Entrepreneur: Definition, Characteristics, Types of Entrepreneur

Definition of EntrepreneurEntrepreneurs are action-oriented highly motivated individuals who take risks to achieve goals. An entrepreneur is an innovator of a new combination in the field of production.

The entrepreneur is the founder of the enterprise who identifies opportunities, assembles skilled manpower and necessary resources for the operation of the enterprise, attracts persons and financial Institutions and takes psychological responsibility for managing the enterprise successfully.

Concept of Entrepreneur

The word ‘Entrepreneur’ is derived from the French word “Entreprendre” means, “to undertake.”

There are two popular beliefs about who the person was who used the term entrepreneur in economics.

It is believed that the word “Entrepreneur” was first used by the Irish banker operating in Franco Ricardo Cantillon.

Another belief is that the French economist J. B. Say (1824) was first used the word entrepreneur in economics. It is derived from the French word “Entreprendre” means, “to undertake”.

Oxford English dictionary has adopted this word in 1897 and meant as “director or manager of a public musical institution”. The term goes through evolutionary changes of meaning. Till now, there is no consensual concept of entrepreneurs.

In the early 16th century, it was applied to those who were engaged in military expeditions. It was extended to cover civil engineering activities Such as construction and fortification in the 17th century.

It was only at the beginning of the 18th century that the word was used to refer to economic aspects. In this way, the evolution of the concept of an entrepreneur is considered over more than four centuries.

Since then, the term ‘entrepreneur’ is used in various ways and various views.

These views are broadly classified into three groups, namely, risk-bearer, organizer and innovator.

Entrepreneur as a Risk-Bearer

Richard Cantillon, an Irish man living in France, was the first who introduced the term ‘entrepreneur’ and his unique risk-bearing function in economics in the early 18th century.

He defined an entrepreneur as an agent who buys factors of production at certain prices to combine them into a product to sell it at uncertain prices in the future.

He illustrated a farmer who pays out contractual incomes which are certain to the landlords and laborers and sells at prices that are ‘uncertain’.

He further states that so do merchants also who make certain payments in expectation of uncertain receipts.

Thus, they too are ‘risk-bearing’ agents of production.

Knight also described an entrepreneur to be a specialized group of persons- who bear uncertainty.

Uncertainty is defined as a risk that cannot be insured against and is incalculable. He, thus, distinguishes between ordinary risk and uncertainty.

A risk can be reduced through the insurance principle, where the distribution of the outcome in a group of instances is known.

On the contrary, uncertainty is the risk that cannot be calculated.

The entrepreneur, according to Knight, is the economic functionary who undertakes such responsibility of uncertainty which by its very nature cannot be insured, nor capitalized nor salaried too.

Entrepreneur as Organiser

Jean-Baptiste Say, an aristocratic industrialist, with his unpleasant practical experiences developed the concept of entrepreneur a little further which survived for almost two centuries.

His definition associates entrepreneur with the fijHfcons of coordination, organization, and supervision.

According to him, an entrepreneur combines the land of one, the labor of another and the capital of yet another, and, thus, produces a product.

By selling the product in the market, he pays interest oh capital, rent on land and wages to laborers and what remains is his/her profit.

Thus, Say has made a clear distinction between the role of the capitalist as a financer and the entrepreneur as an organizer.

He further elaborates that in the course of undertaking several complex operations like obstacles to be surmounted, anxieties to be suppressed, misfortunes to be repaired and expedients to be devised, three more implicit factors are deemed to be essential.

These are:

  1. Moral qualities for work judgment, perseverance and a piece of knowledge about the business world.
  2. Command over sufficient capital, and
  3. Uncertainty of profits.

Marshall5 also advocated the significance of organization among the services of a special class of business undertakers.

Entrepreneur as an Innovator

Joseph A, Schumpeter, for the first time in 1934, assigned a crucial role of ‘innovation’ to the entrepreneur in his magnum opus ‘Theory of Economic Development’.

Schumpeter considered economic development as a discrete dynamic change brought by an entrepreneur by instituting new combinations of production, i.e., innovations.

The introduction of a new combination of factors of production, according to him, may occur in any one of the following five forms:

  1. The introduction of a new product on the market.
  2. The instituting of a new production technology which is not yet tested by experience in the branch of manufacture concerned.
  3. The opening of a new market into which the specific product has not previously entered.
  4. The discovery of a new source of supply of raw material.
  5. The carrying out of the new form of organization of any industry by creating a monopoly position or the breaking up of if.

