Block

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ENTREPRENEURSHIP: A PERSPECTIVE
UNIT 1
An Introduction to Entrepreneurship
UNIT 2
Entrepreneurial Eco-system
UNIT 3
Dimensions of Entrepreneurship
UNIT 4
Entrepreneurial Competencies

  An Introduction to
UNIT 1 AN INTRODUCTION TO Entrepreneurship

ENTREPRENEURSHIP

Structure
1.0 Objectives
1.1 Introduction
1.2 Concept and Definition of Entrepreneurship
1.3 Evolution of Entrepreneurship in India
1.4 Determinants of Entrepreneurship
1.5 Entrepreneurship and Economic Development
1.6 Models of Entrepreneurship
1.7 Theories of Entrepreneurship
1.8 Let Us Sum Up
1.9 Key words
1.10 Answers to Check Your Progress
1.11 Terminal Questions

1.0 OBJECTIVES
After studying this unit, you should be able to:
x define entrepreneurship and discuss the its evolution;
x identify entrepreneurial mindset and various factors that drive indiduals
to take up entrepreneurial journey;
x classify various entrepreneurial entities into entrepreneurship models;
x explain linkages between growth of entrepreneurship and economic
development and sustainability;
x explain the theories of entrepreneurship; and
x apply the above concepts in early stage decision making situation of a
start-up with the help of Case Study.

1.1 INTRODUCTION
Entrepreneurship, as a word, has caught the imagination of a generation who
has thrived on fables of how visionaries like Thomas Alva Edison, Henry
Ford, Walt Disney, Bill Gates, Dhirubhai Ambani, Jamsetji Tata, Ardeshir&
Pirojsha Godrej .etc revolutionised the world with their enterprising ideas. In
recent years, with the emergence of technological innovations and the usage
of the same to set forth significant change in how we perceive various
problems, individuals like Steve Jobs, Elon Musk, Jeff Bezos, etc., to name a
few, managed to identify business opportunities in new radical ideas.

In its broadest sense, traces of entrepreneurship dates back to the profit-

minded traders who had traversed the silk route, and various market places
9

 Entrepreneurship: around the world seeking profits in exchange for goods and services. So, does
A Perspective
it mean that being a business owner would make someone an entrepreneur?
The answer is far more complicated than it seems. While the popular
perception drives home the notion that an entrepreneur is someone who sets
up a business, by taking financial risks, in the hope for profits.
Manyeconomists would disagree and emphasise that similar to terms like
“strategy” and “business model”, entrepreneurship is elastic.

According to Howard H. Stevenson – the godfather of entrepreneurial studies

at Harvard Business School – entrepreneurship is the pursuit of opportunities
beyond resources controlled. This definition focuses on entrepreneurship
oppurtunities which are the most important aspect of entrepreneurship. The
entrepreneurship oppurtunities aim at manufacturing of goods and services or
trade for the creation of value. This definition escapes the limiting way of
portraying entrepreneurship as the process of creating and running a business
venture with associated risks to make a profit. This definition misses out on
the entrepreneurial action which stems out of the union of profitable
opportunities and enterprising individuals.
Entrepreneurs relentlessly focus on making tangible progress in a limited
period as observed by their sense of urgency, contrary to established
organisations. They look out for entrepreneurial opportunities, which are
novel in one or more of four ways. Such opportunities may involve
following activities:
i) spearheading wholly innovative ideas;
ii) creating more excellent and affordable versions of existing products;
iii) fabricating a new business model; and
iv) creation of a new market for an existing product – targeting of an
existing product to a new set of customers.

Moreover, entrepreneurs mobilise resources – human, social, and financial

capital, beyond their control, to act on what they believe is an opportunity.
This definition focuses on entrepreneurial actions which aims at creation of
new products or processes or services or entering into new markets. In order
to initiate action on the above newness, the entrepreneur may create new
organisation or infuse the new system in the existing organisation.
The high uncertainty in pursuing ( sensing the environment, indentifying
business opportunities and selecting one or few after evaluating) ideas entails
risks, for which entrepreneurs must use their judgement about whether to act
or not. Thus, the vital essence in understanding entrepreneurial action lies in
the analysis of two activities. The firstis assessing the uncertainties associated
with the venture and the second is the willingness of the individual to bear
those uncertainties, including the various theories, determinants, and models
of entrepreneurship. In this unit, you will learn about entrepreneurship, its
evolution, process, derterminants, models and theories of entrepreneurship.
You will also discuss why entrepreneurship is gaining paramount importance
all across the globe. How does it contribute to the socio-economic

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development of a nation.Let us now start our discussion with the evolution of An Introduction to
Entrepreneurship
entrepreneurship.

1.2 CONCEPT AND DEFINITION OF

ENTREPRENEURSHIP
Just as many other economic concepts, the terms entrepreneurship and
entrepreneur are subject to debate and do not have a single comprehensive
definition. Over two centuries, they have been defined distinctly by various
authorities and used in different senses in comparison to the one in which
they are used today.

Although the recent acclaim of the entrepreneurial attainments would tend to

show it as a twentieth or twenty-first-century phenomenon, the word
entrepreneur is derived from the French word “entreprendre”, which means,
“to undertake”. Richard Cantillon, an Irish-French economist, is regarded as
the originator of the word entrepreneur in his work dating back to the late
seventeenth and early eighteenth century. He considered an entrepreneur
to be a risk-taker who purposefully allocates resources and takes an
active role in pursuing opportunities to maximise the profits.
Late in the eighteenth century, J. B. Say, another Frenchman, extended the
definition and referred to an entrepreneur as an organiser of a business firm.
Besides risk-taking, functions such as coordination, organisation, and
supervision were highlighted. The nineteenth-century marked a prolific time
for entrepreneurial activities as industrial revolution augured continual
inventions and innovations. In the later part of the nineteenth century, the
definitions changed moderately to differentiate between suppliers of
resources who earned interest and those who benefited from the
entrepreneurial activities.

The consistency in the close tie between entrepreneurship and economics has
been emphasised, over the years, by noteworthy economists. In the mid-
1930s, Joseph Schumpeter defined the concept of entrepreneurship from
an economics point of view. He defined it as a management style where an
individual pursues an opportunity regardless of the availability of the
resources in hand. Schumpeter proposed that the entrepreneurship involved
creative destruction, which is a process wherein existing products, business,
processes, and ideas are substituted with better ones. According to him, the
entrepreneurs were at the forefront of bringing about a change through
“creative destruction” and further highlighted the essential role
“innovation” plays in entrepreneurship.

In the twentieth century, Peter Drucker, a well-known writer on management

issues, contended that entrepreneurship involves maximising opportunities –
entrepreneurs should identify and act on underdeveloped and untapped
opportunities.

In modern times, entrepreneurs are closely associated as a harbinger of

change. An enterprising action not only comprises of the ability to assess
risks in new ventures but to manage them and mobilise resources into
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 Entrepreneurship: profitability. The definition, Entrepreneurshipis a pursuit of opportunities
A Perspective
beyond resources controlled – as defined by the Howard H. Stevenson, who
is notable academician of entrepreneurial studies at Harvard Business School
– encompasses various facets of an entrepreneurial endeavour. They are the
relentless pursuit of making tangible progress in a shorter duration to attract
investors; employing novel business models for innovative products and
services; always looking for additional resources beyond those which are
already in possession to further organisational development. Chandler
(1990:8) defines entrepreneurship as dealing with uncertainty, making a
distinction between risk, which can be calculated, and uncertainty which
can’t be overcome.
After going through the definitions given by the experts, it can be
summarised that “Entrepreneurship is a process of creating an enterprise
(both for profit and not for profit) by sensing the environment, identifying
business opportunity and mobilising resources which are available and
bearing the risks thereof with the innovative interventions.” We cannot
confine entrepreneurship into some set of restricted activities. It is rather a
mindset.
Based on the definitions discussed above the following are the features of
entrepreneurship:

x creation of a new organisation or infusion of newness in existing

organisation’
x it involoves dealing with risks and uncertainities,
x it creates value,
x it generates and syustains new ideas, process and system,
x it involves manufacturing, trading and marketing of goods and services,
x it involves management activities, and
x it creates employment.

1.3 EVOLUTION OF ENTREPRENERUSHIP IN

INDIA
History of entrepreneurship in India is as early as “Rigveda”. Rigveda says
that metal handicraft exisited in the society.Craftsmanship was encouraged,
promoted and protected. This indicates that entrepreneurship in India is as old
as the human civilisation. Traces of entrepreneurship dates back to the profit-
minded traders who had traversed the silk route, and various market places
around the world seeking profits in exchange for goods and services.
Efficient artisans with their unique skill to make various useful articles are
existing since then. This Indian artisan industries were flourishing in those
days as the rulers recognised their importance and protected their skill and
promoted their businesses. However, during pre-indepence era (18th century),
this industry declined because of various reasons such as dissolution of royal
courts, indifference of British colonial government for Indian handicrafts,
imposing heavy duities on the imports of Indian goods in England, low
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priced commodities offered by the British (enjoying the economies of large An Introduction to
Entrepreneurship
scale) gave tough competition to the products of Indian handicraft, changing
taste and preferences of the Indian consumers (preference to western culture)
etc.

However, India could see some entrepreneurial growth during the colonial
period. Few communities triggered manufacturing entrepreneurship during
the time. Since then the face of entrepreneurship is changing in India. To
futher understand the evolution of entrepreneurship, you need to know how
entrepreneurship is defined by various experts and how it has emerged as a
subject of study.

1.4 DETERMINANTS OF ENTREPRENEURSHIP

Development of entrepreneurs and culture of entrepreneurship is driven by
multiple factors which can be divided into : (a) individual factors and (b)
environmental factors.You may see figure 1.0 to understand the determinants
at a glance .

Determinants of Entrepreneurship

Individual factors (individual traits) Environmental factors (also called as

external factors)
 Ability and to initiate  Conducive atmosphere
 Mobility and utilising resources  Entrepreneurial culture
 Ability to sense the environment  Political and legal environment
 Perseverance  Technological advancements
 Resilience  Socio-economic conditions
 Creative and innovative
 Problem solving behaviour
 Risk taking behaviour
 Need for achievement
 Need for power
 Need for affiliation
 Innovative attitude
 Desire to sense entrepreneurial oppurtunities
 Capability to put the entrepreneurial activities into action

Figure 1.1 Determinants of Entrepreneurship

Individual/Personal factors : These are the traits of individuals which leads

them to think and act entrepreneurial. Personal factors comprise personal
initiatives of individuals who like to do things before some body else
translates that idea into a running enterprise. Personal factors also include
ability of individuals to identify and utilise resources in wake of
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 Entrepreneurship: opportunities. These are lot of people who can sense opportunities and it is
A Perspective
usually challenging to translate those ideas into execution. Another
individual trait is perseverance, which influnces culture of entrepreneurship,
where people like to take up challenging tasks, assignments or projects and
they are less likely to be complacent about their prevailing status quo.
Another important individual factor is problem solving behaviourand quest
for solutions in a new and better way. One can find lot of entrepreneurs in
India with varying degree of success who got into entrepreneurship triggered
by this problem solving behaviour combined with few other indidual traits
mentioned above. Hence they also need access to resources including funds
at different stages of their entrepreneurial journey. They should have art of
persuation to earn investor patronisation. However, investors or partners
demand self confidence of the entrepreneur or customers and suppliers
demand confidence in the stability of the entrepreneurial set up or enterprise.
Hence ability of individuals to be confident of their decisions, take
informed decisions and being self aware is a desirable traits to audit a
good entrepreneurial culture. Above all individual risk taking behaviour is
what it takes to get into innovative entrepreneurial space.
Environmental factors: They are also called as external factors.
Environment of a place is essential ingredient of entrepreneurial eco-system
which provides conducive atmosphere or otherwise that affects growth of
entrepreneurial culture positively or negatively. It includes technological
advances, political environment, legal system, economic and social
conditions, business circumstances, etc. Political stability in a region, for
example, is important to smooth economic activity which includes catalysing
entrepreneurs to fructify their aspirations. Policy support for a market driven
competitive market encourages new player to enter markets as well as
brushes off complacency among the incumbents. For example during last
couple of decades due to increased globalisation and advances in technology,
innumerable technology ventures have come up globally including India. The
conducive atmosphere may be created by the availaibility of finance by the
financial institutions, supply chain network, ancillary industry,
entrepreneurial culture etc.
Hence, it is the individual traits and external influences that shape
entrepreneurship and its growth in a place. The entrepreneurship facilitates in
the accomplishment of goals envisaged by the individual, the organisation
and the society.
Enterpreneurship Development will take place in the society where individual
traits are supported by exciting and encouraging external factors.

1.5 ENTREPRENEURSHIP AND ECONOMIC

DEVELOPMENT INCLUDING INCLUSIVE
GROWTH
Entrepreneurship has an important role in the economic development and
growth of a state. It plays a major role in introduction of new products,
technology adavnces, technology application and catalyses market
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dynamicstowards growth. Entrepreneurs are relatively better positioned to An Introduction to
Entrepreneurship
try newer ideas, processes and business model changes versus established
incumbents because their size and agile capabilities. Hence they can take
higher risk and experiments with new solutions. Hence entrepreneurs
explore, analyze and smell opportunities in the environment and create
economic entities which strengthen prospects of economic growth. In the
process, lot of other ancillary entities also develop which cater to its
requirements for human resource, raw material, and various other services
necessary to make make these entities run their operations.

As entrepreneurship scales its roots in a place, it inspires more to join this

path and a progressive entrepreurial culture develops like silicon valley in
US, IT hubs in Bangluru, Hyderabad etc. in India Therefore, there is
multiplier effect.. This results in a process of upward change which can
positively affect overall production of goods, services and consumption.
This translates into better real per capita income of a country rises and,
hence, development of the state. More entrepreneurial activity means
higher levels of employment possibilities. Indian states with higher level of
entrepreneurial activity have demonstrated relatively higher levels of
economic development.Thus, entrepreneurial development leadsto economic
development, encourage self employment and generation of income, balance
development of an economy, important entity of supply chain activities,
important entity of supply chain activities, creation of self sufficient village,
rural entrepreneurship. Atma Nirbhar Bharat may play significant role in
creation of innovativeness, facillitatwes new ways of business operations.
The export-import firms may facilitates in earning foreign exchange.

As per economic theories, economic growth cycles can be stretched through

innovation and entrepreneurs are anchors of innovation eco-system. Hence,
entreprenurs according to these theorists plays a key role in sustainable
economic growth. Also sustainable economic growth is also dependent on
overall social welfare and entrepreneurs many times apart from state, NGOs
etc., play a crucial role particularly in the form of social entrepreneurship.

To sum it up, role of entrepreneurship in economic development of a nation

can be discussed as follows:

x Creation and distribution of wealth:they mobilise resources which

otherwise would remain idle, earn money and distribute it to society in
the form of rent such as interest to capital (Investor’s rent) Salaries and
wages to human resources, rent to other inputs of factors of production
x Employment generation: entrepreneurs while establishing and
managing their enterprises generate and provide employment to people
in the society.

x Balanced regional growth and development: Entrepreneurs locate

their businesses even in remote and less developed area this leades to
growth in industry and other businesses which further brings
improvement and development in infrastructure such as rail, road,
airports, electricity, water, schools, hospitals holds etc. That is why
entreprenurship is called as growth accelerator.
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 Entrepreneurship: x Contribution in GDP: Enterprises, especially MSMES contributes
A Perspective
significantly in the GDP of India. More business units use more
resources, resultantly National Income, and per capita income also
increases.

x Increase in standard of living: by bringing in innovation entrepreneurs

make huge contribution in improving th standard of living. Fore
example, mobile phone services are so less that each and every
household, irrespective of their economic status, is using mobile phone
services now a days which was affordable nearly tow decades ago.

x Increase in international trade: In the want of getting access to the

bigger market, enterprises cross boundaries when they feel that domestic
market is coverd and saturated and they want to expand further. They
make their reach in forign maket. This increases the export of the
country.

Check Your Progress A

1) Distinguish between Ambitious Innovators and Adaptive innovators.
2) Fill in the blanks:

i) ……………… assigned a crucial role of innovation to the

entrepreneur.

ii) ……………………. develop enterprises in the fields of healthcare,

mass education particularly for below the poverty line populations,
civil rights, climate, animal life etc.

iii) ……………….. believes in high risk taking and experimentation.

iv) ……………… are the one who are ready to adopt successful
innovations inaugurated by innovating entrepreneurs.

v) Entrepreneurs undertakes ……………….. and handles economic

uncertainity involved in an enterprise.

1.6 MODELS OF ENTREPRENEURSHIP

Discussion of various theories explaining drives, influences or factors,
internal or external to the entrepreneurs, can be argued further in terms of
various entrepreneurship models as a consequence. Some of the important
models of entrepreneurships are as follows:

Ambitious Innovators
This model of entrepreneurship believes in high risk taking,
experimentation and tolerance to failures. The entrepreneurs of this
category believe in solutions of radical nature from the current solutions.
They could be individual entrepreneurs or representatives of corporations
where there is conducive climate for trying new solutions and failures in
trying new things are not usually penalised.Ambitious innovators are
proponents of exploration and creation. Entrepreneur’s may later dilute the
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ownership or sell their venture outright and engagement may continue An Introduction to
Entrepreneurship
sometimes even after sell out. There are external positive effects created by
these ventures which could stretch to economy at a bigger scale and generate
employment opportunities. Many technology ventures in last few decades
like Google, Facebook, Oyo, Coursera etc., are examples of this type. Some
times ambitious innovators may even develop new sectors and later on many
other entrepreneurs may bring incremental innovation on top of earlier
innovation led new enterprise.

Adaptive Innovators
This type of entrepreneurship is driven by relatively lesser level of risk
taking appetite and follow incremental innovation approach. Sounds
complicated to you? Wait, let me explain incremental innovation to you first.
Incremental innovation, is a series of small improvements to the products
already existing in the market. Adaptive innovators do not take huge risk so
they follow incremental innovation approach where they do not introduce or
alter an entirely new solution (business offerings) rather they imitate
innovative entrepreneurs by making small improvements in the existing
products or business offerings (products or services). It could be also
influenced by amount of resources available or accessible partnerships, These
entrepreneurs usually tookthe path of exisiting entrepreneurswith some
tweaks or by incrementally innovating. They imitate innovative entrepreneurs
because the environment in which they operate is such that it does not permit
them to have creative and innovative ideas on their own. Adaptive innovators
are more common is places where entrepreneurial ecosysm is relatively less
mature or less conducive for initiating innovative ideas. Many bigger firms
also sometimes cultivate capabilities in an entrepreneurial framework ( own
or in partnership) or nurture new ventures which are meant to work
continuously and innovate incremently keeping pipeline line new rollouts
ready for their targeted markets. From an economic stand point these
innovations in essense are replications or tweaks of the more radical
innovations made by others. Other explanation of these incremental efforts
are many times compulsions for sustainability and expansion. Even these
innovator entrepreneurs also need to continuously explore and experiment.
While several entrepreneurs do this by understanding the market
opportunities created by the innovations of other entrepreneurs. Some
entrepreneurs develop their footprint by rolling out distinct new
functionalities or sometimes process innovations. The number of these type
of enterprises is relative larger than the ambitious innovators. These
enterprises can potentially create larger economic impact and scope for
employability. The impact could involve more competition, efficiency and
rivalry in the specific sector.

Solo Self Employed

This constitutes the largest group of entrepreneurs who are working on their
own and normally contributes maximum in terms of their numbers. These
companies have the potential to bring higher agility to their client firms
usually a higher tier firm in case of Business to Business (B2B) engagements.
These solo self-employed outfits facilitate growth of their partner companies
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 Entrepreneurship: byadding to the agile capability. However, in spite of solo self-employed may
A Perspective
outnumber other types of entrepreneurship models. They focus on self driven
entrepreneurial activities. Therefor, they may not contribute greatly in
employment generation. At times , this model is a recourse for people who
find it compulsive to do something on their own because other options are
limited.

Managerial Employers
This constitutes rest of employer entrepreneurs whoare not ambitious with
respect to firm growth. Their prime focus is sustainability or business
continuity. Mostly their efforts are focussed towards cost efficiency through
process improvements or innovations. Many times such companies may
acquire a company with radical innovation capability to sustain. Many of
these enterprises follow adaptive innovation or incremental innovation,
exploration of new resources, new partners, optimum resource management
and similar efforts to maintain their growth and scale. Their role in overall
national growth figures of states including India is dependable and important.

Social Entrepreneur
Social entrepreneurs are focused on societal concerns including ecological
challenges. Their major focus is to solve community basied problems. Social
entrepreneurs take risk and make efforts to create positive changes in the
society. They start business for the greater social good and not only for
profits. They may develop enterprises in the fields of healthcare, mass
education particularly for below the poverty line populations, civil rights,
climate, animal life etc. Besides other sector.In the passion of an
entrepreneur, they follow poverty alleviation goals, best strategies and strive
to transcend traditional methods and innovate.

1.7 THEORIES OF ENTREPRENEURSHIP

There are multiple theories which form basis of conceptual domain of
entrepreneurship. These theories have origins in economics, psychology,
sociology, anthropology, and management. Prominent among these theories
are as follows:
1) Psychological Entrepreneurship Theory
2) Economic Entrepreneurship Theory
3) Opportunity-Based Entrepreneurship Theory
4) Sociological Entrepreneurship Theory
5) Anthropological Entrepreneurship Theory
6) Resource-Based Entrepreneurship Theory

1) Psychological EntrepreneurshipTheories

In this theory, the focus is on individual personality traits. Advocates of this
theory believes that people with certain traits are more likely to become an
entrepreneur. Need for achievement and control leads to inclination for
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innovativeness, risk taking and acceptance of initial failures in An Introduction to
Entrepreneurship
experimentation. According to traits theorists, traits necessary for
entrepreneurial capability are inborn. Personality traits are defined as
sustained qualities that an individual displays in most situations (Coon,
2004). Entrepreneurs are mostly sensing opportunities, relatively creative and
have appetite for faster learning of management skills. Locus of Control
explores individual’s perception about the reasons behind events of life
(Rotter, 1966). Entrepreneurial belief about the reasons of successis also
explained based on concept of locus of control orientation and varied
perceptions of entrepreneurs about the reasons of their success. The success
may be due to internal efforts called internal locus of control orientation or
some external support termed as external locus of control orientation.
However, it has been found that business owners have a slightly higher
internal locus of control than other populations. Individuals want to
achieve more and succeed (McClelland, 1961). Achievement theory
underline the need to achieve as the underlying motivation for inititaives
and there are evidences proving linkages between achievement need and
career decision favouring entrepreneurship. (Johnson, 1990).

Many experts believes in Psychological theory of entreprenurship which

stresses on individual personality traits. They believe that because of these
traits, entrepreneurs emerge. Three of the most popular psychological
theories of entreprenurship are given below:
x McClelland’s theory
x Rotter Locus of control theory
x Action regulation theory

David McClelland theory says that entrepreneur are guided and motivated
by three important needs viz, need for aliliation, need for power and need for
achievement. These three needs are the greatest motivators and influencers.
Rotter’s locus of control theory (formulated by Julian Rotter in 1954)
believes that people are guided by their perceived locus of control amongst
individuals. Locus of control may be internal, called as internal locus of
control or it can be created through external support, termed as external locus
of control. Entrepreneurs are found to be guided mainly by Internal locus of
control. You must be wondering what is internl and external locus of control.
Let me explain it to you. People with Internal locus of contol believe that
they can make things happen by their actions i.e., ther are capable of doing
anything or solving any problem, where as people with high external locus of
control, believe that the happening in life is beyond their control and these
happenings occur because of external factors such as fate, change etc.
Michael Frese formulated action regulation theory. In this theory it is
believed that entrepreneurship is related to planning. An individual with
planning behaviour or attitude is mor likely to be successful. Cognitive
ability is very crucial for entrepreneurs, according to this theory.

2) Economic Entreprenurship Theories

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 Entrepreneurship: Economic theories of entrepreneurship can be divided into three different
A Perspective
time periods: (i) Classical (ii) Neo-classical and (iii) Austrian market process.
Let us quickly discuss the essence of these theories.

i) Classical Theory of Entrepreneurship:

Advocates of classical theory believed that role of entrepreneur is restricted
to production and distribution of market goods in a competitive market place.
There are two noteworthy classical theories of entrepreneurship

a) Richard Cartillon Theory (1755)

b) Innovation theory by Schumpeter

a) Ricard Cartillon Theory: Ricard Cantillon was an Irish-French

economist. He is regarded as the originator of the word entrepreneur in
his work during late seventeenth and early eighteenth century. He
advocated that entrepreneur is a risk taker who conducts all exchanges
(resource allocation, and taking an active role in pursuing opportunities
to maximise his profit). He believed that entrepreneurs are not innovators
as they cannot change the demand and supply trends in the market. They
can just perceive the changes and are intelligent enough to maximise
profits and have willingness to take risk.

b) Innovation theory by Schumpeter: Innovation theory is considered to

be one of the most important economic theories of entrepreneurship. This
theory was propounded by Joseph Schumpeter.

Schumpeter underlined the key role of entrepreneurs in bringing

innovation by engaging with different actors of an economic eco-system.
His ideas on role of entrepreneurs in sustaining economic wellbeing has
been quite influential and followed by many nations. His innovation
theory is a popular theory of entrepreneurship which is used across
countries. Lot of subsequent innovation models are built around his concept
of entrepreneur as the anchor of innovation eco-system. Schumpeter stresses
that entrepreneurial creativity is major driver of an entrepreneur’s path
of specific domain. Innovation can happen through multiple ways :
x New distinct product or service
x New distinct process to produce product or service
x Address a different audience or market
x Exploring successfully a new resource input in the production process
x New business model or radically a new organisation through
transformation with newer capabilities.
To sum it up, we can say that innovation can be in the product, process or in
the services of the market offerings.

ii) Neo-classical theory of entrepreneurship

Neo Classical theorists proposed that the role of exchange in an economic
engagement along with diminishing marginal utility creates possibilities for
20 entrepreneurial role (Murphy, Liao &Welsch, 2006).

iii) Austrian Market process theory of entrepreneurship An Introduction to
Entrepreneurship
This theory focuses on entrepreneurs actions based on their information
understanding and knowledge regarding the economy. Advocates of this
theory believe that entrepreneurs responds to the changes in the dynamic
market to make profits. Their response to the changing market is based on
their ability to understand the dynamics of the market. They do product
research and development and bring technological innovations to obtain
profits. Profit seeking entrepreneurs constatntly promote the evolution of
economic structure.

3) Opportunity Based Entrepreneurship Theory

The opportunity-based theory gives a stretched space for resaerchers to
explain the becoming of an entrepreneur and its determinants. Peter Druker
(1985) argues that entrepreneurs most likely seize the opportunities arising
from changes around us with an economic prospect.Entrepreneurs keep
looking for new possibilities and problems which can be addressed through a
new or better solution than the existing solution. After identification of any
opportunity, entrepreneur responds with a solution depending on access to
the resources and capabilities (Stevenson, 1990).
Access to relevant resources directly or through partners in business are
essential to accomplish key activities of business which are fundamental to
achieve entrepreneurial business goals in context of opportunities identified
and resposes deigned by the entrepreneur (Alvarez &Busenitz, 2001). The
key activities could be operation processes, channel requiremnets or any
specific relational activities envisaged by the entrepreneur to differentiate
products or services for sustained growth and performance.

4) Sociologiocal Entrepreneurship Theory

There are some major social factors which trigger entrepreneurship
opportunities (Reynolds , 1991). Social network play a major role as trigger
as well as facilitate during various stages of entrepreneurial lifecyle . The
underlined idea is for building social relationships which enhance trust. The
entrepreneur can succeed more from cultivating and maintaining trust with
the intended audience of the entrepreneurial activity. Another factor which
reinforces trust through perceived non-opportunism as audience over time
understand the intention behind actions. This understanding further
strengthens with more and more experience by the users of goods or services.
Individual; sociological lineage is also an important determinant of
entrepreneurship. One more dimension is based on play of environmental
factor called population ecology like the political influences prevelant and
influences of all kinds of business stakehokders e.g., competitors,
suppliers, customers etc. In last several years there is a huge push for
startups in India from the government facilitated through various policy
initiatives. For example, Startup India, Make-in-India etc. Also lot of
investment from start up investors is chasing good ideas for funding support.
Many states and large firms in India have worked on setting up incubation
and accelerator facilities.
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 Entrepreneurship: 5) Anthroplogical Entrepreneurship Theory
A Perspective
Anthropologists emphasise role of culture like customs, origin, and beliefs of
a community. This theory can explain prevalence of orientation towards
business, picking a specific type of professional career etc., among certain
communities. We have seen in India, certain geographic belts with
specific culture , one can find people opting career in defense forces, or
setting up businesses or commerce orientation or towards art, music etc.
The focus is on the cultural entrepreneurship model. Culture is a function of
multiple dimensions including socio-economic, polirtical and ecological
factors which further influences attitude and subsequent intention for
entrepreneurial choices. (Shane 1994).

6) Resource Based Entrepreneurship Theory

The resource based theoryunderlines role of various types of resources
critical to success of entrepreneurial journey (Aldrich, 1999). Ability to
mobilize necessary resources enables entreprenurs tap opportunities and find
solutions of problems (Davidson & Honing, 2003). The resource need
depends on type of business model adopted by the entrepreneur. Asset heavy
firms may need more financial resources whereas asset light initiaves may
need better partnerships or human resources. To understand entrepreneurship
model you may recall entrepreneurship model explained earlier in this unit
(section 1.3).For example, an entrepreneur in the space of reverse logistics,
partnering with ecommerce platforms like amazon.in or flipkart.com, may
need more financial resources if it focuses on disposal of returned or
rejected goods. Moreover, it may need operational excellence or efficient
services if it focuses on returned goods which are sent back to ecommerce
platform sellers. However, there is sufficient evidence to show that growth of
entrepreneurs is positively associated with access to financial resources
(Blanchflower et al, 2001, Clausen, 2006). There are studies also to show that
in many situations, entrepreneurs, in early stages of development, may not
depend necessarily on financial resources accessible (Hurst &Lusardi, 2004).
Also among other resources, Social Network Theory give importance to
network or social network resources which then entrepreneurs are able to
translate into instruments of effective market penetration or competitive
collaboration which lead to sustainable entrepreneurial journey (Clausen,
2006).These theorists argue that entrepreneurs with sufficient network access
are able to better mobilise various other resources also like access to reliable
supplies or penetration into new markets. Literature on this theory shows that
stronger social ties to resource providers facilitate the acquisition of resources
and enhance the probability of opportunity exploitation (Aldrich &Zimmers,
1986).

Dear Learner, now you can actually recall and summarise the evolution of
entrepreneurship chronologically, discussed in section 1.2 of this unit.

Check Your Progress B

1) Fill in the blanks:

i) Psychological theories focus is on individual ………………… .

22

 ii) Economic growth cycles can be stretched through ……………. . An Introduction to
Entrepreneurship
iii) The anthropological entrepreneurship theory emphasise on the role
of …………………. .

iv) ……………. focus on the way individuals leverage different types

of resources to get entrepreneurial efforts on the ground.

v) The ……………… contends that entrepreneurs are one who take
advantage of possibilities created by social, cultural, economic and
technological changes.

2) State whether the following statements are True or False.

i) Resources entrepreneurs might leverage include social network and

the information they provide.

ii) Sustainable economic growth is also dependent on overall social

welfare.

iii) According to traits theorists, entrepreneurship developed because

individuals called entrepreneurs possess certain specific
competencies.
iv) Entrepreneurs responds to an opportunity with a solution depending
on their access to the resources and capabilities.
v) Individuals with external locus of control consider themselves
responsible for all the events in their life.

ACTIVITY 1
Rishi, Paramjeet and Anil have recently complete their MBA from a reputed
business school of India. They are planning together astartup, Smartbuy.com
in Gurugramcity of Haryana. They want to provide an ecommerce platform
and logistics support for local food service providers to sell goods online to
the customers in the same local catchment area. They are deliberating a
strategy to focus only on food and grocery retail in major Indian cities. They
believe that there is a huge food and grocery retail market at around 65% of
retail transaction value in India. While the share of organised retail and e-
commerce is likely to increase, the traditional retail is expected to continue
to hold a major share of the Indian Retail market. Traditional retail had 88 %
share, organised retail 8% and E-Commerce 4% in 2017 amounting to around
US$ 800 Billion. EIU report for 2021 puts projections at Traditional retail
(75%), Organised retail (18%) and E-Commerce (7%) which could amount
to around US$ 1200 Billion.

The founders of Smartbuy's board believe that in the context of the major
transformations happening in the Indian retail market, citing experts and
reports that amalgamation of the various general and modern trade channels
is the need of the hour. At the same time, the modern retailers and the e-
commerce channels still face significant challenges with regard to the last-
mile delivery and requires assistance from Kirana stores to penetrate. Proof
of model success has limited examples across both products and services
23

 Entrepreneurship: which are different stages of entrepreneurial growth stage. Grofers is an
A Perspective
example of grocery hyperlocal model. In the recent past another big Indian
retail chain ( Reliance ) has been carrying out pilots of hyperlocal online
food and grocery sales in select cities. Smartbuy is planning partnership
with local retailers and Kirana merchants to list their products on the portal
and sell them to the customers which will be supported by logistics and
payment facilitation. One of the founders, Paramjeet, is slightly
apprehensive about this model focused on food and grocery alone because
of various failures of hyperlocalstartups in food and grocery. There are
several online hyperlocal food and grocerystartups which closed down, even
some got sizeable funding, like PepperTap, Eatio, Tinyowl and Spoonjoy.
There is also a challenge to tying up with local players of food and grocery
category in the sense that logistics control and coordination in Indian
conditions is difficult because severe high temperature in summers, lack of
technical infrastructure at level of local stores and access to necessary cold
supply chain facilities.

According to reports, Indian retail market is one of the fastest growing

across the world and is the fifth largest retail destination globally. The factors
attributed to the growth are economic growth, increasing consumerism and
growing disposable income. The industry is expected to grow exponentially
to reach USD 1,200 billion by 2021 and USD 1,750 billion by 2026. The
growth is expected not only in large cities and metro, but also in Tier II and
Tier III cities. The increase in consumption expenditure also drives the
growth in the retail industry. Of the total retail market, Food and Groceries
comprise the largest share, followed by Apparel and Footwear.
Despite the rapid growth in modern trade and e-commerce over the past
years, traditional retail still holds a major share of the retail landscape in
India and expected to continue domination in the foreseeable future. Unique
offerings of traditional retail outlets such as ease of access due to locational
proximity, local community knowledge, and personal relations with
customers considered as an edge of traditional retail stores.

