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The term ‘entrepreneur first of all appeared in the French Language. In
the early 16th century it was applied to a person engaged in military
expedition. To was extended to cover the construction and civil engineering
activities in the 17th century. It was the only in the 18th century that the
word was used to refer to economic activities. Richard Cantillon, a French
banker applied the word entrepreneur to mean a person who bears
uncertainty and risk ’
Economic development essentially means a process of upward
change. It can be defined as a process of a upward change. It can be define
as a process whereby the real per capita income of the country increases
over a long period of time.
Entrepreneurship is the tendency of a person to organize the business of
his own and it run a profitably, using the quality of leadership, decisions
making and managerial caliber etc. The term entrepreneurship is often used
interchangeably with entrepreneurship. But conceptually they are different

Refer to a person
Refer to a process
Decision Maker
Decision making

Notes By: Guljinder Randhawa 1

Risk Taker

In a way entrepreneur precedes entrepreneurship. Entrepreneurship is an

abstraction and entrepreneur are tangible person. Well designed and
controlled research studies on entrepreneurship are very few.

Entrepreneurship is an abstraction and entrepreneurs are tangible

persons. Well Designed and controlled research studies on entrepreneurship
are very few. Entrepreneurship is a role played by or the task performed by
the entrepreneur. The central task of the entrepreneur is to take the
moderate risk and invest the money to earn profit by the exploiting an
opportunity. For this he must posses far sight6edness to perceive an
opportunity so that he can exploit it well in time.

Entrepreneurship can be defined as the propensity of mind to take

calculated risk with confidence to achieve a pre determined business or
industrial objectives. The word ‘entrepreneurship’ typically means to
undertake. Recently in the west, the entrepreneurship is mainly an attribute
of an efficient manager. But the success achived by entrepreneurs in
developing countries demolish the contention thet entrepreneur is a rare
animal and an elusive character. Incidentally entrepreneurship has engaged
the attention of sociologist, psychologists and economist. Sociologist
analysis the characteristics of an entrepreneurs in terms of caste, family,
social status etc. Psychologists analysis the attribute on the basis of their
personality traits such a need of achievement, affiliation and power, risk
taking, decision making, creativity and leadership etc. the economist
analyses them on the bases of occupational background, access to capital,
business to technical experience.

According to HIGGINS “Entrepreneurship is meant the function of seeing

investment and production opportunity, organizing an enterprises to
Notes By: Guljinder Randhawa 2
undertaken a new production process, raising capital, hiring labour
arranging for supply of raw material and selecting top managers for the day
to day operation of the enterprise”
According to Josepf. A. Schumpeter
Entrepreneurship is essentially a creative activity or it is a innovation
function. The process of innovation may be in the form of
 Introduction of a new product.
 Use of a new method of production.
 Opening of a new market.
 The conquest of new sources of supplying raw material
 A new form of organization
According to H.N.Pathak
Entrepreneurship involves the wide range of area on which series of
decision are requiredwhich can be grouped into 3 categories
 Perception of an opportunity
 Organizing an industrial unit
 Running the industrial unit as a profitable, growing and going concern


1) Calculated risk taker:- a risk situation occurs when one required to

make a choice between two or more alternatives whose potential
outcome are not known and must be subjectively evaluated. A Risk
situation involve potential gain or loss. The greater the possible
loss, the greater the risk is involved. An entrepreneur is a calculated
risk taker. An entrepreneur likes to take a realistic risk because he
want to be successful.

2) Innovator:- innovation may occur in the following forms:-

Notes By: Guljinder Randhawa 3
 Introduction of a new product.
 Use of a new method of production.
 Opening of a new market.
 The conquest of new sources of supplying raw material
 A new form of organization.
Beside this an innovator must have following qualities
 More educated.
 Higher in social standing.
 Better equipped to deal with abstraction
 More receptive to risk in general
 Higher in achievement motivation
 Higher in social participation
 A more active information seeker
 An opinion leader
 More in contact with person outside the social system

3) Organizer:- An entrepreneur has to bring together various factors

of production, minimize losses and reduce the cost of production.
Initially, he may take all the decisions but as the enterprise grows,
he starts delegating the authority. He produce the best result as an
organizer. He select the best person, financer and make their
employees to work with their loyalty and dedication. An enterprising
entrepreneur should be energetic, resourceful, alert to new
opportunities and able to adjust the changing condition.

4) Creative:- creativity as a field knowledge, seeks to explain how

human, either individually or collectively, reach solution that are
both novel and useful. Innovation means the efforts to create
purposeful ventures

5) Achievement Motivated: Achievement motivation is a drive to

overcome challenges to advance and to grow. An entrepreneur is
achievement oriented person not ‘money hungry’. He works for his
desire for challenge, accomplishment and services to other.

Notes By: Guljinder Randhawa 4

6)Technically Competent: success of an entrepreneur depends
largely upon his ability to adopt latest technology. Technical
knowledge implies his ability to device and use new and better
ways of producing and marketing goods and services. An
entrepreneur must have a reasonable level of technical knowledge.
A dynamic entrepreneur must also be interested in changing the
pattern of production to suit the requirement.

7)Self confident: Entrepreneur must be self confident. He should

have faith in himself, only then he can trust others.