Schumpeter also made a distinction between an inventor and an innovator. An inventor is one who discovers new methods and new materials. And, an innovator utilizes inventions and discoveries to make new combinations.

Experts in the field of economics, business and sociology have defined entrepreneurs from various points of view.

What is an Entrepreneur?

Adam Smith (1776) considers entrepreneur as a proprietary capitalist who supplies capital and works as a manager intervening between labor and the consumer.

Francis A. Walker (1870) calls the entrepreneurs as engineers of progress and the chief agents of production.

F. H. Knight (1921) propounds that entrepreneurs are a specialized group of persons who bear risks and deal with uncertainty.

J-A. Mill (1848) advocates for using the word entrepreneur in the sense of an organizer who is paid for his non-manual type of work.

J.B. Say (1824) defines an s entrepreneur as “an economic agent who assembles factors of production, see the s price of produce in such a way that ensures the cost and profit, re-accumulates capital and possesses administrative and productive knowledge.”

The definition emphasizes the economic activities of an entrepreneur.

This concept is also supported by Hagen Se Robinson (1942). The emphasis on socio-economic contributions and characteristics of entrepreneurs.

The innovation here is conceived as the introduction of a new product or new utility of the old product, new market, new production methods, a new source of raw materials and new organization.

Herberton G. Evans (I957) defines, “Entrepreneur Is the person or group of persons who have the task of determining the kind of business to be operated.”

Evan’s entrepreneur only engages m setting the nature of the business, the good to be produced or the service to be served and the type of customers to be catered.

H. Cole (1959) observes, “The entrepreneur is the individual who initiates, maintains, or aggrandizes a profit-oriented business salt for the production or distribution of economic goods and services.”

Cole believes that the person who engages in any economic activity to earn a profit is the entrepreneur. Therefore, profit earning is the focal point to identify an entrepreneur.

This definition centers on the concept of managership and implies that an entrepreneur is a manager too.

The entrepreneur has been understood differently under the contemporary condition in a seminar held on entrepreneurship in Delhi in 1981.

The consensus was “Entrepreneur is a person who accepts challenges, gives emphasis on production for development, exercises vigilance about success and failure at the time of taking standard risks and considers, carefully and significant stove conditions before arriving at any decision.”

The concept has taken us to the idea of efforts and ventures that contribute to the advent of facial progress leading to human welfare; it constructs upon physical activities involved with the generation of products as writ as the psychological aspect associated with entrepreneurial success.

Their entrepreneurs as strong achievers of goals and risk-takers for any desired action for attaining the success of the ventures’ John G. Burch (1986) says, “The entrepreneur is the one who undertakes a venture, organizes it, raises capital to finance it, and assumes all or a major portion of the risk”.

Burch’s entrepreneur is not only a venture but also a risk-taker and capital provider too. Entrepreneur brings talents, product -service venture ideas, know-how and usually, provides finance with taking necessary risks.

Characteristics of an Entrepreneur

An entrepreneur is a person who is action-oriented and highly motivated to take a risk and to achieve such a goal dot brings about a change in the process of generating goods or services or re-initiates progress in the advent of creating new organizations.

Therefore, experts have nine characteristics for the entrepreneur from different conceptual viewpoints.

10 characteristics of an entrepreneur are;

  1. Entrepreneur is an agent.
  2. Entrepreneur is a risk-taker.
  3. Entrepreneur is a profit maker.
  4. Entrepreneur is an achievement motivator.
  5. Entrepreneur is a capital provider.
  6. Entrepreneur is the determinant of the nature of the business.
  7. Entrepreneur is an innovator.
  8. Entrepreneur is a reward receiver.
  9. Entrepreneur is a challenge taker.

The characteristics that encompass the concept of the entrepreneur are discussed below:

1. Entrepreneur is an agent

An entrepreneur is perceived as an economic agent who assembles materials for producing goods at a cost that ensures profits and re-accumulation of capital.

He is also understood as a change agent who brings about changes in the structure and formation of the organization, market and the arena of goods and services.

2. Entrepreneur is a risk-taker

Many experts – old and new, have emphasized this characteristic. Back I955, Redlich pointed out that an entrepreneur is a person who identifies the nature of risk and takes a decision.