However, each type of stores and e-commerce platforms have their own
challenges. Challenges of Kiranas include lack of the latest technology,
working capital issues, Competition from modern retail outlets, lack of space
and lack of capital to improve store fit out/ambience. Similarly, challenges
faced by organised retail include lack of strong supply chain, getting the
right merchandise mix, unavailability of affordable real estate and
infrastructure and logistics issues. E-Commerce retailers are facing the policy
uncertainty, higher acquisition cost, infrastructure and logistic issues, high
cost of delivery, excessive returns and rejections making reverse logistics a
bleeding issue and last mile delivery challenges.

With 451 million monthly active internet users at end of financial year 2019,
India is now second only to China in terms of internet users, according to a
report by Internet and Mobile Association of India (IAMAI). However, with
only 36 per cent internet penetration, there is still much headroom for
growth, it said. The report mentions that out of 451 million monthly active
users, 385 million are over 12 years of age and 66 million are in the age
24

bracket of 5 to 11 years, who access the Internet on the devices of family An Introduction to
Entrepreneurship
members. In terms of absolute numbers, urban India with 192 million users
has almost the same number of users as rural India. However, in terms of
percentages or penetration, given the disparity of population distribution in
urban and rural India, urban India had a considerably higher penetration
level.

According to EIU report the number of online shoppers is expected to

increase from the current 15 percent of the online population to 50 percent
by 2026. The average online retail spending in India was US$ 225 per user
in 2017 and around 2 million shipments were handled daily where half of
this demand came from the metro cities. However, ecommerce is
increasingly attracting customers from Tier II and III cities, where people
have limited access to brands but have high aspirations. More than 30 percent
of online shoppers are from Tier II and below cities while the rest are from
Metros and Tier I cities. This number is expected to increase to over 55
percent for Tier II and below cities in the next three to five years. Low
servicing costs in Tier II and below cities is expected to be a key driver for
growth in these cities. Owing to the rise in demand from Tier II and below
cities, and given the challenge of last mile delivery, the e-commerce
companies can be expected to consider exploring partnerships with
traditional retail stores to reach the consumers in these cities.

According to retail research reports organised retail and e-commerce, strives

for the largest share of the Indian retail pie, the challenges hinder the growth
of these channels. According to some ecommerce experts the need of the
hour is a confluence of the retail channels, wherein each channel
complements the offerings of the other and provides a seamless shopping
service for the benefit of the consumers. Large modern brick and mortar
retailers and ecommerce players are advancing towards leveraging the
widespread network of Kirana stores to increase their retail presence and to
win over the Indian consumer. With just 3 percent of Kirana stores being
tech-enabled and the rest with the willingness to adopt technology (70
percent of Kirana stores in big cities and 37 percent of Kirana stores in Tier
II cities want to be tech-enabled), the retail giants using this opportunity to
technologically and financially empowering the Kirana stores. E-commerce
companies are collaborating with Kirana stores for increasing their outreach,
and are also providing them with an additional source of earning by way of
acting as their channel partners/distributors. For tech-enablement, Kirana
stores are provided with POS billing systems, app payments, and back-end
integration with wholesaler. To help Kirana stores cope with working capital
shortages, easy loans are provided. Additionally, to improve profit margins,
stores staff is trained on planograms, assortment selection, and product
placement.

However, many retail domain think tanks suggest that offline and online has
to move forward in a complementary format for sustainability of overall
retail industry. Confrontation could lead to policy interventions and price
wars. Some partnerships already being tried out across these formats. Given
these broader trends, mix of experiences, online retail market dynamics and
local policy challenges, Smartbuy founders need to take next steps including 25

 Entrepreneurship: a detailed business plan before hunting for investors in Bamgloru which is
A Perspective
scheduled after a couple of weeks

Case Questions
1) Discuss possible factors which may have led Smartbuy founders choose
path of entrepreneurship.

2) Where will you place Smartbuy.com across various types of

entrepreneurship models discussed in this unit? Why?

3) List out risks and challenges associated with proposed plan.

4) Do you support the envisaged plan of Smartbuy to develop a online

hyperlocal model focused on food and grocery segment? Why?

5) How can Smartbuy.com support economic growth and development of

state economies where it finally decides to operate its business?

1.8 LET US SUM UP

Entrepreneurial action lies in assessing the uncertainties associated with the
venture and the willingness of the individual to bear those uncertainties,
including the various theories, determinants, and models of
entrepreneurship.theories which form basis of conceptual domain of
entrepreneurship. Various theories contributed help explain drivers, factors,
drives for becoming an entrepreneur. These theories have roots across
economics, psychology, sociology, anthropology, and management where
can be broadly classified as Psychological entrepreneurship theory,
Economic entrepreneurship theory, Opportunity-Based entrepreneurship
theory, Sociological entrepreneurship theory, Anthropological
entrepreneurship theory and Resource-Based entrepreneurship theory.
Entrepreneurship can be mapped to models based on type of innovation and
ownership pattern as Ambitious Innovators, Adapters, Solo Self Employed
and Managerial Employers. Various factors which drive entrepreneurs, aslo
explained through various types of theories, can be individual or external
influences. Entrepreneurial culture leads to larger footprint of
entrepreneurship in a state which leads to larger economic development and
sustainability.

1.9 KEY WORDS

Entrepreneurship: Itinvolves maximising opportunities – entrepreneurs
should identify and act on underdeveloped and untapped opportunities.
Dealing with uncertainty, making adistinction between risk, which can be
calculated, and uncertainty which can’t be overcome.

Ambitious Innovators: Entrepreneurs who are high risk taking,

experimentation and tolerance to failures.

Adaptive Innovators: Entrepreneurs usually toe the pathof exixiting

entrepreneurs with some tweaks or incrementally innovate
26

Solo Self Employed: Entrepreneurs who are largest group of entrepreneurs An Introduction to
Entrepreneurship
who are working on their own and normally contributes maximum in terms
of their numbers.

Managerial Employers:Entrepreneurs who are focused on scale and

efficiency and may also take up incremental innovative steps.
Hyper Local Retail Model: Retail Model where local needs of customers are
serviced from local suppliers.

1.10 ANSWERS TO CHECK YOUR PROGRESS

A. 2. i. Joseph A. Schumpter ii. Social entrepreneurs iii.ambitious
innovators iv. adaptive entrepreneurs v.Risk

B. 1. i.personality traits ii. innovation iii. culture iv. Resource based theory
v. opportunity-based entrepreneurship theory

2. i. true ii. true iii. true iv. true v. false

1.11 TERMINAL QUESTIONS

1) Define the term entrepreneurship and and discuss its evolution.
2) Write a brief note on different models of entrepreneurship.
3) Disscuss in detail the Pyschologicaltheories of Entrepreneurship.
4) Critically evaluate the different theories of entrepreneurship.
5) Discuss the factors which drive the development of entrepreneurship.
6) Explain the importance of entrepreneurship in a developing country.

Note: These questions will help you to understand the unit better. Try to
write answers for them. But do not submit your answers to the University for
assessment. These are for your practice only.

FURTHER READING
x Aldrich, H. E. (1999). Organizations evolving. London: Sage

x Aldrich, H., & Zimmer, C. (1986).Entrepreneurship through social

networks. In D. Sexton, &R. Smilor (Eds.), The art and science of
entrepreneurship. Cambridge, MABallinger.
x Alvarez, S. A., &Busenitz, L. W. (2001).The entrepreneurship of
resource-based theory.Journal of management, 27(6), 755-775.
x Blanchflower, D. G., Oswald, A., &Stutzer, A. (2001). Latent
entrepreneurship across nations.European Economic Review, 45(4-6),
680-691.
x Chandler, A. (1990). Entrepreneurship and Economic Growth.
Cambridge, HarvardUniversity Press.
27

 Entrepreneurship: x Clausen, T. H. (2006). Who identifies and exploits entrepreneurial
A Perspective
opportunities. Oslo: TIK, University of Oslo.
x Coon, C. S. (2004). Principles of anthropology (Vol. 1). Genesis
Publishing Pvt Ltd.
x Davidson, P., & Honing, B. (2003), “The role of social and human
capital among nascent entrepreneurs”, Journal of Business
Venturing,20,121
x Druker, P. (1985). Innovation and entrepreneurship: Practice and
principles. NY: Harper& Row.
x Hurst, E., &Lusardi, A. (2004).Liquidity constraints, household wealth,
and entrepreneurship.Journal of political Economy, 112(2), 319-347.
x Johnson, B. R. (1990). Toward a multidimensional model of
entrepreneurship: The case of achievement motivation and the
entrepreneur. Entrepreneurship Theory and practice, 14(3), 39-54.
x McClelland, D. C.(1961), The Achieving Society.(Princeton, New Jersey:
Van, Nostrand.
x Rotter, J. B. (1966).Generalized expectancies for internal versus external
control of reinforcement. Psychological monographs: General and
applied, 80(1), 1.

x Say, J. (1816). A treatise on political economy. London: Sherwood,

Neeley and Jones.
x Shane, S. (1994), Cultural Values and the Championing Process.
Entrepreneurship Theory & Practice, 18, 25-41.
x Simpeh, K. N. (2011). Entrepreneurship theories and Empirical research:
A Summary Review of the Literature. European Journal of Business and
Management, 3(6), 1-8.

x Stevenson, L. (1990). Some methodological problems associated with

researching women entrepreneurs. Journal of business ethics, 9(4-5),
439-446.
x Wennekers, S., & van Stel, A. (2017). Types and roles of productive
entrepreneurship: a conceptual study. The Wiley Handbook of
Entrepreneurship, 37-69.

28

  Entrepreneurial
UNIT 2 ENTREPRENEURIAL ECO- Eco-System

SYSTEM

Structure
2.0 Objectives
2.1 Introduction
2.2 Entrepreneur, Entrepreneurship and Enterprise
2.3 Ecosystem
2.3.1 Entrepreneurial Ecosystem
2.3.2 Entrepreneurship and Ecosystem
2.3.3 Factors Influencing Entrepreneurial Ecosystem
2.4 Entrepreneur, Innovation and Ecosystem
2.5 Ecosystem Challenges
2.6 Development of Conducive Ecosystem
2.7 Let us sum up
2.8 Key words
2.9 Answers to Check Your Progress
2.10 Terminal Questions

2.0 OBJECTIVES
After studying this unit, you should be able to:
x explain the importance ecosystem;
x identify the enabling factors which create a conducive environment for
an entrepreneur;
x discuss the requisites for an entrepreneur become an entrepreneur;
x explain the linkages between various entities and their roles in
facilitating entrepreneurship in a country; and
x examine challenges and facilitation support required at various stages of
early entrepreneurship.

2.1 INTRODUCTION
Majority of the policy makers understand the need to identify the entities and
instruments which facilitate growth of entrepreneurship in a state or location.
This has led to increased interest in ecosystems as an approach for
understanding the climate for growth of entrepreneurship. This approach
suggests that entrepreneurship spreads and scales in an environment which
considers various stakeholders who play different roles. These roles may be
with varied goals, and expands on consideration of only entrepreneurs
responsible for driving growth. This approach considers interdependence of
various stakeholders and factors that facilitate entrepreneurship growth in a
specific location. There has been a lot of debate about the standardized
29

 Entrepreneurship: specification of an entrepreneurial ecosystem. However, there is a larger
A Perspective
consensus among researchers to view it from a systems perspective. Higher
degree of associations among the elements of this ecosystem entails this
perspective. It helps measurement and subsequent comparison of prevalent
ecosystems required to make policy interventions, in case there are structural
deficiencies necessary to facilitate entrepreneurs through instruments of
policy.

2.2 ENTREPRENEUR, ENTREPRENEURSHIP

AND ENTERPRISE
In order to understand entrepreneurial ecosystem, you need to know: who is
an entrepreneur? What is enterprise? And what is entrepreneurship? Let us
understand these terms first.

Entrepreneur: This is a description of an entrepreneur in a classic term. This

explains entrepreneur as a business founder and a small business owner.
However, there is much more than that. Every business founder or owner
may not necessarily be an entrepreneur. They are the visionaries, the risk
takers, the innovators, the leaders and much more. They are basically
individuals or groups having unique characteristics and personality types. Let
us briefly describe their characteristics.

Characteristics of an Entrepreneur
Definition of an entrepreneur is not permanent, we can only understand and
keep on defining the term by learning more about different types of
entrepreneurs, what do they do, why do they do and how do they do. Given
below are the characteristics found usually in entrepreneur:
x They are visionaries and agile.
x They are innovative and creative.
x They try to solve a problem.
x They are passionate about their business and work.
x They are the risk takers and have the appetite for taking calculated risk
x They have perseverance and resilience
x They are determined and have ability to overcome hardship.
x They are the leaders.
x They are focused and action oriented
x They are accountable and responsible.
x They have the ability to sense the environment and convert adversity or
problem into an opportunity by providing solution to it.

Entrepreneurship: Simply speaking, entrepreneurship is what an

entrepreneur does including the process and ways of doing it. The
entrepreneur is central to entrepreneurship and enterprise.

30

The entrepreneur is the key stakeholder and entrepreneurship is the process to Entrepreneurial
Eco-System
set up an enterprise. The term entrepreneur/s is generally used to describe
individual or group of individuals who set up and manage their own business.
The entrepreneur is central to the next concept, entrepreneurship, which
makes things happen for the entrepreneurs. (a) According to most popular
definition with innovation focus and important of conducive conditions ,
“HQWUHSUHQHXUVKLS LV WKH  SXUVXLW RI PDUNHW RSSRUWXQLWLHV WR FUHDWH IXWXUH
LQQRYDWLYHJRRGVDQGVHUYLFHVGLVFRYHUHGHYDOXDWHGDQGH[SORLWHGWRH[WUDFW
VRFLDO DQG HFRQRPLF YDOXH IURP WKH HQYLURQPHQW OHDGLQJ XOWLPDWHO\ WR QHZ
LQGHSHQGHQW EXVLQHVV  YHQWXUH FUHDWLRQ” (Shane & Venkataraman, 2000).
They extended the analysis of entrepreneurship by offering an overarching
conceptual framework that explains the different parts of the entrepreneurial
process – the opportunities, the people who pursue them, the skills and
strategies used to organize and exploit opportunities, and the environmental
conditions favorable to them – in a coherent way. "(QWUHSUHQHXUVKLSLVWKH
SURFHVV RI FUHDWLQJ RU VHL]LQJ DQ RSSRUWXQLW\ DQG SXUVXLQJ LW UHJDUGOHVV RI
WKHUHVRXUFHVFXUUHQWO\FRQWUROOHG" (Timmons, 1994). Peter Drucker defines
entrepreneurship again based around innovation as ‘a systematic innovation,
which consists in the purposeful and organized search for changes, and it is
the systematic analysis of the opportunities such changes might offer for
economic and social innovation.’ The analysis of this definition reflects:
x Entrepreneurship involves systematic innovation.
x There is a purposeful or organized service.
x It focuses on systematic analysis of opportunities.
x These changes offer economic or social innovation.

Entrepreneurship is the process influenced by factors like social economic,

economic, psychological and other factors. The process involves visioning,
mobilization of resources and setting up of an enterprise by an entrepreneur.
Entrepreneurs aim at leveraging the identified opportunity and capture value.
From a measurement perspective, entrepreneurship is an abstract concept
depending on the focus of definition. If we look at entrepreneurship from a
policy perspective, the complexity and dynamics of processes involved can
depend on the level taken which can infuse more abstraction as level goes up.
Entrepreneurship requires passion and commitment towards the development
of solutions for the problem/opportunity identified or targeted. It needs risk
taking, team formation, planning, financing, operations monitoring, scaling
competencies and other capacities to start and sustain a commercial outfit.

Enterprise: An enterprise is the outcome, once formed transacts products

and services, creates employment opportunities, and contributes to the
national income of the state. The core work of an entrepreneur starts with
intent of enterprise development, which is not a one-time activity. The
objective of the enterprise development process is to bring a positive societal
change by stimulating economic activity. Rather, it is a series of activities
that start with investing time and knowledge into understanding the needs of
the venture. The creation of venture involves: attracting investment, building
business linkages, planning and setting up systems and processes and
31

 Entrepreneurship: deploying resources for enterprises so that they can compete and grow on a
A Perspective
continuous basis.

2.3 ECOSYSTEM
Arthur Tansley coined the term ecosystem in 1935 in the domain of
ecological sciences while referring to interactions of organisms with its
surroundings in a spatial unit responsible for the sustainability of that unit.
The ecosystem relevant to context of economic entities can be seen as whole
set of stakeholders, resources and processes with their interdependencies, at
varied stages of lifecycles. The lifecycles may consist of all matters of
interest in the relevant space, characterized by intrinsic and extrinsic factors
which influence stakeholder in focus. The ecosystem is characterized by
internal and external factors which have interdependency and has been
responsible for dynamic nature of the ecosystem evolution. For example,
resource limitations affect the growth and behavior of organisms in a habitat
which over time can affect the resources in the external environment. The
goals of ecosystem approach and ecosystem management has been to achieve
sustainability of the focus entities or the stakeholders within the ecosystem.
The ecosystem approach or systems view can be used from a locational
perspective or process perspective. There is more inclination among
researchers to use the process view in a specific context to demarcate
stakeholders of interest. For example, understanding entrepreneurial growth
in India who are innovating to participate in global value chain in a free trade
context will lead us to see the ecosystem from a process perspective spread
across multiple locations including India.

2.3.1 Entrepreneurial Ecosystem

The ecosystem is a built on dynamic interaction of social, political, economic
and cultural elements within a region. The Entrepreneurship Ecosystem
means various constituents like entrepreneurs, organizational
stakeholders, employees and other individuals, and organizations etc.,
which facilitate or limit the development of entrepreneurs in a location /
region of interest. These constituents of the system like institutions,
individuals aspiring to be entrepreneurs, entrepreneur’s groups/associations,
other complementary factors etc. these factors may influence the progress of
current entrepreneurs, individuals aspiring to be entrepreneurs, individuals
who could be candidates for entrepreneurship in future etc., are called
stakeholders. There can be other stakeholders like policy institutions,
educational set ups, financial institutions and investors, R & D centers, civil
society outfits, industry associations, unions, legal institutions,
multinationals, etc. In spite of multiplicity of these factors in the ecosystem
driving or hindering entrepreneurship, certain factors may have relatively
more influence than others. For example, we can see certain cities in India
like Bengaluru, Hyderabad and few other states have seen more
entrepreneurial activity compared to many other Indian cities. It may also
depend on the stage of ecosystem evolution in specific places meaning a
mature ecosystem is likely to foster more entrepreneurship. Also these
32

facilitating factors need to work in tandem to cultivate the right ambience for Entrepreneurial
Eco-System
the growth.
All these entities and stakeholders are connected directly or indirectly,
formally or informally, accelerating or decelerating performance in the given
environment. 7KHLQWHUDFWLRQVEHWZHHQWKHVHYDULRXVVXEV\VWHPVKHOSDFKLHYH
WKH HFRV\VWHP SXUSRVH (Mason & Brown, 2014). The conductive ecosystem
encourages innovation and risk taking which are key factors for startup
growth.

2.3.2 Entrepreneurship and Ecosystem

Entrepreneurship ecosystem is the social and economic environment that
affects entrepreneurship. It is an interaction amongst the set of
independent actors and factors that lead to encourage, nurture and
promote entrepreneurship in any area.
To understand the entrepreneurship ecosystem, we need to known the
elements or factors that are responsible to nurture entrepreneurship in a
society and help entrepreneurs to thrive. If you look at the process and
various stages of entrepreneurship developments, you will observe that the
ecosystem comprises of the following:
x Entrepreneurs (traits, characteristics and skills)
x Social Culture
x Educational Programmes
x Infrastructure
x Markets
x Policies (Government Policies)

¾ Government agencies
x Institutional Support
¾ Incubators and accelerators
¾ Coworking spaces
¾ Mentors
¾ Co-founders
¾ Consultants/freelancers
¾ Events by industry association and chamber of commerce
x Availability of Human and Non Human Resources
x Availability of wealth and capital

A detail discussion of these factors are given in section 2.6

Toappreciating this highly complex multi-level construct (Theodoraki&

Messeghem, 2017), requires one to diligently study the numerous factors and
agents that give rise to the various specific elements of Entrepreneurship
Ecosystem. This also includes the complex and unique interactions created by
33

 Entrepreneurship: them. Process view (process of entrepreneurship) is preferred way to assess
A Perspective
ecosystems and, therefore, help compare entrepreneurial performances along
with reasons across regions. It brings in focus all the stakeholders and
agencies at play in the creation of an enterprise by entrepreneurs.

In a nutshell we can say that all the stakeholders and the agencies, both
government and private that has a role to play in creation of an
enterprise by the entrepreneurs form part of the ecosystem.
Various researchers and domain think tanks have suggested different process
frameworks to systematically understand entrepreneurial lifecycle which can
be kept in consideration while examining the ecosystem. A general
understanding is that the process starts with identification and leveraging an
opportunity and translate the idea into a business set up to creates, sustain and
capture the value so created through the entrepreneurial operation. The
operation could be aimed at creation of services or products. According to
Gruber( 2002), there are three phases of the startup entrepreneurial journey.

i) First phase is pre-founding stage (opportunity identification and

evaluation),
ii) Second stage is founding stage (business plan, resource gathering,
incorporation and market entry), and

iii) Third stage is early development stage (building the company and
market penetration).

Hisrich et al. (2017)suggest four stages as:

i) identifying and evaluating the opportunity,
ii) developing the business plan,
iii) determining the resources required, and
iv) managing the resulting enterprise .

Four stage view is also supported by other researchers who classify these
stages as opportunity finding, technology application, firm set up and the
product/service transaction.

One way to comprehend the ecosystem influences is by looking at the

entrepreneurship process across stages of innovation, triggering event,
implementation and growth (Hirsch et al. 2017). Opportunity identification
is an innovative act which is a function of personal factors like achievement
motivation, risk taking capacity, personal values, education, experience and
locus of control. Innovation can be also triggered by awareness about
opportunities and influence of role models, networks, family traditions, etc.
For example, proliferations of startups in India in last decades with many
extraordinary successes by some entrepreneurs, who are also followed as role
models by the younger generation. The successes creates force in action
among many and inspire them to take a plunge into entrepreneurship.
Personal factors influence triggering event stage like job satisfaction,
joblessness, age along with some policy support or incentives, can accelerate
or trigger the process. Environmental factors like competition, availability of
34

resources, incubation facilities, government support etc., influences stages, Entrepreneurial
Eco-System
Triggering event and Implementation. Commitment, leadership and
managerial competencies become important factors during implementation as
well as growth. Important factors of the ecosystem which influence both
implementations as well growth are government policies and access to
suppliers, market, partnerships and financers.

It is needless to mention here that for the entrepreneur to grow and succeed it
is vital to have a strong ecosystem in a country.

2.3.3 Factors Influencing Entrepreneurial Ecosystem

From getting the idea to opportunity identification, solution development, its
evaluation and final implementation, successful entrepreneurship requires
host of skills. These can be summed up as technical skills, commercial
competencies, communication skills, opportunity identification, problem-
solving ability, planning skills, organizing skills, operational management,
financial management, human resource mobilization, governance skills,
innovation and networking skills, with the ability to take calculated risks.
According to the “Entrepreneurial ecosystems around the globe and company
growth dynamics” report by World Economic Forum (2013), three areas of
entrepreneurial ecosystems matter most for entrepreneurs and they are access
to markets, human capital/workforce and finance. Though there are major
differences in entrepreneurial ecosystems that exist from one part of the
world to another, there are also similarities in the issues facing entrepreneurs
around the globe – particularly when it comes to early-stage companies.
There is a potential alignment issue among these early stage companies with
governments who often adopt a strong country/regional focus in their
entrepreneurial ecosystem policies.

Isenberg (2011) has categorized these various elements into six main
activities. These activities are: policy, finance, culture, institutional and
infrastructural supports, human capital and markets. Let us learn them in
detail:

1) Policy: The government regulatory domain plays a pivotal role in

deciding the structure of the entrepreneurial ecosystem to the extent that
governmental policy can make or break the ecosystem. The regulatory
policy framework element consisting of components such as the ease to
start a new business with respect to licenses and registrations required,
tax incentives including tax holidays available to new start-ups, laws that
are conducive to business growth, determines the ability to open and
expand new businesses. The government policy helps in attracting the
entrepreneurs to initiate the venture. If ease of doing business is
favourable, the entrepreneur may be encouraged to start the new venture.

2) Finance: The supply and accessibility of financial reserves for

entrepreneurs is crucial not only at the initial incubation stage but also
help in maintaining their growth trajectory. Finance is required when the
entrepreneurs need to acquire more resources like recruiting people, or
buying or leasing capital assets as well as raw materials, or investing in
35

 Entrepreneurship: marketing and sales. These financial reserves can range from the
A Perspective
traditional sources like friends and family to the relatively modern forms
like angel investors, private equity partners or venture capital as well as
access to debt from banks/FIs or open markets. Needless to add that a
wider and greater availability of financial resources accelerates the
scaling up of the business growth.

3) Culture: The culture of any region is the soul of the entrepreneurial

ecosystem that takes form in the region. It is said that an entrepreneurial
ecosystem without a strong cultural support for entrepreneurship lacks
the impetus to carry ahead for long. Cultural aspects like cultivating a
positive image of entrepreneurship, having an inherent spirit of self-
reliance with a preference for self-employment, tolerance of failure of
entrepreneurship by developing adequate risk-appetite, culture of
research and innovativeness and celebrating the success stories of role
models provide the support system for the entrepreneurial ecosystem to
prosper.
4) Institutional and Infrastructural Supports: The institutional and
infrastructural supports consist of the various formal and informal
agencies that help in business creation and their expansion. These may
be physical infrastructures like transportation in the form of roadways,
railways and air connectivity which provide the requisite accessibility.
Similarly the internet connectivity to the World Wide Web which serves
as the medium for information exchange. Besides this the support system
consists of agents providing professional services like financial planning,
accounting, human resources, legal advisers etc. which team up to form
the entrepreneurial networks.

5) Human Capital: The human capital represents the quality and quantity
of the workforce available at the disposal of the entrepreneur. Human
capital is a multifaceted element and depending on the specific skill set
that the workforce possess, gives shape to the type of working
environment that it can generate. The various components of this domain
are the management and technical talent pool available, the level of
education and training especially technical education and training that
the workforce holds, the experience the entrepreneurs possess, ease of
access to immigrant workforce etc. Nurturing of the human capital is
essential to sustenance of the ecosystem.

6) Markets: A receptive market setup consisting of customers who create

the requisite demand is essential for the businesses to grow.
Entrepreneurial ecosystems need access to such markets with the
presence of the appropriate customers who are willing to pay for the
entrepreneur’s products and services. These markets can be domestic as
well as foreign markets, wholesale or niche markets, small, medium or
large markets where individuals, businesses as well as institutional
market participants can interact and transact.

36

 Entrepreneurial
2.4 ENTREPRENEUR, INNOVATION AND Eco-System
ECOSYSTEM
The rates of startup failures are much more than successes. Innovation is the
key factor for effective entrepreneurial success. Innovation is the
application of knowledge to produce new knowledge. :KDW GHILQHV DQ
HQWUHSUHQHXU LV WKHLU DWWLWXGH WR FKDQJH µWKH HQWUHSUHQHXU DOZD\V VHDUFKHV
IRU FKDQJH UHVSRQGV WR LW DQG H[SORLWV LW DV DQ RSSRUWXQLW\¶ 7R H[SORLW
FKDQJH HQWUHSUHQHXU LQQRYDWHV (Drucker 2014). Channels and sources of
innovation and its commercial acceptability lies in the better understanding of
the whole system or ecosystem. It is pertinent to understand innovation, its
sources and its linkages with prevailing entrepreneurial ecosystem being the
key factor in growth of startup firms. Innovation has an anchor role to find
solutions for problems we face in our day to day life as individual,
society, states or any stakeholder of interest. Various known researchers in
economics literature put innovation as a default conditions for growth of
effective entrepreneurship. Schumpeter defined an entrepreneur as an
innovator. In his words, “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”.

Hence, entrepreneurs are mostly actors who create innovation to find

solutions.The innovation, creativity and risk bearing are an integral part
of being an entrepreneur. It involves the ability to create and conceptualize
something new, which can consist of anything from a new product to a new
distribution system to method for developing a new organizational structure.
Entrepreneurship centers on novelty and the generation of variety in the
marketplace and means that the processes of innovation are at work.
Innovation can take various forms like new product introduction, new
services, new methods of operation and production, exploration of new
markets, re-imagination of business models, reorganization of industry
structure through disruptive strategies etc.
Innovation can happen through multiple ways. They are:

x Invention: Invention means development of a new product, service or

process, also termed as radical innovations.

x Duplication: Duplication means replication of existing product, tweaked

to create a new look, feel or utility. This is also called as incremental
innovation.
x Extension: Extension is augmentation in existing product, service or
idea to stretch the scope of usage or utility.
x Synthesis: Lastly, the creation of new item or service based on collage
of existing multiple innovations, concepts and elements.

Innovation happens usually as a struggle to solutions to unresolved problems

or gaps in the existing solution. Sometimes happens through unexpected 37

 Entrepreneurship: occurrennces. Entrepreneurs find ideas from the customer feedback and
A Perspective
sometimmes from the competitors. Many times whilee grappling with process
issues, nnew process ideas come up from the proccess owners or business
partners. In a constantly changing market new ideas are always presenting.

From thhe above, it should be evident that sou urces of innovation, its
fructificaation into a viable product or service and commercial
c acceptability
has lot to do with the prevailing ecosystem before it can be fully launched as
a producct or a service in the targeted marketplace.

Process of Innovation
The folllowing diagram summarizes the processs of innovation in an
organizaation:

/ĚĞŶƚŝĨŝĐĂƚŝŽŶĂŶĚ
'ĞŶĞĂƌƚŝŽŶŽĨ ĞǀĞůŽƉ
ƉŵĞŶƚŽĨ
džƉĞƌŝŝŵĞŶƚĂŝŽŶ ǀĂůƵĂƚŝŽŶ ^ĞůĞĐƚŝŽŶŽĨŵŽƐƚ ŽŵŵĞƌĐŝůŝƐĂƚŝŽŶ
/ĚĞĂƐ WƌŽƚŽƚLJƉĞ
ƐƵŝƚĂďůĞŝĚĞĂƐ

Figure 2.1 Process of Innovation

n

Check Y
Your Progress A
1) Fill in the blanks
nterprise.
i) ……………… is the process to set up an en
ii) ………………………….. means variou us constituents which
facilitate or limit the development of entreepreneurs in a location /
region of interest.

iii) …………………… represents the quality y and quantity of the

workforce available at the disposal of the en
ntrepreneur.

iv) …………………….. can happen throug gh multiple ways like

invention, duplication, extension and synthesis.

v) ………………… is augmentation in existting product, service or

idea to stretch the scope of usage or utility.

2) Mattch the Examples given in Column 1 with

h the Innovation type in
Coluumn 2

E
Examples Innovatio
on type
i) Wal-mart a) inven
ntion
ii) Light bulb b) exten
nsion
iii) FedEx c) dupliccation
iv) Facebook d) synth
hesis

38

 Entrepreneurial
2.5 ECOSYSTEM CHALLENGES Eco-System

Though entrepreneurship and entrepreneurial ecosystem are a necessity for

the growth of trade and economy and the overall progress of the nation, yet
there are many barriers that hamper their growth. The challenges are:

1) Policy Barriers: The area of concern include regulatory or policy

barriers, identified by bureaucratic red tape, tax compliance burdens,
regulatory requirements and policy indecisiveness and weaknesses in the
overall business environment.

2) Access to technology and Intellectual Property Rights issues: Access

to technology, patent and copyright issues, are some of the other
problems plaguing entrepreneurs, in addition to problems caused by lack
of access to markets, effective transport, communication and supply
chain and distribution systems, cultural and social barriers and weak or
inefficient judicial process.

3) Intrinsic challenges: The challenges can also be categorised as intrinsic

and extrinsic. The intrinsic reasons consist of factors like societal bias
towards specific groups/communities, illiteracy and lack of capability,
limited family backing, etc.
4) Extrinsic Challenges: The extrinsic factors include organizational
challenges such as access to financing and investment, natural resources,
limited market or access to potential market, human resource etc. There
are also environmental factors that form part of the extrinsic factors and
they can be categorised into socio-cultural factors like beliefs, attitudes
and values of a society towards the subject of entrepreneurship are
known as the entrepreneurial culture of that society. In addition to this
are regulatory factors and government licensing and policies and
associated factors like bribery, corruption etc.
Since no single person own the ecosystem as there are multiple
stakeholders of varied types, their goals also vary depending on the
nature of their role and scope in the system. Hence, we cannot say that
entrepreneurial success or job creation is the only goal for states to
develop a conducive entrepreneurial ecosystem. For government it may
be state revenues and job creation. For financial institutions it may be
their own profitability and growth. For larger corporates, it may be their
own sustainability and to assure new technology solutions in their
targeted markets or for their clients which are getting developed, tested
and tried in various technology incubation centers or accelerator sites.
Hence multiple stakeholders must benefit in order for an
entrepreneurship ecosystem to be self-sustaining.

39

 Entrepreneurship:
A Perspective 2.8 DEVELOPMENT OF CONDUCIVE
ECOSYSTEM
There are multiple ways and responses to overcome above challenges and
make ecosystem conducive for enterprise development. The features of
development of conducive ecosystem are:
x Infrastructure
x Finance
x Ancillary Industry
x Single window operations and approval
x Ease of doing business
x Development of clusters of industries
x Development of MSMEs
x Favourable Government Policies
x Incentives

Let us discuss few of those one by one.

1) Better access to capital and financing avenues: Better access to capital
and financing avenues, adequate skilling and training, strengthening
support systems by ensuring a transparent coordination and cooperation
at different stages of entrepreneur support is important.
According to World Bank, which calculates the annual ease of doing
business index, there are 12 areas of business regulation that are taken
into account while measuring the ease with which business can be done.
Ten of these areas are starting a business, dealing with construction
permits, getting electricity, registering property, getting credit,
protecting minority investors, paying taxes, trading across borders,
enforcing contracts, and resolving insolvency - are included in the ease
of doing business score and ease of doing business ranking. The ease of
doing business also measures regulation on employing workers and
contracting with the government, though they are not included in the
ease of doing business score and ranking (World Bank, 2020).