8)Socially responsible: in the context of the universal urge for the

social change and economic development, the old concept of an
entrepreneur seeking certain advantages for himself is no longer
acceptable. The changing environment calls for the socially
conscious entrepreneur who is not threatened by the progress of

9)Optimistic: an entrepreneur should approach his task with a hope

of success and optimistic attitude. He attempts any task with the
hope that he will succeed rather than with a fear of failure. Such a
hope of success enhances his confidence and drives him towards

10) Equipped with capability to drive: drive is a person’s

motivation towards a task. It comprises of such personality traits as
responsibility, vigor, initiative, persistence and ambition. An
entrepreneur must exert considerable efforts in establishing and
managing his business.

11) Blessed with mental ability: this consist of overall

intelligence .i.e. IQ, creative thinking ability and analytical thinking
ability and analytical thinking ability.

Notes By: Guljinder Randhawa 5

12) Human relation ability: personality factors such as emotional
stability, personal relations, sociability, consideration and
tactfulness are important contributors to entrepreneur’s success.

13) Communication ability: An entrepreneur must possess the

quality of communicating effectively in written and oral
communication. Good communication also means that both the
sender and receiver understand and are being understood.

14) Decision making: He must possess ability to take decision

effectively. Decisions taken should be based on quantitative facts.

Notes By: Guljinder Randhawa 6





In the initial stage of economic development , entrepreneurs tend to be the

shy and humble but as the development process pick up the speed, they
Notes By: Guljinder Randhawa 7
tend to more enthusiastic and confident. They help to make the business
environment healthy and development oriented. These kind of entrepreneur
exist in developed countries only as their economic development and
technology level reached at a certain level. Imitative entrepreneurs are
more successful.

However various types of entrepreneur are classified as under:-

1)According to the type of business:-

• Trading entrepreneur: They are related to trading activities not a

manufacturing. This means buying goods from other producer
and selling the goods to consumers
• Industrial entrepreneur: one who set up industrial units. He
complies with necessary formalities of getting license, power
connection, pollution control clearance etc
• Business entrepreneur: who gave new idea of a new product and
services and then translate their idea into reality.
• Corporate entrepreneur: Who plans, develops and manages a
corporate body. He is promoter, an essential part of board of
director, an owner as well as entrepreneur.
• Agriculture entrepreneur: one who engaged in agriculture

2)According to motivation:

• Pure entrepreneur: who may or may not possess an aptitude for

entrepreneurship but it is tempted by the monetary rewards.
• Induced entrepreneur: attracted by the various subsidies,
facilities and incentives offered by the government.

3)According to the uses of technology:

• Technical entrepreneur: He concentrate more on production than

the marketing.

Notes By: Guljinder Randhawa 8

• Non – Technical entrepreneur: Developing alternative strategies
for the different marketing and distribution to promote his
business activity.
• Professional entrepreneur: Who is interested to float a business
but not ready to manage or operate it.

4)According to stages of development:-

• First Generation entrepreneur: who do not possess any

entrepreneurial background
• Second Generation entrepreneur: who inherit the family business
firms and pass it generation to another
• Classical Generation entrepreneur: Who want to maximize the
profit at consistant level.

5)According to Capital Ownership:

• Private entrepreneur: when a individual and group of individuals

setup an enterprises, arrange finance, bears the risk and adopt
the latest techniques in the business with the intention to earn
profit, he or the group is called as private entrepreneur.
• State entrepreneur: State entrepreneur means the trading and
industrial venture undertaken by the state or the government
• Joint entrepreneur: Joint entrepreneur means the combination of
private entrepreneur and state entrepreneur who join hands.

6)According to gender and age

• Man entrepreneur
• Woman entrepreneur
• Young entrepreneur
• Old entrepreneur
• Middle –aged entrepreneur

Notes By: Guljinder Randhawa 9

7)According to area

• Urban entrepreneur
• Rural entrepreneur

8)According to scale

• Large scale industry entrepreneur

• Medium scale industry entrepreneur
• Small scale industry entrepreneur
• Tiny industry entrepreneur


Entrepreneurial environment constitutes both internal and external factors.
Environment refers to all external factors which has an impact on the
working of the firm. It refers to those aspect of the surrounding of the
business enterprises and circumstances of business unit which affect or
influence its activities and operations and decide its effectiveness.


Economic environment influences the entrepreneurship to a great

extent. The business sectors has economic relation with the govt, capital
market, household and with global sector. The success of any enterprises
are decided by the economic environment. The important external factors
that affect the economic environment of the business are as follow:
• Economic Conditions: the general economic conditions prevailing in the
country .i.e. national income, per capita income, economic resources,

Notes By: Guljinder Randhawa 10

distribution of income and assets etc. are important determinants of
the entrepreneurship environment. Business cycles and economic
growth of the economy are important factors of economic
• Economic System: the economic system of a country may be
capitalistic , socialistic, communist or mixed. Government regulation of
economic activities depends upon on the nature of the economic
• Economic Planning: economic planning deals with systematic and co-
ordinated efforts on the part of the political authority to improve the
effectiveness of the economy.
• Economic infrastructure: economic infrasturture consist of the
provision of roads and railways, hydroelectric works, etc, some
attempts have been made to involve the private sector is some areas
of the infrastructures power generation , roads constructions, building
highways, and telecommunication but responsibility of infrastructure is
with government sector. .
• Availability of capital facilities: capital requirement is one of thye basic
factor for any business . increase in capital investment leads higher
• Labour: division of labour is very important factor for the development
of the any business.
• Per capita income: with help of more private entrepreneurs there can
be higher level of per capita income.


