Contents of Unit 1- HS 302

Definition and features of Entrepreneurship..............................................................................2

Competency of Entrepreneurs....................................................................................................2
Functions and risks of entrepreneurs..........................................................................................3
Entrepreneurial Functions:.....................................................................................................3
Managerial Functions:............................................................................................................3
Promotional Functions:..........................................................................................................5
Commercial Functions:..........................................................................................................5
Risks of entrepreneurs............................................................................................................7
Entrepreneurial Values & Attitude...........................................................................................7
Entrepreneurial Values..........................................................................................................7
Innovativeness........................................................................................................................8
Independence/Ownership.......................................................................................................8
Outstanding Performance.......................................................................................................8
Respect for Work...................................................................................................................9
Entrepreneurial Attitude...........................................................................................................9
Difference between Entrepreneur and Manager.......................................................................11
Types of ownership of small businesses..................................................................................13
Sole Proprietorships..............................................................................................................13
Partnerships..........................................................................................................................13
Joint stock company- Public and Private Limited Company...............................................13
Entrepreneur and Intrapreneur.................................................................................................15
Definition and features of Entrepreneurship
“Entrepreneurship is the process of creating value by bringing together a unique package of
resources to exploit an opportunity.” According to A.H. Cole, “Entrepreneurship is the
purposeful activities of an individual or a group of associated individuals undertaken to
initiate, maintain or organize a profit oriented business unit for the production or distribution
of economic goods and services”.
Features of entrepreneurship are summarized as follows:
• It is a function of innovation.
• It is a function of leadership.
• It is an organization building function.
• It is a function of high achievement.
• It involves creation and operation of an enterprise.
• It is concerned with unique combinations of resources that make existing methods or products
obsolete.
• It is concerned with employing, managing, and developing the factors of production.
• It is a process of creating value for customers by exploiting untapped opportunities.
• It is a strong and positive orientation towards growth in sales, income, assets, and employment.

Competency of Entrepreneurs
Some common competencies identified comprise the following:
x Creativity,
x Innovation,
x Inter personal skills,
x Business leadership,
x Problem solving,
x Communication,
x Negotiation and
x Risk management
Individual family background, education and experience can influence the strength of these
competencies in an individual. Hence, it is helpful to have a more understanding of these
types so that one can work on these to elevate the strength of these competencies. In a
nutshell, entrepreneurial competencies are:
1) A set of abilities and skills that are required to be in a budding entrepreneur for success of
the venture. They may possess these skills and abilities or acquire these.
2) Set of skills and abilities that encourage them to take initiative and be creative and
innovative.
3) Ability to develop, organise and manage a business venture that is established by the
entrepreneur.
4) Ability to foresee risks, analyse them and take calculated risk.
5) Abilities and skills to negotiate network and make effective communication.
6) Interpersonal skills and hunger for achievement, affiliation and power.
7) Ability and skill to sense the environment and identify an opportunity which is workable
and profitable.
8) Leadership skills, problem solving attitude and strength to manage risk.

