This is first chapter of Entrepreneurship and Business Planning. After the lesson, reader must be able to: 1. Describe Nature, Development and History of Entrepreneurship 2. Identify The Entrepreneurial Decision Process 3.Describe different types of Start-ups 4. Recognize Role of Entrepreneurship in Economic Development 5. Identify Entrepreneurial Careers and Education 6. Identify Different types of Skills Required for Entrepreneurship 7. Describe Ethics and Social Responsibility of Entrepreneurs

1. ENTREPRENEUR AND BUSINESS
PLANNING
Chapter 1:
THE NATURE AND IMPORTANCE OF
ENTREPRENEURS
Prepared by:
Prof. SEYED ALI FALLAHCHAY

2. Nature and Development of Entrepreneurship
Who is an entrepreneur? What is Entrepreneurship?
What is an entrepreneurial career path? These
frequently asked questions reflect the increased national
and international interest in entrepreneurs by
individuals, university professors and students, and
government officials. In spite of all this interest, a
concise, universally accepted definition has not yet
emerged. The development of the theory of
entrepreneurship parallels to a great extent the
development of the term itself. The word entrepreneur
is French and, literally translated, means “between-
taker” or “go-between”.

3. Earliest Period
An early example of the earliest definition of an
entrepreneur as a go-between is Marco Polo, who attempted
to establish trade routes to the Far East. As a go-between,
Marco polo would sign a contract with a money
person(forerunner of today’s venture capitalist) to sell his
goods. A common contract during this time provided a loan
to the merchant–adventure at a 2205percent rate, including
insurance. While the capitalist was a passive risk bearer, the
merchant-adventure took the active role in trading, bearing
all the physical and emotional risks. When the merchant-
adventurer successfully sold the goods and completed the
trip, the profits were divided with the capitalist taking most
of them (up to 75 percent), while the merchant-adventurer
settled for the remaining 25 percent.

4. Middle Age
In the Middle Ages, the term entrepreneur was used to
describe both an actor and a person who managed large
production projects. In such large production projects,
this individual did not take any risks, but merely
managed the project using the resources provided,
usually by the government of the country. A typical
entrepreneur in the Middle Ages was the cleric- the
person in charge of great architectural works, such as
castles and fortifications, public buildings, abbeys, and
cathedrals.

5. 17th Century
The reemergent connection of risk with entrepreneurship
developed in the 17th century, with an entrepreneur being a
person who entered into contractual arrangement with the
government to perform a service or to supply stipulated
products. since the contract price was fixed, any resulting
profits or losses were the entrepreneur’s . One entrepreneur
in this period was John Law, a Frenchman, who was allowed
to establish a royal ban. The bank eventually evolved into
an exclusive franchise to form a trading company in the
New Word- the Mississippi Company. Unfortunately, this
monopoly on French trade led to Law’s downfall when he
attempted to push the company’s stock price higher than the
value of its assets, leading to the collapse of the company.

6. 18th Century
In the 18th century, the person with capital was
differentiated from one who needed capital. In other
words, the entrepreneur was distinguished from the
capital provider(the present-day venture capitalist). One
reason for this differentiation was the industrialization
occurring throughout the world. Many of the inventions
developed during this time were reactions to the
changing world.

7. 19th and 20th Centuries
In the late 19th and early 20th centuries, entrepreneurs were
frequently not distinguished from managers and were
viewed mostly from an economic perspective.
In the middle of 20th century, notion of an entrepreneur as
an innovator was established:
The function of the entrepreneur is to reform or
revolutionize the pattern of production by exploiting an
invention or, more generally, an untried technological
methods of producing a new commodity or producing an old
one in a new way, opening a new source of supply of
materials or a new outlet for products, by organizing a new
industry.
The concept of innovation and newness is an integral part of
entrepreneurship in this definition.

8. Definition of Entrepreneur Today
Entrepreneur is a loanword from French.
It is defined as an individual who organizes or operates a
business or businesses.
In almost all of the definitions of entrepreneurship, there is
agreement that we are talking about a kind of behavior that
includes: (1) initiative taking, (2) the organizing and
reorganizing of social and economic mechanisms to turn
resources and situations to practical account, (3) the
acceptance of risk or failure.

9. The Entrepreneurial Decision Process
Tough many individuals have creative new ideas, few
can bring their ideas to the market and create a new
venture. Yet entrepreneurship and the actual
entrepreneurial decisions have resulted in several
million new businesses being started throughout the
world. Although no one knows the exact number, in the
United States (Which leads the world in company
formation), estimates indicate that in recent years
around 1 million new companies have been formed each
year.