Social environment is very comprehensive because it may include the

total social factors with in which an business enterprises operates. Social
environment includes people attitude, family background, religion,
education etc. The factors are

Notes By: Guljinder Randhawa 11

• Rural society: about 70% of the Indian people live in villages and Indian
villages continue to be under developed even backward. Urban – rural
gap is a reality of our society. The ruraliti4sfeels that though
agriculture accounts for the major part’s of India’s national income.
• Poverty: poverty of the masses ia an important features of the Indian
social system. Despite the fact of having made considerable progress
in the fields of agriculture and industrialization. A large number of
population lives below poverty line.
• Illiteracy and ignorance: illiterates constitute a major part of the Indian
social system. Nearly 64% of the population continues to be illiterate.
The faculty system of education has compounded the evil of illiteracy.
The need is for more determined governmental action and strong
social support in this respect.
• Linguistic diversity: on the basis of language, Indian society stands
divided into linguistic groups. The constitution of India recognize as
many as 15 languages.
• Caste and casteism:
• Communalism: the presence of communal tension and the periodic
outbreak of communal riots have been the bone of the Indian social
• Occupational Background.
• Regionalism.
• Traditions
• Problems of social communication.

Notes By: Guljinder Randhawa 12

The term ‘competence’ implies a person’s underlying characteristics leading
to his/ her superior performance. It is good combination of various qualities
and traits required to perform the job effectively. Entrepreneurs who
possess the necessary competencies succeeds while those deficient in these
competencies fail in their ventures.
Some people believe that entrepreneurs are born not made. In other
words, business family background is essential to success for entrepreneurs.
Other people believe that entrepreneurs are not made born. According to
some people, person which proper knowledge and skills acquired through
education and experience can become successful entrepreneur. In other
words resolve the controversy on what successful entrepreneurs, the
Entrepreneurship development Institute of India (EDI). Following are the
traits or good qualities of the entrepreneur:-
• Initiation: given the demand of the situation, entrepreneur takes
initiation to start an industry .
• Watching for opportunity and take necessary action.
• Persistence: - he should go for extreme efforts to get rid of the
• Information seeker:- ready to learn from his experience
• Quality conscious: - Always put effort to excel better than the existing
standard of performance.
• Commitment to work: - Accord upmost priority to accomplish the work.
• Efficiency lover: - tries to do things at the faster pace incurring
minimum cost.
• Proper planning: - frames realistic business plans and follow them
• Self confidence: - A strong believer in his strengths and weakness.
• Assertiveness: - able to assert his issues.
• Persuasion:- succeeds in persuading other to do what he wants
• Efficient monitoring: - personally supervises the work to ensure that
the work is accomplished.

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• Concern of employees and take proper action to improve the welfare of
employees working in his enterprises.
Several other research studies have tried to identify the qualities and traits
of successful entrepreneurs. In the study of entrepreneurial development in
Madras city of India, J. Berna has stressed the following qualities of a good
• He is an enterprising individual. He is energetic, hardworking,
resourceful, very alert to new opportunities, able enough to adopt to
the changing condition.
• He is also interested in expanding the scale of his operation by way of
ploughing back his profit.
• He welcome advanced technology.
• He well visualize the likely changes and ready to adapt them
According to McClelland the successful entrepreneurs are characterized by
the 3 qualities:
• He is endowed with an unusual creativeness.
• He is enriched by high propensity.
• He has a strong need for achievement.

Having gone through the foregoing qualities of a successful

entrepreneur, an integrated view of the qualities of a successful
entrepreneur can be listed as follows:-

• Capacity and willingness to assume risk.

• Willingness to hardwork and be always tenacious.
• Vision and forsightedness.
• Creative and imaginative thinking.
• High need achievement.
• Innovativeness and willingness to adapt change.
• Ability to utilize resources properly.
• Total commitment, determination and perseverance.
• High degree of ambition.

Notes By: Guljinder Randhawa 14



Mangers want Entrepreneurs want
Primary Motives promotion and freedom, a goal
traditional corporate oriented self– reliant
reward and self motivated

Manager respond to Entrepreneurs end

quotas and budgets, goals of 5 to 10 year
Time Orientation weekly, monthly and growth of business in
yearly, view as guides

Mangers are business He knows business

Skills schools trained intimately. He learns
through experience.

Notes By: Guljinder Randhawa 15

Attention of managers The attention of
are primary on event entrepreneur is
Attention inside corporation primarily on
technology and
market place.

Managers are very Entrepreneur like

Risk careful calculated risk

Managers are the Entrepreneur are the

Status employees owner.

Educational Level Highly educated. Less well educated.