Functions and risks of entrepreneurs

Functions of Entrepreneurs are broadly classified into/our categories as mentioned below:
1. Entrepreneurial Functions
2. Managerial Functions
3. Promotional Functions
4. Commercial Functions
Entrepreneurial Functions:
The major entrepreneurial functions include risk bearing, organizing, and innovation.
Managerial Functions:
In simple words, management is getting things working with and through others. Different
experts have defined term management differently. According to Henri Fayol (1949) who is
considered the father of ‘principles of management,’ “management is to forecast, to plan, to
organize, to command, to co-ordinate, and to control.”
A brief description of each of the managerial follows-
1. Planning:
In common parlance, planning is pre-determined course of action to accomplish the set
objectives. In other words, planning is today’s projection for tomorrow’s activity. Planning
pervades in all aspects of business. An entrepreneur has to make decisions as to what is to be
done, how it is to be done, when it is to be done, where it is to be done, by whom it is to be
done and so on.
The importance of planning lies in the fact that it ensures the smooth and effective
completion and running of a business enterprise. Absence of planning causes confusion
which, in turn, affects the smooth performance of job whatsoever it may be.
2. Organising:
The organizing function of an entrepreneur refers to bringing together the men, material,
machine, money, etc. to execute the plans. The entrepreneur assembles and organizes the
above mentioned different organs of an enterprise in such a way that these combinedly start
functioning as one, i.e., enterprise. Thus, organizing function of an entrepreneur ultimately
provides a mechanism for purposive, integrated and co-operative action by many people in a
joint and organized effort to implement a business plan.
3. Staffing:
Staffing involves human resource planning and human resource management. Thus, staffing
function of an entrepreneur includes preparing inventory of personnel available, requirement
of personnel, sources of manpower recruitment, their selection, remuneration, training and
development and periodic appraisal of personnel working in the enterprise
Business history is replete with evidences that it is basically the staff, i.e., personnel working
in the organization that makes all the difference. While appreciating the role of personnel in
the success of an organization, L. F. Urwick had remarked that, “business houses are made or
broken in the long-run not by markets or capital, patents or equipments, but by men.”
Andrew Carniege’s view that “Take my people and leave my factory, soon grass will grow on
the floor. Take my factory and leave my people, soon we shall build a better factory” also
underlines the significance of people or staffing in the making of an organization. However,
staffing function is as crucial for the success of a business enterprise is equally complex as
well.
4. Directing:
The functions like planning, organizing, and staffing are merely preparations for setting up a
business enterprise. The directing function of entrepreneur actually starts the setting up of
enterprise. Under the directing function, the entrepreneur guides, counsels, teaches,
stimulates and activates his/ her employees to work efficiently to accomplish the set
objectives.
Thus, directing function of entrepreneur concerns the total manner in which an entrepreneur
influences the actions of his / her employees/ workers. It is the final action of an entrepreneur
in making his / her employees actually act after all preparations have been completed.
5. Controlling:
Controlling is the last management function performed by the entrepreneur. In simple words,
controlling means to see whether the activities have been performed in conformity with the
plans or not. Thus, controlling is comparison of actual performance with the target or
standard performance and identification of variation between the two, if any, and taking
corrective measures so that the target is accomplished.
Promotional Functions:
1. Identification and Selection of Business Idea:
Every intending entrepreneur wants to start the most profitable and rewarding project. The
selection of the most suitable business project involves a process. The intending entrepreneur,
based on his /her knowledge, experience, and information gathered from friends and
relatives, generates some possible business ideas which can be examined and pursued as a
business enterprise.
This process is also described as ‘opportunity scanning and identification’. Then, the
generated ideas are analysed in terms of costs and benefits associated with them. Having
made cost-benefit analysis of all the ideas, the most beneficial idea is finally selected to be
pursued as business enterprise.
2. Preparation of Business Plan or Project Report:
