Define enterprise and entrepreneur.

An Enterprise is a business entity established by an entrepreneur for

Producing goods and (or) services

Providing employment opportunities
Adding value to the national income
Improving exports
Providing the economic development of the country.

Entrepreneur : An entrepreneur is

an innovator of new ideas

a. to creates new products or services
b. or improve the existing products or services
exploits an opportunity
commercializes his innovation

What are the merits and demerits of being an entrepreneur?

Merits

a. They can work as per their choice and on any idea and not confined to
someones instructions.
b. For the entrepreneurs who love to take high risks, the entire process is
an exciting adventurous journey.
c. The luxury of being your own boss and freedom working under someone
else.
d. Their earnings will be worth of their own efforts. Theyll not be judged
by a fixed salary for their worth.
e. The feeling contributing a product or service that is unique and original

Demerits

a. Owing to the fact that the enterprise will be entirely innovative and first
of its kind, it is difficult to find employees with the right experience.
Theyve to tackle the employees who may not have much insight into

Chapter 1 Entrepreneurship: Concept and Functions

 what is happening or the employees with little or not experience on the
given task.
b. A consistent income like salary is not guaranteed.
c. The entrepreneur being the decision maker, he has to be much more
cautious as even a small wrong decision taken can have huge impact on
the enterprise.
d. An entrepreneur has to work much more than regular working hours
and should be ready to tackle any emergencies at any time.
e. The benefits of a salaried job like medical insurance, holidays etc will not
be available, especially during the initial phase of starting the enterprise.

How do you distinguish an entrepreneur and entrepreneurship?

Entrepreneur Entrepreneurship
An entrepreneur is a person or a group of
persons, who establishes an enterprise,
Entrepreneurship refers to all actions
take the risks, accumulates all the
executed by the entrepreneur to
resources required to carry out production
establish an enterprise.
or perform services and creates an
innovative product or service.
Entrepreneurship is the process of
An entrepreneur is a person or group of innovating new products or services
persons who try to innovate new products and streamlines the resources
or services. required to commercialize these
products or services.
Entrepreneur will be constantly trying to
Entrepreneurship is the process
innovate and bring about changes with
followed to create value.
respect to factor proportions.

Elaborate entrepreneurial functions of an entrepreneur.

An entrepreneur should possess the following entrepreneurial functions.

1. Innovation: An entrepreneur should be innovative enough to bring

about the change in a product or service or means of production or raw

Chapter 1 Entrepreneurship: Concept and Functions

 material used in the production. They should innovate and bring about a
change in one or more of these. They should innovative enough to
recognize the commercial value in their innovation and extract economic
advantage from it.
2. Risk-Taking: They should be ready to face any unexpected risk while
going through the entrepreneurship process. The should be intelligent
enough to diversify the risk in
1. production
2. investment
3. expansion of the enterprise
3. Building of Organization: The entrepreneur should have enough
organizing and managing skills to utilize the resources with minimum
loss and bring down the production costs. Being the sole decision maker
for the enterprise, the entrepreneur should be able to make decision
regarding which parts of the business need to expand and where the
investment should go to.

Arun wanted to start a mobile phone manufacturing industry in

Pune. Whatre the various commercial functions that he should
posses to accomplish his goal?

The following are the commercial functions any entrepreneur should posses to
start an enterprise.

1. Production: Production, being the key commercial function for any

undertaking, involves manufacturing of goods or delivering the services.
Regardless the size of the enterprise, the activities performed in
production can be classified as Manufacturing, Ancillary or support
activities, Advisory. Depending on the size of the enterprise, these
activities can be performed by a single person or a number person
grouped into separate departments.

2. Finance: Finance being the most important commercial function of any

enterprise, all the business activities are focused around finance. An
entrepreneur should plan for the inflow of funds and arrange them on a

Chapter 1 Entrepreneurship: Concept and Functions

 need basis. Finance plays a key role right from setting up of enterprise,
running the enterprise and also during the expansion of the enterprise.

3. Marketing: Marketing involves the delivery of goods and services from

the enterprise to the end user. Marketing is an important step to
promote the activities of the enterprise. Entrepreneur should have a
good marketing plan to overcome the competition and take a top notch
position in the market.