Entrepreneurship does not emerge and grow spontaneously. Rather it is

dependent rather it is dependent upon several economic, social political and
psychological factors. These environmental factors may have both positive
and negative influences on the growth of entrepreneurship. Various
environmental factors inhibiting the emergence of entrepreneurship are
given below.
• ECONOMIC CONDITION: Economic environment exercise
perhaps the most direct and immediate influence on
entrepreneurship. Capital, labour, raw materials and markets
Notes By: Guljinder Randhawa 16
are main economic factors. enterprise. Availability of capital
facilities the entrepreneur to bring together the labour of one,
machine of another and raw material yet of another to combine
them to produce goods. Capital is regarded lubricant in the
production process. With an increase in investment, capital –
labour ratio tends to increase. This results in increase in profit
which ultimately goes to a capital formation. This suggest that
capital supply increases, entrepreneurship increases
entrepreneurship. As the given labour is more efficient it
increases the quality as well as production. Which help to
increase the level of profit and encourage more
entrepreneurship. If labour supply is unlimited even then
entrepreneur can use labour intensive technology. Which
reduce the cost of production and remove the problem of
unemployment from the economy.
• Material: The necessity of the raw material hardly needs any
emphasis for establishing any industrial activity, therefore it
influence in the emergence of entrepreneurship. In the absence
of raw material there is no production which leads to no
• Determinant of probable rewards for the entrepreneurial
function. The size and composition of market both influence
entrepreneurship in their own way.

A.SOCIAL FACTORS: social environment in a country exercise s significant

impact on the emergence of entrepreneurship. The main component of
social environment are as follows
• Legitimacy of entrepreneurship: The proponents of non –
economic factors give emphasis to the relevance of the system
of norms and value with a socio – cultural setting for the
emergence of the entrepreneurship. In a professional
vocabulary, such system is referred to as legitimacy of
entrepreneurship in which the degree of approval or
disapproval of granted entrepreneurial behavior influence its
Notes By: Guljinder Randhawa 17
emergence and its characteristics if it does emerge. While
Schumpeter recognize the importance of such Legitimacy in
the terms of appropriate social climate for entrepreneurship.
• Social Mobility: Social mobility involves degree of mobility,
both the social and geographical, and the nature of the
mobility channels with in the system. Some hold the view that
a high degree of mobility is conductive to entrepreneurship.
Both the needs for “openness” of a system and need for
“flexibility” in role relations imply the need for the possibility of
mobility within the system for entrepreneurship development.
But this is believe that system should not be to rigid nor to
flexible. If it is to flexible than the individual will gravitate
toward other roles. If it is too rigid , entrepreneurship will be
restricted along with other activities.
The two preceding factors - Legitimacy of entrepreneurship and Social
Mobility largely determine the influence of marginality on entrepreneurship.
In situation in which entrepreneurial Legitimacy is low, mainstream
individual will be diverted to non entrepreneurial role and entrepreneurial
role will be relegated to the marginals. On the contrary in the case of the
high Legitimacy of entrepreneurship, mainstreams individual will assume
the entrepreneurship and marginal will have to find other role as mean
of mobility.
• Security: Several scholars have advocated entrepreneurial
security as an important facilitor of entrepreneurial behavior.
Yet, scholars are not consensus on the amount of security that
is needed. While McClelland speaks of moderate certainty.
Security is also regarded as a significant factor for
entrepreneurship development. This is reasonable too because
if individuals are fearful of losing their economic assets or being
subjected to various negative sanction, they will not to be
inclined to increase their insecurity by behaving
B.PSYCOHOLOGICAL FACTORS: Many entrepreneurial theorists have
propounded theories of entrepreneurship that concentrate specifically
upon psychological factors.

Notes By: Guljinder Randhawa 18

• Need Achievement:
• Withdrawal of status respect
C.Government Influence: the govt by its action or its failures to act does
influence both the economic and non economic conditions for
entrepreneurship. Any interested government in economic
development can help, through clearly expressed industrial policy,
promote entrepreneurship in one way or other. Bu creating basic
facilities, utilities and services and by providing incentives and
concessions, the govt can provide the prospective entrepreneur a
facilitative socio economic setting.


1 Technical knowledge
Lack of Technical skills

2 Entrepreneurial training
Lack of market knowledge

3 Market Contacts
Lack of seed capital

4 Family business
Lack of business knowledge

5 Availability of capital
Social stigma

6 Successful role models

Time presures

Notes By: Guljinder Randhawa 19

7 Local manpower Legal
and bureaucratic constraints

8 Capable advisors and supporters

Political Instability

9 supplier assistance
Political instability

10 government and institutional support Non

cooperative attitude of banks and


Entrepreneurial behavior is the result of entrepreneurial motivation.
Motivation refer to the inner urge that ignites and sustain behavior to satisfy
need. Motivation has been derived from the word ‘motive’ which implies the
inner state of mind that activates provokes and direct our behavior toward
the goal.

Notes By: Guljinder Randhawa 20

According to McFarland “Motivation refer to the may in which urges,
drives, desires, striving, aspiration or needs direct control or explain the
behavior of human being.” Thus motivation may be defined as the process
that motivate a person into action and induces him to follow the course of
action till the goals are finally achieved. Motivation includes motives,
behavior and goal.