The entrepreneur prepares a statement called ‘business plan’ or ‘project report’ of what he /
she proposes to take up. In other words, business plan is a well evolved course of action
devised by entrepreneur to achieve the specified objectives within a specified period of time.
In this sense, business plan is just like an operating document. The preparation of business
plan is not must, but it is very much useful for the entrepreneur to establish his / her
enterprise in an effective and smooth manner. But, it is must for those entrepreneurs who
intend to apply for financial assistance from the financial institutions and banks for their
enterprises.
It contains information about the intending entrepreneur, location of enterprise, requirement
for land and building, plant and machinery, raw material, utilities, transport and
communication, manpower, requirement for funds including working capital along with its
sources of supply, break-even point and implementation schedule of the project.
3. Requirement for Finance:
The entrepreneur prepares requirement for funds with its detailed structure. The financial
requirement is also classified into short-term and long-term separately. Then, the sources of
supply to acquire the required fund are also mentioned. How much will be the share capital in
terms of equity and preference shares and how much will be borrowed capital from different
financial institutions and banks are clearly determined.
Commercial Functions:
1. Production / Manufacturing:
Once the enterprise is finally established, it starts producing goods or offering services,
whichever be the case. Production function includes decisions relating to the selection of
factory site, design and layout, types of products to be produced, research and development,
and design of the product.
The ancillary activities include production planning and control, maintenance and repair,
purchasing, store-keeping, and material handling. The effective performance of production
function, to a large extent, depends on the proper production planning and control.
2. Marketing:
All production is basically meant for marketing. Marketing is the performance of those
business activities that direct the flow of goods and services from producer to consumer or
user. Thus, marketing essentially begins and ends with the customers. It is important to note
that marketing is not just selling. In fact, marketing includes much more than selling. Selling
is the last function in marketing activities.
The examples of marketing activities are market or consumer research, product planning and
development, standardization, packaging, pricing, storage, promotional activities, distribution
channel, etc. The success of marketing function is linked with an appropriate ‘marketing
mix’. Traditionally, marketing mix referred to 4 Ps, namely, product, price, promotion, and
physical distribution. Of late, 3 more Ps namely, packaging, people, and process are also
added to ‘marketing mix’.
3. Accounting
The main objective of any business enterprise is to earn profits and create wealth. Whether
the business is fulfilling its objective or not is ascertained through accounting. What is
accounting? According to the American Institute of Certified Public Accountants,
“Accounting is the art of recording, classifying and summarizing in a significant manner and,
in terms of money, transactions and events which are, in part at least, of a financial character
and interpreting the results thereof.”
Thus, accounting involves a process consisting of the following four stages:
1. Recording the Transactions
2. Classifying the Transactions
3. Summarising the Transactions
4. Preparing the Final Accounts
5. Analysing and Interpreting the Results.
The Profit & Loss Account is prepared for ascertaining whether the business earned profit or
incurred loss during a particular period of time also called ‘accounting year’. The Balance
Sheet is prepared to know the financial position of business during the accounting period.
Hence, the Balance Sheet is also called ‘Position Statement.’
Risks of entrepreneurs
Entrepreneurship involves the following types of risks.
1. FINANCIAL RISK: The entrepreneurship has to invest money in the enterprise on the
expectation of getting in return sufficient profits along with the investment. He may get
attractive income or he may get only limited income. Sometimes he may incur losses.
2. PERSONAL RISK: Starting a new venture uses much of the entrepreneur’s energy and
time .He or she has to sacrifice the pleasures attached to family and social life.
3. CARRIER RISK: This risk may be caused by a number of reasons such as leaving a
successful career to start a new business or the potential of failure causing damage to
professional reputation.
4. PSYCHOLOGICAL RISK: Psychological risk is the mental agonies an entrepreneur
5. Bears while organizing and running a business venturesome entrepreneurs who have
suffered
6. Financial catastrophes have been unable to bounce back.

