Unit-1

Entrepreneurship
The word “entrepreneur” is derived from the French verb “entreprendre”, which means ‘to
undertake’. This refers to those who “undertake” the risk of new enterprises. An enterprise is
created by an entrepreneur. The process of creation is called “entrepreneurship”.

Meaning

Entrepreneurship is a process of actions of an entrepreneur who is a person always in search

of something new and exploits such ideas into gainful opportunities by accepting the risk and
uncertainty with the enterprise. It is the process of starting a business, a startup company or
other organization. The entrepreneur develops a business plan, acquires the human and other
required resources, and is fully responsible for its success or failure.Entrepreneurship
operates within an entrepreneurship ecosystem.

Definitions
According to A.H.Cole
Entrepreneurship is the purposeful activity of an individual or a group of associated
individual,undertaken to initiate,maintain or aggrandize profit by production or distribution
of economic goods and services.

According to J.A. Timmons

Entrepreneurship is the ability to create and build something from practically nothing.

According to Musselman and Jackson

“Entrepreneurship is the investing and risking of time, money and effort to start a business
and make it successful.

Characteristics of Entrepreneurship
Entrepreneurship is characterized by the following features:
1. Economic and dynamic activity
Entrepreneurship is an economic activity because it involves the creation and operation of an
enterprise with a view to creating value or wealth by ensuring optimum utilization of scarce
resources. Since this value creation activity is performed continuously in the midst of
uncertain business environment, therefore, entrepreneurship is regarded as a dynamic force.

2. Related to innovation
Entrepreneurship involves a continuous search for new ideas. Entrepreneurship compels an
individual to continuously evaluate the existing modes of business operations so that more
efficient and effective systems can be evolved and adopted. In other words, entrepreneurship
is a continuous effort for synergy (optimization of performance) in organizations.

3. Profit potential
“Profit potential is the likely level of return or compensation to the entrepreneur for taking on
the risk of developing an idea into an actual business venture.” Without profit potential, the
efforts of entrepreneurs would remain only an abstract and a theoretical leisure activity.

4. Risk bearing
The essence of entrepreneurship is the ‘willingness to assume risk’ arising out of the creation
and implementation of new ideas. New ideas are always tentative and their results may not be
instantaneous and positive.An entrepreneur has to have patience to see his efforts bear fruit.
In the intervening period (time gap between the conception and implementation of an idea
and its results), an entrepreneur has to assume risk. If an entrepreneur does not have the
willingness to assume risk, entrepreneurship would never succeed.

5. Skillful management
Entrepreneurship involves skillful management.The basic managerial skill is the most
important characteristic feature of entrepreneurship. Foreffective management of an
enterprise,the role of an entrepreneur is to initiate and supervise design of organization
improvement projects in relation to upcoming opportunities is very much important.

6. Accepting challenges
Entrepreneurship means accepting challenges amidst risk and uncertainty.While accepting
entrepreneurship as a career the entrepreneur accepts the challenges of all odds and puts his
efforts to convert the odds into viable business opportunities by pooling together the
resources of building and running the enterprise.

7. Goal-oriented Activity
The entrepreneur who creates and operates enterprises seeks to earn profits through
satisfaction of needs of consumers; hence, entrepreneurship is a goal-oriented activity.
Entrepreneurship emphasizes results, achievements and targets achieved. It is work done not
imaginary plans or paper decisions. Hence entrepreneurship is a goal-oriented activity.

8. Value Creation
Next, we find that the process of creating value is a characteristic in describing
entrepreneurship. Through entrepreneurship, new products, services, transactions,
approaches, resources, technologies, and markets are created that contribute some value to a
community or marketplace. We can also see value created when, through entrepreneurship;
resources are transformed into outputs such as products or services. During this
transformation process, value is created because the entrepreneur is fashioning something
worthwhile and useful. Drucker says, “Until entrepreneurial act, every plant is a seed and
every mineral just another rock.