Motivation implies an inner state that cause a person to act toward the
attainment of goals. It is an inspirational process of steering an individual’s
inner drive and action toward goals. It causes a chain reaction. Motivation
can be both positive and negative. Positive occurs when a person is inspired
to act for earning some rewards and benefits. On the other hand negative
motivation arises from fear or failure or frustration. It causes a person to
seek protection.

Notes By: Guljinder Randhawa 21
Several studies have been undertaken to identify the factor that motivate
people to sart their enterprises. P.N .Sharma has identified nine motivating
factors which are as under.
1. Internal Factors
• Educational Background
• Occupational Experience
• Desire to work.
• Desire to branch out manufacturing.
• Family background.
2. External Factors
• Assistance from government.
• Assistance from financial institution.
• Availability of technology/ raw material
• Other factors demand of a particular product, utilization of excess
money earned from contractual estate business, started
manufacturing to facilitate trading distribution system, government
policies and many other factors.
The Internal factors constitute the personality of the entrepreneur and
there by generate an inclination to adopt entrepreneurial activity. The
presence of these factors is essential for the entrepreneurial activity to take
place. The presence of internal factors is necessary condition for the
entrepreneurial activity to take place. But the entrepreneurial idea cannot
fructify or take real shape without a proper or conducive environment which
provides support in terms of financial assistance, technology and raw
material and infrastructural facilities. Among the internal motivation , the
desire to do something creative was important. According to the stidy of
P.N.Sharma revealed occupational experience as the most significant
internal motivating factor. This experience was accumulated by the
entrepreneurs either as a business executive in industrial concern or as a
trader, consultant in the related field.
Technically and professionally qualified entrepreneur had establish an
enterprises in the field of their specialization which amply proves that they

Notes By: Guljinder Randhawa 22

were prompted by their qualification or specialization to initiate industrial
Among the external factors, assistance from the financial and other
governmental institutions was rated, the strongest motivator. Other factors
includes availability of surplus funds, sick unit available at a cheap price,
success stories of first generation entreprenures, support of friends and

Prof R.A.Sharma has classified the factors which prompted entrepreneurs

A. Factors internal to the entrepreneur.
• Strong desire to do something independent in life
• Technical knowledge and/ or manufacturing experience.
• Business experience in the same line.
B. Factors external to the entrepreneur
• Accommodation in industrial estates.
• Financial assistance.
• Machinery on hire purchase.
• Attitude of the government to help new units.
• Financial assistance from non government sources.
• Encouragement from big business
• Heavy demand
• Profit margin.
• Unsounded unit at a cheap prices

Notes By: Guljinder Randhawa 23

Another study on entrepreneurial motivation by M Chandra sekhar and M
Gandhara Rao have classified the factors behind entrepreneurial growth
into 3 categories. And Ambition of Entrepreneur is one of them
Main Ambitions of Entrepreneur are

• To make money: to earn as much profit they can.

• To continue family business.
• To secure self employment/ independent living.
• To fulfill desire of self/wife/parents.
• To gain social prestige.
• Making of decent living.
• Self employment of children.
• Provide employment to other.
• Raise the level of economic development.
• Make use of idle time.

Notes By: Guljinder Randhawa 24


According to McClelland, executives generally have a higher need for the

achievement than the men in other profession. He considers the need for
the achievement to be most critical to a nation’s economic development. He
believed that achievement motivation was lower among the
underdeveloped countries as compare to developed nations. Overall better
results can be definitely be achieved by making people achievement
oriented. According to McClelland achievement motivation can be
developed through training and experience. Ambition is a level of motives
and nourishes achievement motivation. McClelland conducted Kakinada
experiment in Kakinada town of Andhra Pradesh. 52 persons from business
and industrial community from the Kakinada town were selected. They
participated in an orientation programme conducted by the Small Industry
Extension Training Institute (SIETI), Hyderabad. The experiment was design
to stimulate the imagination and encourage introspection into personal
motivation and community goals. The achievement development
programme consisted of the following steps:
a) The individual strived to attain concrete and frequent feedback.
b) The participation sought model of achievement i.e watched those who
have performed well and try to emulate them.

Notes By: Guljinder Randhawa 25

c) The participants imagined themselves in need of success and
challenge. They set carefully planned and realistic goals.
d) The trainees were asked to control day dreaming by thinking and
taking to themselves in a positive term.
After 2 years the trainees were observed. It was observed that they
performed better than those who did not attend the programme. McClelland
concluded that the participant displayed the more active business behavior
and worked for the longer hours. McClelland explain that the people with
low achievement motivation are prepared to work hard for money or other
such incentives but the people with higher achievement motivation work for

He argue that people with high need for achievement possess the
following attributes:
 Prefer personal responsibility for decision.
 Are moderate risk taker.
 Possess interest in concrete knowledge of the result of decisions.

An entrepreneur, after making appraisal of the resources at his
command, perceives a business opportunity for producing and marketing a
product or services. After establishing an enterprises an entrepreneur is
required to look after the operation of this enterprises over a period of time.
An entrepreneur is expected to undertaken the following steps in his pursuit
of setting up an enterprise

1)Searching for prospective business ideas or opportunities.

2)Processing of these ideas and selecting the best idea.
3)Collecting the required resources and setting up the enterprises.