Entrepreneurial Values & Attitude

Entrepreneurial Values
Values are generalized and organized conception in Pouncing behaviour and nature of human
beings. It is a set of beliefs about various aspects of the world. Values provide standards that
guide behaviour. Values are also reflective of a culture and are widely shared by those
belonging to that culture. Accordingly, values are the inner most layer of the self which
provides the goal and direction to an individual. In terms of entrepreneurship, it means the
cognitive functioning of entrepreneurship. Values are also responsible for the selectively
organized perception and inter-action which an individual has with his outside world or the
environment.
A set of four values has been generally found prominent among entrepreneurs. These are
directed towards:

a. Innovativeness
b. Independence/ownership
c. Outstanding performance/achievement
d. Respect for work
These values are important differentials between entrepreneurship and non- entrepreneurship,
particularly in terms of their strength and degrees. For promoting
self-employment/entrepreneurship these values need to be introduced and strengthened
through training and experience.
Innovativeness
Entrepreneurship essentially means doing things that are not generally done in ordinary
course of work. Scholars like Schumpeter further describe an entrepreneur as ‘ideas man’
and a man of action who possesses the ability to inspire others and who does not accept the
boundaries of structured situation.
He is a catalyst of change, able to carry out new combinations; instrumental in discovering
new opportunities, which is the uniqueness of the entrepreneurial functions.
Innovation is the process of putting new ideas into action. Innovations may also be repetition
of the same idea but at different places and settings.
The anchor of an entrepreneur’s career is creativity and innovation in the same way as
managers find their career anchor on competency and efficiency.
( Innovative values Can be introduced and strengthened in the targeted group through
exercises like Nine Dots exercise, Square puzzle, besides lectures and discussions as
described later in the section.”)

Independence/Ownership
Entrepreneurs value freedom of expression and also of action. They do not like to be
controlled by others. 'They consider it desirable to be the master of their own. Instead of
waiting for suggestions, directions and initiatives from others, an entrepreneur works out
plans of his own and explores resources to satisfy the inner urge to make his enterprise a
success. This makes him self-reliant and independent. The inculcation of the value for
independence contributes significantly to the development of ‘achievement motivation’.
When a youth is encouraged to do things on his own and provided guidance and help only
when needed and sought for, he is being oriented to independence. Over-protection and over-
guidance during early socialization often inhibits the emergence of the value of
independence.
(The value of Independence/Ownership is considerably injected and encouraged through
achievement motivation laboratory as described later in the manual.)
Outstanding Performance
Entrepreneurs do not consider performing routine tasks or repeating what others have done
important since this does not contribute or strengthen their belief that they can influence the
environment. Entrepreneurs develop the value for outstanding performance, displaying
certain standards of excellence (characterizing Achievement Motivation). They believe that
they can make their own destiny even though they might have faith in God and other forces
and power. They value and experience their importance due to their performance and that too
outstanding performance. The value for outstanding performance helps them to accept the
mistakes and improve on them and work for successful completion of the task and not
avoiding it. This naturally leads to systematic planning and use of information, so crucial for
enterprise building and management.
(The value of Outstanding Performance is encouraged through exercises like ring- toss game,
PME, etc. as part of entrepreneurial motivation laboratory as described later.)
Respect for Work
One of the major factors, which distinguish the entrepreneurial culture from non-
entrepreneurial culture, is the value given to work by its members. It has been commonly
observed that persons with low resistance to manual labour have succeeded more frequently
as entrepreneur as compared to those who exhibited a distinct dislike for working with hands.
Entrepreneurs value work and believe that anything and everything can be achieved through
work and accordingly work is worship. This value provides the goal direction, which
encourages entrepreneurs to pursue a path and career where the rewards and incentives are
linked to the degree and quality of efforts, made.
(The value is inculcated and strengthened through games and exercises like ring- toss, tower
building as part of entrepreneurial motivation laboratory as described later).

Entrepreneurial Attitude
Those who have imbibed the above mentioned values generally develop ‘tendencies’ to act in
any given situation. For example, those who value innovativeness, develop tendency to use
imagination for sensing opportunities/goals. They would further show a tendency to take
certain amount of risk while selecting a goal or line of action or means of tackling a situation.
The tendencies to act against any stimulus are also termed as attitudes. Under given
circumstances, a group of persons may decide similar or different course of action because of
similar or different attitudes that they possess. Accordingly, the attitude is defined as an
‘enduring organization of motivational, emotional, perceptual and cognitive process with
respect to some aspect of individual’s work’. Attitudes that show the entrepreneurial pre-
dispositions play a significant part in pursuing entrepreneurial/self-employment career. The
genesis of such attitudes, however, can be traced to the value system.
Tendency to use Imagination/Intuition
Under a given situation, the common tendency is to take a course of action based on the
facts, which are obvious, observable and common interpretations of those situations.
Unlike this, one may possess a tendency to use imagination for perceiving the not so
apparent aspect of a given situation and also apply intuition in assessing the future
course. The later tendency is commonly found among the entrepreneurs.