2) Greater Government spending: Higher corporate governance, greater

government spending creates strong institutions that promote equity and
reduce chances of corruption.

3) Low rates of taxes and incentives: Low rates of taxes and incentives on
entrepreneur-driven business creation are some of the other ways barriers
to entrepreneurship development can be overcome.

4) Use of technology: The use of technology through online digital

initiatives also goes a long way in reducing bottlenecks and delays and
streamlining and procedures. As stated by Mason & Brown (2013) in
their report “Entrepreneurial ecosystems and growth oriented
entrepreneurship” published by OECD, policy intervention should be a
40

 holistic approach focusing on “entrepreneurial actors within the Entrepreneurial
Eco-System
ecosystem; the resource providers within the ecosystem; entrepreneurial
connectors within the ecosystem and the entrepreneurial environment of
the ecosystem”.

5) Inclusion in educational programmes: Introducing entrepreneurship as

a course in the curriculum of schools and colleges will create awareness
amongst students and seed of entrepreneurial thinking/mindset can be
sown at early childhood. Various steps are being taken in this line.
Entrepreneurship is now being introduced in schools as well.

6) Recognition and appreciation to young entrepreneurs and start ups:

Different award ceremonies should be conducted to recognize and
appreciate the hard work of the entrepreneurs on regular basis. This will
have twofold benefit. It will give encouragement to the entrepreneurs, on
the other hand it will motivate others to take up entrepreneurship as a
preferred career option and not as last resort.

It is therefore of prime importance that governments and policy-makers

ideate and develop suitable metrics that can measure individual
ecosystems for their strengths and weaknesses so that it helps in
assessment and taking suitable corrective measure on a dynamic basis.

Check Your Progress B

1) Distinguish between intrinsic and extrinsic ecosystem challenges.

2) List the areas of business regulation that are taken into account by World
Bank while measuring the ease of doing business.

2.7 LET US SUM UP

Entrepreneurship is the process which an entrepreneur goes through to
fructify ideas, competencies and commitment of entrepreneurs into an
enterprise. Entrepreneurship is the process influenced by Factors like social
economic, economic, psychological and other factors. The process involves
visioning, mobilization of resources and setting up of an enterprise by an
entrepreneur or entrepreneurs which is meant to leverage the identified
opportunity and capture value. There is increased interest in ecosystems as an
approach for understanding the climate for growth of entrepreneurship. The
understanding of this interdependency helps entrepreneurs and other
stakeholders especially policy makers understand process modalities in the
whole context. Important buckets of influence include policy, finance,
culture, institutional and infrastructural supports, human capital and markets.
Innovation is the key factor for effective entrepreneurial success and its
sources and acceptability lies in the better understanding of the whole system
or ecosystem. There are challenges in managing and making this ecosystem
conducive as the goals of the stakeholders are varied, opportunities have a
window and resources are mostly limited. Hence states should effectively
monitor ecosystems for their strengths and weaknesses so that it helps in
assessment and taking suitable corrective measure , including all necessary
stakeholders, on a dynamic basis. 41

 Entrepreneurship:
A Perspective 2.8 KEY WORDS
Duplication: The replication of existing product, tweaked to create a new
look, feel or utility.

Entrepreneurship: The pursuit ofmarket opportunities to create future

innovative goods and services discovered, evaluated and exploited to extract
social and economic value from the environment, leading ultimately to new
independent business / venture creation.

Ecosystem: The ecosystem relevant to context of economic entities can be

seen as whole set of stakeholders, resources and processes with their
interdependencies, at varied stages of lifecycles of all matters of interest in
the relevant space, characterized by intrinsic and extrinsic factors which
influence stakeholder in focus.
Entrepreneurialecosystem: The Entrepreneurship Ecosystem means various
constituents like entrepreneurs, other individuals, and organizations etc.,
which facilitate or limit the development of entrepreneurs in a location /
region of interest.

Extension: The augmentation in existing product, service or idea to stretch

the scope of usage or utility.

Innovation: The application of knowledge to produce new knowledge and

bringing newness and change.
Invention: The development of a new product, service or process.

Synthesis: The creation of new item or service based on collage of existing

multiple innovations, concepts and elements.

2.9 ANSWERS TO CHECK YOUR PROGRESS

A. 1) i. Entrepreneurship ii. Entrepreneurial ecosystem iii. Human capital
iv. Innovation v. Extension
2) i. c ii. a iii. d iv. b

2.10 TERMINAL QUESTIONS

1) Discuss the entrepreneurial ecosystem in context of venture capitalists
and entrepreneurs.

2) What are the challenges for the policy makers to make the ecosystem
conducive for startups in India?
3) How does the ecosystem vary for startups in technology and low
technology domains?
4) What are six buckets to comprehend the role of entrepreneurial
ecosystem?

42

5) Discuss the importance of innovation in startup growth? What are the Entrepreneurial
Eco-System
linkages between innovation application and entrepreneurial ecosystem?

Note: These questions will help you to understand the unit better. Try to
write answers for them. But do not submit your answers to the University for
assessment. These are for your practice only.

FURTHER READING
x Drucker, P. (2014). Innovation and entrepreneurship. Routledge.
x Gruber, M. (2002). Transformation as a challenge: New ventures on their
way to viable entities. 193–201.
x Hisrich, R., Peters, M., & Shepherd, D. (2017). Entrepreneurship (10th
ed.). McGraw-Hill Education.
x Isenberg, D. J. (2011). The Entrepreneurship Ecosystem Strategy as a
New Paradigm for Economic Policy: Principles for Cultivating
Entrepreneurships. The Babson Entrepreneurship Ecosystem Project,
1(781), 1–13. http://www.innovationamerica.us/images/stories/2011/
The-entrepreneurship-ecosystem-strategy-for-economic-growth-policy-
20110620183915.pdf
x Mason, C., & Brown, R. (2013). Entrepreneurial Ecosystems and growth
oriented entrepreneurship. Background Paper Prepared for the Workshop
Organised by the OECD LEED Programme and the Dutch Ministry of
Economic Affairs on Entrepreneurial Ecosystems and Growth Oriented
Entrepreneurship.https://www.oecd.org/cfe/leed/Entrepreneurial-
ecosystems.pdf
x Shane, S., &Venkataraman, S. (2000). The Promise of Entrepreneurship
as a field of Research. Academy of Management Review, 25(1), 217–
226. https://doi.org/10.2307/259271
x Tansley, A. G. (1935). The use and abuse of vegetational concepts and
terms. Ecology, 16, 284–307. https://doi.org/10.1111/j.1468-
0483.1963.tb00727.x
x Theodoraki, C., &Messeghem, K. (2017). Exploring the entrepreneurial
ecosystem in the field of entrepreneurial support: A multi-level
approach. International Journal of Entrepreneurship and Small Business,
31(1), 47–66. https://doi.org/10.1504/IJESB.2017. 083847
x Timmons, J. A., Spinelli, S., & Tan, Y. (1994). New venture creation:
Entrepreneurship for the 21st century (Vol. 4). Burr Ridge, IL: Irwin.
x World Bank. (2020). Doing Business 2020: Comparing Business
Regulation in 190 Economies. In World Bank Group. Washington, DC:
World Bank. https://doi.org/10.1596/978-1-4648-1440-2
x World Economic Forum. (2013). Entrepreneurial Ecosystems Around the
Globe and Company Growth Dynamics. Report Summary for the Annual
Meeting of the New Champions 2013, September, 36.
http://www3.weforum.org/docs/WEF_EntrepreneurialEcosystems
Report_ 2013. pdf

43

 Entrepreneurship:
A Perspective UNIT 3 DIMENSIONS OF
ENTREPRENEURSHIP

Structure
3.0 Objectives
3.1 Introduction
3.2 Rural Entrepreneurship
3.3 Women Entrepreneurship
3.4 Social Entrepreneurship
3.5 Ecopreneurship
3.6 Cultural Entrepreneurship
3.7 Techno Entrepreneurship
3.8 Heritage and Tourism Entrepreneurship
3.9 International Entrepreneurship
3.10 Let Us Sump Up
3.11 Key Words
3.12 Answers to Check Your Progress
3.13 Terminal Questions

3.0 OBJECTIVES
After studying this unit, you should be able to:
x discuss various areas where entrepreneurship is flourishing;
x discuss about rural entrepreneurship and its significance in an economy;
x explain the need for women entrepreneurship and social
entrepreneurship;
x explain ecopreneurship and explain various eco-friendly ventures created
by ecopreneurs;
x explain the details of cultural entrepreneurship and technopreneurship;
and
x describe the increasing trend of heritage and tourism entrepreneurship
and international entrepreneurship.

3.1 INTRODUCTION
In units 1 and 2, you have learnt about the theories, models, concepts and
importance of entrepreneurship. You have also learnt about the
entrepreneurial ecosystem and its components. You have developed an
understanding about the factors that can make the environment and
ecosystem conducive where entrepreneurs can work and thrive. In this unit,
you will learn about the various dimensions of entrepreneurship such as rural
entrepreneurship, women entrepreneurship, social entrepreneurship,
44

ecopreneurship, cultural entrepreneurship, technopreneurship, heritage and Dimensions of
Entrepreneurship
tourism entrepreneurship, and international entrepreneurship.

3.2 RURAL ENTREPRENEURSHIP

Rural entrepreneurship is looked as a means to increase income and
employment as well as providing stability and growth in rural communities.
It is defined as “the creation of a new organization that introduces a new
product, serves or creates a new market, or utilizes a new technology in a
rural environment”. Here the entrepreneur tries to look at the problems and
opportunities of solving problems in the rural areas. To put it in simple
words, we can say that entrepreneurship emerging in rural areas is called
rural entrepreneurship.
Thus, entrepreneurship emerging at village level which can take place in
a variety of fields of endeavour such as business, industry, agriculture
and acts as a potential factor for economic development. In other words,
the rural entrepreneur is one who is staying in village producing goods and
services mainly with local resources. He organizes factors of production and
takes risk. In India nearly 70 per cent of the population lives in villages
depending mainly on agriculture and allied activities. There is widespread
unemployment and underemployment with labour abundance and capital
shortage. Hence, the development of rural entrepreneurship is very important
for creating employment opportunities in rural areas and rural development.

Rural migration to the urban areas has become a common phenomenon. The
rural people migrate to urban areas due to concerns of livelihood,
unemployment, smaller land holdings, relatively more opportunities of
earning and stability in urban areas, peer pressure and so on.One of the major
challenges of entrepreneurial growth in rural space is lack of supportive
ecosystem for individual growth, culture and enterprise support. Hence, it is a
major policy concern to address this issue. Boost for rural entrepreneurship
and equitable development is a much desirable impact any state would like to
ensure through its policy interventions. The interventions must facilitate the
development of rural entrepreneurship culture in the rural areas for the
empowerment of rural people.

These entrepreneurs utilise local natural and physical resources to produce

products like processed food, handicrafts, intermediate artifacts etc., and
services like tourist services, input labour services for bigger companies
based in remote areas and so on. These entrepreneurs are rooted in the rural
set up and majority of direct stakeholders, particularly on input side, belong
to the rural areas.

Through this self employment route, raw material and labour resources can
be efficiently utilised. The efficient utilisation of resources helps to improve
socio-economic condition of the people living in rural and remote areas. Lack
of rural entrepreneurship may result in wastage of resources available in these
remote areas. Moreover, it may add to the cost of goods in urban areas
because in many sectors, logistics cost and supply chain management
challenges will be more if entrepreneurs based in urban areas utilise these
45

 Entrepreneurship: resources. This creates possibilities of relatively more value addition early in
A Perspective
the production process within the rural space as compared to value realisation
for processes in urban space. It drives opportunities of better economic
wellbeing through better margin percentages, better utilisation of local
resources, social balance and overall sustainability.

While there are benefits, there are also several challenges for entrepreneurs to
risk projects in rural areas. There could be bigger concerns of securing
financial resources for sizeable rural start up as there would confidence issues
for investors. Similarly, getting unskilled resources may be easier in rural
areas, but sustaining even few high skilled resources can be quite
challenging.

Concerns and Challenges for Rural Entrepreneurship

Rural entrepreneurship triggers development of other facilitating institutions,
entities and service providers. Growth of financial ecosystem and fintech in
rural sector can be seen associated positively to the growth of rural
entrepreneurship. It helps to decrease migration from rural to urban places as
people in rural areas can accommodate relatively lower wages and
remuneration because of lower cost of living, lifestyle habits and vicinity to
their relations.

Government Support for Rural Entrepreneurship in India

Various government schemes have been launched from time to time to
encourage rural entrepreneurship. There have been various schemes to
support cluster development in various areas which many times involves
engaging non-governmental organisations (NGOs) as well. For example, one
such scheme call Ambedkar Hast Shilp Vikas Yojna was launched in
early 2000 to develop handicraft clusters across India wherein women
artisans can create their self help groups (SHGs) at the village level and
several SHGs together will collaborate together to form a cluster. NGOs were
required to support capacity building, access to markets and hand hold
clusters for a specific period after which they were to withdraw so that
Clusters can run the handicraft enterprise on their own. A cluster is a group of
enterprises located within an identifiable and as far as practicable, contiguous
area and producing same/similar product/services.

One of the recent schemes, specific to rural entrepreneurship, A Scheme for

Promotion of Innovation, Rural Industries and Entrepreneurship
(ASPIRE) was launched by Ministry of Micro, Small and Medium
Enterprise (MSME). This scheme aims at setting up a network of technology
centres and to set up incubation centres to accelerate entrepreneurship and
also to promote start-ups for innovation in agriculture industry. In addition
there are several other schemes to facilitate the efforts individuals and groups
to develop ventures which directly or indirectly support rural
entrepreneurship.

46

Importance of Rural Entrepreneurs Dimensions of
Entrepreneurship
Rural entrepreneurs play a vital role in the overall economic development of
the country. The growth and development of rural industries facilitate self-
employment, results in wider dispersal of economic and industrial activities
and helps in the maximum utilisation of locally available raw materials and
labour. Following are some of the important role which rural industries play
in ameliorating the socio-economic conditions of the rural people in
particular and the country in general:

1) Generates Employment Opportunities: Rural entrepreneurs play a

vital role in generating employment opportunities in the rural areas
where there is already disguised and seasonal unemployment. They make
use of surplus labour which is abundant in Indian rural areas.

2) Earning Foreign Exchange: A rural entrepreneur helps in protecting

and promoting arts and crafts and preserves the rich heritage of rural
India. They also helps to foreign exchange as Indian handicrafts are
famous all over the world.

3) Developing Rural Youth: Rural entrepreneurship helps and provokes

rural youths to stand away from crowd and not become an addition to the
que of unemployed people. As rural entrepreneurs they may give
employment to others and work for the growth and development of their
village.
4) Improved Standard of Living: By generating employment
opportunities in rural areas will also increase the earnings of the people
of these areas thereby increasing the standard of living of the people of
rural areas.
5) Balanced Regional Growth: Rural entrepreneurs also facilitates in
promoting balanced regional growth in India. These day industries are
being set up in these areas, which will lead to development of these
areas. The establishment of industries helps in raising income or raises
the standard of living of the people of these areas with respect to urban
areas. Thus, the balanced regional growth may be promoted.

6) Checking Migration: Rural entrepreneurship also helps in checking

migration activities of people from rural to urban areas in search for
work as the work will already be available in their areas with the
development of rural entrepreneurship.

Some Examples of Rural Entrepreneurship

Kameshwar Prasad from village of Taraiya, in Saran district, Bihar started
trading rechargeable solar lanterns in his village after he learnt about
Villgro’s Energy Entrepreneur Incubation Programme. Considering the
electricity situation in his village he knew that the rechargeable solar lanterns
were bound to have a market. He wanted to do something on his own rather
than migrating to some city for livelihood which many of his community
members did to sustain themselves. He invested a small capital of Rs.15000
which was required as deposit money. Initially he gave free lanterns for trial
47

 Entrepreneurship: to some households which helped him to get word of mouth. With support of
A Perspective
Villgro and Saija finance, he investigated about the market potential and
found a positive response. He realised that the alternative source of kerosene
based light energy was costly (about Rs.8-10 per day for village households)
and quality of light was also poor.. He got networked with other support
institutions with the help of Villgro. He is able to get continuous orders and
started charging rent on use basis at Rs.7 per day. He started making profits
which he now feels is good enough and expects to scale his business to other
villages as well.

“Mitticool” Fridge founded by Mansukhbhai who grew up in the family of

clay-makers near Rajkot is a good example of rural entrepreneurs. He started
his journey from a tea stall and reached a point in life where he took a loan of
Rs 30,000 for setting up his own earthen plate manufacturing factory. But his
success came with a time frame and the devastating earthquake of 2001
destroyed half of his products but also sparked an idea which led to the birth
of “Mitticool” fridge. This was made up of terracotta and worked on a simple
Physics principle of circulating and evaporating water, keeping the contents
cool and fresh for up to five days. Mitticool, today, makes and exports fridge,
non-stick tawa, low cost water filters, thermal water bottles etc. and has also
won many awards.

3.3 WOMEN ENTREPRENEURSHIP

The percentage of female population in India is around 48%. But if you see
the percentage of women entrepreneurs in India, it is alarmingly less. Women
entrepreneurship development seeks attention here. The importance of
discussion on women entrepreneurs is important for the reason that women
face many more challenges than their counterparts to start businesses and yet
they are able to succeed and perform. Women are influenced more by socio-
cultural complexities compare to male counterparts to become an
entrepreneur in developing countries. Women still face restrictions in
mobility in many parts due to various reasons in spite of so much
advancement which make entrepreneurial role tougher for them. They are
also deep rooted into the family ties and home issues management. Women,
despite such challenges and deterrents, in developing countries including
India, have shown they can manage such challenges and run enterprises
successfully. To discuss women entrepreneurship further, let us first
understand what women entrepreneurship is?

Women entrepreneurs may be defined as “a woman or a group of women

who initiate, organise and run a business concern”. Women
entrepreneurship is an entrepreneur process with the aim of creating a
business entity, taking the necessary risk, organizing resources, planning and
managing the entity by women. The state policy definition for women
entrepreneurship is, “A Woman enterprise is the one owned and
controlled by a woman having minimum financial interest of 51% of the
capital and giving at least minimum 51% of generated employment to
women”. Famous economist J. Schumpeter defines women entrepreneur as a,
48

“Women who innovate, initiate or adopt business actively are called women Dimensions of
Entrepreneurship
entrepreneurs.”A woman entrepreneur has to perform all the functions
involved in setting up and managing an enterprise. These functions include
all necessary steps in the entrepreneurial journey from ideation, business
planning, resource mobilization including funds, setting up organisation type,
marketing, selling and liaison with the regulatory organizations.

To sum it up, you can say that women entrepreneurs are those women (s)
who initiate and create a business venture by organizing, combining and
managing the factors of production, own and run it successfully by their
acumen.

Factors Influencing Women Entrepreneurship

In last couple of decades there has been growth of woman entrepreneurship
in India. This has been due to increase in literacy levels among females and
genuine recognition of their competence. They have started taking up bigger
challenges, management skills and leadership. Innovative women with
entrepreneurial talent are likely to plunge into entrepreneurship provided they
get favourable opportunities and facilitation. They are inclined to take up
small business or industry to translate their innovative talent, ambitions, and
risk taking attitude into a position of entrepreneurship instead of employment.

There are personal and external factors that influence women entrepreneurs’
success (ILO, 2006).

x The personal factors comprise commitment, competencies, ideas,

markets and access to resources.
x The external factors comprise business development organizations,
broader enabling environment, economic/market environment and socio-
cultural context.
¾ The business development organizations factor includes engagement of
government, NGOs, private sector, membership organizations and
donors.

¾ The broader enabling environment factor underlines regulations, policies,

institutions and processes.
¾ The economic/market environment factor means opportunities and
threats (e.g., inflation, interest rates, economic trends etc.).

¾ Lastly the socio-cultural context factor considers attitudes, aspirations,

confidence etc., of the women foraying into entrepreneurship.

Family business could be a driving factor in many cases of female

entrepreneurship. They want to contribute alongside other members of the
family, share in efforts and outcomes. Many times success stories of relatives
and friends, other women etc., influences to pursue entrepreneurial path.
Such motivations prevail not only in the manufacturing sector but service
sector as well.

49

 Entrepreneurship: Government Support for Women Entrepreneurship Development
A Perspective
The Government and non-government bodies are engaging and encouraging
women and groups to attempt income generation opportunities through self-
employment and business ventures. There are several policies and incentives
to encourage women including various forms of mentorship support and hand
holding. These factors encourage women to become entrepreneurs and
explore commercial opportunities. Access to finance is a key requirement and
challenge. Such facilities are now available on priority through banks and
development finance institutions with certain relaxations to assist women
entrepreneurs. These facilities reduce deterrents in their journey towards
entrepreneurship. Various policy instruments of facilitation have been
introduced towards helping women to enter the entrepreneurial space. Most
of the entrepreneurial growth initiatives underline the importance of
promoting women entrepreneurship and include provision of support to
address this agenda. Not only in India, but all over the globe, women
entrepreneurs are taking new challenges in commercial world in leadership
roles as professionals as well as entrepreneurs. The Central and State
Governments have provided capacity building programmes for women so as
to empower them to become entrepreneurs. These programmes are packaged
with other supplementary facilities to help women to kick start their own
businesses. The government can also give special grants and subsidies to the
women entrepreneurs. The Women Entrepreneurship Platform (WEP) is
one such state supported scheme at present for women. It comprises
support to encourage and motivate, capacity building and hands on support.
Women at the ideation stage and established startups can register for the
scheme. It also supports early stage incubation and acceleration support.

Recent Trends in Women Entrepreneurship

With the raising awareness and support from government, institutions and
individuals, face of women entrepreneurship development is witnessing
positive and encouraging trends. Let us discuss that.
One of the common reasons for women to take up entrepreneurship is to lead
an independent life with self-confidence and self-respect. Other reasons
include aspiration for economic independence, management and technical
literacy, family support, economic necessity, community influence, NGO
influence, family business and government support. Growing literacy and
professional skills of women in technical, vocational, industrial, commercial
etc., drives women to take risks with confidence and set up businesses. They
are also motivated to acquire specialised education so as to qualify
themselves to be self-employed in some kind of trade, occupation, vocation
or business. For example many women after becoming professionally
qualifiedin medical sciences, engineering, etc. set up their own clinics or set
up to provide services. They acquire training in the areas of weaving,
stitching, grooming etc. and set up their own business. Sometimes family
circumstances create reasons for females to carry on businesses and many
times they spin off new entities or scale legacy businesses to new heights.
Similarly, there are lot of women entrepreneurs in smaller towns or even in
bigger cities who independently or mostly in groups set up cottage firms and
50

produce products which require competencies they already have like snack Dimensions of
Entrepreneurship
items, pickles, packed food, parlors, etc.

Some Examples of Women Entrepreneurs

Shri MahilaGriha Udyog LijjatPapad society is one of such drive which was
established to aim at women entrepreneurship and empowerment. LijjatPapad
Company is brain child of seven semi-literate women of Gujrat who started
from the roof of a residential building of Mumbai in 1959 from Gujrat and
grew to a workforce of around forty five thousand. The brand is a leader in its
category and exported as well. They wanted to create a livelihood source for
their families and developed this product based on what they could do with
their own skills i.e., cooking. They realized their abilities once they got the
exposure to possibilities. In their initial journey they got initial mentoring
from Mr.Parekh as well as small credit support to initiate their work. These
women entrepreneurs understood importance of trust in business and quality
being the key factor in food consumption; they kept product quality above
everything else.

There are several other inspiring examples of women entrepreneurs who

inspire potential youth to take up entrepreneurship. Kiran Mazumdar-Shaw
is an Indian billionaire entrepreneur. She is the founder of Biocon
Limited, a biotechnology company based in Bangalore, India. She founded
Biocon India in the late 70s with an initial seed capital of few thousand
rupees in rented premises in Bengaluru. She led Biocon’s from an industrial
enzymes manufacturing company to a fully integrated bio-pharmaceutical
company. She was won several prestigious awards for her extra ordinary
contribution towards the progress of science, growth of commerce and
inspiration for millions of people who want to pursue entrepreneurship. She
is on the Financial Times’ top 50 women in business list, ranked at 68th as
powerful woman in Forbes and in 2019, EY World Entrepreneur of the Year
2020. Some of the other popular women entrepreneurs of India include
Radhika Ghai Aggarwal – Co-Founder & CMO, Shopclues.com, Vandana
Luthra – The founder of VLCC, Vani Kola – Founder, Kalaari Capital, Ritu
Kumar – The Fashion designer, Suchi Mukherjee – Founder & CEO of
Limeroad. Aditi Gupta – The Co-founder of Menstrupedia.

3.4 SOCIAL ENTREPRENEURSHIP

Social entrepreneurs bring about transformative changes in society and
economy by filling gaps and addressing unmet needs. They improve
productivity and create value and wealth.

Zahra et al. (2008) further define social entrepreneurship as the activities

and processes undertaken to discover, define, and exploit opportunities
to enhance social wealth by creating new ventures or managing existing
organizations in an innovative manner. Social enterprises keep social
concerns in priority alongside organisations own sustainability. Both works
in tandem as sustainable organisations can empower the entrepreneur sustain
outreach to areas of social concern and appreciation of social benefit attracts
51

 Entrepreneurship: funding for the cause. Hence, capital accumulation is meant essentially for
A Perspective
self reliance and ensures long term support for intended beneficiaries.

Features of Social Entrepreneurs

1) Social entrepreneurs are change agents in the social sector.

2) Social entrepreneurs pursue social value in addition to the private value.

3) They identify new opportunities to explore possibilities of service for the
society and planet.

4) They pursue innovation to find solutions to existing unsolved social

problems.

5) They adapt their capability models and organizational structures to

respond to the social challenges.
6) They are open to new insights in their endeavor for new solutions and
fulfill their vision.

7) Social entrepreneurs also exhibit a heightened sense of accountability to

the intended audience of their services and solutions.
8) The target beneficiaries of such enterprises could be mostly people in
lowest base of pyramid, discriminated communities, ecologically
important constituencies important for overall sustainability, orphans, old
age people, economically weaker and sick people, physically challenged
and so on.

9) Types of innovations deployed include new products/services, new

methods of production, new markets, new inputs or new organizational
forms.

Some Examples of Social Entrepreneurs

Goonj is an example of a social enterprise which was founded in 1999 by
Anshu Gupta. Goonj is engaged in disaster relief, humanitarian aid and
community development in India. Goonj leverages unaddressed need of
clothing for its targeted beneficiaries. Goonj collaborates with partners and
communities to build facilitating infrastructure in the villages in the form of
wells, clean ponds, road repair, schools etc. In 2004, Goonj found the need
for addressing hygiene concerns of women in villages and slums who cannot
afford costly branded sanitary napkins. They rolled out affordable and fully
biodegradable cloth pads, MyPads, for women in villages and slums. Mr.
Anshu Gupta, was bestowed India's Social Entrepreneur of the Year 2012 by
Schwab Foundation and awarded the Ramon Magsaysay Award in 2015. It
undertakes social innovation and non-profit entrepreneurial orientation at the
organizational level to explore opportunities to create social wealth.

Similarly, Husk Power Systems is a startup located in Bihar which services

rural population in Bihar with electricity with the use of proprietary
technology. They use biomass gasifier which uses rice husk, a waste from
chaff of the rice, to generate energy. He realises that lot of husk has been
52 coming out as waste during rice processing in Bihar. He could sense the

 possibility of an enabling technology to process this waste into a valuable Dimensions of
Entrepreneurship
energy service which could address the electricity problems of rural
population. They claim that this is around 30% cheaper than the traditional
option and uses of local raw material. This is a case of combined rural and
social entrepreneurship.

Another example is Bungroo, a do-it-yourself well for dry farmlands by

Naireeta Service Pvt Ltd. Bhungroo has irrigated 2.2 lakh hectares in seven
districts of the state, a report by Gujarat Ecology Commission says. It
supplies abundant water in the dry months and also lessens the salt content in
the soil.

Check Your Progress A

1) What do you mean by rural entrepreneurship?

2) List out the factors influencing the success of women entrepreneurs in
India.

3) What is social entrepreneurship?

4) Fill in the blanks:

i) ……………….. utilise local natural and physical resources to
produce products like processed food, handicrafts, intermediate
artifacts etc.
ii) A …………… is the one owned and controlled by a woman having
minimum financial interest of 51% of the capital and giving at least
minimum 51% of generated employment to women”
iii) ……………… pursue social value in addition to the private value.

iv) ASPIRE was launched by …………………….. for promotion of

innovation, rural industry & entrepreneurship.
5) State whether the following statements are True or False:

i) Ambedkar Hast Shilp Vikas Yojna was launched to develop

handicraft clusters across India.

ii) WEP provides early stage incubation and acceleration support to

women owned startups.

iii) Social enterprises only consider social concerns and ignore their
organization own sustainability.
iv) Women are influenced less by socio-cultural complexities compare
to male counterparts to become an entrepreneur in developing
countries.
6) List Indian Social Entrepreneurs, one each working for the following
cause:
i) Education …………….
ii) Children welfare ……………..
53

 Entrepreneurship: iii) Poor & needy ……………..
A Perspective
iv) Sustainable energy ………………
v) Healthcare …………….

3.5 ECOPRENEURSHIP
Ecopreneurship means entrepreneurial processes where entrepreneur
ventures into producing goods and services which focus on
environmental benefits like recyclable products to depletion of natural
resources, greener products which save energy consumption, services
that care for pollution, animal life, trees, flora and fauna and so on.
These entrepreneurs set up businesses that solve environmental problems or
operate sustainably. Schuyler, Gwen (1998) defines ecopreneurs as
“entrepreneurs whose business efforts are not only driven by profit, but also
by a concern for the environment.”It is also known as environmental
entrepreneurship and eco-capitalism. It is becoming more widespread as a
new market-based approach to identifying opportunities for improving
environmental quality and capitalizing upon them in the private sector for
profit. There is growing trend globally towards society and state wanting
goods and services producers to be more responsible towards ecological
challenges. In many states in India there is ban on use of plastic bags and
encouragement for use of ecofriendly products and adoption of environment
friendly processes. Hence, there is a growing market segment which creates
opportunities for commercial entities to sustain economically as well as
address ecological concerns.

Factors Driving Ecopreneurship

There are several other factors driving such ventures.

x With the growing population and depletion of resources, there is a

growing realization to address this scarcity issue. Like water scarcity is
well known concern globally including India. It is going to be more
severe in times to come.

x Another factor is climate change and its impact on lives and livelihood
on the planet.

Hence, firms who take up this challenge and develop a vision for greener
world are worthy of appreciation. To sustain, these firms need to strategise
profits and eco sustainability simultaneously.

Many ecopreneurs leverage technological advances to find ways of reducing

ecological risks.These entrepreneurs set up ventures and cater to the planet at
the same time for sustainable ways and greener practices to enable businesses
to achieve sustainability as well as profitability using enabling technologies.

There are also regulatory requirements to stay greener in general and many
states have long term agendas to scale the size of eco-friendly ventures. There
are various state commitments and agreements at the global level which has
prompted such state plans. States also provide incentives and support for such
54

ventures. Like, there are many schemes for entrepreneurs venturing into Dimensions of
Entrepreneurship
renewable energy sector like solar projects, windmill projects etc. Hence, it
serves as a combined opportunity to stay within norms, benefit society and
commercially become profitable.

Examples of Ecopreneurship
An eco-friendly project in Assam uses bamboo for producing water bottles.
There is also a entrepreneurial project to package natural spring water
beverage packaged in recyclable aluminum cans. Spektron Solar Private
Limited, a company that conducts development and training programmes for
small-scale solar entrepreneurs. Spektron Solar is a capacity building set up
by a young entrepreneur in the areas of solar energy offering services to
capacitate stakeholders in different areas of installation and use. He found
this opportunity after he realized competency challenge in this sector and
government push for solar energy. He helps entrepreneurs set up these
projects. Another example is of an ecopreneur who started iKheti in 2011
based in Mumbai to empower people to carry out sustainable farming in
cities. The firm promotes farming in cities and offers services and resources.

3.6 CULTURAL ENTREPRENEURSHIP

Cultural Entrepreneurs are visionaries who mobilise cultural and other
production factors to structure a business model which sustains through
revenues from a cultural activity. Aageson (2008) defines cultural
entrepreneurs as risk takers, agents of change, and creative thinkers who
receive income from durable and creative cultural activities and
organizations, improve the quality of life, and create cultural values for
both creative manufacturers and consumers of cultural products and
services. Their innovative services and products create a value proposition
for market segments who appreciate such offers. It is about creation of any
product or service that primarily targets tastes of its targeted segments. As a
result, these organizations can sustain if the size of such segments is
sufficient and growing. The development of cultural entrepreneurship
facilitates in the creation of economically sustainable cultural enterprises that
enhance livelihoods and create cultural value and wealth for both creative
producers and consumers of cultural services and products.

Features of Cultural Entrepreneurship

1) Cultural Entrepreneurship is an outcome based of entrepreneurial
journey of people who prioritise cultural values alongside ambitions for
entrepreneurship. Culture is defined as “the enduring set of values of a
nation, a region, or an organization” and entrepreneurship as “the act and
process by which societies, regions, organizations, or individuals identify
and pursue opportunities to create wealth”. Hence, this combination
drives cultural entrepreneurship.

2) It is an outcome of individual values shaped by geographic and cultural

factors. It could be event managing firm who promote a certain type of
culture, art etc., or innovate through a cultural change process for
55

 Entrepreneurship: audience who appreciate change. Examples of cultural entrepreneurship
A Perspective
are entrepreneurs who sustain enterprise with revenues sought directly or
indirectly from specialized services like entertainment events about
cultural aspects, exhibitions, festivals, shows, events etc.

3) Apart from usual risks of entrepreneurship, one of the risks for cultural
entrepreneurs is change of individual taste and appreciation because
taste and appreciation is the driver for sustainability of such ventures.
We have several successful movie producers flop over time as they could
not adapt with changing audience taste. Same audience earlier liked their
services.

3.7 TECHNO ENTREPRENEURSHIP

Techno-entrepreneurs use technologies as core of their business model
and capture economic value by offering better solutions for existing
problems or solutions for unresolved problems. It requires identification of
opportunities, capabilities, mobilization of resources and engagement with
right market segment through right channels to capture value. Since
technology advances is happening at a rapid pace and many technologies
keep disrupting, the biggest challenge for techno entrepreneurs is dealing
with this uncertainty. Hence techno entrepreneurs should be able to anticipate
changes and have the agility to respond in time.

