5 Major Factors Affecting Entrepreneurial Growth

The Factors Affecting Entrepreneurial Growth play a crucial role in shaping the success and development of entrepreneurs and their ventures. Understanding these factors is essential for aspiring entrepreneurs, policymakers, and researchers alike.

By identifying and analyzing the key drivers of entrepreneurial growth, we can gain valuable insights into how to foster an environment that nurtures and supports entrepreneurial endeavors. In this section, we will explore the various factors that impact entrepreneurial growth and discuss their significance in the context of business development and economic prosperity.

Factors Affecting Entrepreneurial Growth

Entrepreneurship is a function of several factors. In simpler terms, there are numerous factors of different kinds that play a role in the development of entrepreneurship.

These factors can be broadly classified into five:

• Psychological factors
• Cultural factors
• Social factors
• Economic factors
• Personality factors

1. Psychological Factors

Entrepreneurship is a psychological matter. Taking risks is an instinct that stems from our psychology. Being inspired to achieve greatness motivates entrepreneurs to set ambitious goals and work hard to accomplish them. An entrepreneur is driven by more than just financial gain; they also seek to achieve personal goals and gain recognition. Several key psychological factors play a significant role in the growth of an entrepreneur, which can be summarized as follows:

• Need for achievement:
• Personal motives or expectations
• Recognition
• Need for authority (authority motivation)

Need for achievement:

The need for achievement refers to the strong desire to accomplish a goal. People with this need are extremely self-assured and don’t rely on luck alone. If someone possesses the need for achievement, they have the potential to become a successful entrepreneur.

Even if they face initial setbacks, they will persist and eventually reach their goals. Let’s take Henry Ford as an example. Despite the failure of his first two automobile companies, he didn’t give up. Instead, he started a third company which turned out to be a massive success. His drive to achieve was the key to his success.

Personal motives or expectations

These factors have been discovered to play a vital role in driving individuals towards entrepreneurship. Since he was a child, Bill Gates had a strong desire to venture into software development and amass wealth. He envisioned himself becoming the wealthiest person in the world one day. His dream became a reality later.

Recognition

Many people are motivated by recognition. For getting recognition individuals shall perform independently. When others acknowledge their achievements, these individuals feel ecstatic. They receive sufficient recognition to boost their self-confidence. Numerous individuals pursue a career as successful entrepreneurs solely to receive recognition from others.

Need for authority (authority motivation)

The desire for power motivates people to work hard. Those who aspire to have power often choose to become entrepreneurs. By becoming entrepreneurs, they gain the ability to have control over managers, employees, and others. They meticulously keep track of every detail and direct everyone accordingly. They have the power to oversee every aspect of the business.

2. Cultural Factors

Cultural aspects play a significant role in shaping how people behave and their attitudes. Moreover, culture has a direct impact on the growth and development of entrepreneurship. According to Max Weber, cultural factors hold great influence over the progress of entrepreneurial endeavors. Culture consists of

• Physical things that people create, such as furniture and buildings,
• Ideas and principles that cannot be touched, like laws, morals, and knowledge,
• The beliefs and actions that are considered appropriate in a community. The significant cultural elements that impact the development of entrepreneurs are briefly described as follows:

Cultural Factors include:

• Culture
• Religious belief
• Minority groups
• Spirit of capitalism

Culture

Culture is closely tied to the goals that people set for themselves. It is also closely connected to the values that are accepted in society and the way people behave. In the case of India, it is believed that the Hindu culture has played a role in hindering the development of capitalism in the country, unlike in Western countries where it has flourished. This suggests that the Hindu religion does not strongly encourage entrepreneurship.

Religious belief

Max Weber argued that religious beliefs have a significant impact on the development of entrepreneurship. He believed that the culture of entrepreneurship is shaped by religious beliefs. According to Weber, religious beliefs provide the external motivation and drive for individuals to become entrepreneurs.

Minority groups

Hoselitz suggests that cultural factors play a crucial role in determining the supply of entrepreneurship. He argues that minority groups often act as catalysts for entrepreneurial and economic development. In many countries, entrepreneurs have emerged from specific socio-economic classes, often belonging to minority groups.

He emphasizes the role of culturally minority groups like the Jews and Greeks in Medieval Europe, the Lebanese in West Africa, the Chinese in South Africa, and the Indians in East Africa in promoting economic development.

