal and external variables. The
presence of certain personal qualities in an individual is a requisite. Some of the findings about entrepreneurs
in Nepal are as follows:
(a) Mainly there are two types of entrepreneurs: the Government and private individuals.
(b) In a family-run business, the entrepreneur is owner as well as manager. Entrepreneurs are
frequently found to have parents who were engaged in business-related occupations.
Membership in certain types of communities (Mewass, Marwadies, Gurung, etc.) is highly
correlated with entrepreneurship.
(c) Many people who migrated from the hills to the southern part of the country (Terai), and
returned have become entrepreneurs and

4 Entrepreneurship Development
 (d) In the family, a change is taking place. Now the educated young members are becoming
entrepreneurs rather than the head of the family who is generally old.

Definition
Entrepreneurship is a multi-dimensional task defined differently by different authorities. Cantillon
was the first to use the term ‘entrepreneur.’ He portrayed an entrepreneur as one discharging the faction
of direction and speculation. J.B. Say, moving along in the French (Cantillon) tradition, was the first to
assign the entrepreneur a position in the economic process. According to him, an entrepreneur’s function
is to combine the factors of production into a producing organism, but to Adam Smith, the father of
political economy, the entrepreneur was a proprietary capitalist, a supplier of capital and at the same
time, working as manager, intervening between the labour and the consumer. Adam Smith also treated
him with the capitalist. Schumpeter was decidedly the first economic thinker to have assigned the
entrepreneur a key role in the process of economic development. In Schumpeter’s system, entrepreneurship
is essentially a creative activity. The entrepreneur is the innovator who introduces something new into
the economy. The innovation may be a method of production not yet tested by experience in the branch
of manufacture concerned or a product with which consumers are not yet familiar, or a new source of
raw material or of a market hitherto unexploited or other innovations in the strict sense of the term.
According to him, entrepreneurs are business leaders and not simple owners of capital. They are
men of vision, drive and talent, who spot out opportunities and promptly seize them for exploitation. It
will not be out of place to mention here that the innovator’s concept of entrepreneurship cannot be
exclusively depended upon in underdeveloped countries. In these countries, business leaders who promote
many large and small enterprises and adapt Western techniques of production and distribution to the
prevailing conditions in their own industries are entrepreneurs of no mean significance. They may not be
innovators in the true sense of the term but they are men of great vision and effective industial leaders
who transform the economic landscape of their countries. People like Jamsetji Nusserwanji Tata,
M. Visvesvaraya, G.D. Birla, Jamnalal Bajaj, Laxmanrao Kirloskar and other visionaries, builders and
thinkers laid the foundation for a modern industrialised India. Professor Bert F. Hoselitz calls them
imitative entrepreneurs, and regards their existence as quite purposeful in a mixed economy." Coupled
with all historical experiences of Western Europe, it appears to be safe to assume”, he writes, that “small
and medium-scale entrepreneurs are likely to play an important role in developing countries for several
decades, provided these developing nations permit a private sector of enterprise in the industrial,
commercial and financial field at all.”
This definition stresses four basic aspects of being an entrepreneur regardless of the field. First,
entrepreneurship involves the creation process — creating something new of value. The creation has to
have value to the entrepreneur and value to the audience for which it is developed. This audience can be
(1) the market of buyers in the case of a business innovation, (2) the hospital’s administration in the case
of a new admitting procedure and software, (3) prospective students in the case of a new course or
even college of entrepreneurship, or (4) the constituency for a new service provided by a non-profit
agency. Second, entrepreneurship requires the devotion of the necessary time and effort. Only those
going through the entrepreneurial process appreciate the significant amount of time and effort it takes to
create something new and make it operational. Assuming the necessary risks is the third aspect of
entrepreneurship. These risks take a variety of forms, depending on the field of effort of the entrepreneur,