Notes By: Guljinder Randhawa 26

1) Searching for prospective business ideas or opportunities: Promotional
activities commence with search for prospective business idea and
opportunities. The promoter is required to employ his imagination and
foresight in preparing list of business ideas. Business idea may come to
his mind at his own or he may depend on various sources like success
stories of other entrepreneurs, excess demand for any product,
producing import substitute product, study of project reports
assistance from governmental agencies, visit to trade fair. Idea should
be sound and practicable may relate to starting a new business or
takeover of an existing enterprise. The idea must be viable and should
ensure adequate return on investment. The business idea may
originate from the following sources:
• Market Observation: relevant knowledge, about various products,
can be obtained with the help of market surveys. Based on the
information collected, an assessment can be made about the
Demand – Supply position of different products.Expert advice of
salesmen, dealer, advertising agencies and commercial
consultant may be considered while anticipating demand for the
• Consumer Survey: the success or failure of any venture depends
upon prospective consumers. Through surveys detailed
information regarding taste, fashion, liking, disliking, when they
will buy, where they will buy, where they will buy, from, at what
prices they will buy etc is collected. Thus a product can be
devised in such a manner so that it fits exactly into the
requirement of the prospective buyer.
• Keeping Track of the development: A prospective entrepreneur
must keep his eyes and ear open. He should keep in touch with
whatever is happening around especially concerning business
idea, new products, changes in technology etc. in order to
successful he must acquire whatever best that is available from
anywhere. Sometime useful business ideas can be discovered by
keeping in touch with the developments taking place in developed
• Assessing the market trends in terms of demand.
Notes By: Guljinder Randhawa 27
• Providing plate form for the meeting of large number of
• Assessing the attitude of competitor in a particular product
• Comparing the quality and prices of competing products.
• Establishing personal contact with the dealer.
• Promoting new ideas for increasing sales.

• Scrutinizing Project Profiles: Various agencies, both government

and private provide profiles of various project and industries.
Through these profiles an entrepreneur can assess the technical,
financial, managerial and market requirement of various projects
2) Processing of these ideas and selecting the best idea: under this head
detailed investigation of the potential idea is carried on. This
investigation can cover technical and commercial facilities.

• Technical Feasibility: it is ascertained as to what extent it is

possible to technically produce the product, conceived through
the idea. Technical feasibility cover detail study with regard to the
availability of the requisite technology and other input
• Commercial Feasibility: detailed study is carried on to know about
the profitability of different ideas. This investigation includes
projections about the probable idea about the demand, sales
volume, cost of production, breakeven point and profitability
expected under different business proposition. The idea selection
for the product may be influenced by the following consideration:
• Demand supply gap or the extent up to which demand
exceeds supply.
• Product where profitability is more.
• Product where entrepreneur possesses marketing or
manufacturing experience.
• Product are to be used by the parent company for the
assembly of final product
• Product whose imports are discouraged by the government.

Notes By: Guljinder Randhawa 28

• Product which have got more export potential.
• Product enjoying various types of concession in the shape of
subsidies and incentives
3) Collecting the required resources and setting up the enterprises: an
entrepreneur in order to be successful is required to remain in touch
with what is happening around. He is required to develop a sound and
efficient system of collecting, recording and analyzing of market
information. This system ensures availability of a right information at a
right time to a right person. Entrepreneur as a decision maker is
required to perform the following function:
• The determination of objective of the enterprise.
• The development of organization.
• Secure adequate financial resources.
• The requisition of efficient technology.
• The development of the market for the product and devising of a
new product.
• The maintenance of good relations with public authorities and
with society at large.

All the above stated function is important but the function regarding
finance, manpower and marketing, demands more attention of

Notes By: Guljinder Randhawa 29

Small sector occupies an important position in the industrial structure of
our country. In a country like, India, wherein on one hand there is the acute
problem of unemployment and on the other hand scarcity of capital, it is
only the small sector which is best suited under these conditions. Indian
economy is characterized by the huge size of population, availability of wide
variety of abundant natural resources, ever growing size of market and
shortage of capital. Over a year small sector has acquired greater
importance in Indian economy. In terms of employment this sector is next to
agriculture. The role of small scale industries is one of the important
features of the planned economic development of India. In India this sector
has been assigned with significant role in the industrialization and economic
development of the country, as an effective tool in subserving the national
objective of growth with justices.


Notes By: Guljinder Randhawa 30

The definition of small scale sector unit can be categorized in different
ways depending on the country’s pattern and stage of development, policy
aims and administrative set up. There can be 2 basis for defining small
business and these are:
1) SCALE OF BUSINESS: The size or scale of business can be measured
in various ways of like:
• Investment on plant and machinery.
• Employment generation.
• Investment and employment.
• Volume and/or value of production.
• Volume and/or values of sales.
• Ownership of small business is in hand of individual or a few
• Mgt and control in SSI unit is normally labour intensive.
• Small scale business is normally carried on in a limited or local


A. Ownership: Ownership of SSI is with one individual in sole
proprietorship or it can be with a few individual in partnership.

