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Chapter 1: Understanding the Entrepreneur and Entrepreneurship

1. Evolution of the Concept of Entrepreneur ( 7th,6th , 3rd )


The word entrepreneur has been taken from the French language where it cradled and originally meant to designate an organizer
of musical or other entertainments.

Oxford English Dictionary (in 1897): An entrepreneur is the director or a manager of a public musical institution, one who gets-up
entertainment, especially musical performance.
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Early 16 century: Applied to those who were engaged in military expeditions.
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17 century: Extended to cover civil engineering activities such as construction and fortification.
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Beginning of the 18 century: Used to refer to economic aspects.

Thus, the evolution of the concept of entrepreneur is considered over more than four centuries.

Over this period, the term entrepreneur is used in various ways and various views.
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These views are broadly classified into three groups: ( 2 ) describe

 Entrepreneur as a Risk-Bearer
 Entrepreneur as a Organizer
 Entrepreneur as a Innovator

2. Characteristics of an Entrepreneur ( 8th , 5th, 2nd )


a. Hard Work: Willingness to work hard distinguishes a successful entrepreneur from unsuccessful one.
b. Desire for High Achievement: The entrepreneurs have a strong desire to achieve high goals in business.
c. Highly Optimistic: The successful entrepreneurs are not disturbed by the present problems faced by them. They are optimistic
for future that the situations will become favorable to business in future.
d. Independence: One of the common characteristics of the successful entrepreneurs has been that they do not like to be guided
by others and to follow their routine.
e. Foresight: The entrepreneurs visualize the likely changes to take place in market, consumer attitude, technological
developments, etc. and take timely actions accordingly.
f. Good Organizer: Entrepreneurs are able to brings together all resources required for starting up an enterprise and then to
produce goods.
g. Innovative: The entrepreneurs initiate research and innovative activities to produce goods to satisfy the customers changing
demands for the products.
h. Some other characteristics- Confidence, Determination, Energy, Dynamism, Versatility, Creativity, Flexibility, Initiative,
Intelligence, Pleasant personality, Courage, Ability to influence others, Tolerance for ambiguity, Accuracy, Cooperatives, Ability
to learn from mistakes, Honesty, Resourcefulness, Time competence.

3. Functions of An Entrepreneur ( 5th , 4th, 1st )


I. Idea generation and scanning of the best suitable idea.
II. Determination of the business objectives.
III. Product analysis and market research.
IV. Determination of form of ownership/ organization.
V. Completion of promotional formalities.
VI. Raising necessary funds.
VII. Procuring machine and material.
VIII. Recruitment of men.
IX. Undertaking the business operations.

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4. Intrapreneur
An Intrapreneur is a manager within a company who promotes innovative product development and marketing.

An Intrapreneur is a person with entrepreneurial characteristics who is employed within a large corporation.

Intrapreneurs unlike entrepreneur, works for an organization as an employee, but takes hands-on responsibility for initiating
innovative ventures of any kind within an organization.

According to Kuratko & Hodgetts (2001), Intrapreneurs are not necessarily the inventors of new products or services but are the
persons who can turn ideas or prototypes into profitable realities.

Kao (1991) described Intrapreneurs as Persons who tend to be action oriented. They can move quickly to get things done. They are
goal oriented, willing to do whatever it takes to achieve their objectives. They are self-determined goal setters who go beyond the
call of duty in achieving their goals .

5. Entrepreneurs Vs Intrapreneurs Vs Managers ( 7th , 6th , 5th , 4th, 3rd, 1st)


Characteristics Manager Entrepreneur Intrapreneur

Primary Motives Wants promotion and other Wants freedom; goal oriented, Wants freedom and access to
traditional corporate rewards; self-reliant and self motivated corporate resources; goal oriented
power motivated and self motivated, but also
responds to corporate rewards and
recognition.

Tendency to action Delegates action; supervising Gets hands dirty; may upset Gets hands dirty; may know how to
and reporting take most employees by suddenly doing their delegate but, when necessary, does
energy work what needs to be done.

Skills Professional management; Knows business intimately; more Very much like the entrepreneur,
often business school trained; business acumen than managerial but the situation demands greater
uses abstract analytical tools, or political skill; often technically ability to prosper within the
people, management and trained if in technical business; organization.
political skills. may have had formal profit-and-
loss responsibility in the company

Attitudes toward Sees others being in charge of Self-confident, optimistic and Self-confident and courageous;
courage and destiny his or her destiny; can be courageous many are cynical about the system
forceful and ambitious but but optimistic about their ability to
may be fearful of other s outwit it.
ability to do better than him
or her

Focus of attention Primarily on event inside Primarily on technology and Both inside and outside; sells
corporation marketplace insiders on needs of venture and
marketplace; also focuses on
customers

Attitude toward risk cautious Likes moderate risk; invests Like moderate risk; generally not
heavily but expects to succeed. afraid of being fired, so sees little
personal risk

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Attitude toward status Cares about status symbols Happy sitting on an orange crate if Considers traditional status symbols
(corner office, and so on) job is getting done a joke; treasures symbols of
freedom

Attitude toward failure Strives to avoid mistakes and Deals with mistakes and failures as Sensitive to need to appear orderly;
and mistakes surprises; postpone learning experiences attempts to hide risky projects from
recognizing failure view so as to learn from mistakes
without political cost of public
failure

Decision making style Agrees with those in power; Follows private vision; decisive, Adept at getting others to agree
delays making decisions until action oriented with private vision; somewhat more
a feel of what bosses want it patient and willing to compromise
obtained than the entrepreneur but still a
doer

Who serves Pleases others Pleases self and customers Pleases self, customers and
sponsors

6. Common Myths about Entrepreneurs ( 2nd)


1. Entrepreneurs are doers, not thinkers: Entrepreneurs have a tendency toward action, but they are also thinkers. Emphasis today
is on the creation of clear and complete business plans.

2. Entrepreneurs are born, not made: Entrepreneurship has models, processes, and case studies that allow the traits to be acquired.
Traits include aggressiveness, initiative, drive, a willingness to take risks, analytical ability, and skill in human relations.
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3. Entrepreneurs are always inventors: ( 8 )This is a result of misunderstanding and tunnel vision. Many inventors or innovators
are also entrepreneurs. Numerous entrepreneurs encompass all sorts of innovative activities.

4. Entrepreneurs are academic and social misfits: This myth results from people who have started successful enterprises after
dropping out of school or quitting a job. Historically, education and social organizations did not recognize the entrepreneur. The
entrepreneur is now viewed as a professional.

5. Entrepreneurs must fit the ͞profile͟: Many books and articles have presented checklists of characteristics of the successful
entrepreneur. The environment, the venture itself, and the entrepreneur have interactive effects, which result in many different
profiles.
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6. All you need is money to be an entrepreneur: ( 2 Venture needs capital to survive. A large number of business failures occur
because of lack of adequate financing. Failure due to lack of financing indicates other problems- Managerial incompetence, Lack of
financial understanding, Poor investments, Poor planning.

7. All you need is luck to be an entrepreneur: Being in the right place at the right time is always an advantage. Luck happens when
preparation meets opportunity. What appears to be luck could really be several factors- Preparation, Determination, Desire,
Knowledge, Innovativeness.

8. Ignorance is bliss for an entrepreneur: Key factors in successful entrepreneurship- identifying the strengths and weakness of a
venture, setting up clear timetables with contingencies for handling problems, minimizing problems through careful strategy
formulation. Careful planning is the mark of an accomplished entrepreneur.

9. Entrepreneurs seek success but experience high failure rates: Many entrepreneurs suffer a number of failures before they are
successful. Failure can teach many lessons to those willing to learn and often leads to future success.

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10. Entrepreneurs are extreme risk takers (gamblers): The concept of risk is a major element in the entrepreneurship process.
While it may appear that an entrepreneur is gambling on a wild chance, the fact is that the entrepreneur is usually working on a
moderate or calculated risk.

7. Types of Entrepreneurs ( 8th , 7th , 5th )


Clarence Danhof classified entrepreneurs in the manner that at the initial stage of economic development, entrepreneurs
have less initiative and drive. As economic development proceeds, they become more innovating and enthusiastic. Basing on this, he
classified entrepreneurs into four types:

1. Innovating Entrepreneurs: An innovating entrepreneur is one who introduces new goods, inaugurates new method of production,
discovers new market and reorganizes the enterprise.

2. Imitative Entrepreneurs: Imitative entrepreneurs do not innovate the changes themselves, they only imitate techniques and
technology innovated by others.

3. Fabian Entrepreneurs: Fabian entrepreneurs are characterized by very great caution and skepticism in experimenting any changes
in their enterprises.

4. Drone Entrepreneurs: These entrepreneurs are characterized by a refusal to adopt opportunities to make changes in production
methods even at the cost of severely reduced returns relative to other like producers.

Following are some more types of entrepreneurs listed by some other behavioral scientists:

1. Solo Operators: These are the entrepreneurs who essentially work alone and, if needed at all, employ a few employees.

2. Active Partners: Active partners are those entrepreneurs who start/carry on an enterprise as a joint venture and actively
participate in the operations of the business.

3. Inventors: Such entrepreneurs with their competence and inventiveness invent new products.

4. Challengers: These are the entrepreneurs who plunge into industry because of the challenges it presents. When one challenge
seems to be met, they begin to look for new challenges.

5. Buyers: In order to reduce risk involved in setting up a new enterprise, these type of entrepreneurs like to buy the ongoing one.