The Concept of Entrepreneurship 5

but usually centre around financial, psychological, and social areas. The final part of the definition
involves the rewards of being an entrepreneur. The most important of these rewards is independence,
followed by personal satisfaction. For profit entrepreneurs, the monetary reward also comes into play.
For some of these entrepreneurs, money becomes the indicator of the degree of success.
For the person who actually starts his or her own business, the experience is filled with enthusiasm,
frustration, anxiety, and hard work. There is a high failure rate due to such things as poor sales, intense
competition, lack of capital, or lack of managerial ability. The financial and emotional risk can also be
very high. What, then, causes a person to make this difficult decision? The question can be best explored
by looking at the decision process involved in becoming an entrepreneur.
Besides, in South-East Asian countries, at the pre-take-off stage, the need is for more promoters,
risk takers and business organisers than fair innovators. In the emerging countries, employment creation
is a far more immediate goal for the entrepreneurs than technological innovation. As Professor Jan
Tinbergen points out: “The best entrepreneur to any developing country is not necessarily the man who
use much capital, but rather the man who knows how to organise the employment and training of his
employees. Whoever concentrates on this is rendering a much more important service to this country
than the man who uses huge capital.”

The Entrepreneurship Ecosystem

There is now enough evidence out there which proves that entrepreneurship is the sure way to
development. It contributes disproportionately to rapid job creation, GDP growth, and long-term
productivity and a lot of the things that societies are struggling to get right. Dan Isenberg of Babson
College suggests to launch an entrepreneurial revolution. People who have true ‘entrepreneurial spirit do
not wait for the situation to improve to get moving. In fact, often the most effective practices come
from remote corners of the earth, where resources — as well as legal frameworks, transparent
governance, and democratic values — may be scarce.
“There are some natural characteristics of an entrepreneur like curiosity and a constant pursuit of
different ways of doing things but education is most certainly important because there are a lot of skills
that hove to be learned. More importantly, an entrepreneurial climate must be created to support the
entrepreneurial growth strategy.
While charting out the future course of action, the entrepreneur will have to remember that to get
a competitive edge on a sustainable basis five things are essential — increased productivity, improved
quality, innovation in the market, a deep understanding of customer needs and delivery of world-class
service.
Prof. Daniel Isenberg of Bebson College has developed a 13-pillar eco-system that nurtures, sustains
and creates an environment conducive to entrepreneurship. The 13 pillars are:
1. Leadership
2. Government
3. Culture
4. Success Stories
5. Human Capital
6. Financial Capital

6 Entrepreneurship Development
 7. Entrepreneurship organisation/Non-Government institutions
8. Educational Institutions
9. Infrastructure
10. Economic Clusters
11. Network
12. Support Services and
13. Early Customers.
There are some support systems that traditionally go completely unnoticed — the entrepreneur’s
own network, the role of media in making success stories as visible as possible, early customers. And,
that’s where the support of the large corporates comes in handy. You’d think naturally that the big
companies would be threatened by the small start-ups, but entrepreneurship is very important for them
because it is one of the ways in which they get access to innovative services and products: a lot of the
innovation comes from the upstarts. The smart ones recognise that the young start ups with high
ambition can actually make them more competitive.
Efficiency Enhancers
 Human Capital 
 Financial Capital
 Key for efficiency-driven growth


 Non-government Institutions 
 Educational Institutions 

Other Factors
 Economic Clusters 

 Networks  Key for sustained growth

 Support System 

 Early Customers

The entrepreneurial ecosystem in Indian market is growing at its fastest tempo ever as more
companies are scaling-up every day. This ecosystem starts with an idea that is rooted in execution
(“Build”), the idea is nurtured through the ups and downs of the business ecosystem (“Control”) till it
reaches a critical mass to flourish (“Grow”). Accordingly, the Entrepreneur will explore the complete
life cycle of entrepreneurship as seasoned entrepreneurs, investors and experts talk about their experiences
right from the spark of new ideas to those pre-IPO nerves and life thereafter.