B. Management and control: SSI is normally a one man show and even in
case of partnership the activities are mainly carried out by the active
partner and the rest are generally sleeping partners
C. Gestation period: Gestation period is that period after which teething
problem are over and return on investment starts.
D. Area of operation. The area of operation of SSI generally localized
catering to the local or regional demand. The overall resources at the
disposal of a SSI are limited and as result of this, it is forced to confirm
its activity to the local level.

Notes By: Guljinder Randhawa 31

E. Technology: SSI are fairly labour intensive with comparatively smaller
capital investment than the large unit.

F. Resources: SSI uses local resources and as such can be located

anywhere subjected to availability of resources
G. Dispersal of unit. SSI use local resources and can disperse over a wide
territory. The development of the more SSI unit in rural or backwards
state promotes balanced regional development.
H. Flexibility: SSI as compare to LSI are more change susceptible and
highly reactive and responsive to social economic condition. They are
flexible to adopt new changes.


SSI play a very important role in economic development of our country.

The soico- economic development of India depends upon the development
of the SSI. This sector is contributing a lot towards the different sectors of
the country.
A . Generation of employment opportunities.
B . Balanced regional development
C . Mobilization of capital.
D . Mobilization of entrepreneurial skills
E . Regional dispersal of industries.
F . Use of local resources
G . Self employment.
H . Optimum use of capital.

I. Conservation of foreign exchange.

J. Equitable spread of income and wealth.
K. Supporting large scale industries.
L. Contribution towards national economy.

Notes By: Guljinder Randhawa 32

A. Number of units.
B. Employment generation
C. Investment
D. Output
E. Contribution of exports
Notes By: Guljinder Randhawa 33
F. Equitable distribution of income.
G. Mobilization of capital
H. Regional dispersal of industries
I. Better industrial relations


A) Marketing problem of small business
• Poor product quality
• Scale of production
• Poor sales promotion
• Lack ok knowledge of marketing
• Lack of marketing opportunities
• Absence of suitable marketing channel
B) Production problem of small scale industries
• Maintenance of delivery schedules
• Shortage of raw material
• Ignorance of scientific methods of production
• Under utilization of production capacity
• Import restriction
• Gestation period
• Diversification of the products
• Qualtuy control
• Product cost
• Electricity

C) Problem related to finance

• Requireemnt of capital and vredit
• Problem of procuring working
• Inappropriate financial structure
• Hurdles in getting loans sanctioned
• Pattern of repayment of loans
• Structure of interest rates
Notes By: Guljinder Randhawa 34
• Wrong financial planning
• Improper utilization of funds

D) Problem of human resources

• Non availability of skilled manpower
• Labour problem

E) Other Problem
• Technological changes
• Land and building
• Infrastructural facilities
• Faculty planning
• License system
• Managerial inadequacies
• Analysis of business environment
• Machinery and other equipment
• Lack of technological upgradation


Setting up of business enterprises is a very challenging and rewarding task.

Several problems are involved in task. Right from the conception of the
business idea up to the start of production , numerous decisions have to be
taken. In order to succeed in this task. An entrepreneur must correctly
perceive the nature and intensity of problem o be faced and implement
appropriate plans. A potential entrepreneur has to pass through various
stages for his setting up his small scale units and these are as under:
Notes By: Guljinder Randhawa 35
A . Decision to be self employed: An educated person has to decide
between 2 options either to work for others as an employee or to work
for himself as entrepreneur. In case he possess the right type of
knowledge, skill, experience and aptitude that the best option for him
is setup his own enterprises. After setting up his own business he is a
manager, owner, controller of all the affairs of his enterprises. This is a
way they are generating their self employment and also employment
to other. There may be certain other contributory factors like facilities
and incentives provided by the government, lesser legal formalities,
lower investment etc which may tempt an individual to become
independent and set up his own enterprises.

B . Identification of opportunities: A small scale enterprises originate and

operate within the business environment. An enterprise has to remain
in touch with the business environment for the sake of its existence,
success and future. The interaction between an enterprise and
environment help in the understanding of the business which facilitate
taking of various strategic and operational decision helping in the
growth and success of venture. Various economic, social political,
technological and psychological factors effect the emergence and
growth of entrepreneurship. An entrepreneur should understand the
behavior of the key environmental factors that are going to affect the
present and future operation in the enterprise.

C. Selection of the product: An entrepreneur has to identify or select the

product based on marketing research. He has to identify both short
term and long term potentials or prospects of the product. Any country
where level of development has not been upto the desired extent is not
fit for innovative entrepreneur . the imitative nature of the
entrepreneurs is mainly the result of inherent deficiencies in an
underdeveloped economy. Lack of adequate and appropriate training
facilities and less emphasis on R&D. an entrepreneur would select the
product based on his own knowledge, skill. Experience and motivation.
An innovative entrepreneur having urge to do something new, design

