Entrepreneurship: Concept and Functions — Entrepreneurship STD 11 Commerce — Question

According to Guy Kawasaki, ‘Many new entrepreneurs believe a set of myths about entrepreneurship’.Some of the most common myths are given below:

1. Starting a business is easy: It is not true that starting a business is an easy task. Most people who start a company fail to get one up and running. Seven years after starting the process of a business, only one-third of entrepreneurs have a new company with positive cash flows greater than the salaries to labours and expenses of the owner for more than three consecutive months. However, it is generally easier to start small businesses.
2. It takes a lot of money to finance a new business: Successful entrepreneurs, who don't believe in the myths, design their enterprises to work with lesser money. They usually rent a building rather than buying it and they turn fixed costs into variable costs by paying employees' commission instead of salaries. The typical start-up required for a small business is ₹ 1.5 lakh. e.g. Infosys was started with only ₹ 10,000.
3. Start-ups can't be financed with debt: It is not correct to say that a new business cannot be started with debt. Most of the enterprises get started with debt rather than equity. However, the composition of debt and equity in the overall capital structure of an enterprise should be given due deliberations.
4. Banks don't lend money to start-ups Government has implemented many schemes in collaboration with banks to provide finance for budding entrepreneurs.

Hence, it is not correct to say that banks do not provide finance to new enterprises. e.g. IDBI and SIDBI banks were especially established to finance new businesses.

5. Most entrepreneurs start businesses in attractive industries: It is not true that most entrepreneurs start their enterprises in attractive industries only. The correlation between the number of entrepreneurs starting businesses in an industry and the number of companies failing in the industry is 0.77. It means that most entrepreneurs are picking up industries in which they are most likely to fail.

Example: Mahima Mehra started 'Hathi Chaap', a totally new venture that makes handmade paper from elephant dung.

6. The growth of a start-up depends more on an entrepreneur's talent than on the business he/ she chooses It is a myth that growth of an enterprise depends only on the talent of the VITO entrepreneur. The industry chosen by them also plays a key role. e.g. various dotcom companies mushroomed all over the world during the Y2K problem in the year 2000, to cash on the growing popularity of information technology.
7. Most enterprises are financially successful: This is another myth that entrepreneurship creates a lot of wealth, but it is very unevenly distributed. The typical profit of an owner-managed business is ₹ 2.4 lakh per year and only a top 10% of entrepreneurs earn more money than employees. Most of the entrepreneurs earn less money in their ventures as compared to what they would have earned working for somebody else.