9. Dynamic Process
Entrepreneurship is a dynamic function. Entrepreneur thrives on changes in the environment,
which bring useful opportunities for business. An entrepreneur deals proactively with
changing markets and environment. He looks at the changes as the source of market
advantages, not as a problem. Uncertainties are market opportunities for him. He capitalizes
on fleeting market anomalies.
10. Uniqueness
Other characteristic found in entrepreneurship is that of uniqueness. Entrepreneurship
involves new combinations and new approaches with which entrepreneurs are willing to
experiment. Through Entrepreneurship unique products are created and unique approaches
are tried. Entrepreneurship isn’t merely imitating what others have done. It’s doing something
new, something untested and untried – something unique.

11. Interest and Vision

The first factor for entrepreneurial success is interest. Since entrepreneurship pays off
according to performance rather than time spent on a particular effort, an entrepreneur must
work in an area that interests her. Otherwise, she will not be able to maintain a high level of
work ethic, and she will most likely fail. This interest must also translate into a vision for the
company’s growth. Even if the day-to-day activities of a business are interesting to an
entrepreneur, this is not enough for success unless she can turn this interest into a vision of
growth and expansion. This vision must be strong enough that she can communicate it to
investors and employees.

12. Risk and Rewards

Entrepreneurship requires risk. The measurement of this risk equates to the amount of time
and money you invest into your business. However, this risk also tends to relate directly to
the rewards involved. An entrepreneur who invests in a franchise pays for someone else’s
business plan and receives a respectable income, while an entrepreneur who undertakes
ground breaking innovations risks everything on an assumption that something revolutionary
will work in the market. If such a revolutionary is wrong, she can lose everything. However,
if she is right, she can suddenly become extremely wealthy.

Traits/Qualities of Successful Entrepreneurs

1. Full of determination
To be a successful entrepreneur it is important to set clear goals along the way. Growing
business, increasing sales and hiring new employees require several micro-goals within them
to be executed successfully.This type of workload and challenge is enough to stop many
people from pursuing the entrepreneurial career path. One has to be determined from the
beginning to be successful. If one isn’t fully determined there is a good chance to crumble
under the pressure.

2. Risk Taking
Some of the most successful entrepreneurs took major risks, and they paid off in a big
way. Entrepreneurs are risk takers ready to dive deep into a future of uncertainty. But not all
risk takers are successful entrepreneurs. Successful entrepreneurs have will to risk time and
money on unknowns, but they also keep resources, plans and bandwidth for dealing with
“unknown” in reserve. When evaluating risk, a successful entrepreneur always thinks that is
this risk worth the cost of career, time and money? And, what will he do if this venture
doesn’t pay off?

3. High level of confidence

Entrepreneurs that have a high level of confidence are able to get the job done even under the
most stressful conditions. They understand that big challenges breed big rewards. This is the
same mentality that allows successful entrepreneurs to spot an opportunity when most just
see a possible challenge. When most focus on the challenge, a successful entrepreneur
focuses on the finish line and the end reward.

4. Craves learning
Industries constantly change and evolve . Only those that are also growing through constant
learning will stay ahead. There will always be competitors trying to surpass . There will
always be someone claiming to be the next greatest thing.A successful entrepreneur always
stay sharp,through constant learning about the competitors and the industry.

5. Understands failure is part of the game

Failure is one of the secrets to success, since some of the best ideas arise from the ashes of a
shuttered business. A successful entrepreneur knows that failure is part of success. He will
take those failures and use them as learning experiences. Real world experience, even failing,
will teach more than what one would ever learn in a classroom.

6. Passionate
Passion fuels the drive and determination required to be successful. If one isn’t fully
passionate about what he/she is doing the added stress and obstacles will build up on
shoulders and eventually be responsible for collapse.

7. Adaptability and Flexibility

If entrepreneurs had the ability to see what was hiding around each turn it would make it
much easier, but unfortunately that is not the case. There can be surprises around every
corner, even with a well thought out plan and strategy.A successful entrepreneur is extremely
adaptable and has ability to respond quickly in any situation. It’s good to be passionate or
even stubborn about what you do. But being inflexible about client or market needs will lead
to failure. Market needs are dynamic: changes are a recurring phenomenon. Successful
entrepreneurs welcome all suggestions for optimization or customization that enhances their
offering and satisfies client and market-needs.