6. Life timers: These entrepreneurs take business as an integral part of their life. Usually, the family enterprise and business which
mainly depend on exercise of personal skill.

8. Entrepreneurship
Entrepreneurship is the attempt to create value through recognition of business opportunity, the management of risk-taking
appropriate to the opportunity, and through the communicative and management skills to mobilize human, financial and material
resources necessary to bring a project to fruition.

According to A.H. Cole, Entrepreneurship is the purposeful activity of an individual or a group of associated individuals, undertaken
to initiate, maintain or increase profit by production or distribution of economic goods and services.

According to 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.

9. Relationship between Entrepreneur and Entrepreneurship


Entrepreneur Entrepreneurship
Person Process
Organizer Organization
Innovator Innovation
Risk-bearer Risk-bearing
Motivator Motivation
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Creator Creation
Visualize Vision
Leader Leadership
Imitator Imitation
10. The Entrepreneurial Process: ( 5th , 3rd , 2nd )
Step 1: Deciding to become an entrepreneur: The advantages, risks, requisites of entrepreneurship.

Step 2: Developing successful business ideas: Recognizing opportunities and generating ideas, feasibility analysis, writing a business
plan, industry and competitor analysis, and developing an effective business model.

Step 3: Moving from an idea to an entrepreneurial firm: Preparing the proper ethical and legal foundation, Assessing a new
venture s financial strength and viability, building a new venture team, and getting financing or funding.

Step 4: Managing and growing the entrepreneurial firm: Unique marketing issues, the importance of intellectual property, preparing
for and evaluating the challenges of growth, strategies for firm growth.

11. Role of Entrepreneurship in Economic Development ( 8th , 5th , 7th, 4th ,3rd , 2nd )
What is Economic Development?

A process of upward change whereby the real per capita income of a country increases over a long period of time.

What is the significance of Entrepreneurship?

In classical theories of economic development, Adam Smith and David Ricardo gave no room for Entrepreneurship.

BUT, the economic history of the presently developed countries tends to support the fact that the economy is an effect for which
entrepreneurship is the cause.

Development does not occur spontaneously as a natural consequence when economic conditions are in some sense right : a
catalyst or agent is needed, and this requires an entrepreneurial ability.

The important role that entrepreneurship plays in the economic development of an economy can now be put in a
systematic and orderly manner:

1. Entrepreneurship promotes capital formation by mobilizing the idle saving of the public.

2. It provides immediate large-scale employment reducing the unemployment problem, i.e. the root of all socio-economic problems.

3. It promotes balanced regional development.

4. It helps reduce the concentration of economic power.

5. It stimulates the equitable redistribution of wealth, income and even political power in the interest of the country.

6. It encourages effective resource mobilization of capital and skill which might otherwise remain unutilized and idle.

7. It also induces backward and forward linkages which stimulate the process of economic development in the country.

8. It also promotes country s export trade i.e., an important ingredient to economic development.

12. Environmental Setting for Entrepreneurship ( 1st)


Entrepreneurship is dependent upon several economic, social, political and psychological factors.

These environmental factors may have both positive and negative influences on the growth of entrepreneurship.

Various environmental factors influencing the emergence of entrepreneurship are given below:

1. Economic conditions: Markets, Capital, Labor, Technology, Raw materials.


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2. Social factors: Social mobility, Security, Legitimacy of entrepreneurship.

3. Psychological factors: Motivation, Perception, Learning, Attitudes, and Beliefs.

4. Governmental influence: Industrial policy, facilities, utilities and services, incentives and concessions.

13. Risks for Entrepreneurship


Risk of losing invested capital

Irregularity or uncertainty of income often facing bankruptcy

Uncertain leisure

Cannot give time for family ceremonies resulting familial misunderstandings

As always remain absorbed in business problems cannot be open and frank to enjoy pleasure.

Remain tensed and heavy for days together when facing any serious business problem.

Become sometime unnecessary victim of conspiracies by partners, competitors, aggrieved powerful politicians.

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Chapter 2: Approaches of Entrepreneurship
1) Approaches of Entrepreneurship ( 8th , 5th , 2nd )
Entrepreneurship as a field of study draws attention from a wide variety of fields like economics, psychology, sociology,
anthropology etc.

Researchers have addressed various issues related to entrepreneurship such as,

 Who can be an entrepreneur?


 What makes an entrepreneur?
 What determines the success as an entrepreneur?
 How entrepreneurs can be developed?

These issues in entrepreneurship were viewed from different angles resulting in multiple approaches.
 Cunningham & Lischeron (1991) have identified six different major schools of thought:

1. The great person school: The great person school views an entrepreneur as a person who is born with an intuitive ability –
a sixth sense – and traits such as vigor, energy, persistence and self-esteem.
2. The psychological characteristics school: The psychological characteristics school believes that entrepreneurs have unique
values and attitudes such as honesty, duty, responsibility, ethical behavior, risk-taking propensity and the need for
achievement.
3. The classical school: The classical school identifies entrepreneurship with innovation, creativity and discovery.
4. The management school: The management school describes entrepreneurs as persons who organize, own, manage and
assume the risk of an economic venture.
5. The leadership school: The leadership school views an entrepreneur as one who motivates, directs and leads.
6. The intrapreneurship school: The intrapreneurship school focuses on skillful managers within complex organizations.

 Kuratko & Hodgetts (2001) identified six schools of thought under two broader categories of Macro and Micro view :

1. The Macro view: The macro view presents a broad array of factors to success or failure in contemporary entrepreneurial
ventures. This includes external process that are sometimes beyond the control of the individual entrepreneur. This view
includes three schools of thought such as,
I. The environmental school of thought
II. The financial/capital school of thought
III. The displacement school of thought
2. The Micro view: This view examines the factors that are specific to entrepreneurship and are part of the internal locus of
control. The potential entrepreneur has the ability or control, to direct or adjust the outcome of each major influence. This
view includes three schools of thought such as,
I. Trait school of thought
II. Venture opportunity school of thought
III. Strategic formulation school of thought

 In line with the scholarly search for answer to the question ͞what makes an entrepreneur?͟ or ͞what determines the supply
of entrepreneurs?͟ or ͞how entrepreneurs can be developed?͟ a number of approaches can be traced as follows:
1. Psychological Approach
2. Demographic Approach
3. Behavioral Approach
4. Socio-cultural Approach
5. Venture Facilitation Approach
6. Entrepreneurial Event Approach
7. Multidimensional Approach
8. Hisrich s Decision Model
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9. Eclectic Model

1. Psychological Approach, Also known as Trait Approach


It focuses on the psychological characteristics of entrepreneurship, which views entrepreneurs as individuals with unique values,
attitudes and needs which drive them and differentiate them from non-entrepreneurs.

Its premise is that one s needs, drives, attitudes, beliefs and values are primary determinants of behavior.

As such, this school of thought focuses on personality or psychological factors and characteristics.
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Characteristics/Traits identified within the psychological approach are as follows: ( 8 )

Need for achievement Judgment


Need for power Communication abilities
Need for affiliation Commitment/Determination
Risk-taking propensity Leadership
Internal locus of control Initiative/drive/enthusiasm
Confidence Tolerance of ambiguity and uncertainty
Need for autonomy and independence A grip on reality
Innovativeness Vision
Decision making Flexibility

 Need for Achievement (nAch) ( 7th, 6th )


McClelland (1961) defined nAch as the desire to do well to attain an inner feeling of personal accomplishment .

According to O͛Gorman & Cunningham (1997), nAch manifested in the form of following characteristics:

 Preferred risk is neither very high nor very low


 Effort is believed to be influential in attainment of goal
 Probability of success is perceived to be very high
 Need for feedback
 Capacity to plan ahead
 Desire to take responsibility for decisions
 Interest in excellence for own sake
 Interest in concrete results
 Need for Independence/Autonomy
Entrepreneurs have been viewed as people who are highly independent.

Entrepreneurs actively seek situations and environments which allow them to do their own thing in their own way.

More importantly, they are ready to take responsibility for results.

 Risk Taking Propensity


McClelland (1961) found that risk-taking propensity depended upon an individual s achievement motives.

According to McCarthy (2000), individuals with a high nAch appeared to take moderate risks while those with a low nAch were
prepared to take greater risks. Why??? Because---

 Entrepreneurs are more opportunity seekers than risk takers.


 They are more creators of risks than takers of those, since they are often using some others capital.
 They select risks and avoid gambles.
 They match the level of risk with the potential reward and their personal capacity to manage uncertainty.
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 Many authors saw 3 types of risks for them: ( 6th )
i. Conceptual risk: Imperfect formulation of an issue or problem (using an incorrect model, making false assumptions,
choosing incorrect decision criteria).
ii. Administrative risk: Out of the fact that even a well thought out issue or plan may not be implemented appropriately (poor
management of cash flow).
iii. Environmental risk: Emanates from unanticipated change in the external environment (changes in demand, competition
and technological development).

Finally, to nullify everything and everyone, Hisrich & Peters (1995) claim that, There is no real empirical evidence to prove that
risk-taking propensity is, in fact, a distinguishing characteristic of entrepreneurs!!!

 Locus of Control: ( 6th )


Based on perceived ability to influence own events, two perspectives can be identified:

1. Internal locus of control: Individuals having it believe that they can positively determine their own destiny by their behavior, fate
or luck plays a relatively insignificant role. They take responsibility for their successes and failures, attributing the positive results to
ability and effort.

