Entrepreneurship – Meaning, Definition, Need and Importance

Concept and Definition of Entrepreneurship

Entrepreneurship is an elusive concept.

“Entrepreneurship is based on purposeful and systematic innovation. It included not only the independent businessman but also company directors and managers who actually carry out innovative functions.”-Schumpeter

In the above definition, entrepreneurship refers to the functions performed by an entrepreneur in establishing an enterprise. Just as management is regarded as what managers do, entrepreneurship may be regarded as what entrepreneurs do. In other words, entrepreneurship is the act of being an entrepreneur. Entrepreneurship is a process involving various actions to be undertaken to establish an enterprise. It is thus, process of giving birth to a new enterprise. Entrepreneurship is composite skill, the resultant of a mix of many qualities and traits- these include tangible factors as imagination, readiness to take risks, ability to bring together and put to use other factors of production, capital, labor, land, as also tangible factors such as the ability to mobilize scientific and technological advances. A practical approach is necessary to implement and mange a project by securing the required licenses, 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 more in the ability to minimize the use of resources and put them to maximum advantage. Without any 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.

The basic two elements involved in entrepreneurship are as follows;-

1. Innovation – Innovation, i.e. doing something new or something different is a necessary condition to be called a person as an entrepreneur. The entrepreneurs are constantly on the look out to do something different and unique to meet the requirements of the customers. They may or may not be inventors of new products or new methods f production but they possess the ability to foresee the possibility of making use of the inventions for their enterprises. In order to satisfy the changing preference of customers nowadays many enterprises have adopted the technique of innovation. For instance, Pidilite industries innovated the Rs.5 pack of feviquick which was accepted by the customers as it was easy to use when it was needed. Since customers taste and preferences always keep on changing, hence the entrepreneur needs to apply invention on a continuous basis to meet the customers changing demand for products.
2. Risk-bearing –Entrepreneurship is the propensity of mind to take calculated risks with confidence to achieve a predetermined business or Industrial objective. The capacity to take risk independently and individually with a view to making profits and seizing the opportunity to make more earnings in the market-oriented economy is the dominant characteristic of modern entrepreneurship. In fact he needs to be a risk taker, not risk avoider. His risk bearing ability enables him even if he fails in one succeed. The Japanese proverb says “Fall seven times, stand up eight”.

Though the term entrepreneur is often used interchangeably with entrepreneurship, yet they are conceptually different. The relationship between the two is just like the two sides of the same coin. Thus, entrepreneurship is concerned with the performance and co-ordination of the entrepreneurial functions. This also means that entrepreneur precedes entrepreneurship.

Peter Drucker’s View on Entrepreneurship

Peter Drucker has aptly observed that, “Innovation is the specific tool of entrepreneur’s, the means by which they exploit changes as an opportunity for a different business or a different service. It is capable of being presented as a discipline, capable of being learned and practiced. Entrepreneurs need to search purposefully for the sources of innovation, the changes and their symptoms that indicate opportunities for successful innovation. And they need to know and apply the principles of successful innovation.”

Systematic innovation, according to him, consists in the purposeful and organized search for changes and in the systematic analysis of the opportunities such changes might offer scope for economic and social innovation.

According to Drucker, three conditions have to be fulfilled.

1. Innovation at work. It requires knowledge and ingenuity. It makes great demands on diligence, persistence and commitment.
2. To succeed, innovation must build on their strengths
3. Innovation always has to be closed to the market focused on the market, indeed market- driven. Specially, systematic innovation means monitoring sources for innovative opportunity.

The first three sources lie within the enterprise, whether it be a business or a public service institution or within an industry or service sector. They are therefore, visible primarily to people within that industry or service sector. They are basically symptoms. But they are highly reliable indicators of changes that have already occurred or can be made to occur with little effort.

These four source areas are:

1. The unexpected success, the unexpected failure, the unexpected outside event.
2. The incongruity between reality as it actually is and reality as it is assumed to be or as it “ought to be”.
3. Innovation in industry structure or market structure that catches everyone unawares.
4. The second set of sources for innovative opportunity, a set of three, involves changes outside the enterprise or industry:

1. • Demographics (population changes).
   • Changes in perception, mood and meaning.
   • New knowledge, scientific and non- scientific.

Stages of Evolution of Entrepreneurship

The evolutionary process of entrepreneurship activities may be divided into the following broad stages:

1. Hunting Stage:-The primary stage of the evolution of the economic life of man was hunting stage. Wants were limited and very few in numbers. The family members themselves satisfied problems of food, clothing and shelter. Producers were the consumers also. Robinson Crusoe, living in the deserted island, satisfying his own requirements had no knowledge of business. People in some parts of Africa and India still lead this type of life. In this stage problems of production and distribution were not complexed since wants were simple and limited.
2. Pastoral Stage:-With the progress of mankind gradually mental understanding developed and people started realizing that instead of killing animals, they should breed and rear them. Thus cattle breeding encouraged the use of milk, and they had to think in terms of grazing areas for their cattle. The surplus milk, meat and other related products were spared of exchange. This stage can be termed as the first stage of economic development and the beginning of commerce.
3. Agricultural Stage:-In search of grazing areas, they further realized that they should grow plants as food for animals. They started testing some grain products and slowly developed a taste in plants and the land was used for cultivation. Groups of persons started living together on their agricultural fields, which were subsequently converted into small villages with their farms. Free exchange of goods was started and the activities were also divided to the extent of division of labor at the village level to complement the needs of each other. Initially each village was self sufficient, but later they began small trading activities on barter basis.
4. Handicraft Stage:-In the agricultural stage, people started learning the use of cloth made of cotton products, and they developed the segments of the workers for different activities. Cottage scale setup was developed at the village level to nearby villages, and in exchange they brought requirements either to consume themselves or for their village friends. Since the demand for gold coins, silver coins, skin and hide etc. increased the activities of cobblers, gold smiths, and blacksmiths, laborers also rapidly increased, and caste system was also formed on the basis of activities they did. Everybody selected their job according to their own choice and taste.
5. Present Industrial Stage:– The use of mechanical devices and the commonly acceptable form of monetary system accelerated the growth of entrepreneurship activities. The progress of science and the increase in the means of transportation and communication enabled to travel widely and the markets were developed in the country and abroad.