Features of Techno Entrepreneurship

1) For key activities and resource, in most cases technology enterprise,
entrepreneurs need the networks and partnerships to complete the
requisite capabilities to stay competitive in highly competitive
technology solutions. The competition in this market is intense as
majority of the today’s start ups are engaged in technology supported
ventures. Need of collaborations, partnerships etc., also arises because
many technology solutions have dependencies or require complementary
support to capture value.

2) Technology entrepreneurs ideate, develop a plan and execute it which

could be in stages from incubation, proof of concept to commercial
rollout of product or service. They need to demonstrate the utility and
market viability of their solution to instill confidence of their partners,
collaborators and above all their investors.
3) Standardisation of new technologies is an important milestone and trials
during this period keep happening with regard to design, processes,
product etc., till final standards are agreed by various stakeholders of that
technology domain including regulators.
4) Since R &D and innovation plays a key role in technology
entrepreneurship, Intellectual property rights is another important
ingredient of technology ventures. Patent holders need assurance of
value capture for their efforts and suitable patent regime to ensure
protection from any infringement. Also, process of filing to award of
56 patent is a complex process and timelines vary across states. Novelty

 brings alongside uncertainty and the subjective creative characteristics of Dimensions of
Entrepreneurship
the opportunity recognition process. The sufficient awareness and
knowledge of technology trends, regulations, consumer trends and agile
innovative organization management are critical factors for the success
of the techno entrepreneurship. In many sectors, techno-entrepreneurs
sustain through partnerships like carrying out R&D and innovation only
while commercial production and marketing may be taken care of by the
larger partners. This is a common phenomenon in Pharma sector.

5) Another challenge is retentions of key technology experts who can create
a situation of vulnerability some times as competitors influence these
resources and hurt viability prospectus of the firm. This may be because
the technology anchors the entire value creation and domain experts are
the fuel of that technological edge or solution.
6) About the market, techno-entrepreneurs must calibrate technological
opportunities with market opportunities regularly across its journey. It is
required to have relevant applications, services and products which
enable value capture. These entrepreneurs many times need to figure out
which technological options and applications to pursue without having
much reliable information to gauge projections about market and
technology itself.

Support to Techno Entrepreneurship

There are various state instruments in terms of policy, facilitation and
encouragement to take up techno entrepreneurship in India. There is
technology incubation hubs like T- hub in Hyderabad which has incubated
more than hundred potential techno entrepreneurs working with variety of
technologies like block chain, AI, additive manufacturing and so on. Here,
ambitious entrepreneurs are supported with guidance, network opportunities,
investor meets, training and several other facilities besides affordable hosting.
Similarly, there are special technology parks to encourage techno ventures
and start up venture funding facilities from government. Another positive
factor is large technical talent pool in India and growing startup culture in
cities like Bengaluru, Gurugram, and Hyderabad etc. Among the
entrepreneurs, techno-entrepreneurs are going to a dominant share among
new entrants alongside technology advancements in times to come.

3.8 HERITAGE AND TOURISM

ENTREPRENEURSHIP
Entrepreneurs can explore economic and social opportunities through
heritage tourism ventures. It can facilitate overall development by getting
attention of state government and investors on things and places which
otherwise may not be getting desirable attention. The importance and
attention of heritage tourism is going to increase more in coming years. It
includes business models which position heritage tourism services in the
form of travel experience which is valued by the target customers and
stakeholders. Example include tours related sites of archaeology,
57

 Entrepreneurship: architecture, art, religious places, historic tours, museums, military history,
A Perspective
music festivals, opera, pilgrimages etc.
Since states are also interested to promote development of underdeveloped
areas, any opportunity of exploring heritage tourism in such areas could help
address the issue. The heritage tourism services to such areas are going to
create an economic growth and development ecosystem around such services.
Once tourist flow starts, other complementary services start appearing like
transportation services, hospitality services, healthcare, infrastructure,
maintenance, etc. Hence, such entrepreneurial efforts can be multipliers as it
opens many more opportunities for new ventures which complement each
other. Some countries like Mali, Mauritius, Switzerland and many other
countries rely a lot on international tourists for state revenues. The tourists
coming to visit places spend money for things other than at heritage tourist
spots during their journey cycle. This boosts national income and overall
development.
There is often variety of heritage tourism services which could be packaged
by these entrepreneurs in innovative ways to get more traction among the
targeted customers. But to engage with target customers, they need to engage
effectively at various stages of the customer journey cycle. The journey cycle
may involve search, selection, time, and other facilities, mode of transport,
security and revisit. Since much of this journey happens online now days,
heritage tourism entrepreneurs need to leverage information technology
solutions for being there at all important moments of customer journey.
Social network also have a major role. Many tourist look for feedback of
earlier visitors and tourists about places and service providers which is
nowadays common on social networks, review sites, blogs etc. The target
customers get more interested in use of new technologies. The technologies
facilitate in the exploration of many places before selection of spots.
Enterprises offer technology solutions to experience closer to real in a virtual
stream remotely to bring authenticity and trust in the promise of experience.
For effective delivery of marketing communication mix in the online
environment, these entrepreneurs need to equally concentrate on digital
marketing, enriching the marketing-mix at lower costs, quicker response and
personalized content. Hence, digital smartness is a major competency
required for success of heritage tourism entrepreneurship.

Access and infrastructure plays a big role in heritage tourism and there are
numerous potential places in India and many other developing and
underdeveloped countries to explore which lack such facilities. Hence, there
is need for strengthening more this facilitation and identify more deserving
places to give boost to tourism which can open avenues for more heritage
tourism entrepreneurs and consequently development and economic
wellbeing of these places.

3.9 INTERNATIONAL ENTREPRENEURSHIP

International entrepreneurship means the process where an
entrepreneur is offering products and services beyond state borders. It
58

can comprise global trade, manufacture products or service base in other Dimensions of
Entrepreneurship
countries, collaborative projects and any other model where entrepreneur can
create or capture value beyond country boundaries. Some firms start its
international operation from the beginning where as some start later. Many
entrepreneurs in various countries, including India, first establish themselves
in local market and then stretch its footprint to other countries. There is
relatively higher risk in international business and corresponding
opportunities as well. Risks could be due to currencies, political issues, and
regulation about ownerships, protectionism, and higher level of competition,
stricter standards and so on. In some countries, outside entrepreneurs are
compelled to have local partnerships or sometimes agree for technology
transfer in case of technology ventures which could lead to compromises.
Also cost of engagement may be high like in case of services venture who
wants to participate in tendering process, in a B2B scenario. They have to
incur high cost in the pre-bid stage with highly uncertain outcome. In some
international ventures, the global markets explored may have unfavorable
social conditions like in some African countries; there are security concerns
for outside employees.

It is important for international entrepreneurs to understand the maze of

agreements between countries at different levels like general agreements,
regional agreement, bilateral agreements etc. the detailed understanding helps
in analysing the implications for cost, restrictions, and opportunities.
International trade is relatively more regulated than domestic trade and
violations can be costly.
For global entrepreneurial aspiration, entrepreneurs should have high level of
commitment and readiness for taking higher level of risk. They need to be
smart enough to network and plan an effective strategy as cost of failure
could be high. However, e-commerce venture or entrepreneurs using digital
channels can offset these challenges to some extent provided they are able to
understand target customers through reliable channels and provide distinct
competitive solution at a better offer. Many entrepreneurs develop local
partnerships to make effective distribution and sales channels in international
markets. For example, many coir product manufacturer exporters in India had
in past local partnerships in European countries and other countries of west to
develop markets in those countries. Similarly, many IT solutions companies
have created partnerships for gaining access to markets of other countries.

There are several policy instruments in India to support international

entrepreneurship for different stages of the business like market promotion,
development, credit financing, insurance etc. Also there are export
promotional councils which facilitate networking, opportunity identification,
marketing, capacity building etc., like Export Promotional Council for
Handicrafts (EPCH) based in Delhi assists international handicraft
entrepreneurs once they get registered with the council. ECGC (Export Credit
and Guarantee Corporation) helps in the credit risks management, FIEO
(Federation of Indian Export Organisation) may be helpful in getting
information about the global market and global products.

59

 Entrepreneurship: Check Your Progress B
A Perspective
1) List out the factors driving the ecopreneurship.

2) What do you mean by cultural entrepreneurship?

3) List out the challenges of techno entrepreneurship.

4) What do you mean by heritage and tourism entrepreneurship?

5) Fill in the blanks:

i) ………………. is also known as environmental entrepreneurship.

ii) Entrepreneurs in specialized services like entertainment events about

cultural aspects, exhibitions, festivals, shows, events etc. are
example of ……………………. .

iii) The heritage and tourism entrepreneurs offer services in the form of
……………………….. .

iv) R &D and innovation plays a key role in ……………………

entrepreneurship.
v) ………………. assists international handicraft entrepreneurs once
they get registered with the council.

3.10 LET US SUMP UP

Rural entrepreneurship is a means to increase income and employment as
well as providing stability and growth in rural communities. These
entrepreneurs utilise local natural and physical resources to produce products
like processed food, handicrafts, intermediate artifacts etc., and services like
tourist services, input labour services for bigger companies based in remote
areas and so on. One of the major challenges of entrepreneurial growth in
rural space is lack of supportive ecosystem for individual growth, culture and
enterprise support. Various government schemes have been launched from
time to time to encourage rural entrepreneurship.
In last couple of decades there has been growth of woman entrepreneurship
in India. A Woman enterprise is the one owned and controlled by a woman
having minimum financial interest of 51% of the capital and giving at least
minimum 51% of generated employment to women. There are several
policies and incentives to encourage women including various forms of
mentorship support and hand holding.
Social enterprises keep social concerns in priority alongside organisations
own sustainability. Social entrepreneurs are change agents in the social
sector. The target beneficiaries of such enterprises could be mostly people in
lowest base of pyramid, discriminated communities, ecologically important
constituencies important for overall sustainability, orphans, old age people,
economically weaker and sick people, physically challenged and so on.

60

There is growing trend globally towards society and state wanting goods and Dimensions of
Entrepreneurship
services producers to be more responsible towards ecological challenges.
Ecopreneurs set up businesses that solve environmental problems or operate
sustainably.

Cultural Entrepreneurs are visionaries who mobilise cultural and other

production factors to structure a business model which sustains through
revenues from a cultural activity. Examples of cultural entrepreneurship are
entrepreneurs who sustain enterprise with revenues sought directly or
indirectly from specialized services like entertainment events about cultural
aspects, exhibitions, festivals, shows, events etc.

Since technology advances is happening at a rapid pace and many

technologies keep disrupting, Techno-entrepreneurs use technologies as core
of their business model and capture economic value by offering better
solutions for existing problems or solutions for unresolved problems. They
must calibrate technological opportunities with market opportunities
regularly across their journey. There are various state instruments in terms of
policy, facilitation and encouragement to take up techno entrepreneurship in
India.
Entrepreneurs can explore economic and social opportunities through
heritage tourism ventures.Heritage and tourism entrepreneurship includes
business models which position heritage tourism services in the form of
travel experience which is valued by the target customers and stakeholders.
Example include tours related sites of archaeology, architecture, art,
religious places, historic tours, museums, military history, music festivals,
opera, pilgrimages etc.
International entrepreneurship means the process where an entrepreneur is
offering products and services beyond state borders. It can comprise global
trade, manufacture products or service base in other countries, collaborative
projects and any other model where entrepreneur can create or capture value
beyond country boundaries. There is relatively higher risk in international
business and corresponding opportunities as well.

3.11 KEY WORDS

Cultural Entrepreneurs: Entrepreneurs who mobilise cultural and other
production factors to structure a business model which sustains through
revenues from a cultural activity.

Ecopreneurs: Entrepreneurs whose business efforts are not only driven by

profit, but also by a concern for the environment.
Heritage and Tourism Entrepreneurship: It includes business models
which position heritage tourism services in the form travel experience which
is valued by the target customers and stakeholders.

International entrepreneurship: The process where an entrepreneur is

offering products and services beyond state borders.

61

 Entrepreneurship: Rural Entrepreneurship: The creation of a new organization that introduces
A Perspective
a new product, serves or creates a new market, or utilizes a new technology
in a rural environment.
Social Entrepreneurship: the activities and processes undertaken to
discover, define, and exploit opportunities to enhance social wealth by
creating new ventures or managing existing organizations in an innovative
manner.

Techno-entrepreneurs: They use technologies as core of their business

model and capture economic value by offering better solutions for existing
problems or solutions for unresolved problems.

Women Entrepreneurs: A woman or a group of women who initiate,

organise and run a business concern.

3.12 ANSWERS TO CHECK YOUR PROGRESS

A) 4. i. Rural entrepreneurs ii.Woman enterprise iii. Social entrepreneurs iv.
Ministry of Micro, Small and Medium Enterprise (MSME)

5.i. true ii. true iii. false iv. false

B) 4. i. Ecopreneurship ii. cultural entrepreneurship iii. travel experience iv.
technology v. Export Promotional Council for Handicrafts (EPCH)

3.13 TERMINAL QUESTIONS

1) Discuss the role of government in promoting rural entrepreneurship in
India.
2) What factors do influence the emergence and development of social
entrepreneurship? Discuss them with examples.
3) Explain the challenges faced by women entrepreneurs in establishing and
developing their enterprises.
4) Write short notes on the following:
5) Ecopreneurship
6) Heritage and tourism entrepreneurship
7) Explain the role that techno entrepreneurs fulfill in the development of
the country.
8) Entrepreneurs dealing across national boundaries undertake relatively
higher risk. Comment.

Note: These questions will help you to understand the unit better. Try to
write answers for them. But do not submit your answers to the University for
assessment. These are for your practice only.

62

 Dimensions of
FURTHER READING Entrepreneurship

x Aageson, T. (2008), Cultural entrepreneurs: Producing cultural value and

wealth. In: Anheier, H.K., Isar, Y.R., editors. The Cultural Economy.Los
Angeles: SAGE. p92-107.
x Ahuja, V., Akhtar, A., & Wali, O. P. (2019).Development of a
comprehensive model of social entrepreneurial intention formation using
a quality tool.Journal of Global Entrepreneurship Research, 9(1), 41.
x Geneva:International Labor Organization. Available: http://www.
cartierwomensinitiative.com/docs/Ethiopian_women_entrepreneurs_ILO
.
x ILO (2006). Vulnerability and young women entrepreneurs: A case study
of Ethiopian informal economy.
x Klamer, A. Cultural entrepreneurship.Rev Austrian Econ 24, 141–156
(2011).https://doi.org/10.1007/s11138-011-0144-6
x Ravi “Top 10 Famous Women Entrepreneurs in India” The CEO Story
January 14, 2021 retrieved from https://theceostory.in/blog/top-10-
famous-women-entrepreneurs-in-india/ on 21-1-2021
x Rani, A. (2016). Women spirit wins: A case study of LijjatPapad.
International Journal of Applied Research, 2(2).
x Ratten, V. (2011) ‘Social entrepreneurship and innovation in sports’,
International Journal ofSocial Entrepreneurship and Innovation, Vol. 1,
No. 1, pp.42–54.
x Swedberg, R. (2009). Rebuilding Schumpeter’s theory of
entrepreneurship. Marshall and Schumpeter on evolution, 188-203.
x Schuyler, G. (1998). Merging Economic and Environmental Concerns
through Ecopreneurship. Digest Number 98-8.
x Tanaya Singh,” How a 25-Year-Old Delhi Boy Is Creating Solar
Entrepreneurs in Rural India” The Better India 24-10-2016 retrieved
fromhttps://www.thebetterindia.com/72824/solar-entrepreneurs-lakshey-
sehgal-energy-delhi/ on 21-01-2021
x Vishal Dutta, “ Bhungroo technology: A do-it-yourself well for dry
farmlands”, Economic Times 2-1-2014 retrieved from economictimes.
indiatimes.com/news/economy/agriculture/bhungroo-technology-a-do-it-
yourself-well-for-dry-
farmlands/articleshow/28256319.cms?utm_source=contentofinterest&ut
m_medium=text&utm_campaign=cppst on 19-1-2021
x Zahra, S. A. (2008). The virtuous cycle of discovery and creation of
entrepreneurial opportunities. Strategic Entrepreneurship Journal, 2(3),
243-257.
x https://en.wikipedia.org/wiki/Goonj_(NGO) retrieved on 20-01-2021
x https://en.wikipedia.org/wiki/Kiran_Mazumdar-Shaw retrieved on 20-01-2021
x https://shaktifoundation.in/wp-content/uploads/2014/02/010415-villgro-
EEIP-report_FINAL.pdfretrieved on 20-01-2021

63

 Entrepreneurship:
A Perspective UNIT 4 ENTREPRENEURIAL
COMPETENCIES

Structure
4.0 Objectives
4.1 Introduction
4.2 Entrepreneurial Competencies: An Overview
4.3 Entrepreneurial Aptitude
4.4 Creativity
4.5 Innovation
4.6 Inter personal skills
4.7 Business leadership
4.8 Problem solving
4.9 Communication
4.10 Negotiation
4.11 Risk management
4.12 Let us sum up
4.13 Key words
4.14 Answers to Check Your Progress
4.15 Terminal Questions

4.0 OBJECTIVES
After studying this unit, you should be able to:
x describe the evolution of competencies;
x appreciate the role of various competencies for entrepreneurial
performance;
x discuss specific competency areas;
x analyse linkages of specific competencies with the enterprise success;
and
x explain the interdependencies between various competencies.

4.1 INTRODUCTION
An enterprise is a brain child of the entrepreneur. Growth and success of
business depends on the competency of the entrepreneur. Entrepreneurial
competencies are very important for entrepreneurship development as well.
Lack of entrepreneurial competencies may lead to low entrepreneurial
activity in the society. We have already discussed in Unit 1 that
entrepreneurship play a very important role in the economic development of
the nation. We have also discussed that how an ecosystem is responsible for
encouraging and motivating entrepreneur. In this unit, you will learn various
64
entrepreneurial competencies such as creativity and innovation, interpersonal Entrepreneurial
Competencies
skills, business leadership, problem solving, communication, negotiation and
risk management etc. that are crucial for nurturing and promoting
entrepreneurial activity.

4.2 ENTREPRENEURIAL COMPETENCIES: AN

OVERVIEW
Since we are going to talk about various entrepreneurial competencies here,
let us begin with understanding what competencies are? Competencies are
primarily combination of skills, knowledge and attitude that determines the
effectiveness of your performance. For example, if you are going to give a
musical performance (singing) on stage, its success will depend upon how
melodious your voice is, along with your performance style, musical
instruments, background decor of the stage etc. Similarly, when we talk about
entrepreneurial competencies, we are trying to describe all the skills and traits
of an entrepreneur that effects the business growth.

Competencies are not tasks but enablers which help individuals to

accomplish a task. Most common understanding of competency is that it is
blend of skills, knowledge and attitude which leads to superior performance.
Stoof (2005) and Tibb (1990) have defined competency as “an ability to
perform certain tasks for which knowledge, skills, attitudes and motivations
are necessary.” The entrepreneurial competences are the high level
characteristics which define the prospect of success at different stages of
entrepreneurial journey. The competency focus captures the human element
of the entrepreneurship. The competencies help leverage opportunities and
address issues at various stages of the enterprise development and
sustainability. Hence, strength of competencies of an entrepreneur is
associated with business outcome of the entrepreneurial endeavour.
Competencies of people develop over time once they possess the knowledge
and develop skills to apply that knowledge. More and more application helps
gain experience and expertise. Expertise gives confidence and improves level
skill. In most cases it brings a positive attitude towards that skill which the
person applies in right situations. Hence, competence is combination of
knowledge, skills and attitude which any person possesses.

There are several competencies which have been identified as effective inputs
to the performance of processes taken up by the entrepreneur. The
competencies of the entrepreneur required for new or smaller enterprise may
not be same as required in case of a larger enterprise. Various researchers
have categorized competencies of the entrepreneurs based on specific
dimensions like stage of enterprise, sector, and phase of entrepreneurial
journey of the individual itself etc.

Entrepreneurial competencies can also be seen from the perspective of

enterprise stage- start up and enterprise sustainability. The competencies like
risk-taking propensity, negotiation, communication, need for achievement
can be critical for initial break through whereas negotiation, interpersonal
skills, opportunity identification and networking skills help firms to adapt
65
 Entrepreneurship: and respond to variety of business challenges it faces to sustain and scale. It
A Perspective
has been seen in various studies that competencies can have direct impact on
the entrepreneurs performance in the short as well as long-run.
It is essential to understand that competencies are learnable and
understanding the competency need for specific type of ventures, at specific
stage of the venture can be of utility from the perspective of policy, capacity
building or training, self-assessment and investment. These perspectives
will try to analyse the fitment or potential of fulfilment before they show a
buy-in for proposed new projects. Some common competencies identified
comprise the following:
x Creativity,
x Innovation,
x Inter personal skills,
x Business leadership,
x Problem solving,
x Communication,
x Negotiation and
x Risk management.
Individual family background, education and experience can influence the
strength of these competencies in an individual. Hence, it is helpful to have a
more understanding of these types so that one can work on these to elevate
the strength of these competencies.
In a nutshell, entrepreneurial competencies are:

1) A set of abilities and skills that are required to be in a budding

entrepreneur for success of the venture. They may possess these skills
and abilities or acquire these.

2) Set of skills and abilities that encourage them to take initiative and be
creative and innovative.

3) Ability to develop, organise and manage a business venture that is

established by the entrepreneur.
4) Ability to foresee risks, analyse them and take calculated risk.

5) Abilities and skills to negotiate network and make effective

communication.

6) Interpersonal skills and hunger for achievement, affiliation and power.

7) Ability and skill to sense the environment and identify an opportunity
which is workable and profitable.

8) Leadership skills, problem solving attitude and strength to manage risk.

66
 Entrepreneurial
4.3 CREATIVITY Competencies

Creativity is one of the important competencies for successful entrepreneurs

which has the potential to generate new ideas, new solutions, see new
perspectives and give confidence to the entrepreneur for sustained agility in
innovation. Creativity is defined as the tendency to generate or recognize
ideas, alternatives, or possibilities that may be useful in solving
problems, communicating with others, and entertaining ourselves and
others. The analysis of above definition shows that creativity refers to:
x Generation and recognition of ideas
x Development of alternatives for solving the problems
x Communication with others
x Entertaining ourselves or entertaining others

It is a phenomenon whereby something somehow new and somehow valuable

is formed which can be a tangible product or an intangible product like an
idea, composition etc. Creative capacity usually is not a finite matter which
dries up with use. It is about ability to generate novel, distinct and
unresolved useful connections.
Most of the successful entrepreneurs come up with new ideas, new solutions
and novel ways to address problems in a better way or solve unresolved
problems. It helps thinking in creative ways to manage internal or external
processes of the organisations, structures, engagements, partnerships,
resource management and other aspects of entrepreneurship. These processes
help the enterprise to attain the advantageous position then place the
enterprise in a position of advantage versus its competitors with a
differentiation and edge.

Creative competencies allow entrepreneurs to offer promises to their

stakeholders of being consistently innovative. The innovativeness gives their
partners confidence to invest as investors or trust as a partner or reason for
likeability for customers to be front runner with new introductions. Many
large technology intensive firms are known for consistent innovation who bet
on partner entrepreneurs in their network. They are assure that the innovative
firms are creative enough to be consistent in bringing out new solutions on
demand for their bigger partners who handle commercial part. In-house
dependable creative competencies can encourage entrepreneurs to have scope
for building their brand on a powerful plank of consistent innovation because
innovation can be more routine if dependable creative competencies are
accessible. It may be difficult for organisations to have a brand promise of
being an innovative firm if it cannot roll out innovative products in timely
manner which itself depends to a larger extent on its creative base or
dependable creative networks.

Benefits of creativity to entrepreneur: The benefits of creativity can be

seen as:
1) Creativity enables effective management.
67
 Entrepreneurship: 2) It caan address problems in a better way.
A Perspective
3) It caan solve unresolved problems.
4) It ennsures and enables effective utilisation of avaailable resources.
5) It heelps in overcoming the weaknesses.
6) It leeads to innovation and innovative ideas.
7) It giives an edge vis-a-vis the competitors in the market.
m

4.4 INNOVATION
Innovatiion and Creativity go hand in hand. While W creativity means
conceptualising something new, innovation is appllication of new or novel
things to develop new product or a service. Innovation translates
creativitty into a utility. One of the earliest definitioons includes ³,QQRYDWLRQ
LV WKH JJHQHUDWLRQ DFFHSWDQFH DQG LPSOHPHQWDWLRQ RI QHZ LGHDV SURFHVVHV
SURGXFWVV RU VHUYLFHV” (Thompson, 1965). Some researchers have later
tweakedd the definition as ³,QQRYDWLRQ FDQ EH GHILQHG
G DV WKH HIIHFWLYH
DSSOLFDWWLRQRISURFHVVHVDQGSURGXFWVQHZWRWKHRUUJDQL]DWLRQDQGGHVLJQHG
WR EHQHIILW LW DQG LWV VWDNHKROGHUV´ (Wong et al., 2008).
2 It is possible that
innovatoors may have the ability to transform creative ideas into a
commerrcially successful product or service but maay not have capacity to
bring creeative ideas. Innovation is the key ingredien nt of productive thinking
besides opportunity identification, risk taking and d creativity to find new
solutions. Successful entrepreneurs recognise opportunities
o and find
innovative responses. They require innovative comp petencies to manage and
ways to sustain these competencies.
Process of Innovation: The process of innovation haas five basic steps. These
steps aree summarized in Figure 4.1 below:

Idea Generation Advocacy and

Experimentation
and Mobilisation Screening

Diffusion and
Commercialisation
Implementation

Figure 4.1 Process of Innovation

n

68
Innovation by entrepreneurs varies by the extent of novelty brought in by the Entrepreneurial
Competencies
new solution. There may be three types of innovations. They are:

1) Incremental Innovation

2) Radical Innovation
3) Disruptive Innovation.
Let us try to understand these types of innovation one by one.

At the basic level, it may be incremental innovation. It requires quick

learning, foresight and experience of experimenting and deploying new
features, additional utilities, and tweaks in functionalities and so on. As you
have already discussed in Unit 1 that adaptive innovators do incremental
innovation. Incremental innovation is a series of small improvements to the
existing products. There is less risk in this type of innovation.

Innovation competencies can also drive a radical improvement in current

technology solutions or processes for roll out. We have already learnt that
ambitious entrepreneurs do radical innovations (Unit 1). In this kind of
innovation, the existing business or system is destroyed and an entirely new
business or system replaces it. A new brand is created and positioned. In this
innovation, undoubtedly high risk is involved. It is a transformative business
model. It converts the existing business, system, design or innovation into a
brand new one. These innovations may push out other businesses to an end.
Innovative competencies can also bring a disruptive innovation. Disruptive
innovation has the potential to replace the adoption of existing solutions and
potential to affect the existing market equilibrium for current solution
stakeholders. It forces the stakeholders to adapt new innovation to sustain.
Hence, deeper innovative competencies are required by entrepreneurs to
disrupt as well as find ways to face disruptions in times of speedy
technological advances. It is quite similar to radical innovation. In this a new
business is created to sell into an existing market, whereas, in radical
innovation an entirely new market for radically innovated products and
services is created and catered to.
Entrepreneurs leverage various innovative paths to succeed like product
innovation, service innovation, process innovation, marketing
innovation, business model innovation etc. Innovation may involve a
variety of changes subject to organization’s strategy, need, resources but
importantly innovation competencies. Competencies for product innovation
require sufficient research and development capabilities for various stages of
new product development and commercialization. Depending on the type of
product, it may include: competencies across design, architecture, prototype
development, testing, procurement, production, and commercial roll out.
Process innovation could be a project of business process reengineering
where radical changes in the existing processes are carried out for radical
gains. Hence, innovative competencies do not only understand existing
solutions or process goals but it also requires ability to find alternate viable
solutions and challenge existing assumptions.

69
 Entrepreneurship: The composite innovation led capability model could be based on an
A Perspective
individual or few partners in a new start up or several competent people in a
mature enterprise or across firms in a joint venture.
Benefits of Innovative Competency: Having innovative competency offers
the following benefits to the enterprise:
1) Mostly, an innovative competency across functions and processes helps
entrepreneurs to perform better in a competitive situation.

2) It helps to sustain because innovative competencies across functions

gives a larger scope for enterprise to sustain based on innovation.

3) In a highly competitive market situation, competitors need to

consistently differentiate to retain, penetrate and scale. Hence, it
becomes important to have innovative competency to offer something
different.
4) To sustain in the global market one must make strategic and innovative
moves.
5) Innovation is important and critical to ensure smooth running of
organisations due to evolving work place dynamics.
6) As you are aware that the tastes and preferences of customers keep on
changing, therefore, innovation facilitates in satisfying the consumers in
new ways.
It has been observed that many technology startups flop because of the
lack of innovative competencies in managing commercial success or
business governance or partnership management, and other aspects of
running an enterprise in spite of their competencies to find an innovative
product or service.

Challenges of Innovation: It is true that innovation is important but it also

has certain challenges and risks associated with it.

1) Technological failure is one of the major challenges of innovation. To

overcome this challenge, it is important for the entrepreneurs to carry out
number of trials for the new product before it is implemented.

2) The other risk is the financial burden on the business enterprise.
Innovation comes with a cost. Usually an innovative product gives the
returns in the long run, therefore the enterprise face a major challenge of
finance. The enterprises, therefore, are required to assess their financial
position before taking up any innovative procedure.

3) The other challenge is the market failure. It is very much possible that an
innovative product despite many trials does not give the returns as
expected. Redundancy is another challenge for an innovative product.
The market changes constantly with new technology coming up every
now and then. By the time the innovative product is launched in the
market, it becomes redundant due to technological upgradation.

70
 Therefore, it is imperative for the entrepreneurs to keep abreast with the Entrepreneurial
Competencies
technology to avoid such risks.
4) Lack of structural and financial capacity of implementation is another
challenge for entrepreneurs. This challenge is usually for the start-ups as
they do not have a sound base. In this case they can look for the partners
who are sound. Organisational risks are associated with innovation.

5) Sometimes the entrepreneurs tend to focus all its attention on the
innovation. This hinders day to day activities of their enterprise.
Therefore, it is important for entrepreneurs to have separate innovation
centres so that the daily activities of the enterprise are not hindered.

6) There are unforeseen risks associated which are unprecedented like
political events etc. The entrepreneurs need to have a contingency plan
for the same rather than being over ambitious.

The challenges are definitely a part and parcel of a business venture but
when overcome, these turn into opportunities. Innovation does help the
entrepreneurs in many ways. Innovation does provide name and
recognition to the innovating entrepreneurs.

4.5 INTERPERSONAL SKILLS

Interpersonal skills are generic types of skills which can be helpful across
levels of any organisation including entrepreneurial ventures. It is defined as
the behavioral and tactical skills a person uses to motivate, influence and
interact with others effectively. Interpersonal skills help entrepreneurs
to manage host of other things which are key for success of venture.
Interpersonal competencies drive effective communication, networking, and
partnership management. Interpersonal skills are driven by the individual
need for involvement and expression while engaging with other people. It has
been observed that one of the key competencies of successful entrepreneurs is
an interpersonal skill which helps them manage their goals effectively.
Interpersonal skills may include:
x Conflict resolution
x Empathy
x Positive communication
x Active listening
x Adaptability
x Confidence
x Patience
x Collaboration or teamwork
x Flexibility
x Diplomacy

Importance of Interpersonal Skills: The importance of having and

developing interpersonal skills are discussed below: 71
 Entrepreneurship: 1) Entrepreneurs need to persuade various stakeholders including
A Perspective
customers, clients, investors, suppliers, competitors, and service
providers at various stages of their journey. At the early stages of
entrepreneurship, interpersonal skills are a key competency to get
the entire start-up team aligned to the organisation objectives. They
should be able to convince others and make them confident about the
success potential of the venture.

2) Entrepreneurs need to identify and hire right set of people which requires
ability to appreciate and assess requisite competencies and skills in order
to attract the talent to join their venture.

3) Interpersonal skills are required for job performance, sustain meaningful
dialogue and lead goal oriented engagement.

4) People with strong interpersonal skills tend to build good relationships
and can work well with others as they understand others well. This could
help in developing good relationships with clients and employees.

5) Interpersonal skills help in resolving issues and disagreements in the

workplace, whether they involve the entrepreneur and employee or other
parties.

6) When entrepreneurs help their employees to learn, motivate them and
ask them for their feedback and ideas it increases the productivity of the
enterprise.

7) One of the early challenges of most entrepreneurs is financing support.

Apart from an attractive and viable business plan, team credibility and
other requisites, investors give lot of emphasis on the interpersonal skill
competency. The display of such competencies gives investor
confidence about entrepreneurs ability to govern, lead, find right
resources, partners, liaison smartly with the regulators and so on.
8) Networking is one of the major goals of successful entrepreneurs. Smart
entrepreneurs continuously nurture networks which become source for
potential opportunities, value enhancing partnerships and influence.
Development of strong networks rides on the competency of
interpersonal skills. Entrepreneurs should have the ability to leverage
nurtured networks into productive relationships. Entrepreneurs need to
have negotiation skills, emotional management and interpersonal
engagement skills to make their networks more productive.
Certain interpersonal skills can be learnt by individuals wanting to get in
to entrepreneurship. These skills can be groomed which may include:
suitably designed learning and use of methods like collaborative
learning, experiential learning, and cooperative learning methods which
cultivates such competencies.

Effective interpersonal engagement is also a key attribute of smart and

successful leaders which is again important for entrepreneurs.

72
 Entrepreneurial
4.6 BUSINESS LEADERSHIP Competencies

As mentioned above, entrepreneurs should have leadership competency

to lead their teams effectively. Focus on managerial competency for
entrepreneurs have been there since long. However there is sufficient
evidence to show that leadership competence differentiates scale of success.
Business leadership is defined as the ability of an individual, group or
organization to "lead", influence or guide other individuals, teams, or
entire organizations to achieve the shared goals.
Entrepreneurs should have ability to inspire and convince others. They
need to carry a persona and conviction about the enterprise strength to
achieve the set goals. That should have ability to transfer this conviction
across the enterprise members to have the necessary motivation required to
face uncertainties and challenges.

Entrepreneurs, besides other qualities, resources and good business plan,

should be able to lead their teams. They should take up the challenges where
the entire team is supportive of the initiatives taken by the leader and can put
their trust in their leader.