4. Personnel: The commercial function involves

Recruiting the workforce
Development and training
Salaries
Working atmosphere
Welfare like safety, health etc

5. Accounting: The commercial function would help the entrepreneur to

gauge the financial position of the enterprise at any point of time, by
just going through the accounting records. It involves systematic
recording of all the financial transactions of the enterprise.

What are all the various managerial functions to be possessed by

an entrepreneur?

Planning: Planning is the primary and essential managerial function, an

entrepreneur should possess. A good planning helps the entrepreneur to
initiate actions required to achieve their goal. Planning reflects the decision
making of the entrepreneur regarding various tasks in achieving his goal. A
plan should have answers to the following questions for each of the tasks.

What should be done?

When should be done?
How should we do it?
Who should do it?

Chapter 1 Entrepreneurship: Concept and Functions

Organizing: All the employees in an organization work towards achieving the
objectives or goals set for the enterprise by the entrepreneur. An entrepreneur
will organize the various tasks in an enterprise through

Arranging
Coordinating
Controlling
Directing
Guiding.

Staffing: The organizational process requires various duties performed by

various levels of staff. The human resources department of the enterprise will
recruit the staff. Staffing basically involves..

Human Resources(HR)
Manpower planning
Recruiting the employees
Selection and appointment of employees
Human resources development
Promotion for good performers
Appraisal or promotions
Fixing of the salaries

Directing: The entrepreneur should be capable of directing the staff towards

organizing and executing the planned activities, in the most efficient manner.

Leadership: The entrepreneur should be capable of leading his team to achieve

the organizational goals while ensuring the overall satisfaction for both the
enterprise and all the stake holders. As a leader the entrepreneur influences,
guides and directs his/her staff towards achieving this goal.

Communication: Communication means exchange of emotions, feelings, ideas,

information, and knowledge with others.
On average, 75% to 90% of an entrepreneurs time goes in communicating
with others. So, effective communication is a very critical managerial function
that an entrepreneur should exhibit.

Chapter 1 Entrepreneurship: Concept and Functions

Motivation: An entrepreneur should be capable of motivating his staff.
Effective motivation inspires the staff to exhibit increased levels of
performance. The entrepreneur motivate his staff in a manner which is
competitive, comprehensive, flexible, and productive.

While motivating his staff, the entrepreneur should keep in mind the
economic, ego, psychological, safety, social factors of the staff.

Supervision: Entrepreneur should be capable of supervising the subordinate to

ensure that...

work is getting done as per the given instructions

All the available resources are being utilized with at most efficiency
Take the appropriate action whenever there is a deviation from the
planned organizational goal.

Co-ordination: The entrepreneur should co-ordinate the work done in various

divisions of the enterprise, to ensure that all the divisions are working towards
the organizational goals and according to the plan. Corrective actions should
be initiated whenever there is any deviation from the plan.

Controlling: Controlling involves

Setting measurable standards

Measuring the current performance
Comparison of the actual performance with the set standards
Measure the deviations
Take the appropriate measures to bring the performance to the level of
standards

Give a brief explanation of the promotional functions of an

entrepreneur.

The following are the various essential promotional functions to be exhibited

by the entrepreneur.

Chapter 1 Entrepreneurship: Concept and Functions

Discovery of an idea: The entrepreneur should be innovative to discover
innovative ideas and commercially exploit them. The ideas could be related

Innovative or more effective utilization of natural resources

An innovative venture with high profitability
Opportunities to tap more profitability from an existing enterprise.

After innovating the idea, the entrepreneur discusses the feasibility of his idea
with the experts in those areas. Once approved further analysis can be carried
out.

Detailed investigation/analysis: After confirming the feasibility of commercial

prospects of an idea, the entrepreneur will do a thorough analysis of various
factors and come up with financial estimates of money, man power, materials,
machines, power requirement.

Assembling the Requirements: After confirming the feasibility of the

commercial implementation, the entrepreneur will start

i. Gathering the business partners

ii. If the product/service is innovative he should apply and get the patent.
iii. Select the factory site
iv. Decides about plant and machinery
v. Contact the suppliers of raw material.