Concept of Entrepreneurship
From classical economics to the post-Keynesian analysts, the topic of the entrepreneur has been
surveyed and observations, theories and pronouncements advanced. Not only were pure economists
involved in this endeavour, but also prominent social theorists such as Marx, Weber, Sombard and
Veblen.
In general, contemporary economists agree that the entrepreneur is a business leader and that his
role in fostering economic growth and development is a pivotal one. At present, however, there is no

The Concept of Entrepreneurship 7

consensus at to what constitutes the essential activity which makes the entrepreneur a crucial figure,
while some economists have identified the basic entrepreneurial requirements of production resources,
the provision of capital or the introduction of innovations. Professor James R. Omps of the International
Institute of Entreprenology, Honolulu, Hawaii, in his paper entitled “Entreprenology, the Critical Factor
in Nation Development”, has this to say:
“In all crisis situations, there is one critical factor. There is one factor in each situation that can be
cited as being the straw that broke the camel’s back! In listing some of today’s possible critical factors,
such familiar words and phrases as limited natural resources... food... energy all would emerge. A
question may be phrased thus:
“What is the critical factor?”
Over-population?
Food shortages?
Energy shortages?
Lack of technology? And
All of the above?
“Many factors have been proposed … and yet is it possible that the most critical factor has not
been recognised? What is this factor that has either been stifled or totally ignored? It is a relatively
untapped source... that of qualified individuals with peculiarly unique aptitudes for innovation… for
change, aptitudes, in other words, for using present-day technology in ways yet unheard for perhaps
even unthought of. The critical factor is a dire shortage of the appropriate economic innovator and
implement… the entreprenologists.”
In the words of A.H. Cole, entrepreneurship is the purposeful activity of an individual or a group
of associated individuals, undertaken to initiate, maintain or organise a profit-oriented business unit for
the production or distribution of economic goods and services.
Frank H. Knight seriously questioned the unimportance of entrepreneurship in his publication
‘Risk, Uncertainty and Profit’ (1921) and expressed views similar to those of Cantillon. Knight emphasised
that many uncertainties of economic life can be insured but some uncertainties are such which can
never be reduced to objective measurement because they involve unprecendented situations. Knight
remarked that “The only ‘risk’ which leads to profits is a unique uncertainty resulting from an exercise
of ultimate responsibility which in its very nature cannot be insured not capitalised nor salaried.” Thus,
he draws a distinction between the ordinary risk and uncertainty. A risk can be insured whereas uncertainty
is a risk which can’t be calculated and can’t be insured. He showed that the man who earns positive
profits in this “uncertainty” about the future and guesses the price at which will he sell the output is an
entrepreneur. In spite of some criticism, Knight could provide with a satisfactory explanation of
entrepreneurship.
McClelland described the innovative characteristics of entrepreneurial role. Entrepreneurial role,
by definition, involves doing things in a new and better way. A businessman who simply behaves in a
traditional way is not an entrepreneur. Moreover, entrepreneurial role calls for decision-making under
uncertainty. If there is no significant uncertainty and the action involves applying known and predictable
results, then entrepreneurship is not at all involved.
D.C. McClelland, like others, identified two characteristic of entrepreneurship. First, doing things
in a ‘new and better way.’ This is synonymous with the innovative characteristics given by Schumpeter
and secondly, decision-making under uncertainty, i.e., risk as identified by Cantillon. McClelland more

8 Entrepreneurship Development
The Concept of Entrepreneurship 9
explicitly emphasised the need for achievement or achievement-orientation as the most directly relevant
factor for explaining economic behaviour. This motive is defined as tendency to strive for success in
situations involved and of one’s performance in relation to the same standard of excellence.
As per Casson entrepreneurship consists of an eccentric evaluation of economic events which
other people are unwilling to support. As per Janil and Stevenson, “Entrepreneurship is a process by
which individuals — either on their own or inside organisation — persue opportunities without regard to
the sources they currently control.” Although English classical economists failed to recognise
entrepreneurship as a moving force towards the development of an economy but some of them like
Israel Kirzner and Mark Casson did have their strong views about entrepreneurship. As Kirzner puts it,
“Entrepreneurship means alertness towards profit opportunities.”
Friedrich Von Hayek (1899-1922) Ludwig Von Mises (1881-1973), Keynes defined
entrepreneurship and assigned a role played by entrepreneurship. Thus, entrepreneurship came up as a
theory which has ability to mobilise the resources and combine them to initiate change in production.
In other words, entrepreneurship means the function of creating something new, organising and
coordinating and undertaking risk and handling economic uncertainty. Higgins defines the term as,
“Entrepreneurship is meant the function of seeing investment and production opportunity, organising an
enterprise to undertake a new production process, raising capital, hiring labour, arranging for the supply
of raw materials and selecting top managers for day-to-day operation of the enterprise.”

