Table of Contents
In the modern age, the significance of the entrepreneur as a factor of production has increased manifold. An entrepreneur is a chief human factor of production. Classical economists made no distinction between an entrepreneur and an organizer. In those days scale of production was not so large. The person who invested capital also organized the production and took the risks. Since the inception of joint stock companies, the functions of organization and risk-taking have been performed by different persons.
Prof. Schumpeter regards the entrepreneur as the main factor of production. An entrepreneur is a person who makes decisions regarding what to produce, how to produce, where to produce, and for whom to produce. He mobilizes other factors of production namely, land, labor, capital, and organization, and initiates the production process. He is responsible for the loss, if any, and the profit.
It means he is to bear the loss and he alone is to pocket the profit and this is what is called taking of risk on his part. He is to bear all uncertainties involved in the enterprise. In India, Birla, Tata, Modi, Singhania are big entrepreneurs. In short, an entrepreneur is a person who makes all economic decisions and also bears all the risks of the enterprise.
Functions of an Entrepreneur
The main functions of an Entrepreneur are as follows:
(1) Entrepreneur bears risk: Every entrepreneur has to take risks. These risks are of two types:
(i) Certain Risks: Risks like fire, theft, accident, etc. are certain risks that can be foreseen and also forestalled. A farsighted entrepreneur escapes these risks by getting his premises, machines, equipment, etc. insured against fire, theft, sabotage, etc. So these risks no longer remain risks of the entrepreneur.
(2) Entrepreneur manages business and takes decisions: Another function of the entrepreneur is to control and manage his business. The pattern of this function varies with the nature of the enterprise. In a joint-stock company, the job of management is done by paid managers whereas policy regarding management is framed and controlled by the directors.
(3) Entrepreneur chooses the business: The first thing an entrepreneur needs to do is pick the type of business they want to start. There are many different industries to choose from, like making clothes, processing leather, creating paper, developing computer software, and more. To make a good choice, the entrepreneur should understand which products people want to buy and how many of these products are available in the country. They should also know about any help or support the government provides to different types of businesses.
(4) Entrepreneur makes a selection of products:
Once the entrepreneur has chosen the industry they want to work in, they need to decide exactly what they want to make in that industry. For example, if they pick the textile industry, they have to choose whether they want to make cotton clothing, silk products, or woolen items. It’s like picking a specific thing to create within the larger industry.
(5) The entrepreneur chooses the size of the plant: The entrepreneur also needs to decide how big their business will be. They choose whether to set up one factory or many, one store or multiple stores in different areas. This decision depends on how many people want to buy their product.
(7) Entrepreneur organizes Sales: Entrepreneurs don’t just create products; they have to make sure people want to buy them. They face tough competition from other businesses. So, they need to figure out how to tell people about their products and make them want to buy. They often come up with creative ways to convince people to purchase more, like offering special gifts or discounts to attract customers.
Difference between Entrepreneur and other Human Factors
In economics all activities of a man, whether mental or physical, that are undertaken to earn wealth are called labour. The question therefore arises what is the difference between a labourer and an entrepreneur or an organiser and a capitalist? They are regarded as separate factors of production because of the following differences:
Difference between Labourers and Entrepreneurs
Many economists treat entrepreneurs as a higher form of labourer. According to them, the entrepreneur is a mental labourer of a high degree. But the following differences are found between the two:
(i) Nature of Work: The Nature of work of an entrepreneur is much different and comprehensive than that of jobs from the selection of occupation to the sale of the product.
(ii) Nature of Risk: A labourer has not to take any risk pertaining to the business. A laborer gets not only a reward for his labor in the form of a wage but that wage is pre-determined. An entrepreneur takes diverse risks and yet there is no certainty of earning any profit.
(iii) Availability of Income: Labourers get their wages after a specific period, irrespective of the sale of the product. But the entrepreneur gets his profit if any, only on the sale of his products.
(iv) Mobility: A labourer is more mobile than an entrepreneur. A labourer can change his work and place his occupation or place of work with ease.
Difference between Entrepreneur and Capitalist
An entrepreneur cannot change Entrepreneur and Capitalist are two separate entities. Their main differences are:
(i) Nature of Work: A capitalist’s function is to lend his capital. He is a creditor. An entrepreneur up the business enterprise and is its owner.
(ii) Element of Risk: An entrepreneur takes all risks concerning the enterprise. He is answerable for all profits and losses. A capitalist is not concerned with the profit and loss of the enterprise. He is interested in his capital and interest thereon.
Difference between Entrepreneur and Organiser
Classical economists like Dr. Marshall and others made no distinction between an entrepreneur and an organizer. However, modern economists treat them as separate functionaries.
(i) Nature of Work: An entrepreneur’s function is to set up an enterprise and take all risks involved in it. The function of the organizer is to manage efficiently the affairs of the enterprise. He carries out the instructions of an entrepreneur.
(ii) Nature of Risk: An entrepreneur is responsible for the profit and loss of the concern but not the organizer. The latter gets his pre-determined salary at the stipulated time.