Tendency to take Moderate Risk

There is a tendency among entrepreneurs to try such path or goal, which has certain amount
of risk, not a common path followed by many others and also not a routine task. They take up
things and task, which have certain amount of uncertainty. Because of this tendency to take
risk, an entrepreneur is tempted to try something new in terms o1”ideas, activity, location,
time etc.
To enjoy Freedom of Expression and Action
Entrepreneurs have been found having a tendency to enjoy freedom of expression and
action. They don’t feel happy getting instructions and then acting upon them. This
tendency very o9en results in their giving up of job/employment and trying their own
ventures. Since they value independence and ownership, they like to think on their own
and act accordingly.
Look for Economic opportunities
Since entrepreneurs value independence and ownership, they are found highly perceptive
and keen in locating economic opportunities for themselves in any given situation. To
others, the situation may be that of a crisis, festival, social and a recreational, but they
have a tendency to look for economic opportunities in all such situations. This tendency
makes them different from common men oi non- entrepreneurs.
To find Satisfaction from Successful Completion of Task
Entrepreneurs are people who value performance that too outstanding
performance. Successful completion is an indicator of their performance whether they are
performing well. They have a tendency to get satisfaction from such feedback about their
performance. They have a tendency to complete the task against all odds by mobilizing
resources and availing help from any source.
To believe that they can change the Environment
Entrepreneurs tend to believe in their capacity to influence environment. They have a
tendency to change it rather than leave everything to luck and God or to forces beyond their
control. This naturally emerges out of their value for world, which makes them believe that
anything and everything can be achieved through their own efforts. Being influenced by this
value, they develop a tendency to think that in any given situation they can change and
influence the environment.
To take Initiative
Since entrepreneurs worship work and they believe that for achieving anything one has to
work, the natural tendency among them is to take initiative. Entrepreneurs have a tendency to
act and not remain on-lookers. They have a tendency to act and perform as leaders. Because
of this tendency, they are not mere dreamers but they act for converting their dram into
reality. An entrepreneur shows the tendency to define task for himself, becomes the source of
origin for any activity and tendency to be proactive.
To Analyze Situation and Plan Action
Since entrepreneurs’ respect world, they cannot afford to perform any task without due
seriousness. Out of their respect for work, they develop a tendency to analyze situations
and then plan action. They respect all work in which they are involved and cannot afford to
neglect it. Analyzing situation into its parts; assessing pros and cons; weighing against
resources; foreseeing alternatives; and planning action before actual commitment of the
task; are some of the things which distinguish entrepreneurs from others. The work may be
simple or complex, significant or insignificant to the outsiders but to an entrepreneur it
calls for total commitment.

Difference between Entrepreneur and Manager

Particulars Entrepreneur Manager

Meaning It refers to persons who establish They are individuals responsible for
a company or enterprise and administering and controlling a group
takes a financial risk to get of people in the company or
profits. enterprise.

Position in the They are visionaries who convert They are the employees of the
company an idea into a business. They are company.
the owners of the company.

Focus They focus on ongoing operations.

Risk They bear all financial and other They do not bear any risks.
risks.

Focus They focus on starting the They focus on the daily smooth
business and expanding the functioning of the company.
company.

Motivation Their key motivation is the Their motivation comes from the
achievements of the company. power that comes with the position.

Reward Their reward is the profit they Their reward is the salary they draw
earn from the company. from the company.

Approach They can be casual in their role Their approach to every problem is
and have an informal approach. formal, and they take a scientific
approach.

Nature of They are risk-takers. They take They are risk-averse. Their job is to
decisions calculated risks to drive the maintain the status quo of the
company. company.

Decision The decisions tend to be The decisions are calculative.

making intuitive.