Financing the proposition: The entrepreneur decides about the capital

structure of the enterprise. The entrepreneur will start looking into various
sources of financing. She/he will decide Long term and Short term financing
options and type of the financing sources like Debenture, Loan, Share etc

The need of entrepreneurship is inevitable for a countrys

economy. How do you justify this fact?

Why is entrepreneurship critical for any economy? State the

advantages.

Chapter 1 Entrepreneurship: Concept and Functions

In the developing countries like India, Entrepreneurship plays significant role in
the Economic Development of a country. In India, after the Government has
make economic reforms in the economy, the role of entrepreneurs has
increased considerably. The more the number of innovative entrepreneurs, the
better is the rate of economic development in the country. This is the reason
why the growth rate has been slower before the economic reforms and the
growth rate has increased after the economic reforms.

The following are the advantages of entrepreneurs for any country.

1. They are the life-line of the country: The economic development of any
country is closely tied up with the number of entrepreneurs. As
entrepreneurs promote development through their innovation, theyre
in-turn promoting the development of the countrys economy.
2. Need for Innovation: Entrepreneurs innovate new ideas, improvements
to the existing products or services and opens the possibilities of new
markets. They bring about a change to increase the productivity of
available resources. Thereby they contribute to the economic
development of a country.
3. Inclusive growth: The entrepreneurs adopts the changing
environment/technology into their enterprise. Thereby they increase
productivity by adopting the automation. The changes the entire
environment and directs everyone to adopt the growth process.
4. Increased Profits : As entrepreneurs always strive towards betterment
of products/services, the demand is increased, the cost is reduced and
profits are increased. Thereby they contribute to the economy and
promote economic development.
5. More employment opportunities: Establishment of a new enterprise
always create more number of jobs. Further, when these enterprises
grow in size, they provide more employment opportunities.
6. Social Benefits : As entrepreneurship results in improved products and
services at a reduced cost, thereby improving the standard of living. It
facilitates optimum utilization of the scarce resources, and encourages
peace and prosperity in the society.

Chapter 1 Entrepreneurship: Concept and Functions

Describe the process that one should follow to setup an enterprise.

1. Self-Discovery: One should first discover that one has potential to

become an entrepreneur and what it takes to be an entrepreneur. A
careful analysis
i. What makes one enjoy?
ii. What are their strengths?
iii. What are their weaknesses?
iv. What is their experience?
v. How closely they can relate their expertise to commercially viable
opportunities.
2. Identifying the opportunities: The next step is to identify the
opportunity. This can be done through careful analysis of
i. Wants
ii. Needs
iii. Day to day problems
iv. Day to day challenges

and then tackle those which are not yet addressed or which require
significant improvement.

3. Generate the ideas and Evaluate them: In this step innovative ideas to
address the opportunities in the previous step are generated. The
entrepreneurs experience and creativity plays a critical role in this step.
The various ideas thus generated as further filtered down to one.
4. Planning: In this step the entrepreneur entrepreneur performs extensive
research and determines the various resources to convert his ideas into
a commercial enterprise. He then prepares a business plan to market his
venture.
5. Raising the initial capital: The business plan is then discussed with
various partners, investors and venture capitalists. To convince the fund
contributors and gain their confidence, the entrepreneur might required
to present a prototype of the product or service or he may have to test-
prove the marketing strategy.
6. Start-Up: In this phase the entrepreneur will
i. Start the enterprise

Chapter 1 Entrepreneurship: Concept and Functions

 ii. Building a customer base
iii. Ensuring that the marketing is going good.
iv. Develop a plan for carrying out the regular operations of the
enterprise.
7. Growth: In this phase the entrepreneur will
i. Develop a strategic plan
ii. Implement the plan
iii. Making changes to accommodate the changes in the market
8. Harvest: In this phase, once the enterprise is stable and running
profitably, the entrepreneur will sell out his enterprise and harvest the
rewards. After this many entrepreneurs start focusing on their next
venture to tackle new problems/wants/needs/challenges. It is an
ongoing process.

In what way the managerial functions of an entrepreneur are

different from his/her entrepreneurial functions?