Later on, Burch, Meredith and other experts have agreed that an entrepreneur is a risk-taker while undertaking a venture.

3. Entrepreneur is a profit maker

An entrepreneur is an individual who establishes and manages the business for the principal purpose of profit and growth.

4. Entrepreneur is an achievement motivator

David C. McClelland has initiated this concept of the entrepreneur by calling him “as per sun with a strong desire for achievement.”

Later on, Meredith and others have expressed the same concept while they termed “entrepreneurs are action-oriented, highly’ motivated individuals.”

Therefore, entrepreneurs have to have a deep-rooted need for achieving their goals.

5. Entrepreneur is a capital provider

Entrepreneur a person who operates a business by investing his or her capital. Abbett first pointed out this characteristic in 1967.

It supported by Nadkami (l97S) and Sharma (1981). They perceived entrepreneur as the founder of an enterprise who assembles necessary resources for the operation of the enterprise.

6. Entrepreneur is the determinant of the nature of the business

This characteristic /concept of the entrepreneur was promoted by Evans in 1957 It says that an entrepreneur is the person or group of persons who perform the task of determining the kind of business to the operated.

Therefore, entrepreneurs promote diversified and distinct types of business in society.

7. Entrepreneur is an innovator

Joseph A. Schumpeter {1934) characterized entrepreneur as an innovator of a new combination in the field of production Later on Robinson (1962) and Hagen (1962) have described entrepreneurs as a person who lakes a small venture to the edge of success by his efforts, innovation and motivation.

Innovation is perceived by Schumpeter as an action that introduces a product, a new quality, a new method of production, a new market and a new organization.

Therefore, an entrepreneur innovates something that brings about disequilibria in the industry.

8. Entrepreneur is a reward receiver

An entrepreneur is a person who creates something new of value by devoting time and efforts and in tum receives monetary and personal rewards. Max Weber, Hartman, Hisrich and Peters have recognized this distinct phenomenon of entrepreneurs.

9. Entrepreneur is a challenge taker

It perceives an entrepreneur as a person who accepts challenges for developing and exercising vigilance about success and failure to take a risk and to generate products.

The above-mentioned characterizes an entrepreneur show’ that an entrepreneur is a dynamic person who promotes society and civilization by taking ventures that give an enormous variety of goods and organizations to bring about changes in the arena of industrial activity.

Types of Entrepreneurs

There is a long list of entrepreneurs in our civilization who were instrumental in introducing new methods, products, new markets, and new forms of industrial organization.

Such people were drawn from all strata of society.

They were the person who valued business as a means and sign of achievement, they were that people who appreciated the possibility of innovations and they were people who tried to overcome the resistances and obstacles standing in the way of doing new things.

They were the great figures of the Industrial Revolution in England who earned their reputation as innovators and organizers.

Entrepreneurs take various initiatives with various motives that direct them to various functional areas.

This context and motives are taken here as the bases for classifying entrepreneurs into different categories in the below chart.

Types of Entrepreneurs

Nature Basis Entrepreneurs Classification

Nature denotes here the human characteristics that act as a prime motivator for taking entrepreneurial ventures. On this basis entrepreneurs are classified into two groups;

  1. Individual entrepreneur: Person is the pioneer of entrepreneurship in the history of human civilization. When a single person undertakes an entrepreneurial venture then it is termed as an individual entrepreneur.
  2. Institutional entrepreneur: Institutions are-groups of persons with a common goal. When an institution undertakes entrepreneurial ventures then it is called an institutional entrepreneur.

Both of the above categories; individual and institutional arc further classified into various types of their motivational force.

  1. Technical Entrepreneur

The entrepreneur that utilities a modified form of existing technology for producing a good or rendering service is known as a technology entrepreneur.

The person familiar to a particular technology may see some of the prospective changes, which will make cost-effective output. This generates/ promotes technical entrepreneurs.

These entrepreneurs may enter the business to commercially exploit their inventions and discoveries.

Their main asset is technical expertise.

They raise the necessary capital and employ experts in financial, legal, marketing and other areas of business. Their success depends upon how fast they start production and on the acceptance of their products in the market.

  1. Innovative Entrepreneur

An innovative entrepreneur is a person who discovers new use of the old product through adding new utilities; innovation denotes new techniques of work, new market, a new source of materials, new management style or system, a new strategy or a new opportunity in the present or future environment.