2. External locus of control: Individuals having it believe that external forces are the primary determinants of life s outcomes. They
relate results to the difficulty of the particular task, to the actions of others, and to a combination of luck and fate.

 Innovativeness:
Schumpeter (1934) suggests that Innovation is a key factor which differentiates entrepreneurial behavior from managerial activity.

 Confidence and Self-Efficacy:


o Confidence is a key characteristic of entrepreneurs.
o Confidence is strongly linked to the risk-taking characteristic of entrepreneurs since individuals who lack confidence in their
own abilities will rarely take a risk.
o Related to confidence, self-efficacy is an individual s beliefs concerning his or her ability to perform specific tasks
successfully (Greenberg and Baron, 2000).
 Vision:
o Wickham (1998) refers to Vision as one͛s personal picture of the new world that the entrepreneur seeks to create.
o Vision is strongly linked to confidence and motivation.
 Initiative, Drive and Enthusiasm:
o Entrepreneurs are people who take initiative and drive projects forward.
o O Gorman and Cunningham (1997) link the characteristic of initiative and drive to what they call ͚Type-A͛ behavior.
o Entrepreneurs possessing Type-A behavior constantly struggles to achieve more and more in less and less time.
o Non-entrepreneurs, in contrast, typified as possessing Type-B behavior, are more easy-going and less rushed.

 Criticisms of psychological approach on 4 grounds: ( 1st)


1. The research methodologies to identify personality traits were not developed for or specifically intended to be used in the
study of entrepreneurial behavior. The instruments to measure traits were borrowed from psychology and applied to the
fields of entrepreneurship, sometimes inappropriately and often ineffectively.
2. Different instruments that aim to examine the concept actually correlate poorly.
3. Since personality theories are intended for use across a broad spectrum of situations measuring general tendencies, they
lose their efficacy when applied to a specific domain such as entrepreneurship.
4. This approach fails to explain how traits both influence and are influenced by activities in the environment.

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2. Demographic Approach
Demographic approach focuses on the effects of an individual͛s background and includes some analyses of his/her;

I. family history and childhood experiences,


II. parents education and occupations,
III. birth order,
IV. age at start-up (if the business is already set-up),
V. education,
VI. work experience,
VII. Religion and culture.
i. Family History and Childhood Experiences:
Relevant factors influencing entrepreneurial decision:

 A self-employed father,
 An absent father,
 An overbearing or controlling mother,
 Major upsets such as illness, separation or a death in the family.

Dyer and Handler (1994) identified 4 career nexuses that reflect different points in time where family and entrepreneurial
dynamics intersect:

1. The early experiences in the family of origin,


2. Family involvement in the entrepreneur s start-up activities,
3. Employment of family members in the entrepreneurial firm,
4. The involvement of family members in the ownership and management succession.
ii. Parents Education and Occupations:
 Entrepreneurs are more likely to come from families where the parents were business owners.
 Individuals tend to look upon their parents as role models and as the owner-manager/own-boss mentality is developed.
 75% of top public company owners in the UK had fathers who owned their own businesses. (Blair, 1997).
 50% of company founders at the US had self-employed fathers. (O Gorman and Cunningham, 1997).
iii. Birth Order:
 Researches suggest that children who are the first born in a family are more likely to become successful entrepreneurs than
those who are not.
 This could be due to the fact that the eldest in the family is given more attention and encouragement initially, and often takes
on more responsibility at an earlier age, which develops early self-confidence.
 32% of 272 Irish entrepreneurs surveyed were first born (Hisrich and O Cinneide, 1985).
 50% of 408 female entrepreneurs surveyed were first born (Hisrich and Brush, 1994).
iv. Age:
 Maturity => Experience => Success
 Young age => Risk-taking capacity/tendency
 Almost all of the entrepreneurs started their entrepreneurial careers when they were quite young, with most of them becoming
millionaires by the time they had reached 30 years of age (Blair, 1997).
 However, people can become entrepreneurs at almost any age (Hatch & Zweig, 2000).
v. Education:
In the past, entrepreneurs received very little formal education (Collins et al., 1964; Stanworth & Curran, 1971).

However, more recent studies have indicated that entrepreneurs now tend to be better educated. 2 surveys of 1986 and 1988 found
23% and 68% of entrepreneurs surveyed respectively who were holding primary university degrees or higher.

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vi. Work Experience:
Work experience has been seen as an important factor in entrepreneurial success, particularly if the experience is in the specific
industry sector of the proposed business venture.

 Criticisms of Demographic Approach:


Robinson et al. (1991) identified 3 major drawbacks of this approach, i.e.

1. The approach assumes that human behavior is strongly influenced by demographic characteristics.
2. The practice of using demographic characteristics is not appropriate. There is a lack of adequate empirical evidence in this
regard.
3. The approach does not help predict who will or will not be an entrepreneur.

Besides, demographic characteristics being static in nature cannot explain a dynamic multifaceted phenomenon like
entrepreneurship.

3. Behavioral Approach
Behavioral approach focuses on the entrepreneur s interaction with the environment which both shapes, and is shaped by,
the entrepreneur (McCarthy, 2000).

 The entrepreneur is seen in the context of a set of activities involved in the creation of an organization (Gartner, 1989). In this
case the focus is on understanding how attitudes, behaviors, management skills and know-how, all combine in determining
entrepreneurial success.
 According to Drucker (1985), the main supporter of this approach, entrepreneurship is a behavioral pattern rather than a
personality trait and something that people can be taught so that they can, indeed, learn how to behave entrepreneurially.
Drucker s entrepreneurs take risks and make decisions.

4. Socio-cultural Approach
 Socio-cultural approach focuses on the socio-cultural events that either force a person or make it desirable to choose
entrepreneurship as a career option.
 Some studies indicate that entrepreneurs are more likely to come from ethnic, religious or minority groups (Weber, 1958;
Hirschmeyer, 1964).
 Moreover, it is widely believed that some culture is more encouraging to entrepreneurship than others.

5. Venture Facilitation Approach( 7th ,6th, 1st)


It claims that entrepreneurship is likely to take place in a friendly business climate, referring to favorable factors such as the
availability of risk capital , an accommodating bank system, large market, favorable government policies, sound infrastructure
facilities, availability of support services etc.

A paradox: Economic development in a country works both as a negative force and positive stimuli for entrepreneurship.

Side 1: Increasing real wages raise the opportunity costs of self employment and thus make wage employment more attractive.

Side 2: Increasing wealth leads to higher consumer needs that are likely to be better fulfilled through self-employment. Moreover,
consumers with more disposable income are in a position to afford to commit a mistake in their decisions which, in turn, encourage
entrepreneurship.

6. Entrepreneurial Event Approach


Entrepreneurship is not a series of isolated activities. Rather it is a process by which individuals plan, implement and control their
entrepreneurial activities.

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This approach includes the following factors:

 Initiative
 Organization
 Administration
 Relative autonomy
 Risk taking
 Environment

William D. Bygrave (1989) proposed four milestone events in the entrepreneurship process:

Innovation– Triggering events– Implementation- Growth

7. Multidimensional Approach
William B. Gartner (1985) view entrepreneurship as a complex, multidimensional and dynamic rather than a static framework that
emphasizes theindividual, the environment, the organization and the venture process.

Limitation: It does not relate how different steps in the process are affected by various factors.

8. Hisrich͛s Decision Model ( 4th )


Robert D. Hisrich (1986) views entrepreneurship decision as a process that starts with the potential entrepreneur s decision to
change from present life style and determined by a host of factors related to macro and micro environment that make this decision
desirable and possible.

9. Eclectic Model ( 4th , 1st )


Eclectic model, proposed by Verheul, Ingrid et al. (2001), is based on the premises that the determinants of entrepreneurship can be
categorized according to the disciplinary approach, the level of analysis, the discrimination between demand and supply factors, and
a distinction between influences on the actual and equilibrium rate of entrepreneurship.

This approach attempts to provide a holistic view of supply of entrepreneurship at country level.

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Framework of determinants of entrepreneurship:

…Eclectic Model

Here,

E = Actual level of entrepreneurship (short term)

E* = Long-term equilibrium rate of entrepreneurship resulting from demand-side forces

E-E* = The discrepancy between the actual and the optimal rate of entrepreneurship which is expressed through a surplus or lack of
entrepreneurial opportunities, leading to entry and exit of entrepreneurs, respectively

G1 = Government intervention on the demand side of entrepreneurship; influencing the number and type of entrepreneurial
opportunities

G2 = Government intervention on the supply side of entrepreneurship; influencing the number and type of potential entrepreneurs.

G3 = Government policies aimed at influencing the availability of resources, skills and knowledge of individuals. These policies
generally deal with the input factors of entrepreneurship, i.e., labor, finance and information.

G4 = Government policies aimed at influencing the preferences, i.e., values and attitudes of individuals

G5 = Government policies (directly) aimed at the decision-making process of individuals. Given certain opportunities and individual
characteristics, this type of government intervention directly influences the risk-reward profile of entrepreneurship.

Importance/Utility of this Approach:


1. It incorporates multi-level units of analysis – micro (individuals) as well as macro (countries).
2. It draws on the perspectives and traditions of a number of disciplines, including sociology, management, psychology, regional
science, and economics.
3. The resulting eclectic theory ought to provide a conceptual framework for analyzing both the determinants of entrepreneurship
as well as the consequences or impact of entrepreneurship across a broad array of industry, national, spatial and temporal
settings.
4. This theory may serve as a bridge to provide a common link across the broad array of academic disciplines, reflecting the rich
diversity of settings in which entrepreneurship takes place.