Characteristics of Business Leadership: Business leadership has the

following characteristics:
1) It is a continuous process whereby the entrepreneur influences, guides
and directs the behaviours of his team, employees and key partners.
2) The entrepreneur is able to influence his team and partners behaviour at
work due to the quality of his own behaviour as leader.

3) The purpose of business leadership is to get willing cooperation of the

work group in the achievement of specified goals.

4) The success of a entrepreneur as leader depends on the acceptance of his

leadership by the team, employees and partners.

5) Business leadership requires that while group goals are pursued,
individual goals are also achieved.
Importance of Business Leadership: Leadership competency plays an
important role in the success of entrepreneur which has been discussed
below:

1) Entrepreneurs face challenges, particularly, in its initial stages to face the
reality of the competitive markets. This requires adjustments, reworking,
change and frequent transformation. Frequent transformation is a rule for
entrepreneurial set ups in its initial stages rather than an exception. They
need to adapt to the prevailing ecosystem as they do not have the size
and scale to influence structures. It leads to situations where management
and employees look up to the leadership for assurances about the future
of enterprise.

73
 Entrepreneurship: 2) Key partners and other stakeholders also prefer to associate with the
A Perspective
enterprise headed by competent leadership for the sake of their own
sustainability and long term relationship.
3) Goal setting is an important activity in any enterprise which is translated
into various performance indicators for the team members to achieve. To
pursue and achieve ambitious goals and gather more momentum for high
performance, leadership competency plays an important role. Effective
leader are able to get the entire team aligned to their vision and mission
which heightens the motivation among the members to achieve the
extraordinary. They are able reassure members and partners that their
efforts are valuable and goals are worth putting that effort.

4) Having leadership competency helps entrepreneur to build congenial

work-environment keeping in view the subordinates competence, needs
and potential.

5) Where the subordinates face problems in connection with their

performance at work, the leadership competency helps entrepreneur to
guide and advise the subordinates.
6) Strong leadership strengthens the spirit of the team members and key
partners.

Check Your Progress A

1) What do you mean by entrepreneurial competencies?
2) List out three benefits of creativity.
3) What do you mean by interpersonal skills?
4) Fill in the blanks:
i) …………. an ability to perform certain tasks for which knowledge,
skills, attitudes and motivations are necessary.
ii) …………….. means conceptualizing something new
iii) Development of strong networks rides on the competency of
………………. .
iv) …………….. is the ability of an individual, group or organization to
lead, influence or guide other individuals, teams, or entire
organizations to achieve the shared goals.
v) …………….. is application of new or novel things.
5) State whether the following statements areTrue or False:
i) Disruptive innovation has the potential to replace the adoption of
existing solutions.
ii) Creativity is about ability to generate novel, distinct and unresolved
useful connections.
iii) Interpersonal skills consist of behavioral skills only.
iv) Individual family background, education and experience can
influence strength of the competencies in an individual.
74 v) Leadership competence differentiates scale of success.
 Entrepreneurial
4.7 PROBLEM SOLV
VING Competencies

In any field, including entrepreneuurship, problem solving competency is the

key competency to cruise ahead othherwise chances of stagnation and reversal
are higher. Problem solving compettency is required to:
x Understand problems well.
x Understand alternative options as well as assumptions.
x To have awareness of risks annd decision which can be executed within
the context.

The fact that entrepreneurs must taake risks means there is a higher chance of
decisions going wrong and see faailures. These failures teach us and bring
lessons as well and help future enndeavors. At the same time, the impact of
bad decisions or escapism can be m more severe and decision making process
could be put to more scrutiny by the stakeholders in the current situation they
are operating. Hence, effective problem-solving competency holds an
important place in the competency ggrid of an entrepreneur.
Problem solving attitude sits on thee conviction that there can be a solution for
most of the problems faced. It requiires:
x capability to identify context,
x identify the relevant factors of influence, and
x practical solution among the m
multiple solutions explored for a problem.

Competent problem solvers normallly explore several alternate paths to arrive

at most feasible one. They see thee feasibility of resources and operational
capacity to arrive at the right deciision. The Process of Problem Solving is
summarized in the figure 4.2:

Identify the Analyze the Look For Root

Problem Problem Causes

Evaluate and Develop

Implement the
Select the best Alternate
Solution
possible Solution Solutions

Measure the
Reasults

Figure 4.2 Proccess of Problem Solving

75
 Entrepreneurship: Benefits of Problem Solving Competency: Problem solving competency
A Perspective
has the following benefits to the entrepreneur and his/her enterprise:
1) Entrepreneurs who have problem solving skills can observe, judge, and
act quickly when difficulties arise. Moreover, they are not afraid of the
unknown, and are well equipped to handle anything.
2) Problem solvers are not just equipped to deal with the problem at hand
but are also able to anticipate problems that will arise in the future based
on trends, patterns, experience, and current events.
3) Problem solving of competencies of entrepreneur helps him/her to
overcome the interruptions of business and thus allow the business to
operate smoothly.
4) The speed of problem solving is a key factor of success in most of the
start-ups. When the start-ups entrepreneurs are quick in their response to
situations which arise frequently during the execution of the business
plan, then they definitely take lead over their competitors otherwise if
they are slow, the competitors are usually there to take the lead.
Challenges in Problem Solving: Problem solving competency has the
following challenges:

1) The challenge of problem solving competency is the need for

understanding the larger picture as well as micro level understanding of
the decision situation. It requires understanding of all relevant internal
and external factors of major influence and their interdependencies.
2) One should have the knowledge of capabilities available and capabilities
which can be sourced and trusted.
3) There should be understanding of the extent of outcome and impact in
both cases if solution is right or otherwise. Hence, the entrepreneurs
need to have agility and speed in problem solving.
4) A larger enterprise or organization may usually have procedures and
protocols to follow in most of the decision situations, but small
entrepreneurs may not have these elaborate procedures to follow. One
side it provides facility to take speedy decisions but elevates the level of
risk accordingly.

Problem Solving skills should be prevalent across the team members of

the enterprise so that the speedy problem solving should not be limited to
a specific function in any enterprise including a start-up.

4.8 COMMUNICATION
Another important determinant for successful performance of an entrepreneur
is his/her ability to communicate effectively. Entrepreneurs can miss
opportunities if they are not able to communicate properly with
investors, clients, team members, market and so on. It includes both,
verbal as well as non verbal flow. In many scenarios, the audience reads
76
more from non-verbal cues than verbal messages. The competency includes Entrepreneurial
Competencies
ability to hear the response and respond right to the audience response.
Communication requires understanding of audience, level, context and
limitations.

One to one person communication is different than communication with a

group of people or large numbers. Communication context for an
entrepreneur making a funding offer with a venture capitalist is different than
interaction with a business magazine correspondent for coverage of the start
up in the magazine. Communication with team members at senior level is
different than communication with 40-50 new hires that have recently
graduated from an engineering college or management school and want to
contribute in a startup. Across all these cases, an effective communicator has
to be a good listener who can empathise and manage expectations of the
targeted audience.

Effective communication competency helps share vision and ideas which can
be easily comprehended by the intended audience. Communication is defined
as ³WKH WUDQVIHU RI LGHDV IURP WKH VHQGHU WR WKH UHFHLYHU´ Nwachukwu
(1988). Communication is important glue for host of managerial functions
like planning, organizing, monitoring, coordinating etc. to be carried out
efficiently and effectively. It affects both, bottom line as well as top line, of
the entrepreneurial project. Entrepreneurs require right communication skills
to share goals with intended stakeholders. At every phase of entrepreneurship
journey, there is need to communicate with the market which need to be done
with right articulation to attract intended market players, investors interest,
lobbying for the right influence, regulators etc.

Importance of Communication: Communication plays a very important

role in the success of a business enterprise which has been discussed below:

1) In early stages of venture funding, investors allow very less time to
make investor pitches where entrepreneur have to communicate their
entire business proposal in a smaller time slot sometimes in few
minutes. Hence, articulation of the proposal in fewer slides requires
smartest skills of communication to attract the investor’s interest.

2) Similarly, while negotiating agreements with the partners,

communication skills can make a big difference. Right selection of
words, responses, body language and articulation can help make deals
more favourable.

3) It facilitates putting the right organizational structure in place by

allocation of roles and responsibilities communicated in a manner which
is convincing, appreciating and gives sense of ownership.

4) Effective communication contributes a great deal to higher efficiency in

job performance. It ensures willing cooperation of others due to the close
understanding of ideas and instructions established through
communication. Indeed a direct relationship exists between the
effectiveness of communication and efficiency in an organization.

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 Entrepreneurship: 5) Successful entrepreneurs follow good branding practices as a long term
A Perspective
strategy for growth and sustainability. Communication competency is the
key ingredient to develop good public relations or desirable brand
influence for the organization. Branding covers all aspects of business
enterprise. The branding promise needs to be followed through action in
terms of efforts, product attributes and processes of the organisation to
stick to the promise made. Hence, external and internal communication
needs to be in synergy to have compelling brand effect and secure a
positive attitude towards the enterprise products and services.

6) Communication is also key competency within the competency grid and
most of the other competencies have dependencies on this competence.
For example, leadership competence, negotiation skills and interpersonal
skills are dependent on communication competency.
Effective Communication for Success of an Enterprise: The principles or
guidelines to making communications effective are of a general nature,
operationally speaking, a number of more specific suggestions can be made
to ensure the effectiveness of communications.

1) Regulating the flow of communications: Planning communication

should involve determining the priority of messages to be communicated
so that entrepreneurs may concentrate on more important messages of
high priority. Similarly, incoming communication should be edited and
condensed, if possible, to reduce the chances of overlooking or ignoring
important messages received.

2) Feedback: Along with each communication there is need for feedback,
that is, communication of the response or reaction to the initial message.
Feedback may include the receiver’s acceptance and understanding of
the message, his action or behavioural response, and the result achieved.
Two way communications is thus considered to be more helpful in
establishing mutual understanding than one-way communication.
3) Language of the message: Use of appropriate language is essential for
effective communication. While preparing the message, the sender must
keep in view the climate, as well as the ability of receiver to interpret the
message accurately. Abstract ideas should be explained and vague
expressions avoided. He must keep in view tire semantic problem, that
is, the possibility of particular words having more than one meaning.
Experimental studies have shown that oral communication accompanied
by its written version is more effective in bringing about the desired
response.

4) Importance of listening carefully: Listening to verbal messages

carefully implies an active process. Half-hearted attention to the
communication is often the cause of misunderstanding and confusion.
An entrepreneur has to be patient, mentally composed, and avoid
distractions while receiving the message. He should be in a position to
concentrate on the message and seek clarification, if necessary. On the
other hand, the sender of the message must also be prepared to listen to
78 what the receiver has to say, and respond to his questions, if any.
5) Restraint over emotion: Strong feelings and emotional stress on the Entrepreneurial
Competencies
part of either the sender or receiver of messages are serious handicaps in
the communication process. To avoid any negative impact of emotion on
the content of the message, the sender may defer the communication for
sometime or consult to exercise restraint over his psychological feelings
to avoid misinterpreting the message and to be able to respond to it with
a composed mind.

6) Non-verbal signals of compliance: Verbal messages are generally

accepted orally by the receiver. But whether action will follow the
acceptance of the message is not certain. It is, therefore, suggested that in
the case of verbal communication the sender should observe the action of
the receiver to ascertain whether the actions are in conformity with the
intent and understanding of the message.
7) Mutual trust and faith: No amount of seriousness of the parties
involved can make the process of communication effective unless there
is mutual trust and faith between them. Entrepreneurs have to cooperate
for the purpose so that individuals feel free to make suggestions and
correct each other’s views without misunderstanding.

4.9 NEGOTIATION
Entrepreneurs require negotiation competencies for variety of deal making
situations and at different stages of the enterprise growth. It is a dialogue
between two or more people or parties intended to reach a beneficial
outcome over one or more issues where an interest of conflict exists with
respect to at least one of these issues. It starts right from the initiation of the
idea and business proposal. Whether it is making of a partnership or securing
funds, there will be scenarios of negotiation. Whether it is assignment of
roles or agreement of the governance structure or the template for the
business model, negotiation competencies play a key role to have things in
favour for an entrepreneur. Same is case of developing partnerships, hiring
key employees and so on.

Effective Negotiation for Success of an Enterprise: The following

principles or guidelines may be followed to develop effective negotiation
competency:

1) In any deal making scenario or agreement to decide appropriation of

benefits and liabilities, there is tendency to put one’s interest first. This
looks logical and entrepreneurs are no exception. In order to be an
effective negotiator, it is important to look at these situations objectively.
It could be futile or waste of effort and cost if the negotiation fails and,
hence, would be mostly the last thing one would desire. Good
negotiators have the skills to balance these contrasting goals of parties on
both sides and still help their enterprise develop and stay competitive.

2) Negotiation competence requires knowledge, skills, and experience to

understand deeply about what are we offering and what do we want from
the other side. One need to gauge what are the options and band width
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 Entrepreneurship: for parties on both sides and what could be the limiting point. It is not a
A Perspective
standard recipe. It takes time and experience for people to develop these
skills which helps them to have the right approach in a given situation
and gives them an upper hand in that negotiating situation.

3) Good negotiators do sufficient due diligence and home work about the
case in hand and about the other side before they come to the negotiating
table as they need to plan and prepare. Hence this competence is
complemented by the research skills of a person to dig sufficient relevant
information before the negotiation.

4) This competence is also dependent on communication skills as already

mentioned before. Smart negotiators are excellent articulators and good
at use of bogy language.

5) Smart negotiators understand the strengths and weaknesses of both sides
and able to place and time their offers and resistance to reduce
undesirable outcome. Competent negotiators exhibit sufficient emotional
control. It requires flexibility in approach and judgment to understand
other side possibilities. It helps to look at the situation objectively and
avoid undesirable deal failures which could otherwise happen and good
opportunities may be missed out.

6) Entrepreneurs need to have strategic thinking and see long term while
negotiating deals. Many deals by smart entrepreneurs are necessarily not
made for immediate gains in the short run or medium term. They look at
longer term horizon; build productive networks which can be leveraged
for larger gains in the longer run. Sometimes it may also make sense to
walk away from the negotiation in the interest of long term strategy.

4.10 RISK MANAGEMENT

Identifying risks and vulnerabilities of any business proposal and planning
mitigation is essential for any sound business plan. Risk management is the
identification, evaluation, and prioritization of risks followed by
coordinated and economical application of resources to minimize,
monitor, and control the probability or impact of unfortunate events or
to maximize the realization of opportunities. The analysis of above
definitions shows that entrepreneurs:
x identify, evaluate and prioritize risks,
x coordinate and economize the resources,
x manage unfortunate events, and
x maximise the realisation if opportunities.

Hence competencies to manage risk are crucial for an entrepreneur and the
team managing the enterprise.
Identification of risks can be explored through deeper review of assumptions
which are basis of the business plan and operations envisaged to realise
entrepreneurship goals. This helps in developing scenarios or possibilities
80
which can give the sense of how extreme situations like possibility of losing Entrepreneurial
Competencies
entire liquidity or situation of bankruptcy or brand related problems are to be
handled. Entrepreneurs should have understanding of likelihood of risks to
plan a measured response based on capabilities. Response could be
mitigation, avoidance, bypassing and face off.

Hence, competencies to understand risks and develop response plan requires

a spectrum of competencies cutting across various functions. These functions
include: technical skills to calibrate possibilities, impact and prioritise. Much
of this competence to be put in practice requires sufficient information,
measurement skills and relevant technical skills to figure out variety of risks
entrepreneurs face.

Some of the specific risks could be about the:

x Product design acceptability.
x Material availability.
x Resource availability.
x Key talent attrition.
x Predatory pricing by competitors and so.
x One of the major risks could be concerning regulations and political
volatility.

Importance of Risk Management: Risk management competency is

important because of the following:
1) Risk management has perhaps never been more important than it is now.
The risks to which the modern organizations are exposed to have grown
more complex, fueled by the rapid pace of globalization.
2) It makes entrepreneur confident as well as gives confidence to the
stakeholders like investors, insurers, or partners that the organisation can
handle adverse situations.
3) Entrepreneurs need to have the awareness of various scenarios possible
which can affect the planned course of action and expected outcomes.
They should be able to assess the impact of such events and prioritise
and develop contingency response actions in case of such events happen.

4) New risks are constantly emerging, often related to and generated by the
now-pervasive use of digital technology. Technology intensive sectors
and Information technology sector based enterprises are highly
influenced by the technical standards adopted by firms. Many times, due
to speed of innovation in the sector, things get disrupted or standards
take time to get universally adopted. In such cases, the things are in flux
and entrepreneurs who have ventured in that sector are at the risk of
possible solution redundancy.

5) Similarly, lack of local regulation can also affect investors’ confidence
and enhance the risk level for the proposed business plan. For example,
many states are yet to come up with complete regulatory policy for block
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 Entrepreneurship: chain technology application which elevates the risk level for many
A Perspective
startups in such states whose planned ventures are built around
application of this technology.

Check Your Progress B

1) What do you mean by entrepreneurial problem-solving?

2) List out three benefits of communication.

3) Write three benefits of risk management.

4) Differentiate between verbal and non-verbal communication.

5) State whether the following statements are True or False:

i) Problem solving attitude sits on the conviction that there can be a
solution for most of the problems faced.

ii) Communication includes only verbal flow.

iii) The only risk an entrepreneur face is financial risk.

iv) Negotiation is a dialogue between two or more people or parties
intended to reach a beneficial outcome over one or more issues
where a conflict exists with respect to at least one of these issues.

v) Development of contingency response actions is not important for an

entrepreneur.

ACTIVITY 1
Mr. Raj has voluntarily resigned from a technology firm after spending 12
years. He is a software engineer and a management graduate from a leading
business of India. He wants to start an online retail start-up to sell sports
shoes targeted mainly at youth segment in India. He has set up a small office
in Noida and completed basic formalities like registration, account etc. He
has tied up with some shoe manufacturers to use their spare capacities to
manufacture sports shoes. Initials trials of selling product using Amazon.in
platform have shown positive results. Now he wants to set up his own online
shop which could be accessed through web and mobile apps. He has to make
a business plan and figured out funding requirements for his project. He has
also got appointments with few investors in Bengaluru next month for
funding support. Ramanathan is close college friend who is now working as
financial consultant in a leading consultancy, has shown keen interest to
partner and ready to leave his job if the partnership materializes. Raj is also
positive towards this possible partnership and both want to have a discussion
in couple of days to take final call on partnership.
x What are the challenges for Raj and what all competencies he need to
have which will be helpful for him to achieve his immediate goals i.e.,
now onwards till he can expect roll out of his venture pan India?

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 Entrepreneurial
4.11 LET US SUM UP Competencies

Entrepreneurs along with their teams need various competences during their
journey to realise their vision and goals. Competency is combination of
skills, knowledge and attitude which leads to superior performance. Skills
grow with experience. It is important for prospective entrepreneurs to
appreciate importance of various competencies and realise their
interdependencies. There are host of competencies which could help
entrepreneurs tread the right track.

Essential set of entrepreneurial competencies include: Creativity, Innovation,

Interpersonal skills, Business leadership, Problem solving, Communication,
Negotiation and Risk management. Depending on stage of entrepreneurial
journey, context, audience and capabilities, specific competencies may be
relatively essential to seize opportunity or fight threats.

Creativity is one of the important competencies for successful entrepreneurs

which has the potential to generate new ideas, new solutions, see new
perspectives and give confidence to the entrepreneur for sustained agility in
innovation. It is about ability to generate novel, distinct and unresolved useful
connections.

Innovation and Creativity go hand in hand. While creativity means

conceptualising something new, innovation is application of new or novel
things to develop new product or a service. Innovation translates creativity
into a utility. Innovation by entrepreneurs varies by the extent of novelty
brought in by the new solution. There may be three types of innovations.
They are: Incremental Innovation, Radical Innovation, and Disruptive
Innovation.

Interpersonal competencies drive effective communication, networking, and

partnership management. Entrepreneurs need to persuade various
stakeholders including customers, clients, investors, suppliers, competitors,
and service providers at various stages of their journey Development of
strong networks rides on the competency of interpersonal skills.

To pursue and achieve ambitious goals and gather more momentum for high
performance, leadership competency plays an important role. Effective leader
are able to get the entire team aligned to their vision and mission which
heightens the motivation among the members to achieve the extraordinary.
They are able reassure members and partners that their efforts are valuable
and goals are worth putting that effort.

Problem solving competency is required to: understand problems well,

understand alternative options as well as assumptions, and to have awareness
of risks and decision which can be executed within the context. Competent
problem solvers normally explore several alternate paths to arrive at most
feasible one. They see the feasibility of resources and operational capacity to
arrive at the right decision.
Entrepreneurs can miss opportunities if they are not able to communicate
properly with investors, clients, team members, market and so on. It includes
83
 Entrepreneurship: both, verbal as well as non verbal flow. Communication requires
A Perspective
understanding of audience, level, context and limitations.
Entrepreneurs require negotiation competencies for variety of deal making
situations and at different stages of the enterprise growth. It is a dialogue
between two or more people or parties intended to reach a beneficial outcome
over one or more issues where an interest of conflict exists with respect to at
least one of these issues. It starts right from the initiation of the idea and
business proposal.

Identifying risks and vulnerabilities of any business proposal and planning

mitigation is essential for any sound business plan. Entrepreneurs need to
have the awareness of various scenarios possible which can affect the
planned course of action and expected outcomes. They should be able to
assess the impact of such events and prioritise and develop contingency
response actions in case of such events happen.

4.12 KEY WORDS

Business leadership: The ability of an individual, group or organization to
"lead", influence or guide other individuals, teams, or entire organizations to
achieve the shared goals.

Communication: The transfer of ideas from the sender to the receiver

through verbal and non-verbal means. Communication is important glue for
host of managerial functions like planning, organizing, monitoring,
coordinating etc. to be carried out efficiently and effectively.
Competency: It is blend of skills, knowledge and attitude which leads to
superior performance.
Creativity: Creativity is defined as the tendency to generate or recognize
ideas, alternatives, or possibilities that may be useful in solving problems,
communicating with others, and entertaining ourselves and others.
Innovation: Innovation can be defined as the effective application of
processes and products new to the organization and designed to benefit it and
its stakeholders
Inter personal skills: The behavioral and tactical skills a person uses to
motivate, influence and interact with others effectively.

Negotiation: It is a dialogue between two or more people or parties intended

to reach a beneficial outcome over one or more issues where a conflict exists
with respect to at least one of these issues.

Problem solving: The competency to understand problems well, alternative

options as well as assumptions, awareness of risks and decision which can be
executed within the context

Risk management: Risk management is the identification, evaluation, and

prioritization of risks followed by coordinated and economical application of

84
resources to minimize, monitor, and control the probability or impact of Entrepreneurial
Competencies
unfortunate events or to maximize the realization of opportunities.

4.13 ANSWERS TO CHECK YOUR PROGRESS

A) 4. i. Competency ii. creativity iii. Interpersonal skills iv. business
leadership v. innovation

5. i. true ii. true iii. false iv. true v. true

B) 5. i. true ii. false iii. false iv.true v.false

4.14 TERMINAL QUESTIONS

1) What is the meaning of managerial competency?
2) What are the various types of competencies which can help
entrepreneurs to realise their goals?
3) How can entrepreneurs leverage various competencies at different stages
of entrepreneurship process?
4) Discuss scenarios to illustrate interdependence between various
competencies.
5) Discuss the importance of risk management competency in success of an
enterprise.
6) “Entrepreneurs may miss opportunities if they are not able to
communicate effectively”. Elaborate.
7) What do you understand by creativity? Discuss its advantages.
8) Discuss the different types of innovations.
9) What are interpersonal skills? How they help entrepreneurs to manage
their goals effectively.

Note: These questions will help you to understand the unit better. Try to
write answers for them. But do not submit your answers to the University for
assessment. These are for your practice only.

FURTHER READING
x Bergevoet, R. H., &Woerkum, C. V. (2006). Improving the
entrepreneurial competencies of Dutch dairy farmers through the use of
study groups. Journal of Agricultural education and extension, 12(1), 25-
39.

x Gasse, Y., d'Amboise, G., Simard, G., & Lasker, K. (1997).

Entrepreneurial–managerial competencies and practices of growing
SMEs—Summary of results from an empirical study (preliminary).
Centre for Entrepreneurship and SME and Entrepreneiuriat Laval,
Universite Laval, Quebec, Canada.

85
 Entrepreneurship: x Man, T. W., Lau, T., & Chan, K. F. (2002). The competitiveness of small
A Perspective
and medium enterprises: A conceptualization with focus on
entrepreneurial competencies. Journal of business venturing, 17(2), 123-
142.

x Nwachukwu, C. C. (1988). Management theory and practice. Onitsha:

Africana FEPPublishers
x Stoof, A. (2005). Tools for the identification and description of
competencies.
x Thompson, V.A. (1965), “Bureaucracy and innovation”, Administrative
Science Quarterly, Vol. 10,pp. 1-20.
x Tobias Foster “Negotiation Skills Every Entrepreneur Must Have”
ENTREPRENEURS10 26-6-20 retrieved from
bhttps://addicted2success.com/entrepreneur-profile/10-negotiation-skills-
every-entrepreneur-must-have/ on 22-2-2021

x Wong, A., Tjosvold, D. and Liu, C. (2008), “Innovation by teams in

Shanghai, China: cooperative goals for group confidence and
persistence”, British Journal of Management, available at:
www3.interscience.wiley.com/cgi-
bin/fulltext/120123993/HTMLSTART
x https://en.wikipedia.org/wiki

x 7 Communication Skills Every Entrepreneur Must Master,

COMMUNICATION STRATEGIES retrieved from
https://www.entrepreneur.com/article/239446 on 29-1-2021

x 5 Ways to Unlock Your Entrepreneurial Creativity retrieved from

https:// www. entrepreneur. com / article/ 332213 on 29-1-2021

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 Entrepreneurial
Competencies

Block

2
BUSINESS IDEA SELECTION AND FEASIBILITY
UNIT 5
Business Opportunity Identification and Selection
UNIT 6
Market Research
UNIT 7
Business Plan Preparation
UNIT 8
Business Plan Feasibility
UNIT 9
Business Plan Implementation

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Entrepreneurship:
A Perspective
 Business Opportunity:
UNIT 5 BUSINESS OPPORTUNITY: Identification and
Selection
IDENTIFICATION AND
SELECTION

Structure
5.0 Objectives
5.1 Introduction
5.2 Business Opportunity Identification
5.3 Trends
5.4 A Good Business Idea
5.5 Sources of Business Ideas
5.5.1 Internal Sources
5.5.2 External Sources
5.6 Techniques of Idea Generation
5.7 Scanning and Screening of Business Ideas
5.8 Selection of Workable Business Ideas
5.9 New Product Development Process
5.10 Critical Factors of New Venture Development
5.11 Let Us Sum Up
5.12 Key Words
5.13 Answers to Check Your Progress
5.14 Terminal Questions

5.0 OBJECTIVES
After studying this unit, you should be able to:
x explain the meaning of business opportunity;
x explore new emerging trends which may pave way for a business idea or
opportunity;
x discuss the elements of a good business idea;
x analyse and evaluate the ideas;
x identify the internal and external sources of generating new ideas ;
x describe the techniques of generating new business ideas;
x do screening and scanning of business ideas;
x describe the process of selection and evaluation of viable business idea;
x discuss new product development process; and
x describe the critical factors of new venture development.

89
 Business Idea
Selection and 5.1 INTRODUCTION
Feasibility
In the previous units, you have been acquainted with the theoretical
foundation of entrepreneur and entrepreneurship. Now you will be given a
tour of the practical insights of what do the entrepreneurs do and how they do
that. ‘Well begun is half done’- Aristotle, a very appropriate saying relevant
in the entrepreneurship world. Identification of a business opportunity is the
very first step and the most crucial part of an entrepreneur’s journey.
Specifically, a new entrant in the entrepreneurship world has to search for a
right business opportunity at the right point of time in the uncertain
environment. Most of the business opportunities arise from the unmet needs
or the deprivation of the market. The success of the new business venture
depends on the cracking of the right business opportunity at the right time.
Not only the success of new venture, for an entrepreneur to be successful, he
needs to be continuously innovating and looking for opportunities to survive
and grow in the uncertain market conditions. Essentially, entrepreneurs need
ideas to start and grow their entrepreneurial ventures. Generating ideas is an
innovative and creative process. Sometimes, the most difficult aspect of
starting a business may be facilitated with a business idea. Even if you have a
general business idea in mind, it usually needs to go through fine-tuning
processes. Fruitful ideas often occur at points where your skill set, your
hobbies and interests, and your social networks intersect. In this unit, you
will learn the identification of business opportunity, trends of business ideas.
You will be further acquainted with the techniques of idea generation,
scanning and screening of ideas or selection of workable ideas. You will be
further familiarised with the critical factors of new venture development.

5.2 BUSINESS OPPURTUNITY

IDENTIFICATION
Business opportunity, in general sense implies a good chance or a favourable
situation to do the business. Business opportunity identification is central to
the domain of entrepreneurship. Entrepreneurship revolves around answering
various questions with regard to why, where, when and how business
opportunities arise. Recognizing an opportunity often results from the
knowledge and expertise of the individual entrepreneur. The entrepreneur
must always be ready to use his knowledge and experience and turn his ideas
into a powerful business opportunity and create a successful venture.
Opportunity identification and selection are like corner stones of a business
enterprise. Better the former, better is the latter. However, all the identified
opportunities and the business ideas must be carefully screened and analysed
by the entrepreneur. The first step for every entrepreneur is the identification
of a business opportunity and generate a new business idea. The generation of
new business idea is not an easy task. Thus, let us now examine various
sources and techniques of idea generation for new products and services. You
need to understand that business opportunity, identification and selection
involves a thorough research of the dynamic market.

90
 Business Opportunity:
5.3 TRENDS Identification and
Selection
Trends mean something which is trending in your target market. Trends often
provide great opportunities for starting a new venture, particularly when the
entrepreneur can be at the start of a trend that lasts for a considerable period
of time. Seven trends that provide business opportunities are discussed
below:

1) Wearable Trend: As the cost and size of microprocessors continue to

shrink; the ability to carry the computers with monitors to display
relevant information is now a reality. The wearable tech industry
includes categories such as body monitoring (Fitbit) which has brought
smart watches into the market. Consumer’s interest in smart watches is
expected to boost the industry further as new companies come forward to
service the industry with applications and accessories.

2) Green Trend: The green sector continues to brimming opportunities

around the world. The Green sector is filled with opportunities for
entrepreneurs around the world. Today consumers are willing to pay
more for green products. Going green is not going away, but the various
trends within the green business movement will change direction,
creating opportunities for new products and new businesses. For
example: a movement towards hybrid cars, eco-friendly products and
packaging etc.

3) Payments: The dynamic payments industry continues to expand and

evolve, with digital payment vehicles and transaction volumes growing
across the globe. This industry includes services for lending money
(lendingtree.com) to products that allow anyone to accept credit/debit
cards (billdesk) as well as billing and accounting services (Paytm).

4) Maker Trend: The maker movement is a trend in which individuals or

groups of individuals create and market products that are recreated and
assembled. The recreation and assembly are done by using unused,
discarded or broken electronic, plastic, silicon or virtually any raw
material and/or products from a computer-related device. The maker
movement has led to the creation of a number of technology products
and solutions by typical individuals working without supportive
infrastructure. For example, MintyBoost, a popular DIY USB charger kit
built uses an Altoids tin, batteries and a few connectors which can easily
be created using instructions online, or purchased from other makers who
sell their devices.
5) Mobile Trend: The mobile phones continue to revolutionise the way of
purchases and interaction with consumers. The consumers are short of
time so the activities once done on desktops are now done on mobile
phones or tablets. There is no point in drawing a distinction between
future of technology and future of mobile. Both have been moving
towards consumers friendly operations.

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 Business Idea 6) Heaalth Trend: Health maintenance concern abo out health care, are one of
Selection and
Feasibility the biggest trends that will continue in the next decade as the population
agess. This provides many opportunities for entrepreneurs
e including:
Cossmetic procedures, Fitness centres (also refeers as gym), Fitness toys
(e.gg. punch balloon, bi-cycle, etc.), Fit food, Caare clinics, And wellness
coacches. Green Mountain Digital is developing a social network platform
for nnature lovers.
7) Thee Internet of Things: With each passin ng day, the population
connnecting to internet has been increasing. TheT potential for nearly
everrything we interact with to be connected to th
he internet has given rise
to nnew products. They can access internet thro ough an embedded WIFI
trannsmitter. It has been assumed that interneet will disappear soon,
meaaning that you would not even sense that you are interacting with it.

Health
Trend
The
Maker
Internet
Trend
of things

TRENDS
Mobile
Wearable Trend
Trend

Greeen
Payments
Tren
nd

Figure 5.1 Trends

5.4 A GOOD BUSINESS IDEA

A busineess idea is a starting point for any current or future
f entrepreneurs. It is
essentiall because it is the beginning of a new lifee for a business and an
entreprenneur. An idea is important in the initial stagee of a start-ups as well as
their deevelopment. The results from good businesss ideas will feel in all
phases of the development of a firm, but will also depend on other
entreprenneurial activities. Any good business ideas could be an invention, a
new prooduct or service, or an original idea or solutions to an everyday
problem
m. A good business idea does not necessarilly have to be an unique
product or service. Majority of the entrepreneurs becomes successful with the
accompllishment as a result of the exceptional execcution of ordinary ideas.
The chaances of success therefore will be far greatter if you can market a
product that is similar to existing offerings, while prroviding greater value to
customeers. In entrepreneurship ‘ideas’ is used as an acronym.
a

92
IDEAS stand for: Business Opportunity:
Identification and
Selection
I- Identification of opportunities
D- Designing into prototype to show to segment of society
E- Exclusive or Unique that is different from competitors
A- Acceptable to segment of society
S- Satisfying to the segment of the society for which made.

In other words, ideas are referred to as problems expressed by the people in

the society. Any problem stated by the consumers becomes a business
opportunity to be fulfilled by providing necessary goods or services as a
solution to their problems. For example, if a person is looking for keeping
his/her body fit then this problem can be solved by offering gym facility to
him/her.

5.5 SOURCES OF BUSINESS IDEAS

Business ideas are thoughts that when implemented can lead to income
generation. Coming up with new and feasible business ideas is a crucial
initial step to become a great entrepreneur. Business ideas are all around us in
the environment. Some of these business ideas emerge from market analysis
and consumer needs, while others emerge from a long research process.
Sources of new product ideas include: company employees, customers,
competitors, outside inventors, acquisitions, and channel members.
However, there is no conventional technique for sensing and selecting a right
business opportunity, these are some of the fruitful sources of business ideas
adopted by successful entrepreneurs which can be classified as internal and
external sources of idea generation. Let us learn them in detail.