10. Indeed, millions of ventures are formed despite
recession, inflation, high interest rates, lack of
infrastructure, economic uncertainty, and the high
probability of failure. Each of these ventures is formed
through a very personal human process that, although
unique, has some characteristics common to all. While
some ventures result from specific circumstances many
entrepreneurs follow the entrepreneurial decision
process which entails a movement, from something to
something- a movement from a present lifestyle to
forming a new enterprise.

11. Change from Present Lifestyle
The decision to leave a career or lifestyle is not an easy one.
It takes a great deal of energy and courage to change and do
something new and different. Although individuals tend to
start businesses in areas that are familiar, two work
environments have been particularly good for spawning new
enterprises: research and development and marketing. While
working in technology (research and development),
individuals develop new product ideas or processes and
often leave to form their own companies when these new
ideas are not accepted by their present employers. Similarly,
individuals in marketing have become familiar with the
market and customers’ unfilled wants and needs, and they
frequently leave to start new enterprises to fill these needs.

12. Perhaps an even stronger incentive to overcome the
inertia and leave a present lifestyle to create something
new comes from a negative force-disruption. A
significant number of companies are formed by people
who have retired, who are relocated due to move by the
other member in a dual-career family, or who have been
fired. There is probably no greater force than personal
dislocation or galvanize a person’s will to act.
Another cause of disruption that can result in company
formation is someone’s completion of an educational
degree. For example, a student who is promoted after
receiving an MBA degree may become frustrated and
decide to leave and start a new company.

13. What cause this personal disruption to result in a new
company being formed?
The decision to start a new company occurs when an
individual perceives that forming a new enterprise is
both describe and possible.

14. Desirability of New Venture Formation
The perception that starting a new company is desirable results
from an individual's culture, subculture, family, teachers, and
peers. A culture that values an individual who successfully
creates a new business will spawn more venture formations than
one that does not.
The American culture places a high value on being one’s own
boss, having individual opportunities, being a success, and
making money- all aspects of entrepreneurship. Therefore, it is
not surprising to find a high rate of company formation in United
States. On the other hand, in some countries successfully
establishing a new business and making money are not as highly
valued, and failure may be a disgrace. Countries with cultures
that more closely emulate this attitude do not have a high a
business formation rate. It will be increasing to watch which of
the once-controlled economies will develop a strong pro-
entrepreneur culture.

15. Possibility of New Venture Formation
What makes it possible to form a new company ?
Several factors- government, background, marketing,
role models, and finances- contribute to the creation of a
new venture.
The social, psychological, and financial risks are still
present, the entrepreneur must also have the necessary
background. Formal education and previous business
experience give a potential entrepreneur the skills
needed to form and manage a new enterprise.
Financial resources must be readily available. Although
most of the start-up money for any new company comes
from personal savings, credit, friends, and relatives.
There is often a need for additional risk capital.

16. Types of Start-ups
1. Lifestyle firm
Is privately held and usually achieves only modest growth
due to the nature of the business, the objectives of the
entrepreneur, and the limited money devoted to research and
development. This types of firm may grow after several
years to 30-40 employees. A lifestyle firm exists primarily to
support the owners and usually has little opportunity for
significant growth and expansion.
2. Foundation companies
Is created from research and development and lays the
foundation for anew business area. This firm can grow in 5-
10 years from 40 to 400 employees.
This type of start-up rarely goes public, it usually draws the
interest of private investors only, not the venture-capital
community.

17. 3. High-potential venture
Is the one that receives the greatest investment interest
and publicity. While the company may start out like a
foundation company, its growth is far more rapid. After
5-10 years, the company could employ around 500
employees. This firm also called gazelles and are
integral to the economic development of an area.

18. Role of Entrepreneurship in Economic
Development
The entrepreneur who is a business leader looks for
ideas and puts them into effect in fostering economic
growth and development. Entrepreneurship is one of the
most important input in the economic development of a
country. The entrepreneur acts as a trigger head to give
spark to economic activities by his entrepreneurial
decisions. He plays a pivotal role not only in the
development of industrial sector of a country but also in
the development of farm and service sector. The major
roles played by an entrepreneur in the economic
development of an economy is discussed in a systematic
and orderly manner as follows:

19. (1) Promotes Capital Formation:
Entrepreneurs promote capital formation by mobilizing
the idle savings of public. They employ their own as
well as borrowed resources for setting up their
enterprises. Such type of entrepreneurial activities lead
to value addition and creation of wealth, which is very
essential for the industrial and economic development
of the country.