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Chapter 3: Meaning of Entrepreneurship Development

1. Entrepreneurship Development ( 7th , 4th )


 Entrepreneurship Development refers to the process of enhancing entrepreneurial skills and knowledge through structured
training and institution-building programs.
 Entrepreneurial Development is a program of activities to enhance the knowledge, skill, behavior and attitudes of
individual and groups to assume the role of entrepreneurs.
 Entrepreneurial Development aims to enlarge the base of entrepreneurs in order to hasten the pace at which new
ventures are created. This accelerates employment generations and economic development. Entrepreneurial development
focuses on the individual who wishes to start or expand a business. Furthermore, entrepreneurship development concentrates
more on growth potential and innovation.
 Entrepreneurship Development has become a matter of great concern in all developing and under developed countries for
their economic uplift and growth.

2. Role of Entrepreneurship Development


 Benefits both prospective and existing entrepreneurs.
 Contributes to the development of an individual s creativity and initiative.
 Contributes to job creation, economic growth, and competitiveness.

3. Importance of Entrepreneurship Development ( 7th , 4th )


 The importance of entrepreneurship development to an economy and the society in which it resides was first articulated in
1934 by Joseph Schumpeter, an Austrian economist. In his book The Theory of Economic Development, Schumpeter argued
that entrepreneurs are involved in Creative Destruction.
 Creative Destruction is a process of developing new products and technologies by the entrepreneurs which over time make
current products and technologies obsolete.
 Creative destruction increases consumer demand, stimulates economic activity, and increases the productivity of all elements of
a society.
 The process of creative destruction is not limited to new products and technologies; it can include new pricing strategies, new
distribution channels, or new retail formats.

4. The importance of ED are as follows:


 Entrepreneurship development has a strong impact on an economy s strength and stability (for two reasons: Innovation and Job
creation).
 Entrepreneurship development has a dramatic impact on a society (new products and services developed by entrepreneurial
firms- make lives easier, enhance productivity at work, improve health, and entertain)
 Entrepreneurship development has a positive impact on the effectiveness of larger firms (entrepreneurial firms provides raw
material for larger firms).

5. Problems of Entrepreneurship Development


i. No clear-cut policy at the national level
ii. No clear-cut objectives
iii. No clear cut course of action
iv. Poor follow-up
v. Non-availability of Infrastructural facilities
vi. Lack of commitment and involvement by the Corporate Sector
vii. Non-availability of competent faculty
viii. Non conducive environment
ix. Selection of wrong trainees
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6. Can Entrepreneurship be Developed?
Entrepreneurship does not emerge and develop of its own. Its emergence and development depends upon an environment
in which entrepreneur can learn and discharge his assigned responsibility in an efficient manner. The government can also play a
positive role in the emergence and development of entrepreneurship by providing training, incentives, concessions etc and by
creating an environment conducive for the growth of entrepreneurship. All these help the entrepreneurs to undertake creative
actions thus, entrepreneurial development is essentially a process in which persons are injected with motivational drives of
achievement and insight to tackle uncertain and risky situations, especially in business enterprises.

7. Factors Affecting Entrepreneurial Growth ( 7th , 4th , 3rd )


1. Economic factors: Economic environment exercises the most direct and immediate influence on entrepreneurship. This is
likely because people become entrepreneurs due to necessity when there are no other jobs or because of opportunity.

The economic factors that affect the growth of entrepreneurship are the following:

I. Capital: If capital is available, people who have innovative ideas would like to put them into reality.
II. Labor: The quality and quantity of labor influences the emergence of entrepreneurship.
III. Raw materials: Raw materials are required for establishing any industrial activity and therefore has an influence in the
emergence of entrepreneurship.
IV. Market: A readily available market attracts entrepreneurial activities.

2. Non-economic factors: The influence of economic factors on entrepreneurial emergence largely depends upon the existence
of non-economic factors.

The non-economic factors are as follows:

i. Social factors: Development of entrepreneurship in a society may take place not just because of better economic factors but
because of the presence of positive social factors. The following social factors influence the development of entrepreneurship in
a society:
rd
(a) Social norms and values: ( 3 ) A society sets certain norms and values for the behavior of people who are part of that society. If
people violate or overstep these norms and values, certain restrictions are likely to be imposed on them. As a result, many people
are forced to accept certain types of jobs and tasks that reflect the social environment. If the society has an open and flexible
approach towards various types of jobs and works, then people will feel free to do whatever they like and even go in for innovation
and creativity. When there is more openness and flexibility, entrepreneurship will not only emerge but also thrive.

(b) Role models: Societies that celebrate entrepreneurship and felicitate successful entrepreneurs in a way encourage many future
generations to take up entrepreneurial activities. This is because successful businessmen prove to be role models for the society at
large.

(c) Social pressure/Marginality: Where people were marginalized, they became entrepreneurs just to prove their abilities and
establish an identity in the society.

(d) Respect and Status: Societies where there is respect and recognition for people to do something different are more likely to see
the development of entrepreneurial activities.

(e) Security: One school of thought is of the view that people are more prone to take entrepreneurial risks in secure social
environments. On the other hand, there are others who argue that entrepreneurship will more likely emerge if there are turbulent
conditions. In both cases, there is scope for entrepreneurship development.

ii. Psychological factors: Many entrepreneurial theorists have propounded theories of entrepreneurship that concentrate especially
upon psychological factors.

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These are as follows:

(a) Need Achievement: According to David McClelland s theory of need achievement, a group of personality characteristics which
are indicative of high need achievement is the major determinant of entrepreneurship development. Therefore, if the average level
of need achievement in a society is relatively high, one would expect a relatively high amount of entrepreneurship development in
that society.

(b) Withdrawal of Status Respect: According to Everett Hagen, at some points many social groups experience a radical loss of
status. Hagen attributes the withdrawal of status respect of a group to the origin of entrepreneurship. He postulates that four types
of events can produce status withdrawal:

 The group may be displaced by force,


 It may not be accepted with the expected status on migration in a new society,
 It may have its valued symbols belittled,
 It may drift into a situation of status inconsistency.

Hagen further postulates that withdrawal of status respect would give rise to four possible reactions and create four
different personality types:

 Retreatist: He who continues to work in a society but remains different to his work and position.
 Ritualist: He who adopts a kind of defensive behavior and acts in the way accepted and approved in his society but no hopes of
improving his position.
 Reformist: He is a person who foments a rebellion and attempts to establish a new society.
 Innovator: He is a creative individual and is likely to be an entrepreneur.

Hagen refers that status withdrawal takes a long period of time- as much as five or more generations- to result in the
emergence of entrepreneurship.

3. Government actions:

 The government by its actions or failure to act also does influence both the economic and non-economic factors for
entrepreneurship.
 Any interested Government in economic development can help, through its clearly expressed industrial policy, promote
entrepreneurship in one way or other.
 By creating basic facilities, services and utilities and by providing incentives and concessions, the Government can provide
the prospective entrepreneurs a facilitative socio-economic setting.
 Such conducive setting minimizes the risks which the entrepreneurs are to face.
 The supportive actions of the Government appear as the most conducive to the entrepreneurial growth.

8. Innovation and Entrepreneurship (3rd )


 An entrepreneur, as described by Joseph Schumpeter, is often seen as innovator who brings new goods and technologies to
markets thereby opening up new markets, developing new processes and ideas.
 Entrepreneurship and innovation are positively related to each other and a combination of the two is vital to organizational
success and sustainability in today s dynamic and changing environment.
 An innovation is the essence of entrepreneurship.
 Entrepreneurship plays an important role in technology innovation.
 Entrepreneurship is the engine of innovation.

9. Entrepreneurial Mobility (7th ,6th )


Entrepreneurial mobility is entrepreneurial activity that involves the movement of an entrepreneur from a current context to
another one.

Entrepreneurs move from one location to another and also from one occupation to another.

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th th
Factors influencing mobility: ( 6 , 5 )

1. Education: Education enlarges one s thinking and understanding horizons. An educated entrepreneur tends to be more mobile
than an uneducated one.
2. Experience: An entrepreneur s past experience in business and industry increases his/her propensity to move.
3. Availability of facilities: Entrepreneurs move from the areas with no or less facilities to the areas with more and better facilities.
4. Political conditions: The entrepreneurial mobility is influenced by the political factors also.
5. Size of enterprise: Larger business houses are found more mobile than smaller ones.

Types of mobility:

1. Occupational mobility
2. Locational mobility

1) Occupational mobility: Movement or changes in occupation. Several factors like one s freedom of choice, motivation, efforts of
an individual and opportunities available in the society determine one s occupational mobility.

Types of occupational mobility:

1. Inter-generation movement: A movement of son/daughter from the principal occupation of his/her father.
2. Intra-generation movement: A change in one s own occupation during his/her occupational career.
th
Intra-generation movement can be two types: ( 4 )

i. Horizontal: When it takes place between the occupational classes of the equal rank.
ii. Vertical: When it occurs between classes of unequal rank.