Need for Entrepreneurship

Entrepreneurship promotes small business in the society. Government has accepted the fact that small firms have a crucial role to play in the economic development of the country. Small businesses are an essential part of our future economic prosperity because of the following reasons:-

1. Employment Generation: Entrepreneurial development is looked at as a vehicle for employment generation through promotion of small business. India, being far more developed and forward looking country than some of the third world countries, can provide lead to entrepreneurial development activities. However, India can benefit from the well- documented success experiences of developed countries like USA, Japan and UK in the field of employment generation and small business promotion. Steady growth in consumer spending, expanding retail sales, a strong housing market, continued expansion of the service sector, low rates of inflation and of labor cost increases and failing interest rates contributed to a healthy environment for small business. In India, the government policies, political and economic environment greatly encourage the establishment of new and small enterprises.
2. Small Business Dynamism: Great dynamism is one of the qualities of the small and medium enterprises. This quality of dynamism originates in the inherent nature of the small business. The structure of small and medium enterprises is less complex than that of large enterprises and therefore facilitates quicker and smoother communication and decision- making. This allows for the greater flexibility and mobility of small business management. Also, small enterprises, more often make it possible for owners, who have a stronger entrepreneurial spirit than employed mangers, to undertake risk and challenges.
3. Balanced Economic Development: Small business promotion needs relatively low investment and therefore can be easily undertaken in rural and semi-urban areas. This in turn creates additional employment in these areas and prevents migration of people from rural to urban areas. Since majority of the people are living in the rural areas, therefore, more of our development efforts should be directed towards this sector. Small enterprises use local resources and are best suited to rural and underdeveloped sector. This in turn will also lead to dispersal of industries, reduction in concentration of economic power and balanced regional development.
4. Innovations in Enterprises: Business enterprises need to be innovative for survival and better performance. It is believed that smaller firms have a relatively higher necessity and capability to innovate. The smaller firms do not face the constraints imposed by large investment in existing technology. Thus they are both free and compelled to innovate. Entrepreneurship development is accelerating the pace of small firm’s growth in India. An increased number of small firms are expected to result in more innovations and make the Indian industry compete in the international market.

Role of Entrepreneurship as a Catalyst for Economic Development

The relationship between entrepreneurship and economic growth development has already been analyzed. The later is the result of entrepreneurship. Every process of economic growth/ development is the outcome of changes that occur in various spheres. In fact one cannot imagine either of them without a change. Change is therefore the essence of growth and development. Entrepreneurs are some times called carriers or agents of change. It is in this context that entrepreneurs are known as catalysts of change. In the capacity of catalyst an entrepreneur reaches for opportunities and areas- where changes can be expected and are necessary. An innovative entrepreneur is instrumental in bringing about a change. He introduces new ideas, new techniques, new combinations, discovers new sources of supplies etc. An imitating entrepreneur on the other hand uses the changes launched by others.

Changes and entrepreneurship go together. Drucker says, “Entrepreneurs see changes as the norm and all healthy. Usually they do not bring about the changes themselves. But the entrepreneur always searches for change, responds to it and exploits it as an opportunity”. Entrepreneurs have to play an important role- the role of catalysts in the new international scenario that is going to open the economy to new areas and prospects.

Entrepreneurs are supposed to visualize and utilize the opportunities that are going to occur. The world trade is going to open doors to new challenges. New and changed approaches will have to be adopted for meeting these challenges successfully. As a catalyst an entrepreneur will have to:-

• Foresee prospect changes in the global economic and social environment. He will also have to be instrumental in bringing about changes.
• Absorb new inventions and innovations in the technological sphere as technology plays an important role in the world of trade and commerce.
• Initiate new activities in both business and non- business spheres. In the capacity of an innovative entrepreneur. He has to introduce new combination of resources, come up with bright ideas to utilize underutilized resources, to put them to multiple uses and apply them to new and unknown activities.
• Bring about an attitudinal change in the minds of the people and the society in general. A conservative and religious society or a society that is bound by customs and traditions cannot take full advantage of entrepreneurial opportunities. An entrepreneur may have to strive to convert the society into a dynamic, rational and a progressive one. He may have to influence the government into bringing about economic reforms of various types for exploiting global opportunities.
• Exploit change and use it not only for his and for the benefit of his organization but also for the benefit of his economy.

Entrepreneurs play a crucial role in the development of an economy. They play the role of catalysts of change and are capable of converting an underdeveloped economy into a developing one and a developing economy into a developed one.

Global changes and challenges may be compared to a knife. A knife when used properly brings benefits or serves as a tool for work. The same knife can cut and harm if used wrongly. Entrepreneurs have to convert global changes and challenges into opportunities, exploit them effectively and intelligently so that the economy emerges a winner, a beneficiary of globalization and not as its victim.