Module I Notes

2 Marks Questions: (Short Answers) Q1) Define Entrepreneurship Entrepreneurship is the process of creating value by bringing together a unique package of resources to exploit an opportunity. Entrepreneurship is the pursuit of opportunity without regard to resources currently controlled There are three foundations of Entrepreneurship: 1. Innovation - the ability to see things in novel ways. 2. Calculated risk taking - the ability to take calculated chances and to embrace failure as a learning experience. 3. Creativity - the ability to conceive of multiple possible futures and to proactively create the one you most desire. Q2) Define types of entrepreneurship The two types of entrepreneurship may be classified as: 1. Opportunity based entrepreneurship an entrepreneur perceives a business opportunity and chooses to pursue this as an active career choice. 2. Necessity based entrepreneurship an entrepreneur is left with no other viable option to earn a living. It is not the choice but compulsion, which makes him/her choose entrepreneurship as a career. Q3) What is intraprenuership? Intrapreneurship is entrepreneurship practiced by people within established organizations. For starters, the Intrapreneur acts within the confines of an existing organization. The dictates of most organizations would be that the Intrapreneur should ask for permission before attempting to create a desired future - in practice, the Intrapreneur is more inclined to act first and ask for forgiveness than to ask for permission before acting. The Intrapreneur is also typically the intra-organisational revolutionary - challenging the status quo and fighting to change the system from within. This ordinarily creates a certain amount of organizational friction. A healthy dose of mutual respect is required in order to ensure that such friction can be positively channeled. Q4) State one advantage of intraprenuership over entrepreneurship One advantage of Intrapreneurship over Entrepreneurship is that Intrapreneur typically finds a ready source of "free" resources within the organization which can be applied to the opportunity being exploited. Intrapreneurs seek out the organizational slack or fat, and coopt it into Intrapreneurial ventures.)

Q5) Comment larger

innovation tends to become harder as an organization gets

1. The larger a company gets, the harder it is for anyone to know what everyone is doing.

2. The specialization and separation that help business units maintain focus also
hamper communication. 3. Internal competition magnifies the problem, because it encourages groups to hoard, rather than share what they've learned.

4-5 Marks Questions (Answer in brief) Q6) What are characteristics/features of an entrepreneur? 1. They see opportunities where others don't. 2. They have a 'vision', a clear understanding of the concept and of what they're trying to do 3. They persuade others of their vision; they can communicate the concept effectively. 4. They gather resources to make their vision become a reality (money, people, and things). 5. They organize these resources to create a new venture, product or market (leadership, teams). 6. They constantly change/adapt themselves according to the changing demands of the market. Q7) Is the concept of entrepreneurship new to India? At a superficial level it seems to be as old as the Gupta - and Chola dynasties, which traded spices with the rest of the world, followed by the Mughals and the Britishers. But during all these eras, entrepreneurship was more about creation and accumulation of wealth in the hands of few. The essence of entrepreneurship is creation of wealth - Yes, not mere accumulation, but rather distribution of wealth. And when it comes to distribution of wealth none of the dynasties and the rulers of the past pass the qualification. In this context, it is only the entrepreneurs of the post liberalization

