Management lecture for management students

Entrepreneurship
LECTURE 9
URE
Dr Nicholas NgondeRE

INTRODUCTION
 Richard Cantillon, an Irishman living in France who first used
the term entrepreneur to refer to economic activities.
 He described an entrepreneur as “a person who buys factor
services at certain prices with a view to selling its product at
uncertain prices”.
 Entrepreneur, according to Cantillon, an entrepreneur is a
bearer of risk, which is non-insurable.
 SchumPeter believed that an entrepreneur was a dynamic
agent of change; that an entrepreneur was a catalyst who
transformed increasingly physical, natural and human
resources into correspondingly production possibilities.

Concept of Entrepreneur
 Entrepreneur is used in various ways and various views.
These views are broadly classified into three groups, namely
risk bearer, organizer and innovator.
Entrepreneur as a risk bearer
 Richard Cantilon emphasized that an entrepreneur pays
contractual incomes, which are certain to land owners and
laborers, and sells at prices that are ‘uncertain’.
 Uncertainty is defined as risk, which cannot be insured
against and is in calculable. He made a distinction between
certainty and risk.
 A risk can be reduced through the insurance principle, where
the distribution of outcome in a group of instance is known,
whereas uncertainty cannot be calculated.

Entrepreneur as an organiser
 An entrepreneur is one who combines the land of one, the
labor of another and capital of yet another, and thus
produces a product. By selling the product in the market, he
pays interest on capital, rent on land and wages to laborers
and what remains is his/her profit”.
 This concept of entrepreneur is associated with the functions
of coordination, organisation and supervision.
Entrepreneur as an innovator
 Joseph A Schum Peter in 1934 assigned a crucial role of
‘innovation’ to the entrepreneur.
 He considered economic development as a dynamic change
brought by entrepreneur by instituting new combinations of
factors of production, i.e. innovations.

The introduction of new combination according to him, may
occur in any of the following forms.
a) Introduction of new product in the market.
b) Use of new method of production, which is not yet tested.
c) Opening of new market.
d) Discovery of new source of raw materials.
e) Bringing out of new form of organisation.
 SchumPeter also made distinction between inventor and
innovator. An inventor is one who discovers new methods
and new materials. An innovator utilizes inventions and
discovers in order to make new combinations.
 Therefore, an entrepreneur can be defined as a person
who tries to create something new, organizes production
and undertakes risks and handles economic uncertainty
involved in enterprise.

Characteristics of an Entrepreneur
Table 9.1

Distinction between an Entrepreneur and
manager
Table 9.2

Rewards for an entrepreneur
1. Freedom to work.
2. Satisfaction of being own boss.
3. Power to do things as he likes.
4. Rewards of ownership and retirement assurance.
5. Respect of family and friends.
 Penalties for an Entrepreneur
1. Constraints of financiers, laborers, customers, suppliers,
and debtors curtail his freedom.
2. Frustration due to availability of limited capital and other
resources.
3. Social and family life is affected due to hard long hours of
working.
4. Frustration due to non-achievement of full objectives.

Penalties for an entrepreneur
1. Constraints of financiers, laborers, customers, suppliers,
and debtors curtail his freedom.
2. Frustration due to availability of limited capital and other
resources.
3. Social and family life is affected due to hard long hours of
working.
4. Frustration due to non-achievement of full objectives.
5. Risk of failure.

Functions of an entrepreneur
1. Idea generation
 Idea generation implies product selection and project
identification. Idea generation is possible through vision,
insight, keen observation, education, experience and
exposure.
 This needs scanning of business environment and market
survey.
2. Determination of business objectives
 Entrepreneur has to state and lay down the business
objectives. Objectives should be spelt out in clear terms. The
entrepreneur must be clear about the nature and type of
business

3. Raising funds
 All the activities of the business depend upon the finance and
hence fund rising is an important function of an entrepreneur.
 An entrepreneur can raise the fund from internal source as
well as external source. He should be aware of different
sources of funds.
4. Procurement of machines and materials
 Entrepreneur is to procure raw materials and machines.
 Entrepreneur has to identify cheap and regular sources of
raw materials which will help him to reduce the cost of
production and face competition boldly.

5. Market research
 Market research is the systematic collection of data
regarding the product which the Entrepreneur wants to
manufacture.
 Entrepreneur has to undertake market research persistently
to know the details of the intending product, i.e. the demand
for the product, size of the market/customers, the supply of
the product, competition, the price of the product etc.
6. Determining the form of enterprise
 Entrepreneur has to determine form of enterprise depending
upon the nature of the product, volume of investment etc.
 The forms of ownership are sole proprietorship, partnership,
Joint Stock Company, co-operative society etc

7. Recruitment of manpower
To carry out this function an Entrepreneur has to perform the
following activities.
(a) Estimating man power requirement for short term and long
term.
(b) Laying down the selection procedure.
(c) Designing scheme of compensation.
(d) Laying down the service rules.
(e) Designing mechanism for training and development
8. Implementation of the project
 Entrepreneur has to develop schedule and action plan for the
implementation of the project. The project must be
implemented in a time bound manner.

Role of entrepreneurship in Economic
Development
 Economic development essentially means a process of
upward change whereby the real per capita income of a
country increases for a long period of time.
 Parson and Smelter described entrepreneurship as one of
the two necessary conditions for economic development, the
other being increased output of capital.
 The important role that an entrepreneurship plays in the
economic development of an economy is as follows:
1. Entrepreneurship promotes capital formation by mobilizing
the idle saving of the public.
2. It provides immediate large-scale employment. Thus it helps
to reduce unemployment in the country.
3. It provides balanced regional development.
4. It helps reduce the concentration of economic power.

5. It stimulates the equitable redistribution of wealth, income
and even political power in the interest of the country.
6. It encourages effective resources mobilization of capital and
skill which might otherwise remain unutilized and idle.
7. It also induces backward and forward linkages which
stimulated the process of economic development in the
country.
8. It promotes country’s export trade i.e. an important
ingredient for economic development.

Barriers to Entrepreneurship
1. Lack of a viable concept
2. Lack of market knowledge
3. Lack of technical skills
4. Lack of seed capital
5. Lack of business know how
6. Complacency—lack of motivation
7. Social stigma
8. Time presence and distractions
9. Legal constraints and regulations
10. Monopoly and protectionism
11. Inhibitions due to patents

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