8.Money Management
Successful Entrepreneur must have excellent money management skills. Poor financial
decisions, such as overspending or allocating funds to less important tasks can quickly ruin a
business. It takes time to get to profitability for any entrepreneurial venture. Till then, capital
is limited and needs to be utilized wisely. Successful entrepreneurs realize this mandatory
money management requirement and plan for present and future financial obligations (with
some additional buffer). Even after securing funding or going fully operational, a successful
businessman keeps a complete handle on cash flows, as it is the most important aspect of any
business.

9. Networking Abilities
A large collection of business cards and a huge contact list doesn’t make an expert at
networking. Building value-based relationships that are truly meaningful is what networking
is all about — these are the relationships that lead to business opportunities and long-term
relationships that are mutually beneficial. Constantly networking with people that can not
only help my business currently, but also have the potential to help you in the future as well.

10. Ability to sell and promote

Knowing how to sell is an absolutely essential part of being a successful business owner.If
you can’t express what it is that makes your product or service a solution to a problem, you
will be in for a rough ride.

11. Planning (But not Over-planning)

Entrepreneurship is about building a business from scratch while managing limited resources
(including time, money and personal relationships). It is a long-term commitment, and
attempting to plan as much as possible at the beginning is a noble impulse. In reality,
however, planning for everything and having a ready solution for all possible risks may
prevent you from even taking the first step. Successful entrepreneurs have a mindset and
temperament to capable of dealing with unforeseen possibilities.
12.Creativity and Persuasiveness
Successful entrepreneurs have the creative capacity to recognize and pursue opportunities.
They possess strong selling skills and are both persuasive and persistent. Are you willing to
promote your business tirelessly and look for new ways to get the word out about your
product or service?
13. Interpersonal Skills
Entrepreneurs are always comfortable while dealing with people at all levels. During the
course of their action,they come across a cross section of individuals with whom they have to
deal. They interact with raw material suppliers, customers,bankers etc. for different
activities.As successful entrepreneurs,they should be persons who like working with others
possessing the much needed quality of interpersonal skill to deal with people.

14. Time orientation

Entrepreneurs anticipate future trends basing upon their past experience and exposure.They
stick to the timepragmatically while doing their jobs.

15. Leadership
Entrepreneurs should posses the quality of leadership.Leadership is the ability to exert
interpersonal influence by means of communication towards the achievement of
goals.Entrepreneurs as the leaders should provide the necessary spark to motivation by
guiding,inspiring,assisting and directing the members of the group for achievement of unity
of action,efforts and purpose.

16. Internal Locus of Control

Successful entrepreneurs believe in themselves.They do not believe that the success or failure
or their venture will be governed by fate,luck or similar forces.They believe that their
accomplishments and setbacks are within their own control and influence and that they can
affect the outcome of their actions.

17. Tolerance for Ambiguity

Star up entrepreneurs face uncertainty compounded by constant changes that introduce
ambiguity and stress into every aspect of the enterprise. Setbacks and surprises are
inevitable.A tolerance for ambiguity exists when the entrepreneur can deal with the various
setbacks and changes that constantly confront him or her.

18. Integrity and Reliability

Integrity and reliability are the glue and fiber that bind successful personal and business
relationships and make them strong.Integrity and reliability help build and sustain trust and
confidence among investors,partners,customers and creditors.Small business entrepreneurs in
particular find these two characteristics crucial to success.

19. Tolerance for Failure

Successful Entrepreneurs use failure as a learning experience.In adverse and difficult times
they look for opportunity.

Importance of Entrepreneurship

Entrepreneurship offers the following benefits:

1. Development of managerial capabilities
The biggest significance of entrepreneurship lies in the fact that it helps in identifying and
developing managerial capabilities of entrepreneurs. An entrepreneur studies a problem,
identifies its alternatives, compares the alternatives in terms of cost and benefits implications,
and finally chooses the best alternative.This exercise helps in sharpening the decision-making
skills of an entrepreneur. Besides, these managerial capabilities are used by entrepreneurs in
creating new technologies and products in place of older technologies and products resulting
in higher performance.