era wtho fit the bill. Entrepreneurs of the recent era not only work for their own growth but also for the growth of all those who are associated with them. Narayana Murthy of Infosys is a good example for this. Narayana Murthy not only created wealth (the Infosys) but also distributed the fortune of Infosys to all its members by introducing ESOP (Employee Stock Option Plan) through which he made all its employee as partners in growth and development. He recently retired from the post of CEO after attaining the age of 60 and made way for the younger generation. Hence the essence of entrepreneurship is not creation and accumulation of wealth but distribution of wealth amongst all those who are associated with the business. Q8) What is the scope of Entrepreneurship In India There is a growth in the number of individuals opting for entrepreneurship as a career. The reasons as discussed above range from desire of control over one's future, more profits, lack of employment opportunities and government measure's to promote entrepreneurship, to name a few. An entrepreneur need not necessarily innovate. Even if he emulates any technique of production/marketing from a developed country, he is an entrepreneur in his own right and makes a contribution to economic development as long as he starts business, undertakes risk and bears uncertainties. The concept of entrepreneurship is not different in developing economies. In fact in developing economies like that of India, the scope and need of entrepreneurship are higher. The reasons are many. Unemployment, disguised employment and underemployment, poverty are growing in the developing nations and entrepreneurship can be an answer to all of them as entrepreneurship not only provides employment and source of earning to the entrepreneur but to all those who become associated with the business enterprise. Moreover, the increase in the number of entrepreneurs can reduce the monopoly of rich businessmen and lead to balanced regional development and growth of the entire economy. Hence entrepreneurs are the need of the hour. Despite the critical importance of entrepreneurs and entrepreneurship in the present context, few developmental programs or strategies include any systematic means for identifying entrepreneurial potential, or for enhancing that potential, or for stimulating new sources of entrepreneurship. Though favorable policies have been formulated, both financial and non-financial institutions do exist to assist entrepreneurs, entrepreneurship-training institutes have been established but when it comes to actual benefits to the entrepreneur, there are few. Entrepreneurs find difficulties in getting financial support and even more difficulties in assistance for the operation of their business. Efforts have been made for the success of new ventures not only by policy-makers or government bodies but also by entrepreneurs themselves. Only then will our country be able to reap the fruits of entrepreneurship. Q9) Comment on The Future of Entrepreneurship Both, the Central Government and various state governments are taking increased interest in promoting the growth of entrepreneurship. Individuals are being encouraged to form new businesses and are being provided such government supports, as tax incentives, buildings, roads, and a communication system to facilitate this creation process. The encouragement by the central and state governments should continue in future as more lawmakers are realizing that new enterprises create jobs and increase the economic output of the region. Every state government should develop its own innovative industrial strategies for fostering

entrepreneurial activity and timely development of the technology of the area. The states should have their own state-sponsored venture funds, where a percentage of the funds has to be invested in the ventures in the states. Society's support of entrepreneurship should also continue. This support is critical in providing both motivation and public support. A major factor in the development of this societal approval is the media. The media should play a powerful and constructive role by reporting on the general entrepreneurial spirit in the country, highlighting specific success cases of this spirit in operation. Finally, large companies should show an interest in their special form of entrepreneurship intrapreneurship in the future. These companies will be increasingly interested in capitalizing on their Research & Development in the hyper competitive business environment of today.

Q10) What retards Intrapreneurship? The primary factors retarding Intrapreneurship are: 1) The costs of failure too high and the rewards of success are too low. Intrapreneurs need to be given the space in which to fail, since failure is an unavoidable aspect of the Intrapreneurial process. This is not to say that organizations should simply condone failure, but rather that organizations need to begin to measure and attribute failure to either Intrapreneur fault, or circumstances beyond the Intrapreneurs control - and punish and reward accordingly. Similarly, the rewards for success are usually inadequate - few organizations provide rewards for Intrapreneurs that even closely approximate the rewards available to the Entrepreneurial counterparts. Most incentivisation systems need to be upgraded accordingly. 2) Inertia caused by established systems that no-one is willing to change. Most organizations are governed by implicit and explicit systems, and in many cases people are reluctant to change them. Intrapreneurs are met with "this is the way we've always done it around here", "if it isnt broken, don't fix it", and "changing it now would just take too much effort..." Many organizations use their existing systems to prove they already have the "right answer" (see above), effectively dousing creativity. 3) Hierarchy. Organizational hierarchies are what create the need to ask for permission the deeper the hierarchy, that harder it is to get permission for anything new. Hierarchies also tend to create narrow career paths and myopic thinking, further stifling creativity and innovation. People lower down in the hierarchy have a tendency to become dis-empowered through having to ask permission, eventually developing the "victim mentality" that causes reactivity.

