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Top 5 Functions of an Entrepreneur | Functions | Entrepreneurs


The following points highlight the top five functions of an entrepreneur. The functions are: 1. Decision Making 2. Management Control 3. Division of Income 4. Risk-Taking and Uncertainty-Bearing 5. Innovation.

Function # 1. 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.

Function # 2. 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.

Function # 3. 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.

Function # 4. 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.

Function # 5. Innovation:

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.



The above description indicates the supreme position of the entrepreneur in an organisation. This is particularly true in the capitalistic or even mixed economy which is based on the price-profit system. In the socialistic economy, the state becomes the entrepreneur; the scope of private entrepreneur is extremely limited in such an economy.

It is to be noted that the importance of the entrepreneur has been declining with the growth of joint stock business and state-undertakings,. This is due to the fact that “risk is borne by the shareholders and the day-by- day control of the business is generally in the hands of salaried managers or managing directors”.

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