2) Locational mobility: An entrepreneur s move to a particular area/location to establish his industry. Entrepreneurs most important
consideration for selecting the location of industries: (A survey finding)

Considerations Entrepreneurs (in %)

Home Land 52

Govt. incentives 8

Availability of raw materials 2

Availability of Labor 4

Availability of Market 10

Availability of infrastructural facilities 20

Others 4

Total 100

10.Entrepreneurial Mindset (7th )


Mindset is entity from belief that we have, the criteria are expectations, attitudes, habits, decisions, and opinions that we spend in
looking at ourselves, others or life.

In short, mindset is our faith. Our belief.

 Entrepreneurial mindset refers to a specific state of mind which orientates human conduct towards entrepreneurial
activities and outcomes.
 Individuals with entrepreneurial mindsets are often drawn to opportunities, innovation and new value creation.
 Characteristics include the ability to take calculated risks and accept the realities of change and uncertainty.

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11.Entrepreneurial Motivation
Motivation is regarded as the inner state that energizes activities and directs or channels behavior towards the goal . It can also be
seen as a process that arouses action, sustains the activity in progress and that regulates the pattern of activity.

Entrepreneurial Motivation is the drive of an entrepreneur to maintain an entrepreneurial spirit in all their actions.

Motivating Factors:

Sharma (1980) classified all the factors motivating the entrepreneurs into two types as follows:

Internal factors

i. Desire to do something new


ii. Educational background
iii. Occupational background and experience

External factors

i. Government assistance and support


ii. Availability of labor and raw material
iii. Encouragement from big business houses
iv. Promising demand for the product

Motivating Factors:

Murthy et. al. (1986) classified the motivating factors on different bases. According to them, entrepreneurs are motivated to start
business enterprises due to the following three types of factors:

i. Ambitious factors
ii. Compelling factors
iii. Facilitating factors

Motivating Factors:

Khanka (1990) identified the factors which prompted the new entrepreneurs to enter entrepreneurship:

Factors Entrepreneurs (in %)

1. Factors intrinsic to entrepreneurs: 14


i. Enterprising attitude 6
ii. Training/education in such kind of production 24
iii. Previous experience in the same or related line
2. Factors extrinsic to entrepreneurs: 20
i. Shortage of demand for product 18
ii. Government and institutional assistance 8
iii. Advice of business friends 4
iv. Profit earn by friends in similar concern 4
v. Contact with others 2
vi. Unsound units available at cheap price
Total 100

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12.Entrepreneurship Development Program ( 7th )
 Entrepreneurship development has become a matter of great concern in all developed and developing countries all over the
world. But, the real problem is how to develop entrepreneurship? Entrepreneurship development programs (EDPs) are designed
and developed to offer solutions to this problem.
 Entrepreneurship Development Program (EDP) may be defined as a program designed to help an individual in strengthening his
entrepreneurial motive and in acquiring skills and capabilities necessary for playing his entrepreneurial role effectively.
 An EDP stresses on entrepreneurial motivation and behavior.
 Program which aims at providing informational or managerial inputs or focus on preparation of project without a touch of
entrepreneurial motivation and behavior is not considered as an EDP.
 EDP helps in inculcating entrepreneurial traits into a person, imparting the required knowledge, developing technical, financial,
marketing and managerial skills and building the entrepreneurial attitude.
 EDP has been recognized as an effective human resource development tool. It is primarily for developing the first-generation
entrepreneurs who on their own cannot become successful entrepreneurs. EDP through its continuous process of training and
motivation help them to set up their own profitable enterprise and become successful entrepreneurs in their own right.
 Entrepreneurship Development Program (EDP) is not merely a training program, rather it is a comprehensive program involving
the following process:
 It is a process which enhances the knowledge, skill and motivation of the potential entrepreneur.
 It is a process which instills entrepreneurial behavior in the minds of entrepreneur in their day-to-day activities, and
 It is a process through which the potential entrepreneurs can develop and set up their own enterprise.
 EDP by itself therefore, aims at achieving the specific objectives of the programs through continuous training and motivation.

13.Need for Entrepreneurship Development Programs (EDPs) ( 1st)


Why certain societies displayed great creative powers at particular periods of their history? What was the cause of these creative
bursts of energy?

 McClelland found that the need for achievement (n Ach) was the answer to this question. n Ach motivate people to work
hard.

Can this nAch be induced?

 McClelland s Kakinada Experiment at Hyderabad found an affirmative answer and got the proper means to it – TRAINING.
 Kakinada Experiment was a five-year experimental study, under this experiment, young persons were selected and put
through a three month training program and motivated to see fresh goals.
 One of the significant conclusions of the experiment was that the traditional beliefs did not seem to inhibit an entrepreneur and
that the suitable training can provide the necessary motivation to the entrepreneurs.

14.Objectives of EDPs
The important objectives of EDPs are to:

1. Develop and strengthen entrepreneurial quality (i.e., motivation/nAch).


2. Analyze environmental set up relating to small industry and small business.
3. Select product.
4. Formulate project for the product.
5. Understand the process and procedure involved in setting up a small enterprise.
6. Know the sources of help and support available for starting a small-scale industry.
7. Acquire the necessary managerial skills required to run a small enterprise.
8. Know the pros and cons in becoming an entrepreneur.
9. Appreciate the needed entrepreneurial discipline.

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Some other important objectives:

1. Let the entrepreneur him/herself set/reset objectives for his/her business and strive for their realization.
2. Prepare him/her to accept the uncertainty involved in running a business.
3. Enable him/her to take decisions.
4. Enable to communicate clearly and effectively.
5. Develop a broad vision about the business.
6. Make him/her subscribe to industrial democracy.
7. Develop passion for integrity and honesty.
8. Make him/her learn compliance with law.

15. Course Contents and Curriculum of EDPs ( 1st)


1. General Introduction to entrepreneurship: Such as factors affecting small-scale industries, the role of entrepreneurs in
economic development, entrepreneurial behavior, facilities available for establishing small-scale enterprises.
2. Motivation training: Training programs for inducing and increasing the nAch among the participants.
3. Management skills: Provide basic and essential managerial skills in the functional areas like finance, production, and marketing.
4. Support system and procedure: Acquainting participants with procedures for approaching, applying and obtaining support
available from different institutions and agencies for setting up and running small business.
5. Fundamentals of project feasibility study: The participants are provided guidelines on the effective analysis of feasibility or
viability of the particular project in view of marketing, organization, technical, financial and social aspects. Knowledge is also
given how to prepare the project or feasibility report for certain products.
6. Plant visits: Plant visits are arranged to familiarize the participants with real life situations in small business.

16.Phases of EDPs
An entrepreneurship development program consists of the following three phases:

1. Pre-training phase: The activities and preparations required to launch the training program which includes:
II. Selection of entrepreneurs
III. Arrangement of infrastructure
IV. Tie-up of guest faculty for the training purposes
V. Arrangement for inauguration of the program
VI. Selection of necessary tools, techniques to select the suitable entrepreneurs
VII. Formation of selection committee for selecting trainees
VIII. Arrangement for publicity media and campaigning for the program
IX. Development of application form
X. Finalization of training syllabus
XI. Pre-potential survey of opportunities available in the given environmental conditions.

2. Training phase: To develop nAch among the trainees.

A trainer should see the following changes in the behavior of the trainees:

I. Is he/she attitudinally turned very much towards his/her proposed project idea?
II. Is the trainee motivated to plunge into entrepreneurial career and bear risks involved in it?
III. Is there any perceptible change in his entrepreneurial attitude, outlook, skill, role, etc.?
IV. Should he/she behave like an entrepreneur?
V. What kinds of entrepreneurial traits the trainee lacks the most?
VI. Whether the trainee possesses the knowledge of technology, resources and other knowledge related to entrepreneurship?
VII. Does the trainee possess the required skill in selecting the viable project, mobilizing the required resources at the right
time?

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3. Post-training phase (follow-up): Assessment to judge how far the objectives of the program have been achieved.

Follow-up indicates:

 Past performance of the EDP


 Drawbacks, if any, in past work of the EDP
 Guideline suggestions for framing future policies to improve EDP s performance.

Purposes of Follow-up:

 Review the pre-training work


 Review the process of training program
 Review past training approach

17.Evaluation of EDPs
The evaluation of EDPs is look into how many participants have actually started their own enterprises after completing the
training. Because the main objective of EDPs is to develop and support entrepreneurs to create new enterprises.

Some Items to evaluate and methods of evaluation:

1. No. of units set up by the EDP trainees


2. Trainees actively under process
3. Potential start-ups [1+2]
4. Trainees blocked under process
5. Trainees who gave up
6. Non-traceable trainees
7. Trainees not available for interview at the time of field survey
I. Start-ups among non-available
II. Non- start-ups among non-available
[Info on 7 (i) and 7 (ii) are gathered from secondary sources]
8. Actual start-up rate [1+7 (i)]
9. Expected final start-up rate [2+8]

The Qualitative Evaluation of EDPs: To assess EDP s effectiveness in developing nAch.

18.Criteria used to assess the effectiveness of EDPs in motivating the entrepreneurs are
as follows:
1. Activity level of the respondents
2. New enterprise established
3. Total investments made
4. Investments in fixed assets made
5. No. of people employed
6. No. of jobs created
7. Increase in profit
8. Increase in sales
9. Quality of product/service improved
10. Quicker repayment of loans

21
19.The impact of EDPs can be measured with the help of indices relating to the
entrepreneurial behavior.
The entrepreneurial behavior is measured on the following four dimensions:

1. Planning orientation
2. Achievement orientation
3. Expansion orientation
4. Management orientation

20.Problems Faced by EDPs ( 1st )


The important problems faced by EDPs are as follows:

1. Trainer-motivations are not found up to the mark.


2. Lack of commitment and sincerity of ED organizations. Some uses EDPs as a means to generate income.
3. Non-conducive environment and constraints affecting trainers motivation.
4. Antithetic attitude of the supporting agencies (i.e., banks and financial institutions).
5. Selection of wrong trainees.

