Entrepreneurship

Concept

Entrepreneurship constitutes the driving force of today’s market based economy. It is one of the four
main economic factors namely, land, labor, capital and organization. Entrepreneurship can be a very
powerful factor in changing the business environment of a country and its entire industrial sector.

Entrepreneurship is presently the most effective method for bridging the gap between science and the
marketplace, creating new enterprises and bringing new products and services to the market. These
entrepreneurial activities significantly affect the economy of an area by building the economic base and
providing jobs.

Entrepreneurship means different things to different people and can be viewed from different
conceptual perspectives. However, in spite of the differences, there are some common aspects like risk
taking, creativity, independence and rewards. These commonalities will continue to be the driving force
behind the notion of entrepreneurship.

Joseph Alois Schumpeter described entrepreneurship as a process and entrepreneurs as innovators who
use the process to break the existing system of production and organization through new combinations
of resources and new methods of production and trade.

Definitions
Arthur H. Cole “Entrepreneurship is the purposeful activity of an individual or a group of associated
individuals, undertaken to initiate, maintain and make profit by production or distribution of economic
goods and services”.

J.A. Schumpeter “Entrepreneurship is based on purposeful and systematic innovation. It included not
only the independent businessman but also company directors and managers who actually carry out
innovative functions.”

Becoming an Entrepreneur

The three primary reasons that people become entrepreneurs and start their own firms are to be their
own boss, pursue their own ideas, and realize financial rewards.

Be their own boss: The first of these reasons- being one’s own boss- is given most commonly. This
doesn’t mean, however, that entrepreneurs are difficult to work with or that they have trouble
accepting authority. Instead, many entrepreneurs want to be their own boss because either they have
had a long time ambition to own their own firm or because they have become frustrated working in
traditional jobs.

Pursue their own ideas: the second reason people start their own firms is to pursue their own ideas.
Some people are naturally alert, and when they recognize ideas for new products or services, they have
a desire to see those ideas realized. Corporate entrepreneurs who innovate within the context of an
existing firm typically have a mechanism for their ideas to become known. Established firms, however,
often resist innovation. When this happens, employees are left with good ideas that go unfulfilled.
Because of their passion and commitment, some employees choose to leave the firm employing them in
order to start their own business as the means to develop their own ideas. This chain of events can take
place in non corporate settings too. For example, some people, through a hobby, leisure activity, or just
everyday life recognize the need for a product or service that is no available in the marketplace. If the
idea is viable enough to support a business, they commit tremendous time and energy to convert the
idea into a venture.

Pursue financial Rewards: Finally, people start their own firms to pursue financial rewards. This
motivation, however, is secondary to the first two and often fails to live up to its hype. The average
entrepreneur does not make more money than someone with a similar amount of responsibility in a
traditional job. People such as Michael Dell of Dell Inc., Jerry Yang of Yahoo and Larry Page and Sergey
Brin of Google made hundreds of millions of dollars building their firms. But these people insist that
money wasn’t their primary motivation. For example, Sir Richard Branson, after selling Virgin Records,
wrote,” I remember walking down the street [after the sale was completed]. I was crying, Tears
streaming down my face. And there I was holding a check for a billion dollars…. If you’d have seen me,
you would have thought I was loony. A billion dollars.” For Branson, it wasn’t just the money- it was the
thrill of building the business and of seeing the success of his initial idea.

Key Elements of Entrepreneurship

 Motivation & Commitment:

It’s important to get the basic ingredients of start-up right. People who are lending money look at the
person first and foremost, so motivation is the most critical. You need to convince your bank manger
you can make your business work because you’ve researched your market, you’ve costed out the
business and you know where you want the business to be in 5 or 10 years time.

A means of showing your commitment to the business would be to save and invest money.

 Abilities & skill:

The second element is one of ability and skills. The individual has to have skills appropriate to the kind of
business they’re proposing to run. And if they don’t have them, they should have a reliable person who
can.

It could be that one person knows how to run a business from an operational and management
perspective, whereas another person has the technical skills to develop the product or service.

 Resources:

The third element is resources. That’s not purely about money and equipment; it’s also about
intellectual capability. (The ability to persuade others is important. Many entrepreneurs have been able
to negotiate very favorable deals against the odds, when establishing their business).

 Strategy & vision:

The fourth element is strategy and vision in terms of thinking four or five years ahead and having some
idea of where that business might be in the future and putting in place a plan to achieve that goal.

 Planning & organization:

The fifth element is planning and organization. Without planning, organization, coordination and
administration, the product won’t get to market nor will it satisfactorily meet demand. You need to
think about systems, job roles, and quality issues, which if handed effectively, will ensure you, can satisfy
the market by delivering on time and to the right place.

 The idea in relation to the market:

The sixth element is the idea and more specifically, the idea in relation to the market place. What we are
trying to do is to make certain that we are customer focused, ensuring that the individual is satisfied in
their requirements.

When we look at the six elements it becomes evident that you can have a bad product with a highly
motivated individual, which will produce an acceptable business. But what you cannot have is a really
good product with a de-motivated individual. The business will not succeed because the product will not
reach the market at the right time, at the right place, or at the right price.

