3 Evolution of the concept of Entrepreneur and Characteristics of Successful Entrepreneurs
Vishal Kumar
1. Learning Outcome
After completing this module students will be able to:
i. Understand the concept of entrepreneur.
ii. Evolution of the entrepreneur.
iii. Know the basic characteristics of entrepreneur.
iv. Understand the growth of entrepreneur with the help of examples.
2. Introduction
The term „entrepreneur‟ has been defined in many ways and various senses. This word has been used since ages but its meaning is changing over time. The meaning of an entrepreneur has been defined by militarymen, economists, psychologists and sociologists. In Early 16th century entrepreneurs was the term used for the persons engaged in the military journey. Later on in 17th century, it was expanded for the persons engaged in engineering activities such as construction etc. In the beginning of the 18th century, Entrepreneur refers to the persons engaged in the economic activities. Therefore, „entrepreneur‟ has changed over the time from the person engaged in military expeditions to the economic activities.
There are different School of thoughts about the concept of an entrepreneur. An entrepreneur doesn‟t have specific features. He could be a sensitive person, worrier, creative, competent, leader, social but some key qualities have been identified which every entrepreneur must possess in order to succeed like innovation, risk taking, hard-work, self confidence, goal setting and their burning desire to excel.
3. Evolution of the Concept ‘Entrepreneur’
The term entrepreneur is as old as civilization. It has been in use for the last five centuries. In early 16th Century it was referred to persons engaged in military expeditions, during 17th Century it was extended to persons engaged in engineering activities like construction etc and in the beginning of 18th Century it was used to refer to persons engaged in economic aspects of human activities. Renowned economists David Ricardo and Adam Smith in the „Wealth of Nations‟ during 1776 ignored the role of entrepreneur in economic development. They hardly distinguished between the entrepreneurial function from that of pure entrepreneurship of capital. The economic development to them seemed to be automatic and self-regulated. The concept of entrepreneurship has been shady during the period of English Classical Economists.
The word „entrepreneur‟ is derived from the French word “entreprendre‟ which means „to undertake‟. The term entrepreneur was first coined by Richard Cantillon, a French baker in 18th Century to mean, “A person who is uncertainty bearer”. Richard Cantillon, an Irishman living in France was the first person who used the term entrepreneur for economic activities. J.B.Say another Frenchman, expanded Cantillon‟s ideas and said that entrepreneur is “an organizer who combines various factors of production to produce a socially viable product”.
The word „entrepreneur‟ has an interesting history starting from French language to till date which can be understood with the help of following definitions given by eminent entrepreneurs and economists:
An entrepreneur is the agent who buys means of production at certain prices in order to combine into a product that he is going to sell at prices that are uncertain at the moment at which he commits himself to his costs.
-Richard Cantillon
An entrepreneur is the economic agent who unites all means of production, the labour, the capital or land and who finds the value of product which results from their employment, the reconstruction of the entire capital that he utilises and the value of wages, the interest and the rent that he pays as well as profit belonging to himself.
-J.B.Say
Entrepreneur is one who seeks to reform or revolutionise the pattern of production by exploiting an innovation or more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way, by opening up a new source of supply of material or a new outlet of products.
-Joseph Schumpeter
Entrepreneurs are a specialised group of persons who undertake the risk and deal with uncertainty. Entrepreneur is the economic functionary who undertakes responsibility which cannot be insured.
–F.H.Knight
Entrepreneur is one who endowed with more than average capacities in the task of organising and co-ordinating the factors of production i.e, land, labour, capital and enterprise. Entrepreneur is a pioneer, a leader and captain of the firm. Hence, profit, the entrepreneur gets depends upon his efficiency and superior talent.
-F.A. Walker
An entrepreneur is one who always searches for change, responds to it and exploits it as an opportunity. Innovation is considered as an instrument of entrepreneurship. An entrepreneur innovates and creates resources because there is no such thing as resource until somebody finds a use for something and endows economic value to it. Innovation is being presented as a discipline, capable of being learnt and capable of being practised.
-Peter F.Drucker
Thus, the fact remains that the term „entrepreneur‟ has been defined differently by different writers and thinkers.
These views expressed above are broadly classified into three groups, namely:
- Risk-bearer
- Organizer, and
- Innovator
3.1 Entrepreneur as Risk-Bearer: In 18th Century Richard Cantillon defined entrepreneur as a capitalist. According to him entrepreneurship is a matter of foresight and willingness to assume risk. He defined entrepreneur as an agent who buys factors of production at certain prices in order to combine them into a to selling it at uncertain prices in future.
He illustrated it with the help of an example. A farmer has to pay contractual incomes, which are certain, to the landlords and labourers and sells at prices that are „uncertain‟. He also explains that so with the merchants who make certain payments in expectation of uncertain receipts. So a farmer or merchant both are considered as „risk bearing‟ agent of production.