8-10 Marks Questions (Answer in detail)

Q11) Define Entrepreneurial Decision Process

At its simplest what entrepreneurs do can be viewed as a six-stage procedure: (i) Identify an opportunity: According to Timmons (1989) entrepreneurship is about sensing an opportunity where others see chaos, contradiction and confusion. Identification of an opportunity is the first step towards building and running successful business enterprise. Entrepreneurs identify opportunity where others see obstacles and impossibility. Identification of opportunity at the right time is of utmost importance as it gives "first mover's advantage" and takes an enterprise ahead of others who take time to catch up. The first mover's advantage not only provides product identification and higher market credibility but also provides better profits and faster economies of scale. Entrepreneurs sense opportunities since they are creative and are open to the new ideas, they seek challenges even at the time of smooth running of the operations. Kushagra Bajaj of Bajaj's Hindustan; after coming back from US in 2000 with a master's degree in management, he found a big opportunity in the sugar industry in India. The demand for sugar was on rise and there were 100 sugar mills declared sick out of a total of 553 mills in the sugar industry. He took this problem as an opportunity and took Bajaj Hindustan to the top notch position in 2005, in the process, becoming the leader in sugar industry in India]. (ii) Establish a Vision: Merely seeking opportunity is not enough; an entrepreneur further moves to establish a vision a dream for future which can be achieved only if opportunities are tapped at the right time. He has complete faith in his vision and it is quiet clear to him i.e. he can visualize his own optimism. Even if some market forces change, he would readjust his vision to keep his dream viable and fruitful. And believe it, entrepreneurs have big visions, something which others might consider as impossible. [Dhirubhai Ambani of Reliance had dreamt that he would put a mobile phone in every individual's hand, and the rest is history. We all know that today, even vegetable-sellers, farmers, milkmen, gardeners etc are all carrying mobile]. Dreaming this big in a poverty-stricken country like India needs guts. (iii) Persuade Others: An entrepreneur does not work alone; he understands that multiple skills are required to make business successful. Kathleen Alen, an American academician calls this phase of entrepreneurial process 'forming the foundation team' i.e. an entrepreneur forms a group of individuals who would work together to realize his dream. An entrepreneur prepares a business plan to make the vision and means of achieving the vision clearer to 'the others' who would join the team. These individuals are not just the skilled people who would join in, but also include financiers and even family members who put in their trust in the entrepreneur. Like Narayanmurthy of Infosys was supported by wife for financial and psychological backing and was joined by couple of friends who together lead to what Infosys is today! These trusted people are still part of Infosys and are still working together for the further growth of business. (iv) Gather Resources: Identifying an opportunity, establishing a vision and persuading others to join is not enough; a business enterprise needs resources to become successful. This is the phase, which can convert an entrepreneur's dream into realty.

Although we are presenting this process as it happens step by step, implying that issues pertaining to resources are considered here, the reality is that part of the early evaluation of the concept will inevitably involve a preliminary evaluation of whether it can be properly resourced. Resources can be considered under four categories: 1. Financial 2. Operating 3. Human 4. Information 5. Create New Venture 6. Change/Adapt with time 1. Financial Resources: Finance is the life blood of any organization. Finance is required to start, run and expand the business. Financial resources can be gathered from: Personal Savings + Family and Friends + Retained Capital Commercial Partnerships + Banks Venture Capital Government Institutions + Non-Governmental Organizations Floating Public Issues All the above sources have their own merits and demerits and entrepreneurs weigh each one of them to finally decide which source of finance would be most suitable for the business enterprise. 2. Operating Resources: The operating resources are of two types tangible and intangible. The tangible operating resources include: (a) Machineries (b) Raw Material (c) Land and Buildings (d) Office Equipments etc. Tangible resources involve heavy investments. Hence the entrepreneur needs to decide whether he wants to buy, rent or hire them. Depending on the available finances with the entrepreneur this decision is taken. Intangible resources are the ones that we cannot see or touch. They include: (a) Company's Image (b) Operating Procedures (c) Transportation (d) Management The intangible resources determine the fate of the company.