Accepting Challenges

Decision-making Organisation

Risk-taking Skilful Management

Innovation Making the Enterprise a Success

Entrepreneurship

Fig. 1.2: Characteristics of Entrepreneurship

According to Peter Drucker, “Entrepreneurship is neither a science nor an art. It is a practice.

It has a knowledge base. Knowledge in entrepreneurship is a means to an end. Indeed what constitutes
knowledge in practice is largely defined by the ends, that is, by the practice.” Entrepreneurship is
considerably less risky, if the entrepreneur is methodical and does not violate elementary and well-
known rules.
Innovation and entrepreneurship are thus needed in society as much as in the economy, in public
service institutes as much as in business. It is precisely because innovation and entrepreneurship are not
‘root and branch’ but ‘one step at a time’, a product here, a policy there, a public service yonder;
because they are not planned but focussed on this opportunity and that need; because they are tentative
and will disappear if they do not produce the expected and needed results; because, in other words, they
are pragmatic rather than dogmatic and modest rather than grandiose — that they promise to keep any
society, economy, industry, public service or business flexible and self-renewing.

10 Entrepreneurship Development
 Thus, entrepreneurship is a complex phenomenon. “Some think of entrepreneurs primarily as
innovators, some chiefly as managers of enterprise, some as bearers of risks and others place major
emphasis on their function as mobilisers and allocators of capital.” In the Indian context, however, an
entrepreneur may at best be defined as a person (or a group of persons) responsible for existence of
new business enterprises.

Phases of Entrepreneurship Development

Broadly, entrepreneurship development consists of the three following phases:
(a) Initial Phase: Creation of awareness about the entrepreneurial opportunities based on survey.
(b) Development Phase: Implementation of training programmes to develop motivation and
management skill.
(c) Support Phase: Infrastructure support of counselling and assisting to establish a new enterprise
and to develop existing units.
Box 1.1 Trudging the Road of Entrepreneurship

“I’m convinced that about half of what separates A strong team for backbone
the successful entrepreneurs from the non-successful Even though the idea may seem million dollars, it
ones is pure perseverance,” said the late co-founder requires a strong support team in implementing it. An
and CEO of Apple Steve Jobs. The start-up boom is efficient team is imperative to take the innovative idea
increasing day-by-day in the country. Many people into action. Finding the right person and placing them
from different profession of marketing, financial experts, in a right position would be a challenge for new
human resource professionals may see this as an enterprises.
opportunity.
Glitches on first step
Indian government’s backing of the startup
They remain quite inevitable. It’s common to make
ecosystem as many as 1,400 startups have come up in
mistakes, and that’s how every business model learns
the country this year, allowing to maintain its position
to thrive. However, it’s necessary to improvise and
as the third largest startup base in the world with over
ensure not to repeat the mistakes. Many start-up ideas
4,750 tech startups, ahead of countries such as China
fail due to the mistakes they do during implementation,
and Israel, as per a report.
but learning from them help in propelling the team in
As per a report, even the number of startups that right path. Everybody takes a fall at some point in life;
have been funded this year has increased by 8 per cent, the only thing that matters is whether or not you got
though the overall funding has come down by 20-30 up to face the fight once again.
per cent.
Finding Investors
One of the reasons for the funding to have come
Your innovative business idea might go in vain if
down could be that investors are funding in trenches
you fail to procure the investment. Even the angel
based on milestones. However, it’s a quite positive
investors, venture capitalists and other financial
sign that more startups are getting funded.
resources don’t support for long-term if they don’t
The government goes to the absolute bottom of the see a promising outcome. Your idea of doing business
stack and has been building the core foundational must attract the investors for a successful start-up.
infrastructure and have created a regulatory and
Long-term survival
legislative framework that is very supportive and
conducive to innovation. The success of any start-up is measured based on
its sustainability in the market. People remember only
The emergence of tier-II and tier-III cities in the
those companies which are long-lasting. A start-up
startup ecosystem, with 66% of the new incubators
needs to diversify its product or service as per the
set up in the smaller cities.