Spirit of capitalism

The Spirit of capitalism is the guiding factor, which guides the entrepreneur to engage in activities that can bring more and more profit. The desire for profit, combined with the mindset of wanting to acquire money, motivates people to embark on new business ventures.

3. Social Factors

Social factors play a significant role in shaping the growth of entrepreneurship. Robert Owen, the man who championed cooperation, firmly believed that a person’s character is not something they are born with, but rather a result of how society shapes them. He strongly advocated for the idea that by altering the environment and rebuilding society, we can bring about positive change. His famous motto was, “Transform the surroundings and Reconstruct the Community.

” The factors that shape a person into an entrepreneur are the influences from their surroundings and experiences throughout their life. These influences can be seen during childhood, at school, and in their adult life at college and work. Additionally, the support and guidance from parents play a significant role in molding an individual’s entrepreneurial spirit. These factors, both sociological and environmental, contribute to the development of an entrepreneur.

• Legitimacy of entrepreneurship,
• Social marginality,
• Family background
• Caste system
• Occupation
• Educational and technical qualification
• Social Status,
• Social responsibility.

Legitimacy of entrepreneurship

Some scholars are of the view that the system of norms and values within a socio-cultural setting is responsible for the emergence of entrepreneurship. This concept is referred to as the legitimacy of entrepreneurship because these experts believe that the level of acceptance or rejection given to entrepreneurial actions will impact its development and success its characteristics if it does emerge.

Social marginality

Some researchers suggest that being socially marginalized can encourage people to become entrepreneurs. They think that people or groups on the edge of a particular social system or between two social systems are the ones who take on the role of entrepreneurs in their less important social positions is generally believed to have psychological effects that make entrepreneurship particularly attractive for them.

The conditions under which social marginality is likely to promote entrepreneurship are The legitimacy of entrepreneurship and social mobility are the two primary factors that largely determine the outcome. Mainstream individuals and groups will have primary access to the established mobility channels.

Hence marginals are likely to play entrepreneurial roles in a situation. John H. Kunkel stated that entrepreneurial talent can be found in minorities, religious, ethnic, migrated, displaced elites and these minorities have supplied most of the entrepreneurism in the society.

Family, role models, and association with similar types of individuals

Having a supportive family can greatly increase the chances of someone becoming an entrepreneur. Likewise, being influenced by successful role models in the field of entrepreneurship can be a strong motivation for someone to start their ventures. Being around entrepreneurs can increase someone’s motivation to start their own business. A person’s growth and development are greatly influenced by the family they are born into and raised by. The family’s background, values, profession, and relationships all play a significant role in shaping an individual’s path.

are the matters that directly affect entrepreneurship. Currently, many big industries depend upon the family. Reliance, Tata, Birla, Mafatlal, Bajaj, etc. are industries that rely on family-based inheritance. The children born in such families themselves grow into entrepreneurs because they are taught the lessons of entrepreneurship right from childhood.

Caste system

The caste system has a significant impact on various aspects of society, including domestic, economic, and political institutions. Both religion and caste influence the behavior and actions of individual entrepreneurs, as they are motivated by religious ideals. The presence of religion and caste is crucial for the growth and progress of entrepreneurship. Certain religions and castes play a significant role in fostering entrepreneurial abilities.

For instance, religious communities such as the Parsees, Marwaris, and Sindhees exhibit a natural inclination towards entrepreneurial endeavors. Moreover, the caste system within Hindu society has contributed to the development of business and professional skills.

Baniyas, a prominent business community in India, has been thriving for centuries. They have taken the lead in promoting and organizing business enterprises. You can find Jain and Marwari businessmen from specific districts in Rajasthan involved in various business activities like trading, manufacturing, and banking all across the country. In short, some castes and religions produce more entrepreneurs.

History reveals that entrepreneurial traits do not belong to a specific caste rather the entrepreneurs emerge from varied communities.

James Berna conducted a study of 52 medium-scale manufacturing entrepreneurs and found that his firms had mostly grown from small beginnings and his entrepreneurs had come from a wide range of social and economic backgrounds. A lot of his business owners encountered tough challenges, but their companies did manage to expand.

However, sociologists still claim that caste and religion do have an impact on the environment. For example, the Parsis of Maharashtra, Jains of Rajasthan, and Gujarat have played a significant role in driving entrepreneurial activity. The occupation of a family greatly influences the type of business or profession its members pursue.