Therefore, the person who takes the initiative to do existing activities in a new way that has value to customers is called an innovative entrepreneur.

  1. Drone Entrepreneur

Drone entrepreneurs are those persons who can immediately transfer an opportunity into a viable project. The environment is an ever-changing phenomenon.

Any change in any variable of an environment may bring about a profitable opportunity for initiating some activity of entrepreneurship.

A wise and prudent entrepreneur may grasp the visible change and its potentiality and initiates a venture of enormous prosperity. Therefore, they are known as drones or opportunist entrepreneurs.

  1. Imitative Entrepreneurs

Imitation is the art of creating a product similar to another product already in (he market. A person who adopts this technique is an imitative or adoptive entrepreneur.

Franchising is a popular way to imitate a product. Imitative entrepreneurs are most suitable for under-developed nations because in these nations people prefer lo imitate the technology, knowledge, and skills already available in more advanced countries.

  1. Fabian Entrepreneurs

Fabian entrepreneurs are very cautious and skeptical while practicing any change. They are shy and lazy. Their dealing is determined by custom, religion and past practices.

Fabian entrepreneurs do not have much interest in taking a risk and try to follow the footsteps of the predecessors. When they are clear that the chance of failure does not exist and there is no possibility of loss in a particular- venture from the experience of others in the market, then they take the venture initiatives.

  1. Forced Entrepreneurs

The entrepreneurs who are forced to be so by the competing environment are known as forced entrepreneurs. The fall of a business may force a person to initiate a new venture.

Sex Basis Entrepreneurs Classification

Entrepreneurs are classified based on the natural division of human and therefore, there are two sections of entrepreneurs on the criteria of sex. They are male and female entrepreneurs.

Historically, male entrepreneurs are the dominant entrepreneurial class in our civilization.

Place Basis Entrepreneurs Classification

The place of entrepreneurial activity is the basis of classifying entrepreneurs into two categories, such as rural and urban entrepreneurs.

Urban entrepreneurs are the persons who initiate their venture in the urban area of a country. They are large in number in all the countries of the world.

The balanced growth of the economy requires rural entrepreneurs too.

Rural entrepreneurs take their initiatives in rural areas of the country. They use indigenous resources, which enhance the use of local natural resources and enhance the local standard of living.

Size Basis Entrepreneurs Classification

The size of an entrepreneurial project is taken as a basis for categorizing entrepreneurs into two classes.

They are;

  1. Small scale entrepreneur: Small-scale entrepreneurs are those who have small capital or investment, as well as small production capacity, number of employment and a small area of the market, it denotes the limited operation of a business.
  2. Large scale entrepreneurs: Large-scale entrepreneurs are those persons or groups of persons who initiate a venture with a large-scale production capacity. They address large aggregate demand and involve with huge investment in production technology. They are small in number in all the countries of the world.

Generation Basis Entrepreneurs Classification

Entrepreneurs are classified in the context of generation loo. The enormous types of new ventures initiate this classification.

  1. New generation entrepreneurs: New generation entrepreneurs arc those who utilize technology or idea in their new version. Cybercafe, fast-food shop, virtual universities are a few of the examples of new generation entrepreneurial projects.
  2. Old generation entrepreneurs: Old generation entrepreneurs arc those who do not like change. They normally take the initiation of old styled projects. They are hesitant lo hew technology but fond of familiar or traditional and prevailing technology.

Conclusion

Though the term entrepreneur is often used interchangeably with entrepreneurship, yet they are conceptually different.

The relationship between the two is just like the two sides of the same coin as depicted in the following;

EntrepreneurEntrepreneurship
PersonProcess
OrganizerOrganization
InnovatorInnovation
Risk-bearerRisk-bearing
MotivatorMotivation
CreatorCreation
VisualizerVision
LeaderLeadership
ImitatorImitation

An entrepreneur is perceived as a person or a group of persons who holds multiple mental strengths and takes manifold efforts to generate and to make a venture successful.

In sum, the concept of the entrepreneur is intimately associated with the 3 elements; risk-bearing, organizing and innovating. Thus, an entrepreneur can be defined as a person who tries to create something new, organizes production and undertakes risks and handles economic uncertainty involved in the enterprise.