The Concept of Entrepreneurship 11

 However, still there are certain risks and challenges current trend to attract the new customers and to retain
which can’t be escaped from. Dwell on these oddities the old as well.
that every entrepreneur or start-up will face and need Customer remains king
to overcome.
Last but not the least; it’s the customer that
Generation of innovative ideas ultimately decides the future growth of any start-up.
Essentially, an innovative idea plays a crucial role The business success is directly proportional to the
in any start-up success. With start-ups growing at a customers’ acceptance of products and services. And
rapid pace, finding a fresh idea of products or services this can be achieved only when an entrepreneur is able
has become a challenge for many aspiring entrepreneurs. to identify target customers and enhance the quality of
the products and services.

Box 1.2 Entrepreneurship: Some Important Definitions

Joseph Alois : Schumpeter described Peter F.Drucker : Entrepreneurship is neither a science

Schumpeter entrepreneurship as a process to (1909-2005) nor an art. It is a practice. It has
(1883-1950) shatter the status quo through new knowledge base. Knowledge in
combinations of resources and new entrepreneurship is a means to an end.
methods of commerce. It is not just about making money. It
Richard Cantillon : Entrepreneurship is a matter of is about imagination, flexibility,
foresight and willingness to assume creativity, willingness to think
risks, which is not necessarily conceptually, readiness to take risks,
connected with the employment of ability to mobilise agents of
labour in some productive process. production and capacity to see change
as an opportunity. It is also about
Leon Walrus : Entrepreneurship is not itself a
marrying passion and process with a
factor of production, but rather a
good dose of perseverance.
function that can be carried on by an
agent. M. Low and : Entrepreneurship is the creation
J. MacMillan of a privative economic organisation
William Diamond : Entrepreneurship is equivalent to
(or network of organisations) for the
‘enterprise’ which involves the

12 Entrepreneurship Development
 willingness to assume risks in purpose of gain or growth under
undertaking an economic activity conditions of risk and uncertainty.
particularly a new one. H. Aldrich and : The definition of
Jaffrey A.Timmons : Entrepreneurship is the ability to C.Zimmer entrepreneurship includes more than
create and build something from the mere creation of a business, it also
practically nothing. A human creative includes the generation and
activity. implementation of an idea.
Janil and Howard : Entrepreneurship is a process by Robert Ronstadt : Entrepreneurship is the dynamic
Stevenson which individuals — either on their process of creating incremental wealth.
own or inside organisation —persue The wealth is created by individuals
opportunities without regard to the who assume the major risks in terms
sources they currently control. of equity, time, and/or career
Isrel Kirzner : Entrepreneurship means alertness commitment or provide value for some
towards profit opportunities. product or service.
Arthur H. Cole : Entrepreneurship is the purposeful Robert D. Hisrich: Entrepreneurship is the process of
activity of an individual or a group creating something new with value by
of associated individuals, undertaken devoting the necessary time and effort,
to initiate, maintain or aggrandise assuming the accompanying financial,
profit by production or distribution psychic, and social risks and receiving
of goods and services. the resulting rewards of monetary and
personal satisfaction and
Everett E. Heggins : Entrepreneurship is meant the independence.
function of seeking investment and
production opportunity, organising John J. Kao : Entrepreneurship is the attempt to
an enterprise to undertake a new create value through regulation of
production process, raising capital, business opportunity, the
hiring labour, arranging the supply management of risk-taking
of raw materials, finding site, appropriate to the opportunity, and
introducing a new technique and through the communicative and
commodities, discovering new management skills to mobilise human,
sources of raw materials and selecting financial, and material resources
top managers of day-to-day necessary to bring a project to
operations of the enterprise. fruitition.
V.R. Gaikwad : Entrepreneurship connotes Robert K.Lamb : Entrepreneurship is that form of
innovativeness, an urge to take risk social decision which is performed by
in face of uncertainties and an economic innovators.
intuition. The Global : Entrepreneurship, the process
Musscleman : Entrepreneurship is the investing Entrepreneurship of planning, organising, operating
and Jackson and risking of time, money and effort Monitor and assuming the risk of a business
to start a business and make it venture, is now a mainstream activity.
successful. The culture of entrepreneurship is deeply rooted:
Entrepreneurs are celebrated role models, failure is seen
H.N. Pathak : Entrepreneurship involves as a learning experience, and the entrepreneurial career
(i) perception of an opportunity option is regarded as attractive. In today's economic
(ii) organising an industrial unit, and environment, entrepreneurship is a key component of
(iii) running the industrial unit as a globalisation.
profitable, going and growing
concern.