F.H.Knight also described entrepreneur as specialized group of persons who bear risk and ready to face uncertainty. Uncertainty cannot be insured against future contingencies and is incalculable. Knight differentiates ordinary risk with uncertainty. According to him a risk can be reduced by taking the insurance policy where the occurrence of something is known. On the other side, uncertainty is the risk which cannot be calculated. Thus, Knight describes entrepreneur as the economic functionary who undertakes such responsibility of uncertainty which cannot be insured.
3.2 Entrepreneur as Organizer:
J.B. Say, a French economist, also developed further the concept of entrepreneur, which survived for almost two centuries. He associates entrepreneur with the functions of coordination, organization and supervision. Say was the first economist to differentiate the function and remuneration of the entrepreneur from those of the capitalist. He emphasized coordination and supervision and recognized entrepreneur as the most important agent of production as he brings together other productive factors and provides continuity of management.
According to Say, entrepreneurship is the combination of three factors; i) Moral qualities for the work consisting of judgment, perseverance and knowledge of business environment, ii) command over capital resources and iii) effective utilisation and administration to overcome uncertainty of profits. Thus, Say‟s entrepreneur shifts economic resources out of an area of lower productivity into an area of higher productivity and greater yield.
Marshall during 1936 also focused the relevance of organisation among the various services of special class of business undertakers.
3.3 Entrepreneur as Innovator: During 1934 Schumpeter in his magnum opus „Theory of Economic Development‟ highlighted the role of entrepreneur as “Innovator”. According to him entrepreneur is basically an innovator who carries out new combinations of factors of production to initiate and accelerate the process of economic development. Innovations may be occurred in any of the following forms:
i) Introducing new product in the market
ii) Introducing new methods of production
iii) Opening of a new market
iv) Discovering new sources of raw material
v) Carrying of new organisation of any industry
Schumpeter differentiates between inventor and an innovator. According to him an inventor is one who discovers new factors of production like men, material, machine and methods and an innovator utilizes these inventions and discoveries to make new combination of factors of production. He argued on the fact that the entrepreneur may or may not be the inventor and therefore, he may or may not be supplier of capital. Major different between the inventor and innovator is that the former creates idea and the latter gets it converted into reality.
However, Schumpeter‟s theory is based on certain assumptions like prevalence of capitalist society with private property, private initiative, money and banking system etc. The applicability of his theory is doubtful in under developed countries where the poor infrastructure and lack of capital may block the innovativeness.
The most recent definition of entrepreneurship is given by Knowledge Commission of India with special reference to India. According to NKC “entrepreneurship is defined as the profession application of knowledge, skills and competencies and/or of monetizing a new idea, by an individual or a set of people by launching an enterprise de novo or diversifying from an existing one (distinct from seeking self-employment as in a profession or trade), thus, to pursue growth while generating wealth, employment and social good”.
4. Characteristics of Successful Entrepreneur: The following are the important characteristics of an entrepreneur:
1) Innovator: Entrepreneurs are generally regarded as innovators. They introduce new methods, new products, new markets, new sources of raw material and new forms of industrial units. According to Schumpeter entrepreneur is basically an innovator who carries out new combinations of factors of production to initiate and accelerate the process of economic development. Even the economic development of a country depends upon the innovativeness of its entrepreneurs. They find new solutions to old problems, new uses of existing resources, new techniques etc. The innovative entrepreneur is playing a key role in the economic development of a country.
2) Risk Taker: Entrepreneur assumes the risk of the business. Risk means uncertainty. It is the condition of not knowing the outcome of a decision or activity. He takes calculated risk and faces uncertainty confidently and assumes risk. Higher the risk, higher would be the profit is general saying about risk but it all depends upon the ability of a person taking the decisions and thereby gains higher returns.
3) Good Organiser: Entrepreneurs have remarkable skills in organising work and people. They make objective selection of individuals in conformity with their skill in solving specific problem. They bring together various factors of production, minimise losses and reduce the cost of production. An entrepreneur formulates business plans and ensures their execution. An entrepreneur is one who combines various factors of production and then produces a product for market.
4) Optimistic: The successful entrepreneurs have a positive approach toward things. They do not get disturbed by the present problems faced by them. They become optimistic for future that the situations will become favourable to business in future.
5) Foresight: The entrepreneurs have a good foresight to know about future business environment. In other words, they well visualize the likely changes to take place in market, consumer attitude and taste, technological developments etc. and take necessary and timely actions accordingly.
6) Visionary: Vision is the ability to see the end result of goals while striving to achieve them. Every entrepreneur has a vision for growth and development. An entrepreneur is one who incubates new ideas, starts his enterprise with these ideas and provides added value to society based on their independent initiative. With persistence and determination, the entrepreneur develops strategies to change the vision into reality.
7) Self-Confident: An entrepreneur should be self confident. He must have faith in himself and in his abilities. He should have ability to tackle the problems independently with confidence. Only a self confident entrepreneur can trust others and can delegate authority to others. He should have the confidence to implement the change with his relevant knowledge, skills and experience.