Characteristics of Successful Entrepreneurs

Passion for the Business: The number one characteristic share by successful entrepreneurs is a passion
for their business. This passion typically stems from the entrepreneur’s belief that the business will
positively influence people’s lives. Example (John Plaza, the founder of Seattle Biodiesel, a company that
makes biodiesel, and environmentally friendly substitute for regular diesel fuel. Plaza, a former airline
pilot, quit his job fling commercial airplanes to pursue an interest in alternative fuels. A single flight
sparked his passion for environmental stewardship and caused him to decide to make a career change.)

I was flying from Anchorage to Tokyo, and I started thinking about how much fuel that flight used. I
figured out that in a 6 hours flight, we used enough fuel to power my personal vehicle for 42 years. I
had to make a change.

The passion explains why people like Bill Gates, Michael Dell, Larry Page and Sergey Brin of Google
continue working after they are financially secure.

Product/ Customers focus: This quality is exemplified by Steven Jobs, the co-founder of Apple INC., who
wrote, “The computer is the most remarkable tool we’ve ever built… but the most important thing is to
get them in the hands of as many people as possible.” This sentiment underscores an understanding of
the two most important elements in any business- products and customers. While it’s important to think
about management, marketing, finance, and the like, none of those functions makes any difference if a
firm does not have good products with the capability to satisfy customers.

Developing products that enhance people’s lives is an aspect of the entrepreneurial process that many
business owners find very rewarding.

Tenacity despite Failure: Because entrepreneurs are typically trying something new, the failure rate
associated with their efforts is naturally high. In addition, the process of developing a new business is
somewhat similar to what a scientist experiences in the laboratory. A chemist, for example, typically has
to try multiple combinations of chemicals before finding an optimal combination that can accomplish a
certain objective. In a similar fashion, developing a new business idea may require a certain degree of
experimentation before a success is attained. Setbacks and failures inevitably occur during this process.

In some instances, tenacity is important because it shows a potential customer the degree of
commitment that an entrepreneur has to a new product or service.

Execution Intelligence: The ability to fashion a solid idea into a viable business is a key characteristic of
successful entrepreneurs. Rob Adams, a senior partner in AV Labs, calls this ability execution
intelligence. In many cases, execution intelligence is the factor that determines whether a start-up is
successful or fails. An ancient Chinese saying warns, “To open a business is very easy; to keep it open is
very difficult.”

The ability to effectively execute a business idea means developing a business model, putting together a
new venture team, raising money, establishing partnerships, managing finances, leading and motivating
employees, and so on. It also demands the ability to translate thought, creativity, and imagination into
action and measurable results. As Jeff Bezos, the founder of Amazon.com, once said, “Ideas are easy. It’s
execution that’s hard.”

Common Myths about Entrepreneurs

Myth 1: Entrepreneurs are born, not made. This myth is based on the mistaken belief that some people
are genetically predisposed to be entrepreneurs. The consensus of many hundreds of studies on the
psychological and sociological makeup of entrepreneurs is that entrepreneurs are not genetically
different from other people. This evidence can be interpreted as meaning that no one is born to be an
entrepreneur and that everyone has the potential to become one. Whether someone does or doesn’t is
a function of environment, life experiences, and personal choices. However, there are some personality
traits and characteristics.

Myth 2: Entrepreneurs are gamblers. A second myth about entrepreneurs is that they are gamblers and
take big risks. The truth is entrepreneurs are usually moderate risk takers, as are most people. The idea
that entrepreneurs are gamblers originates from two sources. First, entrepreneurs typically have jobs
that are less structured, and so they face a more uncertain set of possibilities that managers or rank and
file employees. For example, an entrepreneur who starts an e-business consulting service has a less
stable job than one working for a governmental agency. Second, many entrepreneurs have a strong
need to achieve and often set challenging goals, a behavior that is sometimes equated with risk taking.

Myth 3: Entrepreneurs are motivated primarily by money. It is naïve to think that entrepreneurs don’t
seek financial rewards. As discussed previously, however, money is rarely the primary reason
entrepreneurs start new firms. Considering what motivated him to start Siebel Systems, a successful
Silicon Valley firm, Tom Siebel wrote

It was never about making money. It was never about going public; it was never about the creation of
wealth. This was about an attempt to build an incredibly high-quality company. I suppose if I was a
great musician that maybe I would play the guitar, if I was a great golfer maybe I would go out on tour,
but I can’t play the guitar and my golf game is pretty horrible. So, what I think, frequently under those
circumstances, what you do is do what you do best. And I think that maybe what I do best is start and
operate information technology companies.

Myth 4: Entrepreneurs should be young and energetic. The most active age range for business
ownership is 35 to 45 years old. In today’s world, increasing numbers of both younger and older
individuals are being attracted to entrepreneurial process.

Although it is important to be energetic, investors often cite the strength of the entrepreneur as their
most important criterion in the decision to fund new ventures. In fact, a sentiment that venture
capitalists often express is that they would rather fund a strong entrepreneur with a mediocre business
idea than fund a strong business idea and a mediocre entrepreneur. What makes an entrepreneur
strong in the eyes of an investor is experience in the area of the proposed business, skills and abilities
that will help the business, a solid reputation, a track record of success, and passion about the business
idea. The first four of these five qualities favor older rather than younger entrepreneurs.

