Chapter one-Entrepreneurship and Free Enterprise

1.1. Definition of Entrepreneurship

entrepreneurship is the process and entrepreneur is

the person undertaking entrepreneurial activity.

Entrepreneurship can be defined from different

prospective as follows:
• Entrepreneurship is the process of creating incremental
wealth.

• The wealth is created by those individuals who assume

the major risk in terms of equity and time or providing
value for others.
• Entrepreneurship can also be defined as the process of
creating something different and better with value by
devoting the necessary time and effort by assuming the,
accompanying financial, psychic and social risks and
receiving the resulting monetary reward and personal
satisfaction.

• In this case an individual should come up with something

different and better in order to be named as entrepreneur.
The third definition views the term from four
perspectives; i.e. from the economist, psychologist,
business man and capitalist philosophers’ point of view.

To an economist an entrepreneur is one who brings

resource, labor, materials, and other assets into
combination that makes their value greater than before
and also one who introduces changes & innovations.
To a psychologist an entrepreneur is a person typically driven by
certain forces need to obtain or attain something, to experiment,
to accomplish or perhaps to escape the authority of others.

For a business man entrepreneur is either a threat (aggressive

competitor) or an ally (source of supply, consumer, etc).

For the capitalist philosopher an entrepreneur is one who creates

wealth for others as well, who finds better way to utilize
resources and reduce waste and who produce job others are glad
to get.
In general, the process of entrepreneurship includes five
critical elements. They are:

• The ability to perceive an opportunity.

• The ability to commercialize the perceived opportunity i.e.

innovation

• The ability to pursue it on a sustainable basis.

• The ability to pursue it through systematic means.

• The acceptance of risk or failure

Based on the above concepts of entrepreneurship, an
entrepreneur can be defined as follows:

An entrepreneur is someone who perceives an opportunity

and creates an organization to pursue it with the intention of
being profitable.
 Entrepreneurship – Historical Perspective

• Here let us took in to the historical development of

entrepreneurship so as to grasp the meaning of the word
entrepreneurship.

• During the ancient period the word entrepreneur was used

to refer to a person managing large commercial projects
through the resources provided to him.
In the 17th Century a person who has signed a
contractual agreement with the government to
provide stipulated products or to perform service
was considered as entrepreneur.
In this case the contract price is fixed so any
resulting profit or loss reflects the effort of the
entrepreneur.
• In the 18th Century the first theory of entrepreneur
has been developed by Richard Cantillon.
• He said that an entrepreneur is a risk taker. If we
consider the merchant, farmers and /or the
professionals they all operate at risk.
• For example, the merchants buy products at a
known price and sell it at unknown price and this
shows that they are operating at risk.
• The other development during the 18th Century is the
differentiation of the entrepreneurial role from capital
providing role.
• The later role is the base for today’s venture capitalist.
• In the late 19th and early 20th Century an entrepreneur was
viewed from economic perspectives. The entrepreneur
organizes and operates an enterprise for personal gain.
• In the middle of the 20th Century the notion of an
entrepreneur as an inventor has established.
• Apply untried technological possibility for producing
new commodities or producing an old one in a new
way or opening a new outlet for products by
reorganizing a new industry.”
• The concept of innovation and newness are at the heart of
the above definition.
• Entrepreneurship involves innovation and untried
technologies or what we called creative destruction, which
is defined as the process whereby existing product process,
ideas, and business are replaced with better ones
• Through the process of creative destruction,
old and outdated approaches and products
are replaced with better ones.
 1.3The Role of Entrepreneur within the
Economy
1. Promotes Capital Formation
2. Creates Large-Scale Employment Opportunities
3. Promotes Balanced Regional Development
4. Reduces Concentration of Economic Power
5. Wealth Creation and Distribution
6. Increasing Gross National Product and Per Capita
Income
7. Improvement in the Standard of Living
8. Promotes Country's Export Trade
9. Induces Backward and Forward Linkages
10. Facilitates Overall Development
 1.4. Entrepreneurship – Creativity and Innovation

• Discussions about innovation are often made difficult

because people are unclear about the exact meanings of
some key terms.

• In particular there is confusion about the difference between

creativity and innovation. Let us start with some definitions:

• Creativity is the capability or act of conceive something

original or unusual.
• Creativity emphasizes the “ability” not the “activity” of
bringing something new in to existence.
• Creativity occurs when an individual visualizes new
patterns in his/ her mind.
• Creativity is a fuzzy idea and cannot be clarified until it is
mad in to prototype, where we can touch it, test it and show
it to others.
• At this point, the creation becomes an invention as the stage
where a creative idea has been reduced in to practice.
• Invention is the creation of something that has never
been made before and is recognized as the product of
some unique insight.
• Innovation is the implementation of something new.
• If you have a brainstorm meeting and dream up
dozens of new ideas then you have displayed
creativity but there is no innovation until something
gets implemented.
• Somebody has to take a risk and deliver something for a
creative idea to be turned into an innovation.

• Innovation is different from invention.

• An invention is discovery of new methods and new

materials, where as innovation is utilization of inventions to
produce new and better quality of products that give greater
satisfaction to the consumer and higher profits to the
entrepreneur..
• An inventor gives the idea and an innovator implements the
idea for economic gain.

• Some individuals can be both inventor and innovator

• The innovator (entrepreneur) commercially exploits the

invention produced by him or by any other person.
• Innovation is the process of doing new things. Ideas have
little value until they are converted in to new products,
services, or processes.

• There are many people who conceive new ideas but do not
take action to implement them.

• Innovation, therefore, is the transformation of creative ideas

in to useful applications, but creativity is a prerequisite to
innovation.
• If creativity is the seed that inspires entrepreneurship,
innovation is the process of entrepreneurship.

• Therefore innovation is the process of taking a creative idea

and turned it in to product or process that can be used or
sold.
 Cont’d

Results in new
The creation of Knowledge
Invention
something new

Innovation The transformation of an Results in new products,

idea or resources into Services, or processes
useful application