5.5.1 Internal sources

Internal sources facilitate the generation of business idea from within the
organization. When people think about creativity in a business, they are often
referring to ideas for new products and services that come from the
employees. Using internal sources, the company can find new ideas through
formal Research and Development (R&D) or through formal and informal
employee’s suggestions. Rewards and recognition can be provided in order to
obtain maximum participation from the employees.

1) Research and Development: R&D can be carried out in-house or

outside the organization. R&D activity suggests what and how a new or
modified product can be produced to meet the customers’ requirements.
R&D involves researching the market and the customer needs and
developing new and improved products and services to fit these needs.
Businesses that have an R&D strategy have a greater chance of success
than businesses that not have R&D strategy can lead to innovation and
increased productivity and can boost competitive advantage of the
business. However, research and development can be expensive and
time-consuming process but its benefits outweigh its costs.
93
 Business Idea 2) Intrrapreneurship: An intrapreneur is a perso on who takes on the
Selection and
Feasibility respponsibility to innovate new ideas, products an
nd processes or any new
inveention within the organization. Beyond its internal R&D process,
com
mpanies can use the brains of its employeees—from executives to
scieentists, engineers, and manufacturing staff to sales people. Many
com
mpanies have developed successful “intraprreneurial” programs that
encoourage employees to envision and develop neew-product ideas.
3) Hob bbies and Interests: Hobbies are the activitiies that one enjoys doing
duriing leisure time and can prove to be a major source of business ideas
which is generated from within an entrepreneur. In fact, many successful
entrrepreneurs have established great successful business ventures while
purssuing their interests or hobbies. Virat Koh hli, one of the greatest
sporrtsmen of the 21st century has started its own
o fitness centre chain
nam
med ‘Chisel’ and turned his interests into o a successful business
ventture.

Hobbies and Interests

INTERNAL SOURCES Intrapreneurship

Research and Development

Need Recognition of
SOURCES OF IDEA customers
GENERATION

Existing Products and Services

Distribution Network

EXTERNAL SOURCES

Trade Journals, Business

Magazines and Newspapers

Trade Fairs and Exhibitions

Government Schemes

Figure 5.2 Sources of Idea Generattion

5.5.2 External Sources

Businesss can also obtain brilliant new-product ideas from any of a number of
external sources. These external sources are numerrous, such as customers,
competittors, channel members, but the firms differ greatly as to where they
concentrrate their efforts for outside assistance an nd the extent to which
external ideas are sought after and used.
94
1) Need Recognition of Customers: Potential entrepreneurs should always Business Opportunity:
Identification and
pay close attention to the needs of the people in the society. A business Selection
opportunity arises from the need which is strongly felt by a vast majority
of people. When a need is strongly felt and people are unable to satisfy it
themselves, they tend to find its solution from the outside world.
Entrepreneurs should try to recognise this need as and make sincere
efforts to turn this need into a successful business venture. Needs can be
recognized by conducting surveys, whether formally or informally,
through questionnaires, interviews or observation.

2) Existing Products and Services: Improving upon the already existing
goods and services is yet another successful source of business idea
generation. This improvement might result into a completely new
product or service having more market appeal and sales potential. Thus,
an entrepreneur should carefully analyse and evaluate existing products
and services of itself and competitors and should bring out ways to
improve these offerings. That is why it is said that entrepreneurs need to
be creative and innovative. To understand it clearly let us take an
example. Data storage was never as easy as it is now via cloud storages
which were once a floppy disk. This got improved to a completely new
product as CD, and then turned into a pen drive and various other small
chip sized memory cards. Now data is stored on the virtual clouds like
iCloud, google drive etc.

3) Distribution Network: Members of distribution partner like dealers,

wholesalers, retailers and agents have proved to be one of the brilliant
sources of new idea generation. The distribution networks have
proximity with the customers and they can recognise the unsatisfied
needs of the customers. No one knows more than them, what do the
consumer wants and what are they getting at the moment. These channel
partners can provide with a wide variety of suggestions regarding
improvements in the existing products and services as well as new
product ideas according to the needs of the market as they deal in
number of products and services and thus might be having a maximum
experience across industry.

4) Trade Journals, Business Magazines and Newspapers: Statistical

information and other reports are being published by various trade
journals, business magazines and newspapers which can be used in
generating new business ideas. They write on current trends in industry,
best practices, legal issues, and general business environment which can
provide gainful insights while generating new business ideas for a
successful new venture and its growth. For example: Laghu Udyog
Samachar Magazine is a magazine published by MSME in India for
identification of business ideas.

5) Trade Fairs and Exhibitions:Trade fairs and exhibitions have proved to
be one of the excellent sources of idea generation since decades as they
are usually advertised on the Internet, radio, and newspapers. People
from all around the world come and participate in these fairs and
exhibition displaying their new products and services. One can meet a
95
 Business Idea number of manufacturers, sales representatives, distributors, wholesalers,
Selection and
Feasibility and franchisers who can provide gainful insights in generating new
business ideas and launching a new venture.
6) Government Schemes: In order to eliminate unemployment and to
motivate youth to become entrepreneurs rather than craving for
employment, government of India has initiated various schemes to
provide training and assistance to the people having a desire to start their
own enterprises. These schemes by themselves, is a great source of idea
generation. For instance, Khadi and Village Industries Development
Board in India has led Indian handicrafts across borders by providing a
variety of incentives. These incentives are provided to village craftsmen
and artisans in the form of training, subsidized loans and raw materials,
export promotions etc. Support to Training and Employment Programme
for Women (STEP) aims to impart training to women above 16 years of
age in several sectors such as horticulture, agriculture, food processing,
handlooms etc. so that they can become independent and start their own
business. Various other schemes like Jan-Dhan Aadhar Mobile (JAM),
Biotechnology Industry Research Assistance Council (BIRAC), Trade
Related Entrepreneurship Assistance and Development (TREAD), etc.
have helped many individuals in generating new business ideas and
become entrepreneurs.
Thus, there can be many sources through which entrepreneurs can
generate new business ideas and grab an opportunity. The entrepreneurs
must keep on exploring new ways and means for the identification of the
new business ideas. Business visionaries and potential entrepreneurs
must evaluate these ideas and select those that can lead them to a well-
organized and successful business that meets the needs of the customers
and promote the economy in the society. Business idea generation,
therefore, helps to identify the opportunities than can be converted into
successful business ventures.

Check Your Progress A

1) What do you mean by entrepreneurship?

2) Distinguish between entrepreneurship and intrapreneurship.

3) List out five trends.

4) List out four external sources of idea generation.

5.6 TECHNIQUES OF IDEA GENERATION

Idea generation is described as the process of creating, developing an abstract
concrete or visual ideas and anyone can participate in generating new ideas.
Let us learn the techniques of idea generation.

1) Brainstorming: Brainstorming is a creative problem-solving technique

and also an informal approach to business ideas generation. It encourages
people to come up with thoughts and ideas that can, at first, seem a bit
96
 crazy. The sustainable sinceree effort is required for the conversion of Business Opportunity:
Identification and
crazy idea into real business oopportunities. Some of these ideas can be Selection
crafted into original, creative solutions to a problem, while others can
spark even more ideas. The oobjective of brainstorming is to come up
with as many ideas as possiible and therefore, during brainstorming
sessions, there is no criticissm, rewards or judgements. For more
successful results, brainstorming should be conducted with the help of
experts.

2) Brain Writing: Brain writing iis an idea-generating method that involves
everyone in a group activity. Itt is a kind of written brainstorming. Unlike
brainstorming, which is verball and where the ideas are being generated
spontaneously, brain writing teends to give more time to the participants
to generate ideas. Brain writinng is silent technique where the group of
people (usually six) are requireed to write minimum three ideas on special
forms or cards which are circullated to each participant for a pre-specified
duration.

3) Focus Groups: Focus groups have been used for a variety of purposes
and have been widely used foor idea generation. The group is lead by a
moderator to conduct an in-deppth discussion. The group usually consists
of 8-14 recruited participants. In focus group, the role of moderator is
very much important for prooviding direction and leading the group
towards the generation of freshh ideas for new product development. For
example, a focus group createed by a car manufacturer to discuss about
the possible improvements in thhe existing model of its cars. Focus groups
are helpful not only in idea genneration but also in idea screening.

Brainstorming

Brain Writing

Focus Groups

Mind Mapping

Heuristic Ideation Technique

SCAMPER
TECHNIQUES
OF Problem Inventory Analysis
IDEA GENERATIO
ON
Free Association

Figure 5.3 Techn

niques of Idea generation

4) Mind mapping: Mind maps aare an idea generation strategy to produce
ideas effectively by associatioon. It is a powerful graphical technique
which is used to translate whateever is running into the minds into a visual
picture. The process of mind-m mapping involves penning down a central
theme and coming out with nnew and associated ideas that branch out
97
 Business Idea from the central idea. These branches form a connected nodal structure.
Selection and
Feasibility With respect to creative problem solving, mind maps help to show how
are different pieces of information or different ideas connected. It helps
to unlock potential of the brain.

5) Heuristic Ideation Technique: HIT is an idea generation technique that

facilitates generation of new product ideas by exploring different
products’ features and making different combinations in order to search
for a new product idea. Under this technique, new product ideas are
developed using the combination of the elements of already existing
products.

6) SCAMPER: SCAMPER is an activity-based thinking process that helps

to generate diverse ideas. SCAMPER is an acronym which stands for: S-
Substitute; C-Combine; A-Adapt; M-Modify; P-Put to another use; E-
Eliminate; R-Rearrange. Substitute means thinking about substituting
different parts of the product or its processing for something else.
Combine means thinking about combining different products’ features or
processes in order to develop completely new product. Adapt signifies
adapting different measures according to the situation. Modify signifies
modifying features, physical qualities, size or price of existing product.
Put to another use means using the existing product for some another
problem or as a by product. Eliminate signifies eliminating non-essential
components and reducing time/efforts and cost. Rearrange means
rearranging the components or using different order.
7) Problem Inventory Analysis: Problem Inventory analysis though seems
similar to focus group method, yet it is somewhat different from the
latter in the sense that it not only generates the ideas, but also identifies
the problems the product faces. The procedure involves two steps: One,
providing consumers a list of specific problems in a general product
category. Two identifying and discussing the products in the category
that suffers from the specific problems. This method is found relatively
more effective for the reason that it is easier to relate known products to
a set of suggested problems and then arrive at a new product idea.

8) Free Association: Free association is a method of developing

new idea through a chain or a cycle of word association. The process
involves a word relating to the problem being written down, then another
and another.Free association contains elements of several other idea-
generating techniques and depends on a mental ‘stream of
consciousness’ and network of associations that are of two types:

x First is Serial association which starts with a trigger, you record the
flow of ideas that come to mind, each idea triggering the next, ultimately
reaching a potentially useful one.

x The second is Centred association, (which is close to classical

brainstorming) prompts you to generate multiple associations to the
original trigger so that you ‘delve’ into a particular area of associations.

98
Check Your Progress B Business Opportunity:
Identification and
Selection
1) What do you mean by brainstorming?
2) What is Focus Group?
3) What do you mean by Free association?
4) State whether the following statements are True or False:
i) Idea generation is the first step towards starting a new venture.
ii) Members of distribution channel are usually good sources of idea
generation.
iii) In brainstorming technique, rewards and criticisms are necessary to
encourage participation.
iv) Mind mapping is the process where branches are stemmed out of the
central theme.
v) Modifying in SCAMPER refers to adapting measures according to
the situation.
5) Fill in the blanks:
i) ………………. is the powerful graphical technique which is used to
translate whatever is running into the minds into a visual picture.
ii) …………………….. idea generation technique allows for in-depth
discussions.
iii) Government of India has initiated various schemes to provide
……………………… to the people having a desire to start their
own enterprises.
iv) Brain writing is a kind of written …………………………. .
v) …………………… is the idea generation technique that aims to
develop new product ideas by combination of features of existing
products.

5.7 SCANNING AND SCREENING OF BUSINESS

IDEAS
So far you have seen different sources of business ideas and techniques for
generating business ideas. Ideas may be many but as an individual you may
not want to make use of all the possible business ideas and to convert them
into business venture. Therefore, you need to screen the ideas, evaluate each
of them and select one or few that is viable. Idea screening is a process used
to evaluate innovative product ideas, strategies and marketing trends.
Screening is essentially an elimination technique. The purpose of idea
generation is to generate large number of ideas whereas the purpose of idea
screening is to reduce these numbers to some profitable business ideas. Idea
screening criteria are used to determine compatibility with overall business
objectives and evaluate whether the idea would offer a viable return on
investment. Whatever does not meet these criteria is typically discarded. In
simple words, idea screening refers to evaluating the business ideas on the
99
 Business Idea basis of their profitability and discarding those which are not fruitful ones.
Selection and
Feasibility Out of hundreds of ideas, there may be only one or two real opportunities.
With the list of potential new product ideas, the need is to decide which ideas
to pursue and which to discard. Due to scarcity of available resources, it is
difficult to develop several products at the same time. Thus, a careful idea
screening process helps in focusing the whole product development process
with a higher possibility of achieving success. The purpose is to eliminate
the number of ideas without screening away the potential ones. The ideas can
be screened based on eight criteria’s and the entrepreneur must aim to answer
following questions while screening ideas:
1) Attractiveness of Idea: Would you enjoy doing it? For an idea to
become a successful business venture, it should be attractive to the
entrepreneur as well the market. No enterprise can become successful if
the idea is not attractive enough to be translated into a business.
2) Ability to undertake: Do you have the skills needed to do it? One can
generate any number of ideas but the ideas for which the entrepreneurs
have skills and abilities are considered to be the best ones. Even if the
skills are not sufficient, then the entrepreneur must consider whether
these skills can be developed by undertaking some training and
development programmes or not.

3) Practicality: Is it something that really can be done? A workable idea is

one which is feasible and practical. Before committing funding to a
proposed venture, one must decide whether it is viable or not.

4) Potential Market Demand: Will the customers be willing to buy it?
Before selecting an idea, its market demand must be carefully analysed.
There is no point investing in something that cannot stimulate its
demand,

5) Ability to Combat Competition: Is there competition in the market and

can you combat it in some way? A careful analysis of competition
present in the market is necessary before resorting to an idea. One must
ensure the intensity of available competition in the market. They should
enter only that market where they can manage the competition and
differentiate their product.

6) Ability to Differentiate: Can you differentiate it in some way that can
be sustained over a long period? The good idea is the one which has the
ability to be sustained for over a long period of time. It has to be
differentiated from those of competitors.

7) Price Potential: Can you avoid competing simply on price? The
competition should not be based only on price as that can lead to a price
war. The price war is not appropriate for long term survival of the
business.

8) Resource Availability: Do you think you have, or can get the resources
you need to start up the business? For conducting any business, sufficient
amount of resources is required. One must ensure that they have or can
100 gather sufficient amount of resources required for business.
Out of these eight criterions that can be used for screening business ideas, the Business Opportunity:
Identification and
personal interest and experience in a particular trait of the entrepreneur is of Selection
paramount importance in selecting the business idea. All the criterions
mentioned above has a question which needs to be rated on five-point scale
read as 1 = poor, 2 = average, 3= neutral, 4= good and 5= very good. All
these criterions on the questions concerned when rated on a five-point scale
will give a score to business idea. The minimum score that an idea can get is
8 and maximum score is 40. Therefore, the business idea that gets a score
more than 20 and anything greater than 20 may be considered to be a better
idea for its implementation. For example, when an idea A is rated on eight
criterions using five-point scale and score comes out to be 25 whereas an idea
B when rated gets a score of 35, therefore, it is very clear that idea B is better
than idea A. Therefore, the perception of the entrepreneur is converted into
quantitative score which helps the entrepreneur to pick up idea which is
having the highest score from amongst all other business ideas. In other
words, for selection of business idea, a two-stage process may be followed. In
stage one, from all the business ideas that are identified and listed, initial
screening can be done based on entrepreneur’s interest and investment it
requires. In stage 2, out of the shortlisted business ideas which should not be
more than 5 to 7, they can be rated on five-point scale as mentioned above
and the idea that get the highest score based on the perception of the
entrepreneur can be considered to be best amongst the shortlisted. However,
this process needs to be followed with lots of objectivity and due diligence on
the part of the entrepreneur. Besides, SWOT (Strengths, Weakness,
Opportunity and Threats, where SW are internal and OP are external factors)
analysis is also undertaken. A little more discussion on SWOT will be done
in the forthcoming units of this course.

5.8 SELECTION OF WORKABLE BUSINESS

IDEAS
The final decision is “what to produce?” in case of manufacturing or “what to
market?” in case of trading business. It is the most crucial decision in
entrepreneurship development as all the entrepreneurial activities reflect
around the production and sales of that product. Product selection is a
decision process, in which the design team selects one or few product
concepts for further development. The factors influencing the decision of
product selection are known as criteria of the product selection. An
entrepreneur has to critically apply these criteria at the stage of finalizing the
product.

1) Market Survey and Assessment of Market Potential: The majority of

small businesses fail within five years of starting up as the experience
goes in the market place if things are not planned properly. While there
are many reasons that businesses fail, including some that have nothing
to do with an owner's skills. It may also be possible that many of those
same businesses collapsed simply because they could not get enough
customers to buy their product or service. Thus, before selecting a
product, a market survey is required to be conducted. Every entrepreneur
101
 Business Idea must understand that unless there is a market potential for his product, all
Selection and
Feasibility his entrepreneurial efforts may be futile.
2) Availability of Factors of Production: Selection of a product depends
heavily on the availability of factors of production like raw material,
labour supply, skilled workers, machines and equipment, spare parts,
transportation and communication facilities, water and electricity supply
etc. The selection of the business has to be done considering the types of
resources required by it and the availability of resources required to run
the business not for a short period of time rather for a longer period of
time. For example: - many industries in Mumbai had to shift themselves
to other neighbouring cities because of frequent power cuts, i.e., the
shortage of industry, and in those industries, electricity was the major
factor of production like steel mills. Similarly, because of pollution
emission by the select industry, the government of that state may take a
harsh decision to relocate those industries to the neighbouring areas. In
the view of non-availability of factors of production may lead to failure
of industries. So, all these should be covered as a part of market survey
before actually launching the product/business.
3) Cost of Production: Cost of production forms part of the criteria for
selecting a product in entrepreneurship. Entrepreneurs need to produce
goods that allow for appreciable profit margins, thereby limiting the cost
of production while increasing the possible gains. Therefore, cost of
production plays an important role in product selection for entrepreneurs.
Only products that give the highest profit margins are selected. The
selected products are tailored to fit into, or be accepted by the consumer.
If the entrepreneur is thinking of a completely new product the cost will
be very high as it includes the cost of research and product development
other than initial investment into new machinery training to employees &
the cost of raw material. If it is just a modification of an existing product
than the cost will be less hence depending upon the cost or the
capacity to spend the type of new product can be determined.

4) Availability and Access to Raw Materials: Different products require

different raw materials. The source, quality and quantity of the raw
materials needed are factors to be seriously considered, Are the raw
materials available in sufficient quantities? Are the suppliers ready to
supply raw material at desired prices? The sources of raw material, their
accessibility and policies of the government. If it is to be imported are to
be considered critically before selecting the product or service for
production. Satisfactory answers should be provided to these and many
other relevant questions regarding availability and accessibility of raw
materials.

5) Availability of Funds: Whether the required amount of funds is

available for production of the product or delivering the service are
available to the entrepreneur either by his/her own resources or through
outside investments and loans is a critical factor in selection of a product.
An entrepreneur may decide to produce high cost product like cars,
jewellery etc., but it would be selected based on the availability of funds
102
 to the investor. The investor can raise funds through shares, debentures, Business Opportunity:
Identification and
secured loans etc. The entrepreneur can also select middle or lower Selection
ranged products like- electronic items, FMCG products etc. where less
investment is required. Hence, depending upon the financial strength the
type of product can be selected.

6) Differentiation: The extent to which an entrepreneur can establish a

brand image, service, product innovation or reputation describes its
differentiation. An entrepreneur should select such product which
differentiates it from competitors. There is no point competing on price
basis. A product or service should be selected only when it has a
competitive advantage and can be differentiated from the competitors.
Differentiation can be on the basis of technology, quality, ease of use,
packaging etc. which provides an edge over competitors.
7) Product Acceptance: This criterion used in selecting products in
entrepreneurship is very important. The level of acceptance a product
gains in the market place is tied to how successful such product will be.
Therefore, careful thought should be given to how a product is accepted.
However, the only way to know how well a product is accepted in the
marketplace is by first conducting a research. This can involve a
considerable amount of financial resources. Product testing in the open
market place can go a long way in identifying the underlying challenges
that accompany certain products.
8) Technical Implications: The production process for the product needs
to be considered. There is a need to know the technical implications of
the production, sales and distribution of selected product on the existing
production line, available technology, and even the labour force. The
choice of a particular product may require either acquisition of the
machinery or refurbishing of the old ones. The product itself must be
technically satisfactory and acceptable to the user.
9) The Future of the Product: This forms an important aspect of the
process of product selection in entrepreneurship. The future of the
product contributes significantly to how well the product fares. Hence,
important answers need to be given to questions on the level of demand
for the product, the acceptance of the product at the price fixed for it,
how feasible is the product and if there are any margins for meaningful
profits. All these form important criteria for selecting and developing a
product/service in entrepreneurship. A product that has wide demand and
at the same time offers impressive margins for profits will most certainly
be selected over those with lesser prospects.

10) Government Objectives and Schemes: The government policies can

significantly impact the decision to select a new product or service.
Various government schemes for entrepreneurs may help them in
selection of a particular product or sector in order to take advantage of
those schemes. For example, the government provides subsidies for
exporting goods encouraging entrepreneurs to develop the goods that are
popular outside India and can be exported.
103
 Business Idea
Selection and
Feasibility

Cost of
Production

Availability of Availabilitty of
Factors of and Accesss to
Production Raw Mate erials

Market Survey
and Assesment Availability of
of Market Funds
Potential

SELECTION
CRITERIA FOR
NEW
PRODUCT OR
SERVICE

Government
objectives and Differentiation
schemes

The Future of Producct

the Product Acceptan
nce

Technical
Implications

Figure 5.4 Selection Criteria for New Producct or Service

5.9 NEW PRODUCT DEVELOPM

MENT PROCESS
Entrepreeneurs need to be concerned with formaally evaluating an idea
throughoout its evolution. Care must be taken to be sures that idea can be the
basis forr a new venture. This can be done through h careful evaluation that
results innto go or no-go decision at each of the stagess of the product planning
and devvelopment process. The new product develo opment is done through
followinng stages:

1) STA
AGE 1 - Idea generation
The neww product development process starts with h idea generation. Idea
generatioon refers to the systematic search for new-prroduct ideas. Typically, a
companyy generates hundreds of ideas, maybe eveen thousands, to find a
handful of good ones in the end. Two sources of new w ideas can be identified:
Internall idea sources: The company finds new ideaas internally. That means
R&D, buut also contributions from employees.
Externaal idea sources: The company finds new ideas externally. This refers
to all kkinds of external sources, e.g. distributors and suppliers, but also
competittors. The most important external source aree customers, because the
new prodduct development process should focus on crreating customer value.
Various examples exists in the market place where observations
o made by the
entreprenneur both inside the country and outside thee country with the focus
104 on customers have helped them in idea generaation. For example, the
entrepreneur Kishore Biyani of Futture Group when entered into the business Business Opportunity:
Identification and
could foresee that consumers of today are looking for casual wears and Selection
therefore, started offering denim jeeans in the market. And the time when he
was deciding about the brand nam me under which the fashion wear can be
launched in the market, he found oout that Indian consumer is fascinated by
foreign slangs. The denim jeans w which was a trouser and in Hindi, it was
called as patloon, added French slaang to it and came out with a brand name
which was “Pantaloons”. The Panttaloons which became the brand name for
fashion wear under which all categgories of fashion wears were introduced in
the market. Many such stories are aalready available in the literature where the
entrepreneur’s observation has helpped them in generation of new ideas. In all
such cases, all the ideas implem mented as business opportunities were
solutions to the problems of the connsumers.

2) STAGE 2 - Idea Screening

The next step in the new product deevelopment process is idea screening. Idea
screening means nothing else than ffiltering the ideas to pick out good ones. In
other words, all ideas generated aree screened to spot good ones and drop poor
ones as soon as possible. While the purpose of idea generation was to create a
large number of ideas, the purpose of the succeeding stages is to reduce that
number. The reason is that prooduct development costs may increase
substantially in the later stages. T
Therefore, the company would like to go
ahead with only those product ideeas that will turn into profitable products.
Dropping the poor ideas as soon as possible is, consequently, of crucial
importance.

STAGE
1
ͻ Idea Generation
STAGE
2
ͻ Idea Screenin
ng

STAGE 3
ͻ Concept Deveelopment and Testing

STAGE 4
ͻ Marketing strrategy

STAGE 5
ͻ Technical and
d Marketing Development

STAGE 6
ͻ Test Marketin
ng and Validation

STAGE 7
‡ Commercializzation

Figure: 5.5 New Prroduct Development Stages

105
 Business Idea 3) STAGE 3 - Concept Development and Testing
Selection and
Feasibility
Today, it is increasingly common for companies to run some small concept
test in a real marketing setting. The product concept is a synthesis or a
description of a product idea that reflects the core element of the proposed
product. Marketing tries to have the most accurate and detailed product
concept possible in order to get accurate reactions from target buyers. Those
reactions can then be used to inform the final product, the marketing mix, and
the business analysis. New tools leveraging technology for product
development are available that support the rapid development of prototypes
which can be tested with potential buyers. When concept testing can include
an actual product prototype, the early test results are much more reliable.
Concept testing helps companies avoid investing in bad ideas and at the same
time helps them catch and keep outstanding product ideas.
There are various types of marketing tools that can help in concept
development and testing. One such tool is conjoint analysis and it can help
the marketer to arrive at a concept proved statistically and therefore truly
justified. For example, manufacturer wants to introduce a coffee making
machine and this machine can come in different variations based on its
attributes. The three important attributes that can be considered by the
consumers at the time of buying a coffee making machine can be as follows:

Price Coffee_Brew_Time Capacity

Rs. 600 4 minutes 400 ml
Rs. 1000 6 minutes 600 ml
Rs. 1500 8 minutes 800 ml
10 minutes 1000 ml

When these options are before the manufacturer, he/she has to come out with
that combination in case of coffee making machine that can provide the
optimal solution to the customer. It can be a coffee making machine with 600
ml capacity with a brew time of 4 minutes and with the price range of Rs
1000 which can be concept 1. Similarly, concept 2 can be machine with the
capacity of 800 ml with a brew time of 4 minutes and in the price range of
Rs. 1000. And such concepts, once they are developed have to be tested on
consumers so that the consumers opinion may become the final verdict to be
launched in the market.

4) STAGE 4 - Marketing strategy

At this stage, a marketing strategy will be created for the selected concept.
Marketing strategy is created in three steps. These steps are:

x Identify in which market will the new product concept can be sold, how
much profit is targeted from new product concept and what are its
planned value proposition, sales and market share for the first few years.

x Identify the price at which new product concept will be sold, how will it
be distributed in the market and what will be the marketing budget for
106 the first year and so on.
x Identify how much new product concept will be sold in the long term, Business Opportunity:
Identification and
how much profit is targeted from long-term sale and what will be long- Selection
term marketing mix strategy.

This stage is very crucial because as Napoleon said that “Wars are not won in
the battle field rather on the piece of paper. Similarly, the entrepreneur is
required to craft marketing strategy for the business concept finalised and
then go for its implementation so that more or less the success is guaranteed.”
To learn more about marketing you may read our course BCOE-141
“Principles of Marketing”.

5) STAGE 5 - Technical and Marketing Development

A product that has passed the screening and business analysis stages is ready
for technical and marketing development. Technical development processes
vary greatly according to the type of product. For a product with a complex
manufacturing process, there is a lab phase to create specifications and an
equally complex phase to develop the manufacturing process. For a service
offering, there may be new processes requiring new employee skills or the
delivery of new equipment. These are only two of many possible examples,
but in every case the company must define both what the product is and how
will it be delivered to many buyers.

While the technical development is under way, the marketing department is

testing the early product with target customers to find the best
possible marketing mix. Ideally, marketing uses product prototypes or early
production models to understand and capture customer responses and to
identify how best to present the product to the market. Through this process,
product marketing must prepare a complete marketing plan—one that starts
with a statement of objectives and ends with a coherent picture of product
distribution, promotion, and pricing integrated into a plan of marketing
action.

6) STAGE 6 - Test Marketing and Validation

Test marketing is the final stage before commercialization. The objective is
to test all the variables in the marketing plan including elements of the
product. Test marketing represents an actual launching of the total marketing
program, done on a limited basis. Initial product testing and test marketing
are not the same. Product testing is totally initiated by the producer. He or
She selects the sample of people, provides the consumer with the test
product, and offers the consumer some sort of incentive to participate. In
product testing, there are two types of tests which are conducted called alpha
and beta testing. In alpha testing, the product is subject to checking of the
product’s standards/ specifications and is done in the laboratory. In Beta
testing, the product is put to test in a simulated situation. If the product passes
through all the tests when the product is made available for actual use that
shows that product is free from all technical problems because of which the
product may fail in the market place. For example, in case of car the car is
subject to alpha testing, by checking the controls on the apparatuses in the
laboratory and once the whole car is ready then the speed of the car, RPM of
the engine, breaking power, etc. is all an outcome of simulation test called
107
 Business Idea beta testing and a sticker is placed on the car titled “PDI done” i.e. pre
Selection and
Feasibility delivery inspection completed.
7HVW PDUNHWLQJ on the other hand, is distinguished by the fact that the test
group represents the full market, the consumer must make a purchase
decision and pay for the product, and the test product must compete with the
existing products in the actual marketing environment. For these and other
reasons, a market test is an accurate simulation of the broader market and
serves as a method for reducing risk. It should enhance the new product’s
probability of success and allow for final adjustment in the marketing mix
before the product is introduced on a large scale. In case of test marketing,
once the product is finalised, a small geographical area is identified for the
target market and in that area the product is sampled to the consumers to use
the product. After a week or so their feedback is obtained to find out the
shortcomings in the product reported by the consumers. These shortcomings
are then removed in the laboratory and once no further problems are
expressed by the consumers at the time of using the product, it is assumed
that now the product is fit for final launching and commercialization.

7) STAGE 7±Commercialization

The first thing to be done at this stage is determining the time when new
product concept will be commercialized or introduced to the market. Then, at
which scale or capacity, new product concept will be introduced to the
market formally i.e., at a small scale such as a city, medium scale such as a
region, or at a big scale such as the national market, or the international
market. Usually, most businesses prefer to introduce new products into the
market at small or medium scales and expand the market in the process as
introduction of new product at a big scale requires more capital, confidence
and capacity which only few businesses have. This stage requires patience on
the part of the entrepreneur and is the beginning of the recovery of the
investment made by the entrepreneur in the form of return from the sale of
the product.

5.10 CRITICAL FACTORS OF THE NEW

VENTURE DEVELOPMENT
A new venture undergoes several stages: pre start-up stage, start-up stage and
post start up stage. Pre start-up stage starts with generation of idea for the
new venture and ends when the business opportunity is cracked. The start-up
phase starts when the production, sales and delivery activity commence and
the venture starts to function and ends when the business is established and
business has learnt to survive beyond short term threats and challenges. The
post start-up phase ends with the termination of venture or when the
surviving entity is no longer controlled by the entrepreneur. A number of
critical factors are important to consider for the assessment of new venture.
The five critical factors are explained below for the assessment of new
venture:
1) Uniqueness: Uniqueness is something that will make your business to be
108 the only one of its kind of business. The unique business idea is
 something that will increasee the business potential energy of your Business Opportunity:
Identification and
business. It can be done bby creating a USP. A unique selling Selection
proposition (USP) is a well-thoought-out statement that helps a company
distinguishes itself from othher businesses in its category. In most
instances, companies will focuus on a single feature or benefit that solves
a problem, satisfies a need, orr takes away their customers' pain as their
USP. In order to articulate it too their customer base in a memorable way,
companies will create taglines oor summaries of their USP and insert them
into their advertising messagess. For example: - ‘taaza ho le’ by Taaza tea
reflecting the freshness of their tea differentiating it from other
competitors. ‘Hungry, grab a Snickers’ tagline by Snickers reflects its
tummy-filling capability of chocolate which is unique and not available
in competing chocolate brands..

Uniqueness

Customer Product
Availability Availability
CRITICAL
FACTORS OF
NEW VENTURE
DEVELOPMENT

Growth of
Investment
Sales

Figure 5.6 Critical Factoors of New Venture development

2) Investment: The capital iinvestment in every business varies

considerably. In some industriies only large-scale start-ups are feasible
whereas in some cases onlyy small-scale start-ups are feasible. For
example, an online business requires comparatively small amount of
investments as compared to aan offline brick and mortar business. An
entrepreneur entering publishiing industry can start small scale venture
initially and grow further. Conntrary to it an entrepreneur attempting to
manufacture cars may require large capital base and have to enter as a
large-scale business unit. It also involves analysing the investment needs
that may occur not just at startt up but during the initial years of the new
venture. Break-even analysis nneeds to be conducted in order to evaluate
the profitability of investment rrequirements in the new venture.
3) Growth of Sales: The pattern of growth of sales needs to be analysed in
advance. The rate of growth expected also needs to be calculated to
know the gestation period of tthe new venture to breakeven. It involves
answering various questions likke: Are sales and profits expected to grow
slowly or level off shortly aftter start up? Are large profit expected at
some point, with only small annd moderate sales growth? Are both sales
growth and profit growth likelyy?

109
 Business Idea 4) Product Availability: Availability of the product after the promotion is
Selection and
Feasibility an essential factor to be considered. Sometimes, firms make so much
hurry in launching new product but unable to make it available at the
doorsteps of the target population which may tarnish its image.
Sometimes the product launched during its development stage which
needs further modifications or testing. For example, a software firm
rushing to launch its software and then customers find bugs in the
software which needs to be fixed. Lack of a products’ availability in
finished form, free from all defaults pre-tested may tarnish company’s
image.