So, problems are not mainly with the strategies but with the implementation.

21. Entrepreneurship Development Theories


Some elements (not any conclusive mathematical functional explanation) experimented to arrive at explaining the ways to the
development and growth of entrepreneurship are:

- Fighting against uncertainties (Knight, 1921)


- Religious beliefs (Max Weber, 1930)
- Innovation (Schumpeter, 1934)
- Building organization (Harbinson, 1956)
- Skill and leadership (Hoselitz, 1960)
- High achievement (McClelland, 1961)
- Social status withdrawal (Hagen, 1962)
- Market gap filling (Liebenstein, 1968)

22.McClelland͛s Achievement Motivation ( 7th , 4th , 3rd )


 Most people consider money, education, luck, labor etc as the main elements of entrepreneurial motivation. However, they do
not consider human latent persuasiveness. Why people work usually depends on their motivational disposition.
 Professor David C. McClelland of Harvard University did extensive research on the motivational disposition of entrepreneurs and
came up with his globally acclaimed Need for Achievement theory in 1953. This theory is symbolically written as n Ach .
 According to McClelland, n Ach is the desire to do well, to attain an inner feeling of personal accomplishment. It motivates
people to take risks. It is the drive to excel, to strive for success and to achieve in relation to a set of standards.

More elaborately, the ͚n Ach͛ theory focuses on the following pre-requisites:

 Man wants to establish himself/ herself individually


 One individual wants to pursue another individual
 An individual wants to exercise power
 One wants to command and control others

On the basis of these pre-requisites, human needs can be classified into 5 areas:

1. Need for achievement


2. Need for power

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3. Need for affiliation
4. Need for security
5. Need for status

1. Need for achievement: People want achievement in life and they can achieve something only by doing better than others.
People can achieve something if they:

 do better than competitors


 attain a difficult goal and solve a complex problem
 carry out a challenging assignment successfully, and
 develop a better way to do something

2. Need for power: This need emphasizes people on introducing themselves as dominant figures or more enlightened than
others on the following, such as,

 Influencing others to change their attitudes or behavior


 Being in a position of authority over others, and
 Getting control over information and resources

3. Need for affiliation: People want affiliation to the society for being loved and valued. People can gain affiliation if they

 are liked by other people


 work with cooperative and friendly environment
 maintain positive relationships and avoid conflicts, and
 participate in pleasant social activities

4. Need for security: People want security in their lives to fulfill their basic needs, wants, & demands, such as:

 To have a secured job and to get protection against economic losses


 To remain safe and sound both physically and mentally, and
 To avoid any risk of failure or blame

5. Need for status: People want status for their living and they can symbolically express their status by:

 having right vehicles and clothes


 working for the right corporation
 obtaining a degree from a right university
 living in a right neighborhood, and
 accessing to exclusive privileges

Conclusion: The fulfillment of these needs can create motivators in the society and they can prove themselves worthy
enough for the community. According to the process of entrepreneurship development, n Ach theory helps create a good number
of motivators who can establish themselves as entrepreneurs later on.

Characteristics of the high achievers:

1. n Ach as per goal – set by self


2. Anticipation of future possibilities
3. Parental influence – high achievers in their boyhood followed fathers more than mothers
4. Energetic or novel instrumental activity
5. Organizational skills and supports
6. Sets moderate achievement goals and takes calculated risks
7. Wants concrete feedback as to how well he is doing
8. Taking responsibility rather than winning by chance appeals to him/her.

High achievers acquired above mentioned motivation in their boyhood through their beliefs, values, and ideologies which are
generally inculcated into their psychological system in early childhood as they are subscribed to by the parents.

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 Businessmen, scientists and professionals all rate above average on achievement motivation.
 Achievement Motivation can be developed through proper training.

 Relative characteristics of high and low achievement motivation:


1. Preferring tasks involving some objective risks,
2. Can adapt better than others to secure higher level of performance,
3. Working harder which requires mental manipulation,
4. Wanting to operate in a situation that gives a sense of personal achievement,
5. Not working harder under the influence of money reward,
6. Performing better under conditions offering positive and definite feedback, and
7. Tending to think ahead (long-ranged thinking).
 Steps to raise or arouse high achievement motivation for an individual:
1. If the individual thinks him/herself a successful high achiever,
2. If the goal of the responsibility center is made explicit,
3. Constantly keeping positive attitude towards accomplishing a task,
4. Constantly maintaining substantial optimism in hostile situations,
5. If goals offer a moderate degree of risk,
6. Constantly keeping touch with people with high nAch motivation,
7. Correct reading of the environment,
8. Maintaining continuous interest in solving selected problems.
 Steps to raise or arouse high achievement motivation for an organization:
1. If provision is made for adjusting changing goals,
2. If executives are evaluated in terms of their goal setting behavior,
3. If individuals are given feedback,
4. If rewards and punishments are formally provided,
5. If there is a climate of mutual support and encouragement, and
6. If there is a climate that emphasizes individual responsibility.

One more thing to keep in mind ---

An organization is nothing but sum total of several individuals.

23.Schumpeter͛s Views on Entrepreneurship ( 4th , 3rd, 7th , 6th , 1st )


 The famous Australian economist Joseph Schumpeter (1883-1950), a Harvard University professor, wrote a series of articles
between 1911 and 1950 that addressed that entrepreneurship is the dynamic process of creating incremental wealth which is
oriented by individuals who assume major risks in terms of money, time, physical and mental effort. These individuals commit
to fulfill the societal needs by infusing value in the form of products or services by securing and allocating the necessary skills
and resources.
 According to Schumpeter, entrepreneurship is essentially a creative activity. He postulated that entrepreneurs innovate ideas
and transform them into reality and get pleasure or satisfaction in doing so; and this is what make them different from ordinary
people in the society.

According to Schumpeter, entrepreneurs get ego satisfaction by

1. Conceiving ideas and transforming those into products and services that people require
2. Developing new cost-effective method of production that never existed before
3. Finding new sources of inputs and skills needed for quality to withstand competition
4. Developing new organizational set-ups (monopoly or any other form)
5. Creating markets for the manufactured products/ services

Schumpeter believed that---

 The creative destruction of entrepreneurs drove economic growth.


 Innovation was central to capitalism.
 New production functions served to shake up the system.
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 New business and new firms were central to the economy.
 People acted as entrepreneurs only occasionally, not continually.
 Entrepreneurs were built outside institutions.
 Entrepreneurs were driven by the will to create the dynasty.

Criticism of Schumpeter͛s views:

 Schumpeter ignores the risk taking and organizing aspects of entrepreneurship. His theory puts too much emphasis on
innovative functions.
 He did not consider imitator as entrepreneur. But underdeveloped countries need more imitator than innovators .
 His entrepreneurs are large scale businessman. But due to imperfect market, shortage of capital, and scarcity of skilled labor
underdeveloped countries have to launch on small scale.
 He did not explain why some countries had more entrepreneurial talents than others.

24.Everett Hagen͛s Theory of Social Change ( 6th )


Everett Hagen attributed the withdrawal of status respect of a group to the genesis of entrepreneurship. He believes that
the initial condition leading to eventual entrepreneurial behavior is the loss of status by a group. He postulated that four types of
events can produce status withdrawal:

1. The group may be displaced by force


2. The group may have its valued symbols denigrated
3. The group may drift into a situation of status inconsistency, and
4. The group may not be accepted the expected status on migration in a new society

Hagen claimed that any of the above status withdrawal would give rise to four possible reactions and create four
different personality traits:

1. Retreatist: A retreatist continues to work in a society but remains different to his work and position.
2. Ritualist: A ritualist adopts a kind of defensive behavior and acts in the way accepted and approved in his society. But no hope
of improving his position.
3. Reformist: A reformist is a rebel and attempts to establish a new society.
4. Innovator: An innovator is a creative individual and is likely to be an entrepreneur.

25.Maslow͛s Hierarchy of Needs

Maslow s hierarchy specifies five need categories arranged in a


sequence from basic lower-level needs to higher-level needs.

1. Physiologicalneeds- Food, Water, Sleep


2. Safety and security needs- Health, Employment, Property
3. Social needs- Love, Friendship, Family
4. Esteem/ Ego needs- Confidence, Achievement, Respect
5. Self-actualization needs- Morality, Creativity

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26.Herzberg and The ͞two-factor͟ Theory
 Motivators: Factors that lead to positive feelings about a job
 Hygiene Factors: Factors that lead to negative feelings about a job

Job Satisfaction results from Job Dissatisfaction results from

Achievement Company policy and administration


Recognition for achievement Supervision
Advancement Interpersonal relations
Responsibility Salary
The work itself Working Conditions

27.McGregor͛s Theory X and Theory Y


McGregor identified two different management views:

X = Workers are lazy, dislike work, are unprepared, and need to be controlled

Y = Workers enjoy what they do, they are creative, and take an active part in what they do

Why is this important?

Workers behave in the way they are treated – living up to the expectations of management

 If you think I am lazy, I will be.


 If you think I am responsible, I will be.