Managerial Functions Entrepreneurial Functions

Managerial functions are the ones which an Entrepreneurial functions are the
entrepreneur should exhibit once he has core functions an entrepreneur
started an enterprise. These are essential to should possess to start an
sustain an enterprise and move an enterprise entrepreneur. Only a person who
towards its goal. The following are the exhibits these functions
managerial functions.
1. Innovation
1. Communication 2. Risk-taking
2. Controlling 3. Capability to establish an
3. Coordination organization
4. Directing towards goal
5. Leadership can become an entrepreneur.
6. Motivation
7. Organizing
8. Planning
9. Staffing or recruiting

Chapter 1 Entrepreneurship: Concept and Functions

 10.Supervision

These functions motivate the

These functions help the entrepreneur
entrepreneur himself to start the
motivate others towards the goal.
enterprise.
Essential for an enterprise to be
Can be acquired through training or can be
started and the entrepreneur should
executed with the help of others.
exhibit these functions
It is not essential that the entrepreneur The entrepreneur should possess all
should perform all these functions. these functions to start an
Depending on the nature of the enterprise enterprise.
only few of these are required. Also, the
entrepreneur can recruit others (managers)
to perform these functions.
These functions should be performed as long Required only to start an enterprise.
as the enterprise is running.

What is your opinion about innovation being the core function of

an entrepreneur?

Entrepreneurship involves spotting an opportunity and evaluate its economical

viability and convert it into economically profitable enterprise. It is the
innovative function of an entrepreneur that helps him to come up with
innovative ideas and products to economically exploit an opportunity. Thus
innovation is at the core of the entrepreneurial functions. It helps an
entrepreneur to challenge the status quo of the existing products or services,
improve them to by adding more value and strive for consumer satisfaction.
It is only when innovation is put into a product or service, a person becomes an
entrepreneur. Otherwise, a person is just a regular business man. The
economic success of a nation depends upon the rate of innovation in the
economic field. This in turn depends upon the number of people in the society
who exhibit innovative function. In India, after independence, there were very
less number of innovations, for the first forty years. It is only after the

Chapter 1 Entrepreneurship: Concept and Functions

innovative spirit of entrepreneurs started to boom, the country started to
move ahead economically. Thus entrepreneurs are at the core of economic
development.

Why should we encourage the entrepreneurs, though they

sometimes result in a loss of a countrys valuable natural
resources?
Entrepreneurs, in pursuit of their goal, take risk. But the amount of risk is
minimized to a greater extent when there is very good planning. Usually
entrepreneurs will not deploy all the funds centrally at one place. They
diversify their investment in various areas. Also, entrepreneurs, by nature,
have the ability to gauge uncertainties likely to occur in the future. In case of
any disaster, they usually will have a plan to mitigate the effects. So, they
should be encouraged though there is always a possibility of the economic
loss.

On the other hand, entrepreneurs are innovative. They are always exploring
for new ventures and improving the products and services. Unless theyre in
the business where in natural resources are experimented, there is no
significant impact on the environment.

As the nature of the businesses is shifting towards the service oriented

approach, they seldom cause any loss to the Nations natural resources. They
usually have a plan to encounter unforeseen contingencies thus minimizing the
loss.

Moreover, the benefits of the innovation far outweigh the loss that is likely to
occur. Also, there is always risk associated with any venture. But when there is
success in their attempts to experiment with the natural resources, there is
huge impact on the economic condition of a nation.

So, they should always be encouraged, provided theyve extreme measures to

mitigate any losses that are likely to occur. Also, the government policies
ensure that the entrepreneurs take appropriate whenever there is an impact
on the ecological system. For instance, when the entrepreneurs have to

Chapter 1 Entrepreneurship: Concept and Functions

establish an enterprise in a forest area where there is endangered wild life,
they should first ensure that the wild life is rehabilitated before they establish
their enterprise. Similarly, when theyre establishing an industry in a place
close to a lake or river, they should ensure that the industrial wastage is
treated well before releasing it out. When these precautions are taken, there
wont be any loss of natural resources and there is significant improvement in
the economic development of a country.

Chapter 1 Entrepreneurship: Concept and Functions