flowchart TD A[Entrepreneurial functions] A --> B[Entrepreneurial / Innovating] A --> C[Managerial / Operating] A --> D[Promotional / Commercial] B --> B1[Idea generation] B --> B2[Risk taking] B --> B3[Innovation] C --> C1[Planning] C --> C2[Organising] C --> C3[Leading] C --> C4[Controlling] D --> D1[Investigation] D --> D2[Resource assembly] D --> D3[Financing] D --> D4[Going public]
89 Entrepreneurship Development
Entrepreneurship is the process by which individuals — alone or in teams — identify opportunities, mobilise resources, create new economic activity, and bear risk in pursuit of value creation. The discipline draws on Richard Cantillon’s eighteenth-century notion of the entrepreneur as a risk-bearing arbitrageur, J.B. Say’s framing of the entrepreneur as a resource co-ordinator, Joseph Schumpeter’s innovating “carrier of economic change” (1934), Frank Knight’s distinction between insurable risk and uncertainty (1921), Israel Kirzner’s alertness to opportunity, and Peter Drucker’s assertion that entrepreneurship is a discipline that can be learned (Innovation and Entrepreneurship, 1985). Standard textbook references for UGC-NET preparation are Hisrich-Peters-Shepherd, Kuratko, Vasant Desai, Khanka, and Shankar.
TipWorking definitions
| Term | Working definition |
|---|---|
| Entrepreneur | A person who starts a new venture, takes calculated risks, and orchestrates resources for the production of goods and services. |
| Entrepreneurship | The process of recognising opportunities, organising productive resources and managing risk to create new value. |
| Entrepreneurship development | The systematic effort by governments, institutions and educators to enhance entrepreneurial competencies in individuals and communities. |
89.1 Theories of Entrepreneurship
TipMajor theoretical streams
| Theory | Proponent | Core proposition |
|---|---|---|
| Innovation theory | Schumpeter (1934) | Entrepreneur drives the economy through “new combinations” — new product, new method, new market, new source of supply, new organisation. |
| Risk-bearing theory | Knight (1921) | Profit is the residual reward for bearing uncertainty (un-insurable) as opposed to risk. |
| Opportunity theory | Kirzner (1973) | Entrepreneur is alert to disequilibrium and arbitrages information gaps. |
| Need for achievement | McClelland (1961) | High-nAch personalities are over-represented in entrepreneurs. |
| Sociological theory | Max Weber, Hagen | Religious values (Protestant ethic) and status withdrawal of marginal groups produce entrepreneurial outbursts. |
| Psychological theory | Rotter, Kets de Vries | Internal locus of control, tolerance of ambiguity, deviant personality |
| Economic theory | Cole, Leibenstein | Entrepreneurship as an X-efficiency-enhancing input |
89.2 Functions of an Entrepreneur
The classic Drucker–Kuratko list groups entrepreneurial functions into three buckets:
89.3 Types of Entrepreneurs
Two complementary classifications dominate Indian textbook treatments. Arthur Cole’s behavioural typology distinguishes innovating, imitative, Fabian, and drone entrepreneurs. Clarence Danhof’s classification by stage of economic development uses the same four types, mapped to risk appetite. A more contemporary cut by focus is shown below:
TipTypes by orientation
| Type | Description |
|---|---|
| Innovating | Introduces new products, processes, markets — Schumpeterian |
| Imitative / Adoptive | Adopts proven innovations from advanced economies |
| Fabian | Cautious, sceptical of change, copies only when forced |
| Drone | Refuses to adopt new methods even at a loss |
| Social | Pursues social mission; profit is means, not end (Bornstein, Yunus) |
| Serial | Repeatedly starts ventures, exiting one to start the next |
| Lifestyle | Builds business around personal lifestyle preferences |
| Technopreneur | Builds technology-led ventures, often deep-tech |
89.4 Characteristics and Competencies
McClelland’s McBer competency framework lists 13 entrepreneurial competencies under three clusters: Achievement (initiative, opportunity-seeking, persistence, risk-taking, demand for quality, commitment to contract), Planning (information seeking, goal setting, systematic planning), and Power (persuasion, networking, self-confidence, assertiveness). The classical traits — Hisrich’s “five P’s” of persistence, passion, perseverance, persuasion, and the ability to plan — are recalled in most viva-voce.
89.5 The Entrepreneurial Process
Hisrich-Peters-Shepherd describe entrepreneurship as a five-stage process:
flowchart LR A[Idea generation] --> B[Opportunity evaluation] B --> C[Business plan / feasibility] C --> D[Resource mobilisation] D --> E[Implement & manage] E --> F[Harvest / exit]
The opportunity-recognition stage is anchored in the Timmons Model (1989) — a triad of opportunity, team, and resources in dynamic balance, mediated by ambiguity, uncertainty and capital markets. Bygrave’s process model and the Lean Start-up method (Eric Ries, 2011) — build–measure–learn loops, MVP, validated learning — are contemporary additions.