2. Creation of organizations
Entrepreneurship results into creation of organizations when entrepreneurs assemble and
coordinate physical, human and financial resources and direct them towards achievement of
objectives through managerial skills.

3. Improving standards of living

By creating productive organizations, entrepreneurship helps in making a wide variety of
goods and services available to the society, which results into higher standards of living for
the people.Possession of luxury cars, computers, mobile phones, rapid growth of shopping
malls, etc. are pointers to the rising living standards of people, and all this is due to the efforts
of entrepreneurs.

4. Means of economic development

Entrepreneurship involves creation and use of innovative ideas, maximization of output from
given resources, development of managerial skills, etc., and all these factors are so essential
for the economic development of a country.

5. Job Creation
We know that job creation is vital to the overall long-term economic health of communities,
regions, ad nations. Entrepreneurial ventures play very important role in it. Small business
create more jobs than large business do. During economic recession, when large companies
are on their way to retrenchment of their work force, individuals whose jobs are eliminated
find employment with small business. The creation of jobs by small businesses is expected to
continue into the future as new firms start small and grow.

6. Innovation
Innovating is a process of creating, changing, experimenting, transforming and
revolutionizing. Innovation is one of the key distinguishing characteristics of entrepreneurial
activity. The passionate drive and intense hunger of entrepreneurs to forge new directions
products and processes and to take risks set in motion a series of decisions that lead to the
innovations that are important for economic vitality. Without these new ideas, economic,
technological, and social progress would be slow indeed. The “creative destruction” process
of innovating leads to technological changes and employment growth. Entrepreneurial firms
act as these “agents of change” by providing an essential source of new and unique ideas that
might otherwise go.

7. Other Contribution
 Entrepreneurship in small businesses helps in distribution of products of large
business. They, thus, support the large business houses.
 It offers business avenues to women and minorities. Women and minorities are
allowed the benefit of financial independence and a chance to exhibit the ability to
manage business enterprises.
 Dispersal of economic activities to different sectors of economy and identifying new
avenues of growth.
 Improvement of the standard of living of different weaker sections in the society.
 Bring socio political change in the society.
 Develop technological know-how.
 Improve culture of business and expand commercial activities.
 Entrepreneurship acts as a change agent to meet the requirements of the changing
markets and customer preferences.
 Develop a culture of achievement orientation.
 It helps in bringing about change and development of the civilization through change
in trade, comment be and industrialization.
 It arouses the need for achievement in individuals, which brings about a change in the
economic scenario through economic development and growth.
 It results in exploitation of economy’s resources, such as labour, capital and
technology to the fullest extent.

Difference between Entrepreneur and Intrapreneur

Entrepreneur Intrapreneur
An entrepreneur is independent in his operations An intraprenuer is dependent on the entrepreneur
i.e. the owner.
An entrepreneur himself raises funds required for The Intrapreneur does not raise funds.
the enterprise.
Entrepreneur bears the risk involved in the An intrapreneur does not fully bear the risk
business. involved in the enterprise.
An entrepreneur operates from outside. On the contrary,an intrapreneur operates from
within the organization itself.
An entrepreneur begins his business with a newly An intrapreneur sets up his enterprise after
set up enterprise. working someone else’s organization.
As an entrepreneur establishes new business, so he An intrapreneur establishes his business after
does not posses any experience over the business. gathering experiences through working in the
other organization.
Entrepreneurs may find it difficult to get resources Intrapreneurs have their resources readily
available to them.

Entrepreneurs are found anywhere their vision Intrapraneurs work within the confines of an
takes them. organization.

Entrepreneurs know the business on a macro Intrapreneurs are highly skilled and specialized.
scale.