Those who are born into wealthy business families not only have the advantage of financial resources but also acquire business skills through constant interaction with their parents, customers, employees, and visitors in family establishments. Most entrepreneurs come from a mercantile background, as it is commonly believed that individuals with trading and business experience are more prepared to venture into entrepreneurship.

Children born in rich families have better opportunities for education, social interaction, and accumulation of resources than those born in poor families. But it is wrong that only moneyed people start industries. On the contrary,” the desire to make money” plays the most important role in starting an industrial unit.

Education and technical qualifications

Education and technical qualifications have a significant impact on entrepreneurship. Education, entrepreneurship, and development are closely connected. Education is the key to enhancing a person’s resourcefulness, which encompasses various aspects of entrepreneurship. It is possible to anticipate that having a good education can help entrepreneurs utilize their entrepreneurial skills more efficiently and effectively.

Formal education has always been considered an important asset for an individual in building his occupational career in a bureaucratic society. The person receiving management education and training becomes an entrepreneur. Engineers, chemists, managers, etc. who get an education and practical training are also having more opportunities to be entrepreneurs. One of the important lessons of Japanese economic success in recent years is the high regard for learning and the high level of education of the average Japanese.

Social status

Every human being aspires for a high social status and once he achieves a reasonable level, his aspirations and desires for it start getting multiplied. People, so, become responsible when they want to protect and grow their status. The thought of being responsible for what happens to you, hiring people, and making important choices all help you gain a higher social status. All of this becomes possible when you become an entrepreneur. People work hard to keep their status because it also helps them grow as entrepreneurs.

Social responsibility

Social responsibility is the obligation to the society in which the business enterprise operates. An entrepreneur creates jobs for other people while also benefiting themselves. Entrepreneurs who are responsive to the needs of the community become successful.

4. Economic factors

Economic Factors also influence the growth of entrepreneurship. The important economic factors are:

• Infrastructural facilities
• Financial resources
• Availability of materials and know-how
• Labor conditions
• Market
• Support system
• Government policies

Infrastructural facilities

Entrepreneurship development needs certain basic things like power, transportation, communication, technical information, and more. These things help entrepreneurs and make their investments more efficient. To encourage entrepreneurs to start new businesses, they should be given land and factory sheds at lower rates, as well as enough power, water, coal, and other energy sources.

Good transportation helps entrepreneurs save money when buying materials and machines, and also when selling their final products. Communication systems and technical information are also important for entrepreneurs to grow. Unfortunately, these facilities are not easily available in less developed countries.

Entrepreneurs have to get these facilities on their own, and it can be expensive. This can discourage entrepreneurship. In advanced countries, people who want to start a business can easily get the facilities they need at reasonable prices.

Availability of Capital

Capital is required to obtain materials, machinery, equipment, etc., and to undertake innovation. Capital is regarded as a lubricant to the process of production. Two types of capital or finance are required – long-term finance and short-term finance.

Long-term money is needed to buy things that will stay with a business for a long time. Short-term money is needed to keep a business running smoothly. In countries that are still growing and developing, one big thing that stops people from starting their businesses is not having enough money.

Banks and other places that give out money can’t always give out enough to help people start their businesses. When people don’t have enough money, it makes them not want to start new businesses.

Availability of material and know-how:

Entrepreneurship is when people start their businesses and create new things. It’s really important to have enough materials and knowledge to do this. The quality of what you make depends on the quality of the materials you use. In some countries that aren’t as advanced, it can be hard to get good materials in the right amount.

But if materials are easy to find, more people will want to start their businesses. If a certain material is easy to find in an area, it can help certain entrepreneurs start and grow industries that use that material. Modern entrepreneurs also need to know how to use technology and come up with new ideas.

This is called technical know-how. In less advanced countries, it can be hard for people who want to start a business to learn from other countries. So having materials and knowledge available affects how much entrepreneurship there is.

Labor conditions

The type of labor matters a lot when it comes to starting and growing a business. Having access to affordable labor is important for entrepreneurs. Some countries have shown that the immobility of labor can be substituted by capital-intensive technologies. But in developing countries like India, the crucial problem is not only industrialization but the problem of unemployment. Too many hands remain idle and overpopulation will curse capital-intensive technologies.