5) Customer Knowledge about their requirements (customer connect):

It is important for the entrepreneur to understand the requirement of the
customer before starting the production in the venture. The product
available from the venture to be started should understand the needs and
wants of the consumer through market survey which will increase the
likelihood of venture success. Venture risk is affected by availability of
customers for start-ups. Sometimes, venture launches its product without
knowing who will buy its products, for whom they are preparing the
product. A critical consideration is how long will it take to determine
who the customers are, as well as their buying habits. It is also important
for the entrepreneur to understand what are new features looked by the
consumer of their target market in the product they want to introduce and
also check for its affordability from the market where the product is to be
introduced. For example, if a new mobile is to be introduced then the
entrepreneur has to go to the market to find out the features which the
consumers look for in mobile at the time of buying and at what price
range, they will be interested to buy it. The knowledge of both these
factors can be gathered by carrying out initial market survey by the
entrepreneur using focus group interviews. This will ensure the venture
success in the long term. It is said in the marketing literature, that
produce what consumers want and do not offer anything to the market
till the consumers want. So, this calls for proactive approach on the part
of entrepreneur.

Check Your Progress C

1) What do mean by market survey?
2) What is marketing strategy?
3) List out the steps of product development.
4) State whether the following statements are True or False?
i) It is not necessary to judge the feasibility of ideas.
ii) Test marketing represents an actual launching of the total marketing
program, done on a limited basis.

iii) Concept testing helps companies to avoid investing in bad ideas and
at the same time helps them catch and keep outstanding product
ideas.
110
 iv) It is right to compete just on price basis with the competitors. Business Opportunity:
Identification and
Selection
v) Free association is a method of developing new idea through a chain
or a cycle of word association.
5) Fill in the blanks:
i) …………….. is the criteria to judge the feasibility of the product.
ii) Test marketing is the final stage before ………………………. .
iii) The ……………………… is a synthesis or a description of a
product idea that reflects the core element of the proposed product.
iv) No enterprise can become successful if the idea is not
……………….. enough to be translated into a business.
v) The product needs to be …………………….. from that of its
competitors.

5.11 LET US SUM UP

Business opportunity identification is central to the domain of
entrepreneurship. Entrepreneurship revolves around answering various
questions with regard to why, where, when and how business opportunities
arises in the economy. The entrepreneur must always be ready to use his
knowledge and experience and turn his ideas into a powerful business
opportunity and create a successful venture.
Trends often provide great opportunities for starting a new venture. Trends
with regard to wearable trend, mobile trend, payments, green trend, health
trend and the internet are emerging at a fast pace.
Business ideas can be generated through internal as well as external sources.
There are internal various sources with which ideas can be generated like
research and development, intrapreneurship, etc. and external sources like
distribution channel, trade magazines, journals, government schemes, etc.
Techniques for generating ideas include: HIT, SCAMPER, Free Association,
problem inventory analysis, brain storming, brain writing, mind maps etc.
each technique has its own advantages and disadvantages.
Idea screening is a process used to evaluate innovative product ideas,
strategies and marketing trends. Screening is essentially an elimination
technique. The purpose of idea generation is to generate large number of
ideas whereas the purpose of idea screening is to reduce these numbers to
some profitable business ideas. There are eight criteria for screening business
ideas: Attractiveness of idea, practicality, potential of market demand, ability
to undertake, price potential, resource availability, ability to combat
competition and ability to differentiate.

Product selection is a decision process, in which the design team selects one
or few product concepts for further development. The entrepreneur should
follow various criteria for selecting a product for production and sales. Some
111
 Business Idea of those criteria are: (1) Cost of Production, (2) Availability of and Access to
Selection and
Feasibility Raw Materials, (3) Availability of Funds, (4) Differentiation, (5) Product
Acceptance, (6) Technical Implications, (7) The Future of the Product, and
(8) Government objectives and schemes.
Entrepreneurs need to be concerned with formally evaluating an idea
throughout its evolution. Care must be taken to be sure that idea can be the
basis for a new venture. A process for new development starts from idea
generation, idea screening, concept development and product testing,
marketing strategy, technical and market development, testing and validation
and commercialization.
A new venture undergoes several stages: pre start-up stage, start-up stage and
post start up stage. A number of critical factors are important to consider for
the assessment of new venture. The five critical factors are explained below
for the assessment of new venture: Uniqueness, Product availability,
customer connect, growth of sales and investments.

5.12 KEY WORDS

Brainstorming: Brainstorming is a creative problem-solving technique and
also an informal approach to business ideas generation.
Idea screening: It is a process used to evaluate innovative product ideas,
strategies and marketing trends.
Intrapreneur: An intrapreneur is a person who takes on the responsibility to
innovate new ideas, products and processes or any new invention within the
organization
Free association: Developing new ideas through chain of word associations.
Heuristic Ideation Technique: New product ideas are developed using the
combination of the elements of already existing products.
Mind maps: Idea generation strategy to effectively produce ideas by
association.
Product testing: It means testing the product in the laboratory to ensure that
the product is technically safe and free from all product risks and liabilities.
Problem inventory analysis: A method for obtaining new ideas and
solutions by focusing on problems.
Test marketing: Final stage before commercialization in product
development stage.

5.13 ANSWERS TO CHECK YOUR PROGRESS

B) 4. i. true, ii. true, iii. false, iv. true, v. false
5. i. Mind Maps, ii) Focus Group, iii. Training and Assistance, iv.
Brainstorming, v.Heuristic Ideation Technique
C) 4. i. false, ii. true, iii. true, iv. false, v. true
112
 5.i. Practicality, ii. Commercialization, iii. Product Concept, iv. Business Opportunity:
Identification and
Attractive, v. Differentiated Selection

5.14 TERMINAL QUESTIONS

1) Define business opportunity. What are the emerging trends for analysing
business opportunity?

2) What are the sources of generating business ideas? Explain with
examples.

3) What are the methods of generating successful business ideas? Explain
with the help of examples.

4) Explain the stages of the process of New Product Development.

5) What are the criteria for screening business ideas? Discuss with
examples.

6) What are the critical factors required to consider before launching new
venture? Explain with examples.
7) Write short notes on:
a) Brainstorming
b) SCAMPER
c) Mind Maps
d) Test Marketing

Note: These questions will help you to understand the unit better. Try to
write answers for them. But do not submit your answers to the University for
assessment. These are for your practice only.

FURTHER READINGS
x Hisrich, R. D., Peters, M. P., and Shepherd, D. A.
2016.Entrepreneurship, Indian Edition, Mc Graw Hill Education; (Part
two, Chapter 4).
x Kaplan J. M. and Warren, A. C. 2015. Patterns of Entrepreneurship
Management, Wiley; ( Part one, Chapter 4).
x Kaulgud, A. 2003. Entrepreneurship Management, Thomson; (Chapter 3)
x Kuratko, D. F. and Rao, T.V. 2016.Entrepreneurship, A South-Asian
Perspective, Cengage Learning; (Part three, Chapter 9).
x Roy R. 2009. Entrepreneurship, Oxford; (Section one, Chapter 2)

113
 Business Idea
Selection and UNIT 6 MARKET RESEARCH
Feasibility

Structure
6.0 Objectives
6.1 Introduction
6.2 Market Survey
6.3 Market Research
6.4 The Marketing Mix
6.5 Preparing the Marketing Plan
6.6 Proposed Business Plan for a Sports Retail Store
6.7 Rural Market Research
6.7.1 Features of Rural Market
6.7.2 Difference between Urban and Rural Market Research
6.8 The Marketing Mix of Rural Market
6.9 Let Us Sum Up
6.10 Key Words
6.11 Answers to Check Your Progress
6.12 Terminal Questions

6.0 OBJECTIVES
After studying this unit, you should be able to:
x explain the meaning of market survey and market research;
x describe the importance of market survey;
x explain the meaning and process of market research;
x discuss the decisions regarding marketing mix;
x identify the steps in preparing marketing plan;
x explore rural market and its features;
x discuss the difference between urban and rural market research; and
x describe the marketing mix of rural market.

6.1 INTRODUCTION
Once you have identified and selected the business idea that can be converted
into a business venture, you need to do the preliminary survey/research to see
whether your business idea is marketable or not. Only those offerings
(business) are profitable which has got a good market. So the next important
thing that you need to do is to study the market and do the survey/research to
find out the acceptance of your proposed market offerings (goods and
services). There are two words in marketing literature namely, marketing
research and market research. Marketing research is broader and market
research is subset of marketing research. In other words, marketing research
114

covers all aspects starting from motivation research, product research, pricing Market Research

research, promotion research etc. i.e., research in all elements of marketing.

Market research is a focus research covering the consumers only. Since you
are conducting this research at a pre-start-up phase, at this time you need to
know primarily about your consumers. However, once your business venture
comes into existence you need to do a more comprehensive research for
growth and development. In market research the entrepreneur research about
the consumers’ needs and wants, demand pattern, features to be introduced in
the product as product attribute, what are the consequences of these
attributes. Finally he/she tries to understand the value provided by these
attributes in order to help the consumer to form an attitude towards the
product, drive him/her towards purchase intention and finally to purchase
behaviour. This is a very critical component and therefore needs to be carried
out with utmost care.

A market is a group of people who have purchasing power and unsatisfied

needs. These needs should be carefully identified by the entrepreneur as the
entrepreneur will survive only when there is a market for its products or
services. Thus, before entering any market it is vital that the entrepreneur
conducts market analysis by carrying out market survey or other techniques.
If the entrepreneur himself is not an expert enough to conduct market
research, he may take help from outside agency. By doing so, the
entrepreneur will be in a position to gain in-depth knowledge about the
specific market and can translate this knowledge into a well formulated
business plan. In a way, the entrepreneurs tries to understand what does a
market consist of, the process of marketing research, the development of
marketing research, and the development of marketing plan. In this unit, you
will learn about the market survey, the process of market research, marketing
mix and steps in preparing marketing plan. You will be further acquainted
with the rural market research and rural marketing mix.

6.2 MARKET SURVEY

Market survey is the survey research and analysis of the market for a
particular product/service which includes the investigation into customer
inclinations. It is a study of various customer capabilities such as investment
attributes and buying potential. Market surveys are tools to directly collect
feedback from the target audience to understand their characteristics,
expectations, and requirements.

Marketers develop new and exciting strategies for upcoming

products/services but there can be no assurance about the success of these
strategies. For these to be successful, marketers should determine the
category and features of products/services that the target audiences will
readily accept. By doing so, the success of new avenue can be assured. Most
marketing managers depend on market surveys to collect information that
would catalyse the market research process. Also, the feedback received from
these surveys can be contributory in product marketing and feature
enhancement.

115

 Business Idea Importance of Market Survey
Selection and
Feasibility
There are 5 factors that depict the importance of a market survey. Let us learn
about them in detail:

1) Understanding the demand and supply chain of the target market: A

product is most likely to be successful if it is developed by keeping in
mind the demand and supply of the target market. This way, marketers
can obtain insights about market capabilities to absorb new products and
concepts to develop customer-centric products and features. The demand
estimation has to be done by the entrepreneur which includes not only of
the present demand but also of the future demand. For this, various types
of demand forecasting techniques are used by the entrepreneur which are
both quantitative and qualitative by nature. To name few techniques,
they are Delphi technique, Composite of sales-force opinion, consumer
survey of the current demand as to how much quantity they would like to
buy at what price, extrapolation of the past trend, method of least square,
exponential smoothening etc. In supply chain, it requires to be found out
that what the degree of competition is. This is important for entrepreneur
to do the competitive analysis in order to find out what are they offering
at what price, how are they promoting and the strategy of distribution.
This supply side information will help the entrepreneur to re- orient their
strategies to combat the moves of the competitors.

2) Developing well-thought marketing plans: The World is a target

market for an organization and therefore getting data from the target
market through well planned market research is the need of the hour.
Using market surveys and segmentation can be a source of creating
concrete and long-term marketing plans. Preparation of adequate
marketing plan may facilitate the operations of the business.
3) Figure out customer expectations and needs: All marketing activities
revolve around customer acquisition. All small and large organizations
require market surveys to gather feedback from their target audience
regularly. This is done by the application of customer satisfaction tools;
such as, Net Promoter Score, Customer Effort Score, and Customer
Satisfaction Score (CSAT) etc. Organizations can analyse customer
feedback to measure customer experience, satisfaction, and expectations
etc. to keep on being updated about the changing customer demands over
period of time. If the customer expectations are known by the
entrepreneur then accordingly, they can design their products and
services to deliver results which can meet and exceed these expectations.
If results are greater than the customer expectations, it will always add to
their delight.

4) Accurate launching of new products: Market surveys are influential in

understanding where to test new products or services. Market surveys
provide marketers a platform to analyse the scope of success of
upcoming products and make changes in strategizing the product
according to the feedback they receive. The accurate and precise
information may facilitate launching of new products.
116

5) Obtain information about customer demographics: Customer Market Research

demographics form the core of any business and market surveys can be
used to obtain intricate and sensitive details about customer
demographics such as race, ethnicity or family income. Such
demographic information obtained through market survey will always
help the entrepreneurs to segment their markets carefully to ensure the
success of their venture. Moreover, the precise demographic information
may help the entrepreneurs to offer the products in such a way that may
satisfy the customers.

6.3 MARKET RESEARCH

Market research involves the process of gathering, analysing and interpreting
information about a market, about a product or service to be offered for sale
in that market. It includes: the past, present and potential (future) customers
for the product or service; research into the characteristics, spending habits,
location and needs of your business's target market, the industry as a whole,
and the particular competitors you face.
Market research involves the gathering of data to determine such information
as who will buy the product or service, what is the size of potential market,
what price should be charged, what is the most appropriate distribution
channel and what is the most appropriate promotion strategy to inform and
reach potential customers. Market research may be conducted internally by
entrepreneur or by outside specialized agencies. Market research is conducted
following a process which begins with defining the objectives or purpose of
the research. Market research allows a company to discover the
target market and get opinions and other feedback from consumers about
their interest in the product or service. There are lot of various research firms
in India which can be hired by entrepreneurs for this job. To name few, these
are Operation Research Group (ORG), Indian Market Research Bureau
(IMRB), RNB research, TNS India Private Ltd. IDC India, The Nielsen
Company, etc.

Process of Market Research

Now, let us try to understand the process of market research. The market
research process is a systematic methodology for arriving at various types of
business decisions. Marketing research involves gathering information about
a particular market and analysing that information for use. It consists of
various steps because it is a systematic investigation of facts and figures as
follows:
1) Define the Research Purpose and Objectives: The first stage in a
marketing research process is to define the research problem. The
research problem will direct the entrepreneur to collect the information.
The entrepreneur should first focus and prepare a list of all the
information that will be needed to prepare further plans. Defining the
problem, the entrepreneur needs to decide what information is needed
and how that information can be gathered. It involves preparing
117

 Business Idea questions that will define the research objectives. For example: the
Selection and
Feasibility entrepreneur should aim to answer questions like:
x Who will buy the product or service?
x What is the size of potential market?
x What prices will the target customers willing to pay?
x What is the most appropriate distribution channel?
x What is the most appropriate promotion strategy to inform and reach
potential customers?
x How does the business differentiate its products/services with that of
its competitors?

2) Gather Secondary Data: Secondary data refers to the information

already collected by some other researcher, the information that already
exists and compiled. Gathering secondary data is helpful to the
entrepreneur in many ways as it is considered to be the less expensive
source of collecting information and are already tested for its reliability
by the researcher. There are many secondary research sources like
business magazines, peer reviewed journals, published articles, libraries,
government agencies, and most important being internet and social
media sites. All these sources are helpful in providing information about
the market and its competitors.

However, these may not be always suitable as these are collected by the
researchers for some other purpose which may not suit the current
purpose. The secondary information can be outdated, therefore, less
useful. Some sources of secondary data may not be authentic. Therefore,
secondary data should be used while evaluating various business
opportunities to make more informed decision of selection of the
business idea.However, this data should be used with caution.
3) Gathering Information from Primary Sources: If the secondary
sources are not sufficient, the entrepreneur may generate new
information, known as primary data which is collected by the
entrepreneur or the agent recruited by him/her for the purpose of market
research. Primary research is the original research whose purpose is to
collect the data specifically for the current objective. Surveys and
experimentation by mailing, telephonic and personal interviews,
observation, etc. are some of the sources of collecting primary data. The
advantage of using primary information is that it is specifically collected
for the required purpose and is fresh and latest.
However, primary data collection is considered to be a costly and time-
consuming process. Sometimes, the respondents do not give consent for
personal interviews and may feel intruded if observed by the researcher.
To gather information from primary sources we need to develop an
Information Gathering Instrument. The questionnaire is the basic
instrument that can be used to gather information from the market
through a survey. The questionnaire needs to be carefully developed
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 and it should contain questions that bring out the required information Market Research

from the respondent. However, it should not contain personal questions

that the respondents hesitate to answer and respondents may choose to
respond as an anonymous. Also, concise directions are required to be
given to the respondents in the questionnaire and use of technical words
should be avoided. Instrument designing is an art and comes through
experience therefore the entrepreneur can take the help of outside
agencies or some experts at the time of finalising the instrument used for
information gathering.

4) Analysis of Data: Now that all the information needed is collected, it is
the time for analysing the data. The data collected is raw data and needs
to be organized for its effective utilization. Large quantities of data are
merely facts. To be useful, they should be moulded and organized into
meaningful information. The data collected by observing the units in the
sample has to be compiled and coded. Then analysis of the data should
be done based on appropriate statistical methods. Some of the widely
used statistical tools are regression analysis, correlation analysis and
statistical testing for independence between attributes.

5) Interpreting and Reporting Information: The results of marketing

research must be effectively communicated to the management.
Presenting the results of a marketing research study to the management
generally should be done as a formal written report as well as an oral
presentation. Preparing a research report has three steps: understanding,
organizing and writing. The summary of findings is the most important
component of the written report, and many of management team who are
to receive a copy of the report will only read this section. Easy-to-
understand tables, charts and graphics will enhance the readability of the
written research report.

6) Put Research into Action: Once the research is complete. It is time to
present the findings and take action. It is time to start developing
marketing strategies and campaigns and putting the findings to the test.
The biggest takeaway here is that, although this round of research is
complete, it is not over. The problems, business environment, and trends
are constantly changing, which means that the research is never over.
The trends discovered today through research are evolving. One should
be analysing the data on a regular basis to see where one can improve.
The more an entrepreneur knows about his/her buyer personas, industry,
and company, the more successful his/her marketing efforts and
company will be.

6.4 THE MARKETING MIX

An understanding of the concept of marketing mix is required to make the
marketing plan. Therefore, let us quickly and briefly get an idea about the
concept of marketing mix. The marketing mix refers to the set of actions, or
strategies, that a company uses to promote its brand or product in the market.
Marketing mix is the concept given by McCarthy’s which is the concept of
119

 Business Idea taking iinto consideration all the relevant and esssential factors that are
Selection and
Feasibility requiredd to contribute towards the success of an entrepreneur’s
e marketing
endeavoours. A marketing mix is described as a suitaable amalgamation of ‘4
Ps of mmarketing’, which are: Product, Price, Prom
motion and Place. Let us
learn theem.
1) Prooduct: Product refers to the item actually being
b sold. The product
musst deliver a minimum level of performance; otherwise even the best
worrk on the other elements of the marketing mix x would not do any good.
Somme critical decisions which are required to be taken are quality of
commponents of materials, style, features, options,, brand name, packaging,
sizees, service availability, and warranties. In a way it is also called as
prodduct mix. The analysis of each component of product mix and
mannufacture of suitable products any enhance the acceptability of the
prodduct.
2) Pricce: Price refers to the value that is put for a product. It depends on
costts of production, segment targeted, ability y of the market to pay,
suppply - demand and a host of other direct and inndirect factors. There can
be several types of pricing strategies, each tied t in with an overall
busiiness plan. This involves decision with regaard to quality image, list
pricce, quantity, discounts, allowances for quick k payment, credit terms,
and payment period. This is also called as Prrice Mix when all these
elemments are taken into consideration. The deteermination of right price
mixx may help in increasing the sale of the producct.

Promotion

Marketing
Product P
Price
Mix

Place

Figure 6.1 – 4 Ps of Marketing Mix

3) Proomotion: This refers to all the activities undertaken

u to make the
prodduct or service known to the user and trrade. This can include:
adveertising, word of mouth, press reports, incen ntives, commissions and
awaards to the trade. It can also include: con nsumer schemes, direct
marrketing, contests and prizes. This involves crittical decisions regarding:
Meddia alternatives, message, media budget, role of personal selling, sales
prommotion (displays, coupons, etc.), use of sociial networking, Web site
120 desiign, and media interest in publicity. The entreepreneur has to design its

 IMC which means Integrated Marketing Communications where all the Market Research

elements of promotion are given weightage in terms of percentage of the

promotion budget to be spent. This way the entrepreneur synergises its
promotion effort where sum-total of whole elements is greater than the
sum of the individual elements of promotion. The promotion strategy
may be helpful in making the customers in making the customers aware
about the products and their features. The awareness may facilitate in the
buying decision of the customers.

4) Place: Place refers to the point of sale. In every industry, catching the
eye of the consumer and making it easy for her to buy it is the main aim
of a good distribution or 'place' strategy. Retailers pay a premium for the
right location. In fact, the mantra of a successful retail business is
'location’. The critical decision regarding media alternatives, message,
media budget, role of personal selling, sales promotion (displays,
coupons, etc.), use of social networking, website design, and media
interest in publicity may be taken. This calls for making the distribution
strategy by the entrepreneur on the basis of the feedback of the
consumers. One thing should be ensured that promotion should be
followed with distribution. In other words if distribution channels are not
available at any place in the market then in that area the promotion
should also not be done.

All the elements of the marketing mix influence each other. They make
up the business plan for a firm and handled right, can give it great
success. The wrong decision may be very harmful and business could
take years to recover. The marketing mix needs a lot of understanding,
market research and consultation with several people, from users to trade
to manufacturing and several others. A detailed discussion on the
marketing mix is given in other course offered by IGNOU. If you are
interested you may study that course.

6.5 PREPARING THE MARKETING PLAN

When in a business, the mind of the entrepreneur has to be focused on what is
to be achieved and how are we going to do the achievement. Marketing
planning is used to:
x Assess how well the organisation is doing in its markets.
x Identify current strengths and weaknesses in these markets.
x Establish marketing objectives to be achieved in these markets.
x Establish a marketing mix for each market designed to achieve
organisational objectives.

Steps in Preparing the Marketing Plan

There are various stages involved in preparing the marketing plan. Each of
these stages, when completed, will provide the necessary information to
formally prepare the marketing plan (Figure 6.2). An effective marketing
plan will give a business owner a clear idea of the opportunities available in
121

 Business Idea their market, as well as a deep understanding of target audiences and
Selection and
Feasibility competitors. Using that information, businesses can craft a detailed strategy
to guide their marketing efforts toward success and growth. Following are the
essential steps in preparing marketing plan:

1) Defining the Business Situation: The situation analysis is a review

where the company considers many of the environmental factors and
industry analysis. The entrepreneur should simply review some of the
key elements of this section to provide a context for the marketing
segmentation and actions that will be stated in this section of the
business
plan. Industry analysisshould include: information on market size, growt
h rate, suppliers, newentries, and economic conditions. Defining business
situation involves description of the company, the marketing plans in
place and goals for the future. It also states the company’s mission
statement. The current business situation is one section in the plan
describing the company’s current state of market.
2) Defining the Target Market: Opportunities and Threats: A target
market is the specific group of people you want to reach with
your marketing message. They are the people who are most likely to buy
your products or services, and they are united by some common
characteristics, like demographics and behaviours. Knowledge of the
target market provides a basis for determining the appropriate marketing
action strategy that will effectively meet its needs. The defined target
market will usually represent one or more segments of the entire market.
Thus, it is important even before beginning the research to understand
what market segmentation is before determining the appropriate target
market. Market segmentation means dividing the whole population into
small homogenous group so that the entrepreneur responds more
effectively to the needs of more homogeneous consumers.

The process of segmenting and targeting customers by the entrepreneur

should proceed as follows:

x Decide what general market or industry you wish to pursue.

x Divide the market into smaller groups based on characteristics of the

customer or buying situations. The characteristics of the customer or
buying situations may be as follow:

A. Characteristics of the customer

i) Geographic (e.g., state, country, city, region)
ii) Demographic (e.g., age, sex, occupation, education, income, and
race)
iii) Psychographic (e.g., personality and lifestyle)

B. Buying situation

i) Desired benefits (e.g., product features)
ii) Usage (e.g., rate of use)
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 iii) Buying conditions (e.g., time available and product purpose) Market Research

iv) Awareness of buying intention (e.g., familiarity of product and

willingness to buy)

x Select segment or segments to target.

x Develop a marketing plan integrating product, price,

distribution, and promotion.

3) Considering Strengths and Weaknesses: It is important for the

entrepreneur to consider strengths and weaknesses in the target market. It
is most appropriate in the early stages of marketing planning. The
analysis takes internal resources and capabilities, such as strengths and
weaknesses, and external factors, such as opportunities and threats, into
account.

4) Establishing Goals and Objectives: A sound marketing strategy

aligned with your highest-level business goals and objectives helps you
to create awareness for your company and its products and services. It is
important to decide “Where do we want to go?” and should specify
things such as market share, profits, sales (by territory and region),
market penetration, number of distributors, awareness level, new product
launching, pricing policy, sales promotion, and advertising support. All
the preceding goals and objectives are quantifiable and can be measured
for control purposes. However, not all goals and objectives must be
quantified. It is possible for a firm to establish such goals or objectives as
customer attitudes toward a product, set up a sales training program,
improve packaging, change name of product, or find new distributor. It is
a good idea to limit the number of goals or objectives to between six and
eight. Too many goals make control and monitoring difficult. Obviously,
these goals should represent key areas to ensure marketing success.
5) Defining Marketing Strategy and Action Programs: Once the
marketing goals and objectives have been established, the entrepreneur
can begin to develop the marketing strategy and action plan to achieve
them. These strategy and action decisions respond to the question: “How
do we get there?” In this step, it involves decisions regarding marketing
mix of the company discussed earlier in section 6.4 of this chapter.

6) Marketing Strategy: Consumer versus Business-to-Business

Markets: The decisions regarding marketing to consumers are very
much different from that of business-to-business marketing. In business-
to-business markets, the entrepreneur sells the product or service to
another business that uses the product or service as part of its operations.
Dell Computer markets its products to both consumers and businesses. In
marketing to consumers, the company uses direct mail and the Internet,
and to businesses it uses its own sales force. The consumer marketing
effort, however, does support the business marketing effort since the
advertising and promotions will be seen or read by both markets.
Consumer markets involve: sales to households for personal
consumption. Food, beverages, household products, furniture, and
123

 Business Idea commputers would be a few examples. Usuaally business-to-business
Selection and
Feasibility marrketing strategy involves a more direct channeel of distribution because
of tthe volume of each transaction and the need to relate product
knowledge to the business buyers. Advertising g and promotion for the
busiiness-to-business market involve more trad de magazine advertising,
direect sales, and trade shows.
7) Bud dgeting the Marketing Strategy: Effecttive planning decisions
shouuld also consider evaluating the cost of impleementing those decisions.
Thee cost for achieving the desired goals an nd objectives should be
reassonably clear and budgets should be prepaared well in advance. It
shouuld be clearly stated so that anyone else who w reviews the written
marrketing plan understands all the implicationss. The costs and budgets
fram
med in this also help in preparation of financiaal plan.

^dWϭ
ϭ
ͻ Defining the B
Business Situation

^dWϮ
Ϯ
ͻ Defining the TTarget Market: Opportunities and Thre
eats

^dWϯ
ϯ
ͻ Considering Sttrengths and Weaknesses

^dWϰ
ϰ
ͻ Establishing Goals and Objectives

^dWϱ
ϱ
ͻ Defining Markketing Strategy and Action Programs

^dWϲ
ϲ
ͻ Marketing Straategy: Consumer versus Business-to-B
Business Markets

^dWϳ
ϳ
ͻ Budgeting thee Marketing Strategy

^dWϴ
ϴ
ͻ Implementatio
on of the Market Plan

^dWϵ
ϵ
ͻ Evaluation of M
Marketing Plan

Figure 6.2- Steps in Preparing Marketin

ng Plan

8) Imp plementation of the Market Plan: Once all a the above-mentioned
stepps are clearly framed and stated, the time comes for its
impplementation. Marketing plan is not a form mality for proposing to
outsside financial supporter but a formal plan thaat should be implemented
withh careful research and planning. Someone in i the venture should be
assigned the responsibility of coordinating and immplementing the plan.

9) Evaaluation of Marketing Plan: This is the final critical step in

prepparation of marketing plan. A number of variables can affect the
outccomes of marketing plan and thus it is neecessary to evaluate the
perfformance of marketing plan and make necessary changes if required.
Salees volume data by product, territory, sales rep
p, and outlet are a few of
the specific results that should be monitored. In n addition to monitoring
124

 the progress of the existing plan, the entrepreneur should also be Market Research

prepared for contingencies. If the entrepreneur is constantly faced with

significant changes in the marketing strategy, then it is likely that the
plan was not prepared properly and the entrepreneur should focus on it
again or follow the contingency plan.

6.6 PROPOSED BUSINESS PLAN FOR A

SPORTS RETAIL STORE
Business name and address:

Sport Retail
Sector-11, Rohini,
Delhi.

Proprietor’s name and address:

RAMESH SHARMA
Sector-11, Rohini,
Delhi.
Business form: Sole trader (Proprietorship).
Business activity: The above shop will sell general sportswear, clothing,
footwear and sports accessories from a good secondary retail location close to
the main shopping area of Rohini. Sports covered will include: football,
cricket, golf, tennis, archery, skiing and other sports, as appropriate to the
reason. In addition, the shop will sell general sports clothing and footwear
such as track suits, trainers and so on. Suppliers will include major names
such as Adidas, Nike, and so on.

Aim: The aim of the business is to provide an adequate income for myself
and my wife. We shall be living above the shop.

Objectives:
1) Sales of Rs.2,50,000 in the first year
2) Gross profit margin of 40%
3) Net profit margin of 16%
4) Drawings at least Rs.25,000

Market size and growth: The last decade has seen a substantial increase in
the popularity of sport and consequently the growth of the sportswear market.
It is estimated that two-thirds of time spent on leisure pursuits is devoted to
sport. The estimated size of the sport clothing and footwear market is about
Rs. 1 billion. The market for sport equipment is about the same size and the
market for swimwear and beachwear is over Rs.2,00,000. These estimates are
very approximate because the demarcation between sportswear and fashion
wear is becoming increasingly blurred.

125

 Business Idea Competitors:
Selection and
Feasibility
Name Strengths Weakness
Olympus Sports Located in main shopping Lack of expert advice
Silver St. area Lack of personal service
(400 yards away) Very price competitive Limited range
2 Seasons National promotion Lower end of market
Harpur St Shop layout appeal to Poor location
young
Market stall Cramped shop, poor displays
Skiing and tennis
No service
equipment
Only open market day
Good service
Poor quality
Well-known brands
Low end of market
Cheap

Your business:

Strength Weakness
Personal, expert service Secondary location (better than 2
Wide range of equipment Seasons)
Quality equipment Limitedmerchandising opportunities
Well-known brands Cannot afford expensive promotions

Competitive advantages:
1) Personal, expert service
2) Football links – proprietor local football celebrity
3) Links with local sports clubs, schools and so on will enable equipment
and sportswear to be purchased to meet their specific requirements
4) Wide range of quality merchandise

Proposed customers:

General public
Typical market segments: School age (male and female)
Teenage and twenties
Middle age (mainly male)
Impulse shopper
Dedicated buyer
Sports clubs and schools
These are the groups we expect to attract.

Advertising and Promotions strategy:

1) Very limited advertising in local paper: shop opening and seasonal sales.
It is proposed to get a well-known sportsman to launch the shop.
126

2) Extensive promotion to sports clubs and schools offering special Market Research

equipment and sportswear and ‘discounts. Displays may be mounted at

Clubs and so on or special evenings could be arranged.

3) In-store seasonal promotions of particular sportswear or equipment. This

could include: special displays, promotional signs and, perhaps, a
discounted ‘loss-leader’ to get customers into the shop.

4) Store displays would emphasize the professional football links.

Pricing strategy: We cannot compete against Olympus on price and will not
attempt to do so. We will offer good quality branded merchandise at
recommended retail prices. We will attempt to stock alternative merchandise
and brands to Olympus. We will offer good value for money but not lowest
price.

Premises: 1000 square foot retail premises in community Area, Rohini. This
is a prime secondary site close to the main shopping area of Rohini. Rohini
itself offers a good location and is the main shopping Centre for the north of
the Delhi. The premises are leasehold with 10 years to run, let on a full
repairing and insuring basis with rent reviews every 5 years. There is a two-
bedroom flat above the shop in which I intend to live with my wife.

Equipment: Shop display equipment only.

Key people and job functions: Mr. and Mrs.Sharma – Proprietors
There may be other part-time counter staff, as required for Saturday work and
so on.
Background details of key people:
Mr.Sharma
Formerly professional footballer (joined from school).
Retired 4 years ago.
Worked as a salesman with Rank Xerox selling photocopiers to large
companies.Made redundant 6 months ago.
Still maintains good links with local sports clubs and, in particular, old
football club.
Mrs.Sharma
Housewife.
No work experience since marriage.
Prior to marriage was employed as counter staff with Spencer.

Currently Parent Governor of Bachpan School and on organizing committee

for local Youth Club.

Financial Highlights: initial 12 months

Turnover:
Rs. 2,50,000
127

 Business Idea Profit:
Selection and
Feasibility Rs. 40,000 before drawings
Break-even:
Rs. 60,000 x 2,50,000/1,00,000 = Rs. 1,50,000
Funding requirement:
Lease purchase Rs. 20,000
Redecoration 5,000
Fixtures and fittings 15,000
Total Rs.40,000
+ Overdraft facility as required (see cash flow)
Source of funds:
Own funds Rs. 25,000
Bank loan Rs. 15,000
We shall be seeking a 10 year, fixed interest rate loan.
Forecast Profit and Loss Account
Business: Sports Retail
Period: Year 2020
Sales: Rs. 2,50,000 (A)
Less direct (variable) costs:
Materials Rs. 1,50,000
Direct wages
Other
Total direct (variable) costs: (Rs. 1,50,000)
Gross profit/contribution: Rs. 1,00,000 (40%) (B)
The above business plan consists of all the requirements that an entrepreneur
need to state in a business plan which also incorporates marketing plan for
the business. An entrepreneur should carefully analyse all the factors shown
in the example before actually launching the business.