Difference between an Entrepreneur and a Manager

Basis of Difference Entrepreneur Manager

1. Motive The main motive of an But, the main motive of a manager is
entrepreneur is to start a to render his services in an enterprise
venture by setting up an already set up by someone else i.e.,
enterprise. entrepreneur.
2. Status An entrepreneur is the owner of A manager is the servant in the enterprise
the enterprise. owned by the entrepreneur.
3. Risk Bearing An entrepreneur being the A manager as a servant does not bear any
owner of the enterprise assumes risk involved in the enterprise.
all risks and uncertainty
involved in running the
enterprise.
4. Rewards The reward an entrepreneur A manager gets salary as reward for the
gets for bearing risks involved services rendered by him in the
in the enterprise is profit which enterprise. Salary of a manager is certain
is highly uncertain. and fixed.
5. Innovation Entrepreneur himself thinks A manager simply execute the plans
 over what and how to produce prepared by the entrepreneur. Thus, a
goods to meet the changing manager simply translates the
demands of the customers. entrepreneur’s ideas into practice
Hence, he acts as an innovator
also called a ‘change agent’
6. Qualifications An entrepreneur needs to On the contrary, a manager needs to
possess qualities and possess distinct qualifications in terms of
qualifications like high sound knowledge in management theory
achievement motive, originality and practice.
in thinking, foresight, risk -
bearing ability and so on.
7. Focus An entrepreneur is someone A manager is typically concerned with
who is concerned primarily sustainability, and has to focus on what
with the necessary components can be done within the framework of
to start up a business what he has been given to work with in
an existing enterprise.

8. Growth An entrepreneur begins with A business manager is focused on

the idea of the business from its engendering growth based on available
inception and its potential for resources. A manager must get
growth in the long run. An employees to perform at optimal levels,
analysis of the market and and must make use of non-human
available resources in relation resources to create additional growth
to the original idea plays a beyond basic sustainability
primary role in his business
decisions.
9.Objective Entrepreneur’s objective is to Manager’s objective is to supervise and
innovate and create and he acts create routines. He implements the
as a change agent. Entrepreneur’s plans and ideas.

Factors affecting Entrepreneurship Development

By relivingmbadays on December 26, 2012

Entrepreneurship is influenced by four distinct factors: economic development, culture,

technological development and education. In areas where these factors are present, you can
expect to see strong and consistent entrepreneurial growth.

These conditions may have both positive and negative influences on the emergence of
entrepreneurship. Positive influences constitute facilitative and conducive conditions for the
emergence of entrepreneurship, whereas negative influences create inhibiting milieu to the
emergence of entrepreneurship.
Let us look at each one of them in details.

Economic Factors

Economic environment exercises the most direct and immediate influence on

entrepreneurship. This is likely because people become entrepreneurs due to necessity when
there are no other jobs or because of opportunity.

The economic factors that affect the growth of entrepreneurship are the following:

1. Capital

Capital is one of the most important factors of production for the establishment of an
enterprise. Increase in capital investment in viable projects results in increase in profits which
help in accelerating the process of capital formation. Entrepreneurship activity too gets a
boost with the easy availability of funds for investment.

Availability of capital facilitates for the entrepreneur to bring together the land of one,
machine of another and raw material of yet another to combine them to produce goods.
Capital is therefore, regarded as lubricant to the process of production.

France and Russia exemplify how the lack of capital for industrial pursuits impeded the
process of entrepreneurship and an adequate supply of capital promoted it.

2. Labor

Easy availability of right type of workers also effect entrepreneurship. The quality rather than
quantity of labor influences the emergence and growth of entrepreneurship. The problem of
labor immobility can be solved by providing infrastructural facilities including efficient
transportation.

The quality rather quantity of labor is another factor which influences the emergence of
entrepreneurship. Most less developed countries are labor rich nations owing to a dense and
even increasing population. But entrepreneurship is encouraged if there is a mobile and
flexible labor force. And, the potential advantages of low-cost labor are regulated by the
deleterious effects of labor immobility. The considerations of economic and emotional
security inhibit labor mobility. Entrepreneurs, therefore, often find difficulty to secure
sufficient labor.
3. Raw Materials

The necessity of raw materials hardly needs any emphasis for establishing any industrial
activity and its influence in the emergence of entrepreneurship. In the absence of raw
materials, neither any enterprise can be established nor can an entrepreneur be emerged

It is one of the basic ingredients required for production. Shortage of raw material can
adversely affect entrepreneurial environment. Without adequate supply of raw materials no
industry can function properly and emergence of entrepreneurship to is adversely affected.