Specialisation They do not need to be They are trained to perform tasks and
specialised in any particular are specialists in their domain.
trade.
Types of ownership of small businesses
Sole Proprietorships
A sole proprietorship is a one-person business that is not registered with the state like a
limited liability company (LLC) or corporation. You don't have to do anything special or file
any papers to set up a sole proprietorship -- you create one just by going into business for
yourself.
Legally, a sole proprietorship is inseparable from its owner -- the business and the owner are
one and the same. This means the owner of the business reports business income and losses
on his or her personal tax return and is personally liable for any business-related obligations,
such as debts or court judgments.
Partnerships
Similarly, a partnership is simply a business owned by two or more people that haven’t filed
papers to become a corporation or a limited liability company (LLC). You don't have to file
any paperwork to form a partnership -- the arrangement begins as soon as you start a business
with another person. As in a sole proprietorship, the partnership's owners pay taxes on their
shares of the business income on their personal tax returns and they are each personally liable
for the entire amount of any business debts and claims.
Sole proprietorships and partnerships make sense in a business where personal liability isn't a
big worry -- for example, a small service business in which you are unlikely to be sued and
for which you won't b e borrowing much money for inventory or other costs.
Joint stock company- Public and Private Limited Company

BASIS FOR PRIVATE LIMITED PUBLIC LIMITED COMPANY

COMPARISON COMPANY
Meaning Private Limited Company refers to Public Limited Company implies a
the company which is not listed on company that is listed on a
a stock exchange and the shares are recognized stock exchange and
held privately by the members whose shares are traded openly by
concerned. the public.
Minimum number 2 7
of members
Maximum number 200, except in case of one person Unlimited
of members company
Minimum number 2 3
of directors
Articles of It must frame its own articles of It can frame its own articles of
Association association. association or adopt Table F.
Transfer of Shares The shares of a private company The shares of a public company
are not freely transferable, as are freely transferable, i.e. freely
 there are restrictions in Articles of traded in an open market called a
Association. stock exchange.
Public Subscription Issue of shares or debentures to the It can invite the public to subscribe
public is prohibited. to its shares or debentures.
Issue of prospectus Prohibited from issuing a It can issue a prospectus or it can also
prospectus. opt for private placement.
Minimum amount The company can allot shares, The company cannot allot shares
of allotment without obtaining minimum unless the minimum subscription
subscription. stated in the prospectus is obtained.
Commencement of It can start a business just after It requires a certificate of
Business receiving a certificate of commencement of business after it is
incorporation. incorporated.
Appointment of Two or more directors can be One Director can be appointed by a
Director appointed by a single resolution. single resolution.
Filing of Consent Directors need not require the Directors must file their consent to
to act as Director filing of their consent to act as a act as a director, within 30 days of
director. appointment with the Registrar.
Retirement of The directors are not required to 2/3rd of the total number of
Directors by retire by rotation. The directors can directors must retire by rotation.
rotation be permanent.
Place of Holding AGM can be held anywhere. AGM is held at the registered office
AGM or any other place where the
registered office is situated.
Statutory Meeting Optional Compulsory
Quorum 2 members who are personally 5 members are required to present in
present at the meeting, constitute a person when the number of members
quorum, irrespective of the number as on the date of the meeting is 1000
of members. or less.
15 members are required to present
in person when the number of
members as on the date of the
meeting is more than 1000 but less
than 5000.
30 members are required to present
in person when the number of
members as on the date of the
meeting is more than 5000.
Exemptions Enjoys many privileges and No such privileges and exemptions.
exemptions.

Entrepreneur and Intrapreneur

BASIS FOR ENTREPRENEUR INTRAPRENEUR
 COMPARISON
Meaning Entrepreneur refers to a person Intrapreneur refers to an employee of
who set up his own business the organization who is in charge of
with a new idea or concept. undertaking innovations in product,
service, process etc.
Approach Intuitive Restorative
Resources Uses own resources. Use resources provided by the
company.
Capital Raised by him. Financed by the company.
Enterprise Newly established An existing one
Dependency Independent Dependent
Risk Borne by the entrepreneur Taken by the company.
himself.
Works for Creating a leading position in Change and renew the existing
the market. organizational system and culture.