3. Human Resource Management: Human resources are the only living and vibrant part of the organization. They are the most important resource of the organization. Over the years the importance of HR has risen. This is due to rising competition, privatization and

globalization. Organizations are realizing that it is only the HR that can provide them a cutting edge over others. 4. Information Resources: With the advent of information superhighway, reliance on information has increased multifold. Both the employees and customers are well aware about, a wide ranges of choices available to them. Organizations have to work hard to run an efficient MIS (Management of Information Systems) in order to have timely information about customers, markets, external environment and even their employees. The information resource needs to be interconnected in such a way that employees, customers and managers are networked on a real-time basis. This would not only provide the information at the earliest, but would also speed up the actions based on this information. 5. Create New Venture: Once the entrepreneur has arranged for the resources mentioned above, the next step is the creation/establishment of the new venture and running the business venture successfully while the former task (creation of new venture) requires lot of enthusiasm, persuasion so that he is able to gather optimum resources. The latter task (running the business venture) requires lot of perseverance and passion to believe in self. 6. Change/Adapt with time: As change has become the rule of the game in today's business environment the entrepreneur needs to continuously keep the organization upgraded and abreast of changing times. This is not an easy task as it not only involves availability of funds for introducing change but also (which is even more difficult) the adaptability of human resources towards the changed environment.

Following is also a part of entrepreneurial decision making: Decision to Leave a Present Career or Lifestyle: The decision to leave a career or lifestyle is not an easy one. It takes a great deal of energy, and courage to change, and do something new and different. There are both pushing and pulling influences active in the decision to leave a present career. The "push" of job dissatisfaction or even layoff, and the "pull" toward entrepreneurship of seeing an unfilled need inmarket place. Perhaps an even stronger incentive to overcome the inertia and leave a present lifestyle to create something new comes from a negative force known as disruption. The Decision to Form New Venture: The desirability of starting One's own company is strongly influenced by culture, sub-culture, family, teachers, and peers. A culture is the system of shared values that help an individual to create a new business. Encouragement to form a new venture is further stimulated by sub-culture, family, teachcrs, and peers etc., who can significantly influence individuals to regard entrepreneurship as a desirable and viable career path. The Decision that Both External and Internal Factors Make New Venture Creation Possible: Any of these influences can function as a source of encouragement for entrepreneurship, with support ranging from government support that favor

business to strong personal role models of family or friends. There are various factors such as government, technology, finance, marketing, background, competency and other which influence formation of new ventures. Beyond the stage of seeing entrepreneurship as an "a good idea", the potential entrepreneur must possess or acquire the necessary education, management skills, and financial resources for launching the venture.

Q12) Why are entrepreneurs backbone of Indian economy? Economic development essentially means a process of upward change whereby the real per capita income of a country increases over a period of time. Entrepreneurship has an important role to play in the development of a country. It is one of the most important inputs in economic development. The number and competence of entrepreneurs affect the economic growth of the country. The economic history of the presently advanced countries like USA, Russia and Japan supports the fact that economic development is the outcome for which entrepreneurship is an inevitable cause. The crucial and significant role played by the entrepreneurs in the economic development of advanced countries has made the people of developing and under developed countries conscious of the importance of entrepreneurship for economic development. It is now a widely accepted fact that active and enthusiastic entrepreneurs can only explore the potentials of the countries availability of resources such as labor, capital and technology. The role of entrepreneurs is not identical in the various economies. Depending on the material resources, industry climate and responsiveness of the political system, it varies from economy to economy. The contribution of entrepreneurs may be more in favorable opportunity conditions than in economies with relatively less favorable opportunity conditions. Entrepreneurship helps in the process of economic development in the following ways: 1) Employment Generation: Growing unemployment particularly educated unemployment is the problem of the nation. The available employment opportunities can cater only 5 to 10 % of the unemployed. Entrepreneurs generate employment both directly and indirectly. Directly, self-employment as an entrepreneur and indirectly by starting many industrial units they offer jobs to millions. Thus entrepreneurship is the best way to fight the evil of unemployment. 2) National Income: National Income consists of the goods and services produced in the country and imported. The goods and services produced are for consumption within the country as well as to meet the demand of exports. The domestic demand increases with increase in population and increase in standard of living. The export demand also increases to meet the needs of growing imports due to various reasons. An increasing number of entrepreneurism is required to meet this increasing demand for goods and services. Thus entrepreneurship increases the national income.