In fact, the supply of raw materials is not influenced by themselves but becomes influential
depending upon other opportunity conditions. The more favorable these conditions are, the
more likely is the raw material to have its influence of entrepreneurial emergence.

4. Market

The role and importance of market and marketing is very important for the growth of
entrepreneurship. In modern competitive world no entrepreneur can think of surviving in the
absence of latest knowledge about market and various marketing techniques.

The fact remains that the potential of the market constitutes the major determinant of
probable rewards from entrepreneurial function. Frankly speaking, if the proof of pudding
lies in eating, the proof of all production lies in consumption, i.e., marketing.

The size and composition of market both influence entrepreneurship in their own ways.
Practically, monopoly in a particular product in a market becomes more influential for
entrepreneurship than a competitive market. However, the disadvantage of a competitive
market can be cancelled to some extent by improvement in transportation system facilitating
the movement of raw material and finished goods, and increasing the demand for producer
goods.

5. Infrastructure

Expansion of entrepreneurship presupposes properly developed communication and

transportation facilities. It not only helps to enlarge the market, but expand the horizons of
business too. Take for instance, the establishment of post and telegraph system and
construction of roads and highways in India. It helped considerable entrepreneurial activities
which took place in the 1850s.
Apart from the above factors, institutions like trade/ business associations, business schools,
libraries, etc. also make valuable contribution towards promoting and sustaining
entrepreneurship’ in the economy. You can gather all the information you want from these
bodies. They also act as a forum for communication and joint action.

Social Factors

Social factors can go a long way in encouraging entrepreneurship. In fact it was the highly
helpful society that made the industrial revolution a glorious success in Europe. Strongly
affect the entrepreneurial behavior, which contribute to entrepreneurial growth. The social
setting in which the people grow, shapes their basic beliefs, values and norms.

The main components of social environment are as follows:

1. Caste Factor

There are certain cultural practices and values in every society which influence the’ actions of
individuals. These practices and value have evolved over hundred of years. For instance,
consider the caste system (the varna system) among the Hindus in India. It has divided the
population on the basis of caste into four division. The Brahmana (priest), the Kshatriya
(warrior), the Vaishya (trade) and the Shudra (artisan): It has also defined limits to the social
mobility of individuals.

By social mobility’ we mean the freedom to move from one caste to another. The caste
system does not permit an individual who is born a Shridra to move to a higher caste. Thus,
commercial activities were the monopoly of the Vaishyas. Members of the three other Hindu
Varnas did not become interested in trade and commence, even when India had extensive
commercial inter-relations with many foreign countries. Dominance of certain ethnical
groups in entrepreneurship is a global phenomenon

2. Family Background

This factor includes size of family, type of family and economic status of family. In a study
by Hadimani, it has been revealed that Zamindar family helped to gain access to political
power and exhibit higher level of entrepreneurship.
Background of a family in manufacturing provided a source of industrial entrepreneurship.
Occupational and social status of the family influenced mobility. There are certain
circumstances where very few people would have to be venturesome. For example in a
society where the joint family system is in vogue, those members of joint family who gain
wealth by their hard work denied the opportunity to enjoy the fruits of their labor because
they have to share their wealth with the other members of the family.

3. Education

Education enables one to understand the outside world and equips him with the basic
knowledge and skills to deal with day-to-day problems. In any society, the system of
education has a significant role to play in inculcating entrepreneurial values.

In India, the system of education prior to the 20th century was based on religion. In this rigid
system, critical and questioning attitudes towards society were discouraged. The caste system
and the resultant occupational structure were reinforced by such education. It promoted the
idea that business is not a respectable occupation. Later, when the British came to our
country, they introduced an education system, just to produce clerks and accountants for the
East India Company, The base of such a system, as you can well see, is very anti-
entrepreneurial.