The Concept of Entrepreneurship 13

Causes of Slow Growth
Entrepreneurship growth is slow in India and women’s entrepreneurship is still slower and negligible
due to the discouraging social factors such as unfavourable family background, lack of education, dual
role of women, lack of aptitudes and training, absence of individualistic spirit, lack of freedom to choose
a job according to ability, influence of sex, caste, kinship, custom and family burden etc. All these
retarding causes are due to the unfavourable socio-economic conditions and tradition-bond society.
The retarding economic factors for entrepreneurship growth are inadequate infrastructural facilities,
shortage of capital and technical know-how, transport and communication facilities, absence of cheaper
and regular supply of power and raw materials. These constraints are existing more in rural areas. The
environmental factors discouraging entrepreneurship are unstable state governments, lack of security,
absence of ideal market conditions and business and corruption in administration.

Entrepreneurship Stimulants
A variety of social, economic, political and cultural factors are stimulating entrepreneurial activity
and thus generating more robust economic development. These stimulants are as follows:
 An increasing focus on capital formation. Availability of capital is a stimulant to an entrepreneur
to start a new firm and/or give birth to a new idea.
 The ability to transform scientific and technical developments through new institutional
development is a second stimulant.
 A third stimulant is the supportive government programmes.
 Availability of required training and input is ranked fourth.
 A collaborative relationship between business and research and their direct attempts to transfer
technology to the marketplace may provide stimulus to a number of entrepreneurs who seek
the opportunity to commercialise their ideas and
 Finally, an endeavour to create an environment conducive to innovation will provide a much
needed stimulant to entrepreneurial activities.
The innovation centre provides technological evaluation, entrepreneurial assessment and other
related levels of assistance to entrepreneurs.

FOSTERING ENTREPRENEURSHIP
Fuelling ambitions and dreams. Helping insightful, imaginative business ideas glide smoothly over
tough passages, breathing life into promising business ventures. Encouraging foresight and drive
complementing acumen and enterprise with a steady flow of resources. For effective management, it is
imperative to foster and stimulate entrepreneurship and industrial culture to accelerate the process of
industrialisation.
Innovation is success in business and especially in the small scale industry, innovation is the path
to success. This is widely understood by small, medium and large companies alike. Innovation is
particularly important for an operating system so that information can flow without hindrances.

14 Entrepreneurship Development
 Box 1.3 Trends Driving Entrepreneurship

How will the new entrepreneurs realise their becoming an economic function because it involves
ambitions? What are the fundamental changes urging creation and operation of an enterprise.
them to strike out on their own in increasing numbers. Schumpeter’s argument was that all important
An irreverent take on the times: By Ninan and Jayanto. changes in the economy are set off by an entrepreneur
Features of Entrepreneurship and then these changes slowly work themselves through
Entrepreneurship is the tendency of a person to economic system, in the form of a business cycle.
organise the business of his own and to run it profitably, (ii) Innovative Activity: According to Schumpeter,
using various traits like leadership, decision making, entrepreneurship is essentially a creative and an
innovation, managerial calibre etc. Entrepreneurship is innovative activity. There are five ways of being
a set of activities performed by an entrepreneur. In a innovative.
way, entrepreneur precedes entrepreneurship. The main (a) The introduction of a new good;
features of entrepreneurship are as follows:
(b) The introduction of a new method of production;
(i) Economic Activity: Although classical
economists like Adam Smith and Richard Cantillon and (c) Opening of a new market;
many others didn’t recognise entrepreneurship as an (d) The conquest of a new source of supply of raw-
economic activity but since last few decades material;
entrepreneurship is catching up and is primarily (e) The creation of a new organisation of an industry.