Myth 5: Entrepreneurs love the spotlight. Indeed, some entrepreneurs are flamboyant; however, the
vast majority of them do not attract public attention. In fact, many entrepreneurs, because they are
working on proprietary products or services, avoid public notice. Few of the entrepreneurs like Bill
Gates, Jeff Bezos, Michael Dell etc do come up in media. But there are many other entrepreneurs like
founder of Intel, GAP are not even recognized by many people.

Types of startup firms

Salary Substitute firms are small firms that yield a level of income for their owner or owners that is
similar to what they would earn when working for an employer. Dry cleaners, convenience stores,
restaurants, accounting firms are few examples of salary substitute firms. The vast majority of small
businesses fit into this category. Salary-substitute firms offer common, easily available products or
services to customers that are not particularly innovative.

Lifestyle firms provide their owner or owners the opportunity to pursue particular lifestyle and earn a
living while doing so. Lifestyle firms include ski instructors, golf pros, and tour guides. (In Nepalese
context Cricket academy, gym hall, swimming pool etc). These firms are not innovative, nor do they
grow quickly. Commonly, lifestyle companies promote a particular sport, hobby or pastime and may
employ only the owner or just a handful of people.

Entrepreneurial firms bring new products and services to market as the essence of entrepreneurship is
creating value and then disseminating that value to customers. Entrepreneurial firms bring new
products and services to market by creating and then seizing opportunities. Google, eBay, and Apple are
well known, highly successful examples of entrepreneurial firms.

Importance of Entrepreneurship

Entrepreneurship’s importance to an economy and the society in which it resides was first articulated in
1934 by Joseph Schumpeter in the book “The Theory of Economic Development” who argued that
entrepreneurs develop new products and technologies that over time make current products and
technologies obsolete. He called this process creative destruction.

Economic Impact of Entrepreneurial Firms

For two reasons, entrepreneurial behavior has a strong impact on an economy’s strength and stability.

 Innovation is the process of creating something new, which is central to the entrepreneurial
process. Employees of entrepreneurial firms tend to be twice as innovative as compared to that
of larger firms.
 Job creation in the past few decades, economic activity has moved increasingly in the direction
of smaller entrepreneurial firms, possibly because of their unique ability to innovate and focus
on specialized tasks. Small business tends to provide the first job for most new entrants too.

Entrepreneurial Firm’s Impact on Society

The innovations of entrepreneurial firms have a dramatic impact on a society. Majority of innovations
and creations resulted into products and services that make the life of individual easier, enhance the
productivity at work, improve health and entertain one. Some of the impacts of entrepreneurial firm on
society are improved health care through medical equipments and drugs, cellular phones, personal
computers, internet shopping, overnight package deliver, digital photography, microwave ovens etc.

Entrepreneurial Firm’s Impact on Larger Firms

Some entrepreneurial firms are original equipment manufacturers, producing parts that go into
products that larger firms manufacture and sell. Thus, many exciting new products, such as DVD players,
digital cameras, and improved prescription drugs are not solely the result of the efforts of larger
companies with strong brand names, such as Sony, Kodak etc. they were produced with the cutting-edge
component parts or research and development efforts provided by entrepreneurial firms.

In many instances, entrepreneurial firms partner with larger companies to reach mutually beneficial
goals.

The process of new venture creation

The process of new venture creation starts as soon as an idea of proposed business is developed by an
individual or group. The following are the process of new venture creation

Here are the processes of entrepreneurship

Step 1: Deciding to become an entrepreneur

People become entrepreneurs to be their own bosses, to pursue their own ideas and to realize financial
rewards. Usually, a triggering event prompts an individual to become an entrepreneur. For example
individual may lose his/her job and decide that the time is right to start her own business. Or a person
might receive an inheritance and for the first time in his life have the money to start his own company.

Step 2: Developing successful business ideas

Many new businesses fail not because the entrepreneur didn’t work hard but because there was no real
opportunity to begin with. Developing a successful business idea includes opportunity recognition,
feasibility analysis, writing a business plan, industry analysis and development of an effective business
model.

Step 3: Moving from an idea to an entrepreneurial firm

The first step in turning an idea into reality is to prepare a proper ethical and legal foundation for a firm,
including selecting an appropriate form of business ownership.

Step 4: Managing and growing the entrepreneurial firm

Given today’s competitive environment, all firms must be managed and grown properly to ensure their
ongoing success. This is the final stage of the entrepreneurial process.

Entrepreneurship development in Nepal

The entrepreneurial development in Nepal is affected by factors such as caste origins, religion, family
background, environment, occupation, education, technical know-how migratory character professional
character, family tradition, ideas, systems, customs, forms of ownership cultural forces etc. these factors
exercise a strong influence on the personality or personal background of entrepreneur.

1. Caste emergence
2. Family Background
3. Religious Background
4. Occupational Background
5. Migratory character community
6. Education and technical know-how
7. Form of ownership preferred
8. Type of industry
9. Individual factors