(iii) Nature of Business Organisation: The functions of an entrepreneur and an organizer are in partnership, but in the case of a joint-stock company entrepreneurs as shareholders are numerous and scattered all over the country. In a joint-stock company, the functions of an organizer are performed by either paid efficient managers or managing directors.
Qualities or Efficiency of an Entrepreneur
A superior entrepreneur must possess the following qualities to be more efficient than others:
(i) Courage: An entrepreneur has to face many difficulties in running his business. He may therefore be bold and courageous to undertake risky ventures. There are ups and downs in the business. An efficient entrepreneur must face them with fortitude.
(ii) Farsightedness: An efficient entrepreneur must be a man of vision. He should be able to anticipate accurately the fluctuations of the market. He should be aware of the social, economic political changes in the world. He should be extra vigilant in studying the changes in the tasks, and fashions of the consumers to make his products conform to them.
(iii) Quality of leadership: An entrepreneur is like the leader of a business. They need to have leadership qualities, meaning they can guide and inspire the people working with them. They should be really good at what they do and have strong beliefs in their ideas.
(iv) Quality of organizing the Labour: He should know the art of man management. He’s neither too strict nor too lenient in dealing with his labourers. He should be sympathetic to the redress of their genuine grievances.
(v) Knowledge of Business: He should have complete knowledge of his business line. such knowledge he can neither select good quality raw materials buy good machines nor hire skilled and efficient labourers. He should be able to operate the machinery installed in his enterprise.
(vi) Efficiency of other factors: Efficiency of labour is conditional on the efficiency of the factors. If other factors like land, labour, machines, etc. are not efficient then entrepreneurs’ own efficiency will be of little avail. He would be unable to increase production or productivity. The efficiency of other factors is as relevant as the efficiency of the entrepreneur himself.
(vii) Knowledge of Psychology: An entrepreneur should be able to understand how their workers feel to prevent any unhappiness among them. If they don’t, they might face protests or strikes. But if the entrepreneur knows how people think and feel, they can keep their workers happy and satisfied.
(viii) Experience: An entrepreneur having long experience will be adept in his work. A person with normal intelligence becomes proficient by experience.
(ix) High Education: An entrepreneur should have reasonable knowledge of subjects like economics, commerce, banking, etc. Knowledge of these subjects renders him more efficient.
(x) Moral Qualities: Virtues like honesty, credibility, etc. are of great significance in the field of business and trade. Large transactions are based on confidence or credit. If the entrepreneur is not honest or is not true to his words then people will have no faith in him. He will not be able to get any financial accommodation from any quarter.
Importance of Entrepreneur
Let’s discuss the importance of Entrepreneur
- Industrial Progress: The modern era is marked by significant industrial growth.
- Increased Production: This progress is due to machines and the division of labour, leading to much larger-scale production.
- Need for Leaders: Managing this uncertain industrial landscape requires qualified and talented leaders.
- Resource Acquisition: These leaders secure land, capital, and labour to run their businesses effectively.
- Optimal Resource Combination: They must mix these resources in the right proportions for maximum efficiency.
- Importance of Entrepreneurs: Large-scale modern production wouldn’t be possible without entrepreneurs.
- Key to Progress: Entrepreneurs are considered the most critical factor for economic growth.
- Examples of Success: Countries with skilled entrepreneurs, like Japan, Germany, and the UK, owe their progress to them.
- Schumpeter’s View: Prominent economist Prof. Schumpeter sees entrepreneurship as the most crucial driver of economic advancement.
- Entrepreneur’s Role: Entrepreneurs lead modern production, control the entire production process, and ensure a steady supply of goods and services.
- Economic Welfare: The economic well-being of a country relies on the effective organization and leadership of entrepreneurs.
Frequently Asked Questions (FAQs)
What do you mean by entrepreneur?
An entrepreneur is an individual who initiates and manages a business venture, taking on financial risks, innovating, and organizing resources to create and develop products or services.
What are the skills of an entrepreneur?
Key skills of a successful entrepreneur typically include:
1. Creativity and Innovation: Generating new ideas and solutions.
2. Leadership: Guiding and motivating a team.
3. Risk Management: Assessing and managing risks effectively.
4. Adaptability: Navigating change and uncertainty.
5. Communication: Articulating ideas and building relationships.
Who can be called an entrepreneur?
An entrepreneur is anyone who takes the initiative to start, manage, and grow a business venture. They identify opportunities, assume financial risks, and innovate to create value in the market.
Is entrepreneurship a good career?
Becoming an entrepreneur can be a fulfilling and financially rewarding career for those with a strong drive, innovative ideas, and a willingness to take risks. However, it also comes with challenges, including uncertainty and potential financial losses. Success depends on one’s skills, dedication, and the market environment.
- Economics For Engineers Book PDF
- Demand Forecasting | Features, Uses, Purpose, and Methods
- Supply: Law of Supply
- Total Quality Management | History, Importance, and Characteristics
- Quality Systems | Types, Benefits, and Need For Standardization