Smaller Government : As Easier Money: With banking Nuclear families: With more
the size of the state as an getting more entrepreneur- women working a double
employer shrinks it will friendly and venture capitalists income in the family will allow
spur private enterprise spreading their wings, money more budding entrepreneurs to
will be more accessible take the plunge

Growing services: The

Less Economic Controls: As Technology : With
low-capital option for
Bottlenecks and entry barriers new technologies come
small-scale entrepreneur
come down further it will make new opportunities
the entrepreneurs’ life easier

The Concept of Entrepreneurship 15

 Just-do-It effect: Growing consumer class: Globalisation: As barriers
Instant Gratification: An
Entrepreneurial success More types of consumers come down opportunities
instant-Mix generation
stories in the peer group will lead to more entrepreneurial will increase
that will reach out for
spur more to take the risk opportunities
quick success

Strategic Phases of Management

 Calibrate strategies constantly with board members.
 Share the company’s progress towards set objectives with employees.
 Award employee stock options on a case-by-case basis.
 Stimulate growth by tapping employee’s experience and abilities.
 Prepare written short-term and long-term plans.
 Ensure collaborative decision-making among the top management.
 Turn between two and five top managers into entrepreneurs.
 Add to the number of management levels only as sales grow.
 Establish entrepreneurial competencies in finance, marketing, and operations and
 Involve the board of directors in all matters of management.

Box 1.4 CEO Survival Kit

Digital devices rule Chugh’s life. Not surprising. His company helps machines talk to one another.
Cellphone: Nokia 6210. It is my constant companion, as my wife says. I largely use it for phone calls and SMS,
especially during long, laborious meetings.
Laptop: Toshiba Tecra 8100 — It is the key to my survival. I use it in the office, in flight, any time I am away
from home, at least three to four hours a day. I have dispensed with the desk-top PC. (After all) our business runs
off the net.
PDA: I rely on my good old Palm IIIxE. I store schedules when I travel, and some spreadsheets. A true friend
away from home.
Telephone: Cisco 7960 IP phone. Just one integrated infrastructure. No complex manuals, just simple English.
Manoj Chugh, CEO, Cisco India

16 Entrepreneurship Development
Socio-economic Origins of Entrepreneurship
The entrepreneurial activity at any time and place is governed by varying combination of socio-
economic, psychological, cultural and other factors. The empirical studies have identified the following
socio-economic factors:
1. Cast/religion
2. Family background
3. Level of education
4. Level of perception
5. Occupational background
6. Migratory character
7. Entry into entrepreneurship
8. Nature of enterprise
9. Investment capacity
10. Ambition/motivation
The entrepreneurs who launched their enterprises during 60s predominantly came from mercantile
and allied backgrounds. However, a slight tilt in favour of occupations which traditionally have been
unconcerned with entrepreneurial activity, viz., general serviceman, technicians, business executives,
doctors, lawyers and the like was noticeable among entrepreneurs emerging for the first time after
Independence. The main springs of entrepreneurship have been the traditionally trading castes of Hindu
and Jain Banias from Gujarat, Rajasthan and Chettiars of Tamil Naidu. Besides, the new springs of
entrepreneurship developed among other communities like Brahmins all over the country, especially the
South, Naidus of the South, Patels of Gujarat, Kayasthas of West Bengal, Sikhs, Khatris and Aroras of
Punjab making entrepreneurship a widespread phenomenon.
More and more people with high academic attainments started joining the ranks of industrialists,
especially the professionals holding qualifications in engineering, law, medicine, cost and chartered
accounting. The newer entrepreneurs have a larger proportion of their floatations in the traditional
sector, but these professionals have by and large preferred to make their investments in modern sector.
The technicians in particular among both old and new entrepreneurs have entered industries in the
modern sector having a bearing of their academic qualifications. The traditionally trading communities
of Hindu and Jain Banias have relied on modern sector more than others. Interestingly, among the
regional communities the South Indians have preferred their promotions in traditional sector more than
the Gujaratis and Marwaris have.



The Concept of Entrepreneurship 17