28.Impact of Work Motivation Theories of Maslow, McGregor, and Herzberg ( 7th )


 The theories of Maslow, McGregor, and Herzberg seem to approach motivation from a different perspective fundamentally to
show work incentives.
 But when these theories are compared in a tabular form, they all emphasize similar sets of relationships.
 Maslow views the rarely achievable higher-level needs as the motivating factors behind the worker.
 Herzberg views satisfiers as motivating after the hygiene factors have neutralized dissatisfaction.
 McGregor approaches motivation through his theory Y which is based on assumptions concerning the motives of workers.
 Thus, all these 3 theories are relevant to studies of motivation; especially external motivation.

The following table shows these three theories from a comparative perspective:

Maslow Herzberg McGregor

Higher-level needs (Self- Motivators Theory Y


actualization, Esteem) (Achievement, Recognition, Advancement, (Satisfaction of esteem and self-actualization needs,
Responsibility, Work itself) Responsibility, Imagination and creativity, Self-
direction and self control)

Lower-level needs Hygiene factors Theory X


(Social, Safety, (Company policy and administration, (Security above all,
Physiological) Supervision, Interpersonal relations, Salary, Direction preferable, Threats of punishment needed)
Working conditions)

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Chapter 4 - Project Identification
1. Meaning of Project ( 7th , 4th , 2nd )
 A project is an idea or plan that is intended to be carried out.
 A project is a scheme, design, a proposal of something intended or devised to be achieved.
 A project typically has a distinct mission that it is designed to achieve within a specific period of time with a defined budget.
 A project is different from on-going business operation in that, it has a definite start pointand a definite finish point. Moreover,
after the objective is achieved the project ends.
 According to Encyclopedia of Management, A project is an organized unit dedicated to the attainment of a goal- the successful
completion of a development project on time, within budget, in conformance with pre-determined program specifications .
 It can also be defined as a scientifically evolved work plan devised to achieve a specific objective within a specified period of
time.

3 basic attributes of project: ( 7th )


a. A course of action,
b. Specific objectives, and
c. Definite time perspective.

2. Project Classification ( 4th )


1. Quantifiable and Non-quantifiable Projects:
 Projects for which a quantitative assessment of benefits can be made are called Quantifiable projects . Examples: projects
concerned with industrial development, power generation, coal mining etc.
 Non-quantifiable projects are those in which a quantitative assessment cannot be made. Examples: projects involving
health education, defense, humanitarian campaigns etc.
2. Sectoral Projects:
I. Agriculture and Allied sector
II. Irrigation and Power sector
III. Industry and Mining sector
IV. Transport and Communication sector
V. Social services sector
VI. Miscellaneous sector

3. Techno-Economic Projects:

a) Factor intensity-oriented classification: Projects can be labor intensive or capital intensive.


b) Causation-oriented classification: When causation is as a basis of classification, projects may be classified as demand
based or raw material based. The very existence of demand for certain goods or services makes the project demand-
based and the availability of certain raw materials, skills, or other inputs makes the project raw-material based.
c) Magnitude-oriented classification: On the basis of size of investment, projects are classified into large scale, medium
scale, and small scale.

3. Project Identification ( 8th ,2nd )


 Project identification is concerned with the collection, compilation and analysis of economic data for the eventual purpose of
locating possible opportunities for investment and with the development of the characteristics of such opportunities.
 Opportunities, according to Drucker (1955), are of three kinds; additive, complementary and break-through.
 Additive opportunities are those opportunities, which enable the decision-maker to better utilize the existing resources
without in any way involving a change in the character of business.
 Complementary opportunities involve the introduction of new ideas and as such do lead to a certain amount of change in
the existing structure.

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 Break-through opportunities, on the other hand, involve fundamental changes in both the structure and character of
business.

4. Idea Generation/ Opportunity scanning and identification: In order to select the most promising
project, the entrepreneur needs to generate a few ideas about the possible projects he/she can undertake.

Sources for discovering project ideas: (8th )


 Knowledge of potential customer needs
 Watching emerging trends in demands for certain products
 Scope for producing substitute product
 Going through certain professional magazines
 Success stories of known entrepreneurs or friends or relatives
 Making visits to trade fairs and exhibitions
 Meeting with the government agencies
 Ideas given by the knowledgeable persons
 Knowledge about government policy, concessions and incentives

5. Project Selection ( 2nd )


 Project selection is a careful study of each project idea in detail and choosing one of them for further consideration and
development.
 Project selection starts from where project identification ends. After having some project ideas, these are analyzed in the light
of existing economic conditions, the government policy and so on.
 SWOT/TOWS analysis (S=strength, W=weakness, O=opportunity, T=threat) is generally used for selecting a project.
 The intending entrepreneur analyses his/her strengths and weaknesses as well as opportunities/competitive advantages and
threats/challenges offered by each of the project ideas.
 On the basis of this analysis, the most suitable idea is finally selected to convert it into an enterprise.
 The process involved in selecting a project out of some projects is also described as the zeroing in process .
 There may or may not be a time interval involved in between project identification and project selection.
 Project identification and selection is half done in the process of establishing an enterprise.
 The entrepreneur needs to analyze other related aspects also like raw material, potential market, labor, capital, location, forms
of ownership etc. It is necessary to mention that each of these aspects has to be evaluated independently and in relation to
each other. Project ideas identified earlier are screened on the basis of their technical, economic and financial soundness. After
screening, the ideas are translated into project profiles.

6. Project Formulation ( 2nd)


 The process of studying a selected project further with reference to investment decisions is called project formulation.
 Project formulation considers issues such as relevance and feasibility of the project. It involves a step-by-step procedure to
investigate and develop project further.

7. Project Report
 Project report or business plan is a written statement of what an entrepreneur proposes to take up.
 Project report serves like a kind of big road map to reach the destination determined by the entrepreneur.
 Project report is a well evolved course of action devised to achieve the specified objective within a specified period of time.

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8. Contents of a project report: ( 4th )
 General information  Transport and communication

 Promoter  Raw material

 Location  Manpower

 Land and building  Products

 Plant and machinery  Market

 Production process  Requirement of working capital

 Utilities  Requirement of funds

9. Formulation of a Project Report ( 7th , 4th , 3rd , 2nd )


Projects can be formulated by dividing the project development process into the following sequence of stages:

i. General information (bio data of the promoter; industry profile; organizational structure and constitution; product details etc.)
ii. Project description (project site; physical infrastructure; utilities; pollution control; communication system; transportation and
other common facilities; production process; machinery and equipment; plant capacity; R&D etc.)
iii. Market potential (demand and supply; expected price of product; marketing strategy; after-sales services etc.)
iv. Capital costs and source of finance (cost of capital items like land, building, plant and machinery, installation of equipment,
owner s equity, bank debt)
v. Assessment of working capital requirements (working capital requirement; working capital availability; sources of working
capital)
vi. Other financial aspects (Break-even analysis; projected profit and loss statements; projected balance sheet; cash flow
statement)
vii. Economic and social variables (employment generation; import substitution; export; local resource utilization; development of
livelihood in the project area)
viii. Project implementation (draws a tentative time-line to finish the project and implement the various activities within the time-
frame and estimated budget).

10.Network Analysis ( 2nd )


 Network analysis is the process of deciding in what order tasks need to be done in a particular project, so that it can be finished
successfully in the least amount of time.
 Network analysis, also known as network planning/project scheduling, is an analytic technique used during project planning to
determine the sequence of activities and their interrelationship within the network of activities that will be required by the
project.
 There is a need for deciding the sequential order of all activities of the project so as to accomplish the project economically in
the minimum available time with the limited resources.

11.Network Techniques:
1. Program Evaluation and Review Technique (PERT)
2. Critical Path Method (CPM)
3. Graphical Evaluation and Review Technique (GERT)
4. Workshop Analysis Scheduling Program (WASP)
5. Line of Balance (LOB)

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1) Program Evaluation and Review Technique (PERT)
 PERT stands for Program Evaluation and Review Technique, a methodology which was first developed by the U.S. Navy in
October 1958 to manage the Polaris Ballistic Submarine Missile Project.
 It is a project management technique that shows the time taken by each component of a project, and the total time required for
its completion.
 PERT breaks down the project into events and activities, and lays down their proper sequence, relationships, and duration in the
form of a network.
 Lines connecting the events are called paths, and the longest path resulting from connecting all events is called the critical path.
 The length (duration) of the critical path is the duration of the project, and any delay occurring along it delays the whole project.
 PERT is a scheduling tool, and does not help in finding the best or the shortest way to complete a project.
 It is commonly used in conjunction with the critical path method (CPM).
 Steps involved in PERT

The following steps are involved in PERT technique:

1. The activities involved in the project are drawn up in a sequential relationship to show what activity follows what.
2. The time required for completing each activity of the project is estimated and noted on network.
3. The critical activities of the project are determined.
4. The variability of the project duration and probability of the project completion in a given time period are calculated.
 Advantages of PERT

PERT technique bears the following advantages:

1. It determines the expected time required for completing each activity.

2. It helps complete the project within a given period of time.

3. It helps management handle uncertainties involved in the project and thus, reduce the risk element in the project.

4. It enables management to make optimum allocation of limited resources.

5. It presses for the right action, at the right point and at the right time in the organization.

 Limitations of PERT

PERT suffers from the following limitations:

1. PERT network is mainly based on time estimates required for each activity. On account of wrong time estimates, the network is
bound to become highly unrealistic.