89.6 Entrepreneurial Environment
The entrepreneurial environment splits into:
TipEntrepreneurial environment
| Layer | Components |
|---|---|
| Internal | Personality, family background, education, network |
| External — economic | Capital, labour, infrastructure, market size, raw material |
| External — social | Caste, family, religion, mobility, role models |
| External — political | Stability, policy, FDI norms, ease of doing business |
| External — legal | Companies Act, MSMED Act, IBC, GST, IPR regime |
| External — technological | Diffusion of innovation, digital infrastructure |
The GEM (Global Entrepreneurship Monitor) annually benchmarks entrepreneurial activity across 50+ economies through Total Early-stage Entrepreneurial Activity (TEA) indicators.
89.7 Entrepreneurship Development Programme (EDP)
EDP is a structured intervention to identify, train and support potential entrepreneurs. The Indian EDP movement crystallised in 1970 with the establishment of the Gujarat Industrial Investment Corporation (GIIC) and the Entrepreneurship Development Institute of India (EDII), Ahmedabad in 1983. National-level institutions include NIESBUD (1983, Noida) and NSIC (1955) and at state level the MSME Development Institutes.
TipPhases of an EDP
| Phase | Activities |
|---|---|
| Pre-training | Selection of trainees, assessment of aptitude, identification of mentors |
| Training | Achievement motivation training, business opportunity guidance, plant visits, business plan preparation |
| Post-training | Hand-holding, follow-up, finance linkage, marketing assistance |
89.8 Government and Institutional Support
TipSchemes and institutions
| Programme / institution | Year | Purpose |
|---|---|---|
| Startup India | 2016 | Tax holiday, fund-of-funds, simplified compliance for DPIIT-recognised startups |
| Stand-Up India | 2016 | Loans of ₹10 lakh – ₹1 cr to SC/ST/women entrepreneurs |
| Atal Innovation Mission | 2016 | Atal Tinkering Labs, Atal Incubation Centres |
| MUDRA / PMMY | 2015 | Shishu / Kishore / Tarun loans up to ₹10 lakh (₹20 lakh from FY24) for non-corporate microenterprises |
| PMEGP | 2008 | Credit-linked subsidy to set up micro-enterprises |
| NIESBUD, EDII, NSIC, MSME-DI | various | Training and incubation |
89.9 Practice Questions
Q 01 Schumpeter Easy
The “innovation theory of entrepreneurship” is primarily associated with:
View solution
Correct Option: C
Schumpeter’s Theory of Economic Development (1934) views the entrepreneur as the central figure of “new combinations” — innovation in product, process, market, supply or organisation.
Q 02 McClelland Medium
McClelland’s psychological theory of entrepreneurship emphasises the:
View solution
Correct Option: A
In The Achieving Society (1961), McClelland argued that high Need for Achievement (nAch) is the personality trait most predictive of entrepreneurial activity.
Q 03 Knight Medium
Frank Knight (1921) distinguished entrepreneurial profit as a reward for bearing:
View solution
Correct Option: B
Knight separated risk (insurable, with known probability) from uncertainty (un-insurable). Entrepreneurial profit is the residual reward for bearing uncertainty.
Q 04 Cole typology Medium
An entrepreneur who refuses to adopt new methods even at the cost of losses is classified as:
View solution
Correct Option: D
Cole/Danhof’s drone entrepreneur refuses to adopt change even at a loss. Fabian entrepreneurs are merely cautious, not obstinate.
Q 05 EDII Easy
The Entrepreneurship Development Institute of India (EDII) is located in:
View solution
Correct Option: B
EDII was set up in Ahmedabad in 1983, sponsored by IDBI, IFCI, ICICI and SBI. NIESBUD is the Noida-based counterpart.
Q 06 Timmons Hard
The Timmons model of the entrepreneurial process balances which three forces?
View solution
Correct Option: B
Jeffry Timmons’ model (1989) places Opportunity, Team, and Resources in dynamic balance, calibrated by uncertainty, ambiguity and capital markets.
Q 07 PMMY Medium
Under the Pradhan Mantri MUDRA Yojana, loans up to ₹50 000 fall in the category named:
View solution
Correct Option: C
PMMY categories: Shishu (up to ₹50 000), Kishore (₹50 000 – ₹5 lakh), Tarun (₹5 lakh – ₹10 lakh; FY24 budget added Tarun-plus up to ₹20 lakh).
Q 08 Match the following Hard
Match the theorist with the contribution:
| (P) Schumpeter | (1) Need for achievement |
| (Q) Knight | (2) Innovation theory |
| (R) McClelland | (3) Alertness to opportunity |
| (S) Kirzner | (4) Risk vs uncertainty |
View solution
Correct Option: A
Schumpeter — innovation theory; Knight — risk vs uncertainty; McClelland — nAch; Kirzner — alertness to opportunity.
ImportantQuick recall
- Schumpeter (1934) — innovation; Knight (1921) — uncertainty; McClelland (1961) — nAch; Kirzner — alertness.
- Cole / Danhof types: Innovating, Imitative, Fabian, Drone.
- Hisrich’s 5 P’s: persistence, passion, perseverance, persuasion, plan.
- Timmons model — Opportunity, Team, Resources in dynamic balance.
- Indian institutions: EDII (Ahmedabad, 1983), NIESBUD (1983), NSIC (1955); schemes: PMMY, Startup India 2016, Stand-Up India 2016, AIM 2016, PMEGP 2008.