Functions of Entrepreneur

14th September 2022 0 By indiafreenotes

(i) According to Oxford Dictionary an entrepreneur is “A person who sets up a business or businesses, taking on financial risks in the hope of profit”.

(ii) According to the International Encyclopaedia, an entrepreneur is “An individual who bears the risk of operating a business in the face of uncertainty about the future conditions”.

(iii) Schumpeter’s Definition: The entrepreneur, in an advanced economy is an individual who introduces something new in the economy – a method of production not yet tested by experience in the branch of manufacturing, a product with which consumers are not yet familiar, a new source of raw material or of new markets and the like”.

(iv) Adam Smith’s definition: “The entrepreneur is an individual, who forms an organization for commercial purpose. She/he is proprietary capitalist, a supplier of capital and at the same time a manager who intervenes between the labour and the consumer. “Entrepreneur is an employer, master, merchant but explicitly considered as a capitalist”.

(v) Peter F. Drucker’s Views on Entrepreneur: “An entrepreneur is the one who always searches for change, responds to it and exploits it as an opportunity. Innovation is the specific tool of entrepreneurs, the means by which they exploit changes as an opportunity for a different business or different service”.

(vi) In the 20th century the theorist Arthur H. Cole defined an entrepreneur as an ‘organization builder’.

Business = Entrepreneur + Capital = Products + Customers

Management Control:

Earlier writers used to consider the manage­ment control one of the chief functions of the entrepreneur. Management and control of the business are conducted by the entrepreneur himself. So, the latter must possess a high degree of management ability to select the right type of persons to work with him. But, the importance of this function has declined, as business nowadays is managed more and more by paid man­agers.

Decision Making:

The primary task of an entrepreneur is to decide the policy of production. An entrepreneur is to determine what to produce, how much to produce, how to produce, where to produce, how to sell and’ so forth. Moreover, he is to decide the scale of production and the proportion in which he combines the different factors he employs. In brief, he is to make vital business decisions relating to the purchase of productive factors and to the sale of the finished goods or services.

Division of Income:

The next major function of the entrepreneur is to make necessary arrangement for the division of total income among the different factors of production employed by him. Even if there is a loss in the business, he is to pay rent, interest, wages and other contractual incomes out of the realised sale proceeds.


Another distinguishing function of the entrepreneur, as emphasised by Schumpeter, is to make frequent inventions invention of new products, new techniques and discovering new markets to improve his competitive position, and to increase earnings.

Risk-Taking and Uncertainty-Bearing:

Risk-taking is perhaps the most important function of an entrepreneur. Modern production is very risky as an entrepreneur is required to produce goods or services in antici­pation of their future demand.

Broadly, there are two kinds of risk which he has to face. Firstly, there are some risks, such as risks of fire, loss of goods in transit, theft, etc., which can be insured against. These are known as measurable and insurable risks. Secondly, some risks, however, cannot be insured against because their probability cannot be calculated accurately. These constitute what is called uncertainty (e.g., competitive risk, technical risk, etc.). The entrepreneur undertakes both these risks in production.