3) Balanced Regional Development: The growth of Industry and business leads to a lot of Public benefits like transport facilities, health, education, entertainment etc. When the industries are concentrated in selected cities, development gets limited to these cities. A rapid development. When the new entrepreneurism grow at a faster rate, in view of increasing competition in and around cities, they are forced to set up their enterprises in the smaller towns away from big cities. This helps in the development of backward regions. 4) Dispersal of economic power: Industrial development normally may lead to concentration of economic powers in a few hands. This concentration of power in a few hands has its own evils in the form of monopolies. Developing a large number of entrepreneurism helps in dispersing the economic power amongst the population. Thus it helps in weakening the harmful effects of monopoly. 5) Better standards of living: Entrepreneur plays a vital role in achieving a higher rate of economic growth. Entrepreneurs are able to produce goods at lower cost and supply quality goods at lower price to the community according to their requirements. When the price of the commodities decreases the consumers get the power to buy more goods for their satisfaction. In this way they can increase the standard of living of the people. 6) Creating innovation: An entrepreneur is a person who always looks for changes. Apart from combining the factors of production, he also introduces new ideas and new combination of factors. He always tries to introduce newer and newer technique of production of goods and services. An entrepreneur brings economic development through innovation. Entrepreneurship also helps in increasing productivity and capital formation of a nation. In short, the development of the entrepreneurship is inevitable in the economic development of the country. The Role played by the entrepreneurship development can be expressed in the following words: " Economic development is the effect for which entrepreneurship is a cause

Q13) What is the apt way to create Entrepreneurs ?

A recent Mckinsey - Nasscom report has estimated that India needs at least 8,000 new businesses to achieve its target of building a US$87 billion, IT sector by 2008. Similarly, in the next 10 years, 110-130 million Indian citizens would be searching for jobs, including 80100 million looking for their first jobs. This does not include disguised unemployment of over 50% among the 230 million employed in rural India. Since, traditional large employers including the government and the old economy players may find it difficult to sustain this

level of employment in future, it is entrepreneurs who will create these new jobs and opportunities. Today's knowledge based economy is a fertile ground for entrepreneurs' in India. It is rightly believed that India has an extraordinary talent pool with virtually limitless potential to become entrepreneurs. Therefore, it is important to get committed to creating the right environment to develop successful entrepreneurs. To achieve this, India must focus on four areas. 1. Create the Right Environment for Success: Entrepreneurs should find it easy to start a business. To do so, most Indians would start slowly, with capital borrowed from family and friends. The CEO, playing the role of salesman and strategist, a professional team assembled months or perhaps years after the business was created, and few, if any, external partners. Compare this with a start-up in Silicon Valley: a Venture Capitalist (VC) or angel investor would be brought in early on; a professional management team would drive the business; a multifunctional team would be assembled quickly; and partnerships would be explored early on, to scale up the business. A major challenge for India is to create a handful of areas of excellence the breeding ground where ideas grow into businesses. For example, Gurgaon and Hyderabad, for remote services, or Bangalore for IT. One way of strengthening these areas is to consider the role of universities and educational institutions, places where excellence typically thrives. 2. Ensure that Entrepreneurs have access to the Right Skill: A survey conducted by McKinsey & Company, 2006 revealed that most Indian start-up businesses face two skill gaps: entrepreneurial (how to manage business risks, build a team, identify and get funding) and functional (product development know-how, marketing skills, etc.). India can move towards ensuring that the curriculum at universities is modified to address today's changing business landscape, particularly in emerging markets and to build centers of entrepreneurial excellence' in institutes that will actively assist entrepreneurs. 3. Ensure that Entrepreneurs have access to 'Smart Capital': For a long time, Indian entrepreneurs have had little access to capital. It is true that in the last few years, several venture funds have entered the Indian market. And, while the sector is still in its infancy in India (with estimated total disbursement of less than US$0.5 billion in the year 2003), VCs are providing capital as well as critical knowledge and access to potential partners, suppliers, and clients across the globe. However, India has only a few angel investors who support the idea in the early stages before VCs become involved. While associations such as TIE are seeking to bridge the gap by working at creating a TIE India Angel Forum, this is India's third challenge creating a global support network of 'angels' willing to support young business. 4. Enable Networking and Exchange: Entrepreneurs learn from experience - theirs and that of others. The rapid pace of globalization and fast growth of Asian economies presents tremendous opportunities and challenges for India. Through planning and focus, India can aspire to create a pool of entrepreneurs who will be the regions and the world's leaders of tomorrow.