20. (2) Creates Large-Scale Employment Opportunities:
Entrepreneurs provide immediate large-scale
employment to the unemployed which is a chronic
problem of underdeveloped nations. With the setting up.
Of more and more units by entrepreneurs, both on small
and large-scale numerous job opportunities are created
for others. As time passes, these enterprises grow,
providing direct and indirect employment opportunities
to many more. In this way, entrepreneurs play an
effective role in reducing the problem of unemployment
in the country which in turn clears the path towards
economic development of the nation.

21. (3) Promotes Balanced Regional Development:
Entrepreneurs help to remove regional disparities
through setting up of industries in less developed and
backward areas. The growth of industries and business
in these areas lead to a large number of public benefits
like road transport, health, education, entertainment, etc.
Setting up of more industries lead to more development
of backward regions and thereby promotes balanced
regional development.

22. (4) Reduces Concentration of Economic Power:
Economic power is the natural outcome of industrial
and business activity. Industrial development normally
lead to concentration of economic power in the hands of
a few individuals which results in the growth of
monopolies. In order to redress this problem a large
number of entrepreneurs need to be developed, which
will help reduce the concentration of economic power
amongst the population.

23. (5) Wealth Creation and Distribution:
It stimulates equitable redistribution of wealth and
income in the interest of the country to more people and
geographic areas, thus giving benefit to larger sections
of the society. Entrepreneurial activities also generate
more activities and give a multiplier effect in the
economy.

24. (6) Increasing Gross National Product and Per
Capita Income:
Entrepreneurs are always on the look out for
opportunities. They explore and exploit opportunities,,
encourage effective resource mobilization of capital and
skill, bring in new products and services and develops
markets for growth of the economy. In this way, they
help increasing gross national product as well as per
capita income of the people in a country. Increase in
gross national product and per capita income of the
people in a country, is a sign of economic growth.

25. (7) Promotes Country's Export Trade:
Entrepreneurs help in promoting a country's export-
trade, which is an important ingredient of economic
development. They produce goods and services in large
scale for the purpose earning huge amount of foreign
exchange from export in order to combat the import
dues requirement. Hence import substitution and export
promotion ensure economic independence and
development.

26. (8) Induces Backward and Forward Linkages:
Entrepreneurs like to work in an environment of change
and try to maximize profits by innovation. When an
enterprise is established in accordance with the
changing technology, it induces backward and forward
linkages which stimulate the process of economic
development in the country.

27. (9) Facilitates Overall Development:
Entrepreneurs act as catalytic agent for change which
results in chain reaction. Once an enterprise is
established, the process of industrialization is set in
motion. This unit will generate demand for various
types of units required by it and there will be so many
other units which require the output of this unit. This
leads to overall development of an area due to increase
in demand and setting up of more and more units. In
this way, the entrepreneurs multiply their
entrepreneurial activities, thus creating an environment
of enthusiasm and conveying an impetus for overall
development of the area.

28. Entrepreneurial Careers and Education
Framework for on entrepreneur’s career development:
• Educational environment
• The individual’s personality
• Childhood family environment
• Employment history
• Adult development history
• Adult family/non-work history
• Current work situation
• The individual’s current perspective
• Current family situation

29. Types of skills required for entrepreneurship
Technical skills Business Management skills
• Writing
• Oral communication
• Technical business
management
• Interpersonal
• Technology
• Ability to organize
• Coaching
• Being a team player
• Management style
• Network building
• Planning and goal setting
• Decision making
• Human relations
• Marketing
• Finance
• Accounting
• Management
• Negotiation
• Venture launch
• Managing growth

30. Personal Entrepreneurial Skills
• Inner Control/ disciplined
• Risk Taker
• Innovative
• Change oriented
• Persistent
• Visionary leader
• Ability to Manage change
• Pioneer
• Self belief

31. Ethics
Ethics
- Is study of what ever is right and good for humans.
Business ethics
- Concerns itself with the investigation of business
practices in light of human moral and values.

32. Classifications of business ethics
• Pedagogically oriented inquiry, including both theory
and empirical studies
• theory-building without empirical testing
• Empirical research, measuring the attitudes and
ethical beliefs of the students and academic faculty
• Empirical research within business environments,
measuring the attitudes and ethical views, primarily
of managers within large organizations

33. Ethics and Social Responsibility of
Entrepreneurs
The life of the entrepreneur is not easy. An entrepreneur
must take risks with his or her own capital in order to
sell and deliver products and services while expanding
greater energy than the average businessperson in order
to innovate. Face to daily stressful situations and other
difficulties, the possibility exists that the entrepreneur
will establish a balance between ethical exigencies,
economic expediency, and social responsibility, a
balance that differs from the point where the general
business manager takes his or her moral stance.

34. Assignment
1. Research at least 2 future of Entrepreneurship.
2. Ethical behavior of being Entrepreneur.