The market has a big impact on entrepreneurship. When there is a monopoly on a product in the market, it has a bigger influence on entrepreneurship compared to a competitive market. In 1999, the UK’s Prime Minister, Tony Blair, talked about how the world is always changing. New technologies and markets are constantly emerging, bringing both competition and opportunities. Blair emphasized that technology alone is not enough to create a successful business. It is the customer’s response to the technology that determines the success of the market.

Support system

Ability, initiative, and support system are essential prerequisites of entrepreneurship. Support systems consist of various types of organizations and services that help individuals and businesses. These include banks, companies that provide research and training, consulting firms, and other related industries.

Government policy

The socio-political and economic policies of the government inhibit or foster entrepreneurial growth. In remote areas where nobody could have heard about the machines and factories, one can find giant steel mills and other manufacturing plants today. Bhilai, for instance, was a small village only, a few years back; today it is humming with life. With the establishment of a steel plant, a big township has come up; thanks to the Central Government.

When India was under British domination till 1947, the Government’s policy was to discourage entrepreneurship in India. It followed a policy of importing raw materials at a very low cost from India to its factories in England and exporting finished products to Indian markets. During the pre-independence period, in India, there had not been much entrepreneurship development due to the British Government’s policy.

After independence, the government of India realizing the need for the growth of entrepreneurship tried to devise a scheme. The Government emphasized the growth of small-scale industries in cities, small towns, and villages. Under the Five Year plans, particularly in the 3rd plan, the Government started providing capital, technical know-how, markets, and land at industrially potential places, to capable and interested small-scale entrepreneurs.

Several institutions like the Directorate of Industries, Financial Corporations, S.S.I Corporations and SISIS were established by the Government to facilitate the growth of new entrepreneurs. As a result, small-scale units emerged quite rapidly in India.

The political atmosphere in a country must be favorable for entrepreneurship development. Only a stable government can create a favorable climate that fosters entrepreneurship development. Thus, government policies play a significant role in the entrepreneurial growth of a country.

5. Personality Factors

An entrepreneur should have some inborn qualities along with acquired qualities. According to McClelland, people with a need for achievement would become entrepreneurs. It is only active and enthusiastic people can become successful entrepreneurs. Only successful entrepreneurs can fully explore the potentialities of the country’s available resources – labor, technology, and capital.

Any project (even non-viable ones) becomes feasible, profitable, and viable in the hands of an able entrepreneur. Modern economists like V.G. Patel, and V.V. Bhatt argue that the supply of entrepreneurship in society is largely influenced by the presence of individuals with the initiativeness, foresightedness, and organizing and managerial competence. The following personality factors contribute to the entrepreneurial development:

• Personality
• Independence
• Compulsion

Personality

The entrepreneurial personality is made up of a person’s skills, styles, and motives. Having an impressive personality and individual skills are important for being an entrepreneur. Entrepreneurs need to work with different people like officers, managers, engineers, laborers, customers, investors, government officers, and ministers. The success of a new venture depends on the determination and mindset of the entrepreneurs.

The personal backgrounds of entrepreneurs are influenced by the environment they grow up and work in. The environment plays a role in shaping their personality and turning them into entrepreneurs. A progressive society creates an environment that fosters the growth of the best entrepreneurs.

Independence

Independence is another important factor that influences entrepreneurship. Entrepreneurs make their plans, search for resources, and rely on their inner drive to make their enterprise successful instead of waiting for suggestions or directions from others.

Compulsion

Many reasons make people become entrepreneurs. Some of these reasons are:

• When they can’t find a job or they are not happy with their current job.
• When they want to use their technical or professional knowledge and skills.
• When they have extra money and want to put it to good use.

For example, many retired ex-servicemen become entrepreneurs because they are forced to retire early and become unemployed. Also, during the recent changes in the economy, many professionals and skilled workers who were not satisfied with their jobs were forced to start their businesses after taking voluntary retirement.

Conclusion

In conclusion, the Factors Affecting Entrepreneurial Growth are multifaceted and interconnected. From economic conditions and government policies to individual characteristics and market dynamics, these factors collectively shape the entrepreneurial landscape.

By recognizing and addressing these influences, we can create an ecosystem that encourages innovation, fosters entrepreneurship, and drives economic growth.

t is crucial for policymakers, educators, and entrepreneurs themselves to understand and leverage these factors to create an environment conducive to entrepreneurial success. By doing so, we can unlock the full potential of entrepreneurship and pave the way for a thriving and prosperous future.