8) Perseverance: One of the qualities of successful entrepreneurs is that they possess and exhibit tremendous perseverance in their pursuits. They do not give up their effort even if they fail. They are not deterred by difficulties and problems that beset any project, rather they work hard until the whole project is successfully accomplished. They have the willingness to keep goals in sight and work toward them despite obstacles. They make hard efforts to get rid of obstacles coming in the way of reaching the ultimate goal.
9) Emotional Balance: There are many ups and downs in the business but entrepreneur has to be emotionally stable. They do not get carried away by the huge profits and disappointed by the huge losses. They remain quiet and calm at every situation.
10) Hard Work: Entrepreneurs works very hard to succeed. Most of entrepreneurs work hard in the beginning and thus same becomes their habit for the lifetime because they believe that hard work is the key to success.
11) Decision Maker: An entrepreneur has to take various decisions in performing activities of his enterprise. Therefore he must be innovative in decision making process. The true entrepreneurship requires creative decision making, rational approach, problem solving ability and ability to take quick and correct decision. The profitability and productivity of an enterprise directly depends upon the decision making capacity of an entrepreneur.
12) Patient: Entrepreneurs are highly patient and do not get affected by the temporary failure and continue to work hard. Entrepreneurs try again and again to achieve the success.
13) Communication Skills: Entrepreneurs are good communicator and with their good communication skills they are able to convince others with their ideas. Good communication also means that both sender and the receiver understand each other and are being understood. An entrepreneur who can effectively communicate with customers, employees, suppliers and creditors will be more likely to succeed.
14) Leadership and Team Spirit: An entrepreneur must have the ability to build successful teams and thus working in teams. He should be good at building and managing successful teams. Leadership quality is the most important characteristic of entrepreneur. It is the process of influencing and supporting others to work enthusiastically towards achieving objectives.
15) Interpersonal Skills: An entrepreneur is a person who comes across with different persons. He has to deal with many types of persons. He is the person who gets the things done through with the help of others. So a successful entrepreneur possesses the interpersonal skills of dealing with people.
16) Creative: An entrepreneur must have the qualities of creative thinker. He must be reasonably intelligent and should have creative thinking so that he must be able to solve various problems and handle the critical situations in order to deal with them.
5. Success Story of Bill Gates
Success Story of Bill Gates
William Henry Gates, known to his friends and the rest of us as Bill, is probably the world‟s most prominent entrepreneur. From a teenager’s interest in computer programming, he founded and built Microsoft to its position of global dominance of the vast personal computer market. He is certainly one of the world’s richest individuals.
Entrepreneurs are now role models. Yet, in 1955, when Bill was born in Seattle, very few people ever mentioned the word „entrepreneur‟. Even as recently as 1975, when Bill Gates and Paul Allen founded Microsoft, calling a business person an entrepreneur was often a term of abuse in Britain, if not in the U.S.
At the age of 14, Bill and his school friend, Paul Allen, converted an Intel processor into a traffic counter and earned $20,000 each for themselves, Six years later, in 1975, Paul talked Bill into dropping out of Harvard and travelling halfway across the country to New Mexico, in order to develop an interpreter of the BASIC programming language for the new Altai microcomputer. This opportunity gave birth to Microsoft but was clearly driven not by a desire to beat competitors but more by a love of doing something new, with new technologies, in a new industry.
Within ten years, however, Microsoft was creating its own opportunities and was on the path to becoming the $50 billion, 80,000 employee, multinational, dominant force that it is today in computing. The big opportunity came in 1981, when IBM turned to Microsoft to produce the operating systems for its new personal computers. To meet the IBM deadline, Microsoft bought the rights to an existing system for $50,000 and adapted it into the PC-DOS. Each IBM PC sold included by Microsoft system yet Microsoft market, they too were mostly using the Microsoft disk operating system (MS-DOS). As the money poured in, Microsoft stepped up its R & D so that it soon began to lead, rather than follow, market developments. So Bill moved from being something in between an enthusiastic hobbyist, and a classical opportunity spotting entrepreneur, into a thoroughly modern entrepreneur who savours the creating of new opportunities, Bill now clearly enjoy being a winner.
5. Summary: An entrepreneur is one who creates a new business in the face of risk and uncertainty for the purpose of achieving profit and growth by identifying significant opportunities and assembling the necessary resources to capitalize on them. He bears risk, unites various factors of production and carries out innovations. An entrepreneur is a person who has possession of an enterprise, or venture and assumes significant accountability for the inherent risks and outcome. Entrepreneurs are people who have a talent for seeing opportunities and the abilities to develop those opportunities into profit making businesses. It is usually said that entrepreneurs are wild risk takers. Yes, they take risks but only calculated ones. Innovation, creativity, leadership, risk taking etc are some of the keys to being a successful entrepreneur.