2. This technique also does not consider the resources required at different stages of the project.

3. For effective control of a project by using PERT technique requires frequent updating and revising the PERT calculations. But, this
proves quite a costly affair for the organization.

2) Critical Path Method (CPM)

 CPM, is akin to PERT. It was developed (Independently) in 1956-57 by the Du Pont Company in the US to solve scheduling
problems in industrial settings.
 It resulted in reducing the shutdown period from 130 hours to 90 hours and saving the company $ 1 million.
 The CPM differentiates between planning and scheduling of the project. While planning refers to determination of activities to
be accomplished, scheduling refers to the introduction of time schedule for each activity of the project.
 The duration of different activities in CPM are deterministic. There is a precise known time that each activity in the project will
take.

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 Advantages of CPM/ The important advantages of CPM technique are:

1. It helps in ascertaining the time schedule of activities having sequential relationship.

2. It makes control easier for the management.

3. It identifies the most critical elements in the project. Thus, the management is kept alert and prepared to pay due attention to the
critical activities of the project.

4. It makes better and detailed planning possible.

 Limitations of CPM/ The main limitations of the CPM are:

1. CPM operates on the assumption that there is a precise known time that each activity in the project will take. But, it may not be
true in real practice.

2. CPM time estimates are not based on statistical analysis.

3. It cannot be used, as a controlling device for the simple reason that any change introduced will change the entire structure of
network. In other words, CPM cannot be used as a dynamic controlling device.

Differences between PERT and CPM ( 8th , 6th , 3rd )

12.Common Errors in Project Formulation ( 7th, 4th , 3rd , 1st)


The common errors in project formulation are as follows:

1. Wrong product selection


2. Over-optimistic estimates of capacity utilization
3. Market study (no scientific market study on demand and supply condition; customer perception of the market and the product)
4. Technology selection (no feasibility study of technology to be employed in the project)
5. Location selection (wrong location selection that results in market improximity; non-availability of raw materials, man power,
and infrastructure)
6. Wrong selection of ownership form

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13.Project Appraisal ( 1st )
Project appraisal means the assessment of a project. It is a costs and benefits analysis of different aspects of a project.

 Ex-ante analysis: When project analysis is made for proposed projects.


 Post-ante analysis: When project analysis is made for executed projects.
 A project involves employment of limited resources. An entrepreneur needs to appraise various alternative projects before
allocating the limited resources for the best project. Thus project appraisal helps select the best project among available
alternative projects.
 For an financial institution project appraisal is a process whereby a leading financial institution makes an independent and
objective assessment of the various aspects of an investment proposition for arriving at a financial decision and is aimed at
determining the viability of the project .

Methods of Project Appraisal ( 8th , 4th )


Appraisal of a proposed project includes,

1) Economic Analysis
2) Financial Analysis
3) Market Analysis
4) Technical Feasibility
5) Managerial Competence
6) Ecological analysis

1) Economic Analysis
 Under economic analysis the aspects highlighted include
 Requirements for raw material
 Level of capacity utilization
 Anticipated sales
 Anticipated expenses
 Proposed profits
 Estimated demand
 It is said that a business should have always a volume of profit clearly in view which will govern other economic variable like
sales, purchase, expenses and alike.
 It will have to be calculated how much sales would be necessary to earn the targeted profit.
 Demand for the product will be estimated for anticipating sales volume.

2) Financial Analysis
 It is finance only that facilitates an entrepreneur to bring together the labor of one, machine of another and raw material of
yet another to combine them to produce goods.
 In order to decide the financial viability of the project, the following aspects need to be carefully analyzed :
 Cost of capital
 Means of finance
 Estimates of sales and production
 Cost of production
 Working capital requirement and its financing
 Estimates of working results
 Break-even point
 Projected cash flow
 Projected balance sheet.

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Assessment of the financial requirements both- fixed and working capital:

 The requirement for fixed assets/capital will vary from enterprise to enterprise depending upon the type of operation, scale of
operation and time when the investment is made
 While assessing the fixed capital requirements , all items relating to the asset like the cost of the asset, architect and engineer͛s
fees, electrification and installation charges, depreciation, pre-operation expenses of trial runs, etc., should be taken into
consideration.
 If any expense is to be incurred in remodeling, repair and additions should be highlighted in the project report.
 Working capital is that amount of funds which is needed in day to day s business operations. Working capital means excess of
current assets over current liabilities.
 Current assets refer to those assets which can be converted into cash within a short period of time.
 Current liabilities refer to those obligations which can be payable within a short period of time.
 It is like a circulating money changing from cash to inventories and from inventories to receivables and again converted into
cash.

3) Market Analysis
 Before the production actually starts, the entrepreneur needs to anticipate the possible market for the product.
 He/she has to anticipate who will be the possible customers for his product and where and when his product will be sold.
 This is because production has no value for the producer unless it is sold.
 The methods to estimate the demand for a product are
st
1. Opinion Polling Method; ( 1 )
2. Life cycle segmentation analysis

1. Opinion Polling Method: In this method, the opinions of the ultimate users, i.e., customers of the product is estimated.

i. Complete Enumeration method : All probable customers of the product are approached and their probable demands for
the product are estimated and then summed.

 Suppose, there are total N customers of X product and everybody will demand for D numbers of it.

The , the total a ti ipated de a d = ∑ The pro a le de a ds (D i) of all customers

= D1 + D2 + D3 + ……………… + DN

 However, to approach a large number of customers scattered all over market becomes tedious, costly and cumbersome.
 Moreover, the consumers themselves may not divulge their purchase plans due to the reasons like personal as well as
commercial/business privacies.

ii. Sample Survey : Some number of consumers out of their total population is approached and data on their probable demands for
the product during the forecast period are collected and summed. The total demand of sample customers is finally blown up to
generate the total demand for the product.

 Imagine, there are 1000 customers of a product spread over the market.
 Out of these, 50 are selected for survey using stratified method.
 Now, if the esti ated de a d of these sa ple usto ers is D, the the total de a d for the e tire group of usto ers = ∑
niDi
o = n1D1 + n2D2 + n3D3 + ………… + 50D50
 Where, ni is the number of customers in group I and
 n1 + n2 + n3 + ………… + 50 = 1000
 Survey method is less costly and tedious than the complete enumeration method.
iii. Sales Experience Method: Sample market is surveyed before the new product is offered for sale. The results of the market
surveyed are then projected to the universe in order to anticipate the total demand for the product.
iv. Vicarious method : The consumers of the product are not approached directly but indirectly through some dealers who have a
feel of their customers.
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The dealers opinions about the customers opinion are elicited.
2. Life Cycle Segmentation Analysis:
Divided into 5 stages,
 Introduction
 Growth
 Maturity
 Saturation
 Decline
Considering the above 5 stages of a product life cycle, the sales at different stages can be anticipated.
 Introduction/Launch:
 Advertising and promotion campaigns
 Target campaign at specific audience?
 Monitor initial sales
 Create product awareness and trial
 Maximise publicity
 High cost/low sales
 Length of time – type of product

 Growth:
 Increased consumer awareness
 Sales rise
 Revenues increase
 Offer product extensions, service, warranty
 Maximize market share
 Average cost per customer, profits may be made
 Monitor market – competitors reaction?

 Maturity:
 Sales reach peak
 Cost of supporting the product declines
 Low cost per customer
 Sales growth likely to be low
 Market share may be high
 Maximize profit while defending market share
 Competition likely to be greater
 Price elasticity of demand?
 Monitor market – changes/amendments/new strategies?

 Saturation:
 Necessity to develop new strategies becomes more pressing:
 Searching out new markets:
 Linking to changing fashions
 Seeking new or exploiting market segments
 Linking to joint ventures – media/music, etc.
 Developing new uses
 Focus on adapting the product
 Re-packaging or format
 Improving the standard or quality
 Developing the product range

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 Decline and Withdrawal:
 Fashions change
 Technology changes
 Sales decline
 Cost of supporting starts to rise too far

- Decision to withdraw may be dependent on availability of new products and whether fashions/trends will come around
again?

Product Life Cycle

4) Technical Feasibility
• Technical feasibility implies to mean the adequacy of the proposed plant and equipment to produce the product within the
prescribed norms.

• It should be ensured whether that know-how is available with the entrepreneur or is to be procured from elsewhere.

• If project requires any collaboration, then, the terms and conditions of the collaboration should be spelt out comprehensively
and carefully.

• While assessing the technical feasibility of the project, the following inputs covered in the projects should also be taken into
consideration,

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 Availability of land and site.
 Availability of water, power, transport, communication facilities.
 Availability of servicing facilities like machine shops, electric repair shops.
 Coping with anti-pollution law.
 Availability of work force as per required skill and arrangements proposed for training-in-plant and outside.
 Availability of required raw material as per quality and quantity.

5) Managerial Competence

• The managerial competence or talent of the promoter should be taken into consideration because most of the enterprises fall
sick because of lack of managerial competence or mismanagement.

• This is more so in case of small-scale enterprises where the proprietor is all in all, i.e., owner and manager. Due to his one-man
show, he may be jack of all but master of none.

6) Ecological Analysis
In recent years, environmental concerns have assumed great deal of significance.

Ecological analysis should also be done particularly for major projects which have significant implication like power plant and
irrigation schemes, and environmental pollution industries like chemical and leather processing.

The key factors considered for ecological analysis are :

Environmental damage

Restoration measure

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