Notes By: Guljinder Randhawa 36

the product himself and create the new market for his product whereas
imitative entrepreneur may improve upon an existing product implies
taking steps for improving usefulness of the product or affecting saving
in cost. An entrepreneur before deciding about the product should find
the answers for the following important questions.
• Who will buy the product?
• When they will buy?
• How much they will buy?
• From where they will buy?
• What are their expectation from our product?
• Who are our competitors and how they are performing?
• How to advertise and sell?
Economic viability of the product can be ascertained by considering
the following aspects
•Assessing the existing demand in the domestic and exort market.
•Assessing the potential demand.
•Availability of substitutes in the market and their performance.
•Expected demand from big unit of ancillary product
Small scale entrepreneur in our country produce as many as 7500 items
ranging from ordinary to highly sophisticated products.
D . Selection of ownership Form: the form of ownership for small scale unit
can be sole proprietorship, partnership family ownership and private
limited company. The role proprietorship and family ownership are
difficult to differentiated as these 2 categories are practically family
concerns by the virtue of ownership and management.
E . Location of the unit: Decision about the location of the unit is very
important and can have bearing on the working or the future of the
enterprise. In his pursuit of the good location an entrepreneur should
carefully study the following factors:
• Location is in home land.
• Availability of governmental incentives.
• Nearness to market and sources of raw material.
• Availability of labour and other infrastructural facilities like
transportation, water, banking.
Notes By: Guljinder Randhawa 37
• Existence of culture of quality industrial production.
• Pollution level in the area.

F . Designing financing scheme: After deciding about the location the next
important consideration is financing. An entrepreneur is to properly
assess his financial requirement and take necessary steps for raising
the requisite financial resources. An entrepreneur can depend on
various sources for financing his enterprises and these are:
• Own funds.
• Borrowing from the friends and relatives.
• Loan from the commercial banks for the working capital.
• Term loans from the financial institution and state Finance
There are many hurdles in financing small scale units and risk involved is
more because of the following factors
• Limited managerial expertise.
• More vulnerability to business environmental pressure
• Insufficient collateral to comply with the term and conditions of
lending institution.
• Organizational constraints.
• Limited saving.

G . Acquiring manufacturing know- how: there are certain projects where

in sophisticated manufacturing know – how is required. Many
institutions of the government, research laboratories, research and
development division of the giant industries and certain consultancy
agencies provide the manufacturing know – how. In case of the
ancillary unit this know – how can be provided by the major unit for
which it is working. Suppliers of plant and machinery can impart the
necessary expertise through training.

H . Preparation of Project Reports

Notes By: Guljinder Randhawa 38


Project reports is a proposal for creation of productive capacities for

manufacturing goods or providing services. Project report is written
statement of what an entrepreneur proposes to take up. Preparation of the
project report clarifies to the entrepreneur various processes which is
necessary for setting up and managing a new business venture. This reports
helps entrepreneur to have disciplined thinking and advanced planning. It is
not mearly a document covering precise details in respect of financial and
economic viability rather it is a projection of performance based on certain
A project report contain the information starting from very general
issues to detailed examination of specific issue relating to entrepreneur’s
qualification, particular of his unit, market demand sources of supply of raw
material, capacity of a plant, means of financing, marketing and selling
arrangement, cost and profitability of the project. The project report
appraisal by the financial institute cover the following.
1. The information contained in the project report about the promoters
themselves reveal their managerial and entrepreneurial capabilities.
2. Every small unit come into existence for promotion of certain socio –
economic benefits like providing employment opportunities, reducing

Notes By: Guljinder Randhawa 39

regional imbalance etc. financial institutions finace only those unit
which are more important in terms of socio- economic benefits.
3. The project report contain the information about the market potential
of the product and projection of short and long term demand of the
proposed product.
4. The project reports contain the information about technical feasibility
of the product. Various queries or aspect scanned under this head
are technical viability, breakeven point, alternative technologies
available etc. if the response to the above queries is positive in the
project report the project is considered feasible.
5. Finicial institution are equally concerned with the financial viability
of the project. The project report should highlight the financial
viability. Project report also shoe the repayment capacity.

Project report of small scale enterprises is not so sophisticated as in the

case of project report of a large units. Project report of one small unit is
different from other small unit’s project report.
Mr. Vinod Gupta in his study on ‘ formulation of a project report’ divides
the process of project development into 9 stages:
1. General Information: Consist of Bio data of promoter, industry profile,
constitution and organistion covering and product details

2. Project Description: Consist of location of industry, physical

infrastructure, supply of raw material and labour, water and
electricity supply etc.

3. Market potential: Consist of demand and supply positions

4. Capital cost and source of finance: Consist of components of capital

like land and capital, plant and machinery, margin of working capital.

5. Assessment of working capital: Consist of its sources of supply,

length of working capital cycle should be estimated.

Notes By: Guljinder Randhawa 40

6. Other – Financial Aspects: Consist of judging profitability of the
project a projected profit and loss account indicating sale revenue,
cost of production, allied cost and profit should be prepared.

7. Economic and social valuable: various socio economic benefits

expected from the project should be included in the project report.

8. Project implementation: the time table for implementation of the

project delay resulting in cost over run should be avoided. Delay in
project can affected financial availability of the project.

9. Registration: The next step is to get the unit registered with the
department of industries on provisional basis. The provisional
registration can be issued to the entrepreneur to:
• Apply for shed in industrial estate.
• Apply for corporation , municipal or other local authorities fpr
permission to construct the shed for establishing the unit.
• Apply for power connection.
• Apply to SSIS for procuring machinery on hire purchases basis.
• Obtain sales tax, excise registration etc.
• Apply for telephone connection.
• Import license for capital good/ raw material.

Notes By: Guljinder Randhawa 41