Our educational methods have not changed much even today. The emphasis is till on
preparing students for standard jobs, rather than marking them capable enough to stand on
their feet.

4. Attitude of the Society

A related aspect to these is the attitude of the society towards entrepreneurship. Certain
societies encourage innovations and novelties, and thus approve entrepreneurs’ actions and
rewards like profits. Certain others do not tolerate changes and in such circumstances,
entrepreneurship cannot take root and grow. Similarly, some societies have an inherent
dislike for any money-making activity. It is said, that in Russia, in the nineteenth century, the
upper classes did not like entrepreneurs. For them, cultivating the land meant a good life.
They believed that rand belongs to God and the produce of the land was nothing but god’s
blessing. Russian folk-tales, proverbs and songs during this period carried the message that
making wealth through business was not right.

5. Cultural Value
Motives impel men to action. Entrepreneurial growth requires proper motives like profit-
making, acquisition of prestige and attainment of social status. Ambitious and talented men
would take risks and innovate if these motives are strong. The strength of these motives
depends upon the culture of the society. If the culture is economically or monetarily oriented,
entrepreneurship would be applauded and praised; wealth accumulation as a way of life
would be appreciated. In the less developed countries, people are not economically
motivated. Monetary incentives have relatively less attraction. People have ample
opportunities of attaining social distinction by non-economic pursuits. Men with
organizational abilities are, therefore, not dragged into business. They use their talents for
non-economic end.

Psychological Factors

Many entrepreneurial theorists have propounded theories of entrepreneurship that concentrate

especially upon psychological factors. These are as follows :

1. Need Achievement

The most important psychological theories of entrepreneurship was put forward in the early)
960s by David McClelland. According to McClelland ‘need achievement’ is social motive to
excel that tends to characterise successful entrepreneurs, especially when reinforced by
cultural factors. He found that certain kinds of people, especially those who became
entrepreneurs, had this characteristic. Moreover, some societies tend to reproduce a larger
percentage of people with high ‘need achievement’ than other societies. McClelland
attributed this to sociological factors. Differences among societies and individuals accounted
for ‘need achievement’ being greater in some societies and less in certain others.

The theory states that people with high need-achievement are distinctive in several ways.
They like to take risks and these risks stimulate them to greater effort. The theory identifies
the factors that produce such people. Initially McClelland attributed the role of parents,
specially the mother, in mustering her son or daughter to be masterful and self-reliant. Later
he put less emphasis on the parent-child relationship and gave more importance to social and
cultural factors. He concluded that the ‘need achievement’ is conditioned more by social and
cultural reinforcement rather than by parental influence and such related factors.

2. Withdrawal of Status Respect

There are several other researchers who have tried to understand the psychological roots of
entrepreneurship. One such individual is Everett Hagen who stresses the-psychological
 consequences of social change. Hagen says, at some point many social groups experience a
radical loss of status. Hagen attributed the withdrawal of status respect of a group to the
genesis of entrepreneurship.

Hage believes that the initial condition leading to eventual entrepreneurial behavior is the loss
of status by a group. He postulates that four types of events can produce status withdrawal:

1. i. The group may be displaced by force;

2. ii. It may have its valued symbols denigrated;
3. iii. It may drift into a situation of status inconsistency; and
4. iv. It may not be accepted the expected status on migration in a new society.

3. Motives

Other psychological theories of entrepreneurship stress the motives or goals of the

entrepreneur. Cole is of the opinion that besides wealth, entrepreneurs seek power, prestige,
security and service to society. Stepanek points particularly to non-monetary aspects such as
independence, persons’ self-esteem, power and regard of the society.

On the same subject, Evans distinguishes motive by three kinds of entrepreneurs

1. Managing entrepreneurs whose chief motive is security.

2. Innovating entrepreneurs, who are interested only in excitement.
3. Controlling entrepreneurs, who above all otter motives, want power and authority.

Finally, Rostow has examined inter gradational changes in the families of entrepreneurs. He
believes that the first generation seeks wealth, the second prestige and the third art and
beauty.