Check your progress A

1) What do you mean by market survey?

2) What is market research?

3) List out the steps in preparing marketing plan.

4) State whether the following statements areTrue or False:

i) A target market is the specific group of people you want to reach
with your marketing message.

ii) Market segmentation means dividing the whole population into

small heterogeneous group.

128 iii) All marketing activities revolve around customer acquisition.


 iv) Gathering data is the first step in the preparation of marketing plan. Market Research

v) The pricing decisions are based solely on competitor’s price.

5) Fill in the blanks:

i) In ……………………. strategy, the entrepreneur decides about

selling and advertisement of his product.

ii) Segmenting market on the basis of age and occupation is an example

of ………………….. segmentation.

iii) ………………………..and……………………… are internal

resources and capabilities of the firm.

iv) The new information can be generated using ………………… data.

v) ………………… can be the less expensive source of collecting data.

vi) …………………. consists of the 4 Ps of marketing.

6) Multiple Choice Questions:

i) First step in marketing research process is to:

a) Define problem
b) Stating research objectives
c) Deciding research approach
d) both A and B

ii) Primary data consists of gathering data through:

a) Journals, books, magazines
b) Website
c) Survey and interviews
d) None of the above

iii) Secondary research consists of gathering data through:

a) Internet
b) Published journals, magazines and books
c) Government agencies
d) All of the above

iv) Marketing mix involves decisions regarding all except:

a) Product
b) Production
c) Price
d) Promotion
e) Place
129

 Business Idea v) Target market is the group of homogenous consumers that an
Selection and
Feasibility entrepreneur:
a) Does not aim to communicate
b) Aims to reach with his/her marketing message.
c) All of the above
d) None of the above

6.7 RURAL MARKET RESEARCH

Since, we are talking of market research, rural markets provide umpteen
opportunities to the budding entrepreneurs. This makes much more sense to
understand about rural markets and gauge the business opportunity provided
by these markets. However, rural market is a bit different than the markets
that we have discussed so far and so are the rural consumers or buyers. The
rural buyer may be less awarded, price sensitive, more traditional and is keen
viewer of T.V and video programmes. Products for rural markets have to be
simpler, easy to use, visually identifiable, affordable, communicated in an
interesting style and available at the customers’ door step.

The rural market in India brings in greater revenues in the country, as the
rural regions comprise of the maximum consumers in this country. Indian
rural market contributes almost more than half of the country’s income.
Indian Rural Marketing has always been difficult to predict and consist of
special uniqueness. Today, as rural markets are considered as high potential
markets, marketers are trying to take full advantage of the current boom, for
which they need to know more about the markets they are entering. A large
number of research organisations have begun to make their advent with
newer tools and techniques into the rural markets. However, the critical point
for the marketers will be the implementation techniques in the rural markets.
They cannot use the same ways and means they have been using in the urban
markets. For example, with regard to the tools and techniques to be adopted
for rural research a typical 5-point or 7-point scales used in the urban market
are not effective in the rural context because they involve complex
understanding on the part of the rural consumer. The rural consumer is not
spatially well equipped. Pictorial scales may be used in their place.
The rural market, though difficult to tap due to infrastructure problems and
the unique behaviour of the rural consumer, there exists widespread
opportunities in rural market. The vastness of the rural market poses both a
challenge and an opportunity to the entrepreneurs. ‘Go rural’ is the
entrepreneur’s new slogan. Indian marketers as well as multinationals, such
as Colgate-Palmolive, Godrej and Hindustan Unilever have focused on rural
markets. Thus, looking at the opportunities, which rural markets offer to the
marketers, it can be said that the future is very promising for those who can
understand the dynamics of rural markets and exploit them to their best
advantage. One of the prominent marketing strategies adopted was Nokia’s
launch of affordable mobile phones ‘Nokia 1100’, which has a bright torch

130

and an alarm clock. This was done to facilitate the rural population residing Market Research

in the areas where there is no electricity.

What is important to understand is that rural markets are not as evolved as
urban markets and hence it might not be appropriate to use the tools and
techniques used in the urban markets. Similarly, the segmentation variables
used in rural markets are different as compared to the urban market and
therefore entrepreneur needs to be cautious at the time of using these
segmentation variables.

In order to get acquainted with the concept of rural market research, it is

important to understand about rural market, its features and the difference
between urban and rural market research due to the peculiar characteristics of
the rural markets. These have been discussed below:

6.7.1 Features of Rural Market

1) Low Standard of Living: The standard of living and purchasing power
of rural customers may be comparatively lower as compared to the urban
population. Rural population is employed in small-scale agricultural and
related occupations. This unreliability factor in case of rural income
makes the rural consumers extremely conscious in their purchase
behaviour as they are not confident about their future earnings. Majority
of the rural population lives below poverty line and have low literacy
rate, low per capita income, social backwardness etc. The village
lifestyle is quite conservative and straightforward. People here spend
more on necessities instead of luxury goods, making it very different
from that of urban lifestyle.

2) Large, Diverse and Scattered Market: Rural market in India is large
and scattered into a number of regions. There are numerous villages
located throughout the country, with a small group of people living in
each of them. Covering, such a large and widely scattered geographical
market, characterized by less population per settlement, raises the
inventory and transportation cost. The increased cost affects the viability
of the route schedule operations of the distribution system in rural areas.

3) Major income comes from agriculture: Agriculture is a seasonal

activity and the major income of the rural consumers come from
agriculture itself as majority of rural population are engaged in
agricultural activities. Rural prosperity is tied with agriculture prosperity.
In the event of crop failure, the income of rural masses is directly
affected. However, with the launch of new government schemes for rural
and entrepreneurship development, other sectors are also emerging in
rural areas. This has been resulting into a very much required shift from
agricultural sector (which suffers from disguised unemployment) to other
sectors.

4) Infrastructure: The infrastructure facilities like road, warehouses,

communication system and financial facilities are inadequate in rural
areas. Promotion and physical distribution thus become very difficult in
the rural areas because of inadequate infrastructural facilities. However,
131

 Business Idea there is development of infrastructure facilities such as construction of
Selection and
Feasibility roads and transportation, communication network, rural electrification
and public service projects in rural India, which has increased the scope
of rural marketing.

5) Diverse Socio-Economic Background: The rural population is

dispersed in vast geographical region and every small district is different
from others in terms of religion, linguistics, culture and social groups
leading to a heterogeneous market. Socio-cultural background influence
consumer willingness to accept innovations and new products in
different areas. The variations in behaviour due to consumer
environment, geographical, occupation, demographical and behavioural,
influences the lifestyle and create altogether different sets of needs in
different areas. This creates the need to segment the rural market to cater
it effectively. The village population tend to stick to their traditions and
are resistant to change due to low literacy level. However, the rural youth
is initiating development though at a slower pace.
6) Literacy Rate: The literacy rate of rural population is very low and the
people in rural areas are very less educated which leads to the problem of
communication for promotion purposes. With low literacy rates, print
medium become inefficient and to an extent irrelevant in rural areas. The
reach of print medium is poor and therefore, the marketers use another
medium such as radio, road shows and nukkad dramas for rural
marketing. However, rural people have started going to urban areas for
higher education. Government has introduced various schemes for rural
education. Internet has increased the awareness and the farmers are well
informed about the world around them. They are also educating
themselves on the new technology around them and aspiring for a better
lifestyle.
7) Market Growth: Demand pattern of rural customer is fast changing due
to increase in income and credit facilities offered by the banks like ‘kisan
credit card’. Consumerism is certainly on a rise and the spending on
lifestyle products is emerging. The rural market is growing steadily over
the years. Demand for traditional products, such as bicycles, agricultural
inputs, FMCG Products etc. has also grown over the years. This was the
result of new employment opportunities and new sources of income
made available through rural development. This result into the increasing
the potential of rural areas.

6.7.2 Difference between Urban and Rural Market Research

Market research in rural markets is considerably different from the urban
market research. Issues like literacy level, civic amenities and infrastructure
support are some key factors that affect rural market research. Some broad
differences in rural and urban market research are illustrated as follows:

132

 Table 6.1Differences between Urban and Rural Market Research Market Research

S.No. Aspect Urban Market Rural Market

1) Respondents Literate, brand aware, Semiliterate or illiterate,
individuals respond brand knowledge low.
individually. Difficulttoget individual
responses. Generally
group response.
2) Time Willing to respond. Hesitant initially, but
Have time pressures. once opens up, devotes
Spare little or virtually time.
no time to field staff.
3) Accessibility Easy to access, though Tough to access;
many suffer, from geographical distances
research fatigue. and psychological
apprehensions are
barriers. Do not speak
easily to outsiders.
4) Secondary data Internal data, syndicated Very few sources and
source research, published less data.
media. Many sources
and large data.
5) Primary data Less number of Large number of all
source middlemen, experts, categories.
sales force, consumers
and opinion leaders.
6) Sampling Respondents form Heterogeneous groups.
relatively homogeneous Income and land holding
group. Income can be a to be carefully applied.
criterion.
7) Data collection Use of sophisticated Requires simplified
instrument, style and instruments
administration. .Respondents
Respondents, comfortable with
comfortable with colours, picture and
numbers , ratings and stories.
timelines.

6.8 THE MARKETING MIX OF RURAL

MARKET
The entrepreneur before entering rural market should formulate key
marketing mix strategies in order to become successful in rural market. The
features of rural market discussed above can provide gainful insights in

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 Business Idea formulating these strategies. Some of the strategies that can be used by the
Selection and
Feasibility entrepreneurs are as follows:
1) Product Decisions: The products demanded by rural population are
different from those of urban population in many aspects. Product for
the rural market must be built or modified to suit the lifestyle & needs of
the rural customers and must be acceptable to rural consumers in all
significant aspects. The product features like size, shape, colour, weight,
qualities, brand name, packaging, labelling, services, and other relevant
aspect must be fit with needs, demands and capacity of rural buyers. The
company should keep in mind that before developing the products for
rural market, marketers must identify the typical rural specific needs.
Urban products cannot be dumped into rural markets without
modifications. Since the purchasing power of the rural population is
comparatively low, packaging the products into small packets/sachets is
recommended in rural areas. For example, Parle G biscuits have
launched its Rs. 2 packets for rural population; various shampoo brands
have launched Rs. 1 packets for rural population. Coca-cola launched Rs.
5 bottles in rural areas.
2) Pricing Decisions: Rural consumers are most price sensitive and price
plays more decisive role in buying decisions. This does not mean that a
rural consumer is a miser. He is not simply looking for the cheapest
product rather he understands and demands value for money in every
purchase that he makes. Pricing offered to consumers should be for value
offerings that are affordable. Pricing policies and its strategies must be
formulated with care and caution. Price level, discounts and rebates, then
credit and instalment facilities are important considerations while setting
prices for rural specific products. Marketers have to plan their activities
in order to bring down the cost of production. They have to bring down
the price in order to attract the customers e.g. Nirma Washing Powder.

3) Promotion Decisions: Promotion aspects always create a challenge in

rural areas as they have a very thin population density but spread over
the large remote area. Also, due to low literacy level, print media is not
recommended for rural population. Television, radio, presentation,
displays can be used to promote the marketing activities of the company.
Programmes like folk dances, rural fairs, nautankis, local contests,
generating word of mouth publicity through opinion leaders, colourful
wall posters, wall paintings of houses in the villages etc. can be taken
into consideration to promote the company’s products. Personal selling
can also play an important role in this respect. ‘Brand’ can be established
through visible logos etc. the rural promotion needs creativity and
innovation. Nowadays, educated youth of rural area can also influence
decision-making of the rural consumers. Rural consumers are also
influenced by the western lifestyle they watch on television and have
influenced the buying behaviour greatly.

4) Place Decisions: Rural market faces critical issues of distribution. A

marketer has to strengthen the distribution strategies. In Rural India, the
selection and use of distribution channels is not an easy task and possess
134

 great challenges. Both physical distribution and distribution channel Market Research

should be decided carefully to ensure easy accessibility of products for

rural consumers. Choosing the right mode of transportation, locating
warehouses at strategic points, maintaining adequate inventory, sufficient
number of retail outlets at different regions, and employing specially
trained sales force are some of the critical decisions in rural distribution.
Normally, indirect channels are more suitable to serve scattered rural
customers. Usually, wholesalers are located at urban and semi urban to
serve rural retailers. Nowadays, online marketing is also making its place
gradually in rural areas of the progressive states. Marketers must design
and modify their distribution strategies time to time taking into
consideration the nature and characteristics prevailing in rural areas
which may be quite differently than that of urban markets.

Check your progress B

1) What do you mean by rural market?

2) State whether the following statements are True or False:

i) The selection and use of distribution channels come under
Promotion mix decisions.

ii) The vastness of the rural market poses both a challenge and an
opportunity to the marketers.

iii) Major income of the rural consumers comes from agriculture.

iv) Market research in rural markets is considerably different from the
urban market research.
v) The marketing mix of rural market is way too different from urban
market.

3) Fill in the blanks:

i) With low literacy rates, ………………..become inefficient and to an
extent irrelevant in rural areas

ii) ……………………. mix decisions involve decisions regarding

packaging and labelling.

iii) …………………. market is providing lot of opportunities after the

initiation of government policies.

iv) Physical distribution become very difficult in the rural areas because
of inadequate …………………. facilities.

v) The rural market is a ………………… market which needs to be

segmented.

6.9 LET US SUM UP

Marketing research involves the gathering of data to determine such
information as who will buy the product or service, what is the size of
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 Business Idea potential market, what price should be charged, what is the most appropriate
Selection and
Feasibility distribution channel and what is the most appropriate promotion strategy to
inform and reach potential customers. Market research is conducted
following a process which begins with defining the objectives or purpose of
the research. The process of market research includes following steps; (1)
Defining research purpose and objectives, (2) Gathering secondary data, (3)
Gathering primary information, (4) Developing an Information Gathering
Instrument, (5) Interpreting and Reporting Information, (6) Put Research into
Action.

The marketing mix refers to the set of actions, or tactics, that a company uses
to promote its brand or product in the market. All the elements of the
marketing mix influence each other. They make up the business plan for a
company and handled right, can give it great success. The entrepreneur must
carefully take decisions with regard to its marketing mix which consists of 4
Ps- Product, Price, Promotion and Place.
An effective marketing plan will give a business owner a clear idea of the
opportunities available in their market, as well as a deep understanding of
target audiences and competitors. Using that information, businesses can craft
a detailed strategy to guide their marketing efforts toward success and
growth. The marketing plan entails a number of major steps. First, it is
important to conduct a situation analysis to assess the question, “Where have
we been?” Market segments must be defined and opportunities identified.
This will help the entrepreneur determine a profile of the customer. Goals and
objectives must be established. These goals and objectives must be realistic
and detailed (quantified if possible). Next, the marketing strategy and action
programs must be defined. Again, these should be detailed so that the
entrepreneur clearly understands how the venture is going to get where it
wants to go. The marketing strategy section or action plan describes how to
achieve the goals and objectives already defined. There may be alternative
marketing approaches that could be used to achieve these defined goals. The
use of creative strategies such as Internet marketing may give the
entrepreneur a more effective entry into the market. The steps on preparing
marketing plan is as follows: (1) Defining the Business Situation, (2)
Defining the Target Market: Opportunities and Threats, (3) Considering
Strengths and Weaknesses,(4) Establishing Goals and Objectives, (5)
Defining Marketing Strategy and Action Programs, (6) Marketing Strategy:
Consumer versus Business-to-Business Markets, (7) Budgeting the
Marketing Strategy, (8) Implementation of the Market Plan, (9) Evaluation of
Marketing Plan.
Rural market is a bit different than the urban markets and so are the rural
consumers or buyers. The rural market, though difficult to tap due to
infrastructure problems and the unique behaviour of the rural consumer, there
exists widespread opportunities in rural market. The features of rural market
are as follows: Low Standard of Living, Major income comes from
agriculture, Infrastructure, Diverse Socio-Economic Background, Literacy
Rate, and Market Growth. Market research in rural markets is considerably
different from the urban market research. The rural markets are not as
136

evolved as urban markets and hence it might not be appropriate to use the Market Research

tools and techniques used in the urban markets.

The marketing mix decisions in case of rural marketing are very much
different from that of marketing mix decisions in urban areas because of the
characteristics of rural population and rural market. The entrepreneur should
carefully examine the needs of rural market and take the decisions
accordingly to meet the needs of this heterogeneous market.

6.10 KEY WORDS

Business-to-business markets: the entrepreneur sells the product or service
to another business that uses the product or service as part of its operations.

Differentiation: It is the way; entrepreneur distinguishes his/her product with

that of competitors.

Market research: The process of gathering, analysing and interpreting

information about a market, about a product or service to be offered for sale
in that market, and about the past, present and potential customers for the
product or service.

Market surveys: They are tools to directly collect feedback from the
target audience to understand their characteristics, expectations, and
requirements.

Primary research: The original research whose purpose is to collect the data
specifically for the current objective and is collected by the entrepreneur
himself.

Secondary data: Refers to the information already collected by some other

researcher, the information that already exists and compiled

Situation analysis: A review carried out by the company considering many

of the factors of environmental and industry analysis.

6.11 ANSWERS TO CHECK YOUR PROGRESS

A) 4. i.True, ii.False, iii.True, iv.False, v.False

5. i.Promotional; ii.demographic; iii.strength and weakness; iv.primary;

v.secondary; vi. marketing mix

6. i.a; ii.c; iii.d; iv.b; v.b

B) 3. i.False; ii.True; iii.True; iv.True; v.True

4. i. Print medium ii. Product; iii. Rural market; iv. infrastructural; v.
heterogeneous

137

 Business Idea
Selection and 6.12 TERMINAL QUESTIONS
Feasibility
1) What do you mean by market research? Explain its process that an
entrepreneur needs to follow.

2) Which are the critical decisions required to be taken by entrepreneurs

while planning marketing mix?

3) What is market survey and why is it important for market research?

4) What are the steps involved in the preparation of marketing plan?
5) What factors should be considered by the entrepreneur while selecting
new product or service?
6) What do you understand by the term rural market? Discuss its features.

7) Explain the difference between urban and rural market research.

8) Briefly explain the strategies that the entrepreneur should frame in
marketing mix of rural population.

9) Write short notes on:

x Market Research
x Target Population and Market Segmentation
x Market Survey
x Rural Market Research

Note: These questions will help you to understand the unit better. Try to
write answers for them. But do not submit your answers to the University for
assessment. These are for your practice only.

FURTHER READINGS
x Hisrich, R. D., Peters, M. P., and Shepherd, D. A. 2016.
Entrepreneurship, Indian Edition, Mc Graw Hill Education;(Part three,
Chapter 8).

x Kaplan J. M. and Warren, A. C. 2015.Patterns of Entrepreneurship

Management, Wiley; (Part one, Chapter 4).

x Kaulgud, A. 2003. Entrepreneurship Management, Thomson; (Chapter 9)

x Kuratko, D. F. and Rao, T.V. 2016.Entrepreneurship, A south-asian

perspective, Cengage Learning; (Part two, Chapter 10).

x Roy R. 2009. Entrepreneurship, Oxford; (Section three, Chapter 12)

138

  Business Plan
UNIT 7 BUSINESS PLAN PREPARATION Preparation

Structure
7.0 Objectives
7.1 Introduction
7.2 What is a business plan?
7.3 Benefits of Writing A Business Plan
7.4 Requisites of Preparing a Business Plan
7.5 Writing the Business Plan- Elements of business plan
7.6 Detailed Project Report
7.7 Proforma of Detailed Project Report
7.8 Let Us Sum Up
7.9 Key Words
7.10 Answers to Check Your Progress
7.11 Terminal Questions

7.0 OBJECTIVES
After studying this unit, you should be able to:
x explain the meaning and importance of business plan;
x describe elements of business plan;
x analyse the scope and value of the business plan to investors, lenders,
employees, suppliers, and customers;
x explain the meaning of detailed project report;
x describe the contents of detailed project report; and
x prepare a detailed project report.

7.1 INTRODUCTION
A business plan is also a road map that provides directions so a business for
future course of action and helps it avoid bumps in the road. The time you
spend making your business plan thorough and accurate, and keeping it up-
to-date, is an investment that pays big dividends (returns) in the long term.
For companies in private industry, the heart of the business plan is a business
model and business strategy which describes how and where the company do
expects to make and spend money. Founders and owners typically develop an
initial business plan before start-up. They build the plan anticipating the flow
and outflow of funds using it as a tool for supporting their requests for
investment capital or loans to start the business. Once the company is
operating, the business plan becomes a living document, which management
reviews and revises frequently i.e. quarterly , six monthly etc.. A good
business plan should incorporate strengths and weaknesses of the business
and should carefully analyse the opportunities and threats that can be
139

 Business Idea converted into opportunities. Like any other project, business plan writing
Selection and
Feasibility needs careful planning and systematic execution. In this unit, you will learn
about the business plan, elements of business planned detailed project report.
You will also be acquainted with the format of detailed project report.

7.2 WHAT IS A BUSINESS PLAN?

A business plan is a guide—a roadmap that provides directions so a business
can plan its future and helps in the smooth functioning of the business. It is a
plan which outlines goals and details about how to achieve those goals. The
business plan is a written document prepared by the entrepreneur that
describes all the relevant external and internal elements involved in starting a
new venture. It is often an integration of functional plans such as marketing,
finance, manufacturing, and human resources. A description of all the facets
of the new venture is necessary to provide a clear picture of what a venture is
about, where is it projected to go and how can the entrepreneur plans to go
about it. A business plan should give as much details as possible but also
these should be in concise manner so that the reader reads it completely.
They are also a way for companies to keep themselves on track going
forward. It aims at addressing both short-term and long-term decision making
and strategies for the first three years of operation. Thus, the business plan is
sometimes referred to the game plan or road map. The plan answers the
questions like: Where am I now? Where am I going? and How will I get
there? Business plan is required and requested by various stakeholders
including investors, customers, suppliers and creditors etc.
Business plan is used by entrepreneur for various purposes. Business plans
are important to allow a company to lay out its goals and attract investment.
It can be used to get debt from banks, raise funds through securities and angel
investors or venture capitalists. It helps the entrepreneur to be prepared in
advance for the initial years of business as it provides blue prints of the
strategies prepared by the entrepreneur. It describes clearly the goals and
objectives of the firm and how can these be achieved. Entrepreneur can also
set performance benchmark to judge the effectiveness of business plan. It can
also be called as techno-economic feasibility study.

Key Features of Business Plan

There are few elements that should be included in a business plan to make it
more useful for entrepreneurs and other stakeholders. These elements are as
follow:
1) It should depict a clear description of product or services that your
business is going to offer to the target audience.

2) It should give proper focus on important players of the market such as
customers, suppliers, competitors etc.

3) It should give data regarding sales forecasting etc. which is very close to
be real.

140

4) It should exhibit the distinctive features of the proposed market offerings Business Plan
Preparation
(USP of goods and services).
5) It should clearly state the required strategy to implement the plan.

6) It should include details of required technical know-how and your plan to
acquire it.

7) It should express the workability of profitability of the proposed

business.

7.3 BENEFITS OF WRITING A BUSINESS PLAN

The business plan is valuable to the entrepreneur, potential investors, or even
new personnel, who are trying to familiarize themselves with the venture, its
goals, and objectives. The business plan is important to these people because:

1. It helps the entrepreneur to avoid a project that may result in ultimate
failure through planning and research in advance. It is better and cheaper
not to start a bad-fated business than to learn through a failed experience.

2. It helps to determine the viability and potential of the venture in a

designated market where it a viable to start a business in that particular
market or not.

3. It provides guidance to the entrepreneur in organizing his or her planning

activities. It gives details about how to achieve the desired objectives and
goals of the firm. It also provides decision making and strategic
guidelines to the entrepreneur about the first few years of the venture.

4. It serves as an important tool in helping to obtain financing. Investors

need to know the parameters and the timings of the expected future
revenue streams, the main outlines of the business to evaluate the risk
and viability of the firm. Thus, with the help of business plan,
entrepreneur can attract investors and raise funds through banks, equity
market, angel investors or venture capitalists.

5. It also helps to find alliances if required to reach new markets, develop
new products, etc. Other firms may want to know about the viability of
the venture before entering into a long-term commitment. Business plan
can help attract these alliances.

6. It also helps in attracting and employing experienced top-level

employees and professionals.

7.4 REQUISITES OF PREPARING A BUSINESS

PLAN
It is important to first know the audience to whom the business plan should
be addressed as to for whom the business plan is written. The business plan
may be read by:
x employees,
141

 Business Idea x investors,
Selection and
Feasibility x bankers,
x venture capitalists,
x suppliers,
x customers,
x advisors, and
x consultants.

The actual content and focus of the business plan depend upon who is
expected to read the business plan. Since each of these groups reads the plan
for different purposes, the entrepreneur must be prepared to address all their
issues and concerns. In some ways, the business plan must try to satisfy the
needs of everyone, whereas in the actual marketplace the entrepreneur’s
product will be trying to meet the needs of selected groups of customers .In
preparing the business plan, it is important for entrepreneurs to consider the
needs of external sources and not merely provide their own perspective.
While preparing business plan, the entrepreneur must carefully analyse the
three main view points:

1. First is the perspective of the entrepreneur himself as he is the one

developing the venture and clearly has the most in-depth knowledge of
the creativity and technology involved. The entrepreneur must be able to
clearly articulate what the venture is all about.
2. Second is the marketing perspective which requires critical emphasis
that an entrepreneur must incorporate while preparing business plan.
Many entrepreneurs tend to deemphasize the in-depth marketing
information in their business plan. Too often, an entrepreneur will
consider only the product or technology and not whethersomeone would
buy it. Entrepreneurs must try to view their business through the eyes of
their customers.
3. Third the entrepreneur should try to view his or her business through
the eyes of the investor. Sound financial projections are required for the
business plan. If the entrepreneur does not have the skills to prepare the
financial projections, he/she may get the assistance of outside experts.
The business plan is valuable to the entrepreneur, potential investors, or even
new personnel, who are trying to familiarize themselves with the venture, its
goals, and objectives.The process also provides a self-assessment by the
entrepreneur. Usually, he or she feels that the new venture is assured of
success. However, the planning process forces the entrepreneurto bring
objectivity to the idea and to reflect on such questions as: “Does the idea
make sense? Will it work? Who is my customer? Does it satisfy customer
needs? Whatkind of protection can I get against imitation by competitors?
Can I manage such a business? Whom will I compete with?” This self-
evaluation is similar to role playing, requiring the entrepreneur to think
through various scenarios and consider obstacles that might prevent the
venture from succeeding. The process allows the entrepreneur to plan ways to
142

avoid such obstacles. It may even be possible that, after preparing the Business Plan
Preparation
business plan, the entrepreneur will realize that the obstacles cannot be
avoided or overcome. And hence, the business can be terminated while on
papers and no time and money goes wasted.

7.5 WRITING THE BUSINESS PLAN

Like every other project, business plan writing also requires some preparation
and should be carefully planned and systematically executed. A business plan
should be comprehensive enough to give any potential investor a complete
picture and understanding of the new venture, and it should help the
entrepreneur clarify his or her thinking about the business. This will improve
the quality of the final business plan and it will also keep the things moving
smoothly.

Key Elements of Business Plan

See Figure 7.1 to know all the elements of writing a business plan at a glance.
Following are the elements of business plan writing:

1) Introductory page: This is the title or cover page that provides a brief
summary of the business plan’s contents.The introductory page should
detail about the name and address of the company and the
entrepreneur(s), telephone number, e-mail address, and Web site address
if available. It should also describe the nature of the business in brief.
The amount of financing needed and a statement of the confidentiality of
the report should also be provided in this section. This is for security
purposes and is important for the entrepreneur. This title page reflects the
basic concept that the entrepreneur is attempting to develop. Investors
consider it important because they can determine the amount of
investmentneeded without having to read through the entire plan.
2) Executive Summary: The executive summary lays out all the vital
information about your business within a relatively short space;
typically, two-three pages or less. It is a high-level look at everything
and summarizes the other sections of your plan. It should stimulate the
interest of the potential investor and other stakeholders. It must be clear
concise and compelling so that people will read further. This is a very
important section of the business plan and should not be taken lightly by
the entrepreneur since the investor uses the summary to determine if the
entire business plan is worth reading. Thus, it should highlight in a
concise and convincing manner the key points in the business plan.

3) Industry Analysis: The entrepreneur should analyse the environmental

and industrial environment to be updated about the current status and
future trends and changes in the market at both domestic and
international level that may impact the working of the business. Any
climate change, current government policies, changes in policies,
economic trends to understand the purchasing power of target market,
cultural and technological changes etc. are analysed and their impact on
the products or services may be understood. Entrepreneur should also
143

 Business Idea checck all the legal requirements and procedure in
n advance to open a new
Selection and
Feasibility ventture. Most entrepreneurs generally face poteential threats from larger
corpporations. The entrepreneur must be preparred for these threats and
shouuld be aware ofwho the competitors are and d what are their strengths
and weaknesses so that an effective marketing plan
p can be prepared and
impplemented. The entrepreneur can identify th he potential threats from
commpetitors through media, journals, social media and their websites.
Thee entrepreneur must consult government publication
p like MSME
repoort, reports of various associations of industry like FICCI,
ASS SOCHAM and marketing research organisatiion like McKinsey, PWC
etc.,, and prepared detailed report pertaining to particular industry. The
entrrepreneur may consult these reports for understanding
u the recent
deveelopments in the industrial operations.

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Figure 7.1 Key Elements of Business Plan

144

4) Business Description: In this section, the description of the venture is to Business Plan
Preparation
be detailed by the entrepreneur. It should begin with describing mission
and vision of the firm. It should give clear idea about the scope and size
of the firm to the investors. The new venture should be thoroughly
described, along with its proposed potential operations. Functional
specifications and descriptions should be provided. Drawings and
photographs may be included. The potential advantages of the new
venture possessing over the competitors should be discussed at length.
Patents, copyrights, and trademarks, as well as specialised technologies
should also be included in this section. If the product is very technical, it
will be important to make sure that its description is clear and easy to
understand. The location of business is very important for its success and
thus, it should also be included in this section.

5) Production Plan: A production plan is necessary for the manufacturing

business. Entrepreneur needs to describe the physical layout of his
production plant, the machinery and equipment needed to perform the
manufacturing operations; raw materials and suppliers’ names,
addresses, and terms; costs of manufacturing; and any future capital
equipment requirements. Discussions of these elements are necessary for
the investors in order to ascertain the financial needs of the firm. If some
or all manufacturing activities are to be sub-contracted then the name and
addresses of the sub-contractor(s), reason for selection and the costs,
terms of contract should be disclosed in this section.

6) Operations Plan: This section begins with describing what needs to be
done to get the business underway. Every type of business, whether
manufacturing- non manufacturing should include operations plan. It
describes the production of goods and services and the flow of goods and
services from producers to customers. It should explain the chronological
steps in completing a business transaction. In addition, this would be a
convenient place for the entrepreneur to discuss the role of technology in
the business transaction process. It must state the strategies to acquire
raw materials.
7) Marketing Plan: The general marketing activities and approach that the
company would follow should be outlined in this section. It describes
how the product(s) or service(s) will be distributed, priced, and
promoted. Marketing strategy which is developed by conducting market
research should be discussed here. Market defensive strategy should be
discussed here. Potential investors related to the marketing plan as
critical to the success of the new venture should be highlighted. Thus, the
entrepreneur should make every effort to prepare as comprehensive and
detailed plan so that investors can be clear as to what are the goals of the
venture and what are the strategies to be implemented for achievement of
the goals effectively.

8) Human Resource Plan: This part takes care of the human resource
requirement for the proposed business to be started. This covers both
human resource planning at the worker’s level as well as at the executive
level. The number of employees required to run the business is worked
145

 Business Idea out. The detailed HR policy is prepared. What will be the compensation
Selection and
Feasibility that will be given to employees at different levels is also decided so that
the entrepreneur is clear about the HR outlay so that it can be made a part
of the business budget. Initially the human resources are kept at bare
minimum and as the business progresses more, human resources are
added in the team. What will be the job description and job specifications
for each position to be filled up is also worked out. The detailed process
of recruitment and selection is worked out. What will be the method of
performance appraisal, etc. are all worked out as part of human resource
plan.
9) Organizational Plan: It describes the form of ownership of the firm
whether it is proprietorship, partnership, or corporation. If the venture is
corporation it should give details about the shares of stock authorized
and share options, as well as the names, addresses, and resumes of the
directors and officers of the corporation. If it is a partnership firm, it
should describe the partnership deed and the terms of the partnership. It
is also helpful toprovide an organization chart indicating the line of
authority and the responsibilities of the members of the organization.
This information provides the potential investor with a clear
understanding of who controls the organization and how will other
members be interacting in the performance of the managerial functions.
10) Assessment of Risk: Every organization faces some risks and threats
and the investors may appreciate that entrepreneur have carefully
analyzed and disclosed possible risks and threats that the venture may
face. The investors may also find key strategies to overcome them. It is
important that the entrepreneur makes an assessment of risk.
Entrepreneur should explain the possible risks, the situation if those risks
becomes reality, and the strategy that will be employed to prevent,
minimize,or respond to the risks if they occur. Major risks can be from
competitors move, weaknesses in the marketing, production, or
management team and the technological changes. All these possible
risks, if any, should be discussed in details with the key strategies to
overcome them.

11) Financial Plan: It is the most looked up section of the business plan.
Most of the financial information and projected statements are disclosed
in this section. It determines the potential investment commitment
needed for the new venture and indicates whether the business plan is
economically feasible. The entrepreneur, in this section, should carefully
project the anticipated sales, possible expenses and the cash flow
projections of the first three years. It should carefully state the financing
needs of the venture for the first three years. The first year’s projection
should give details on monthly basis. The last financial item needed in
this section of the business plan is the projected balance sheet. This
shows the financial condition of the business at a specific time. It
summarizes the assets of a business, its liabilities, the investment of the
entrepreneurand any partners, and retained earnings.

146

12) Appendix (contains backup material): The appendix of the business Business Plan
Preparation
plan generally contains any backup material that is not necessary in the
text of the document. Reference to any of the documents in the appendix
should be made in the plan itself.Letters from customers, distributors, or
subcontractors, copies of documents pertaining to incorporation, various
permits and grants, documents of IPRs, graphical layouts of production
process, etc. are the examples of information that should be included in
the appendix.

Format of a Business Plan

1) Business Name and Address
…………………………………………………………………………….
…………………………………………………………………………….

2) Proprietor’s Name and Address:

…………………………………………………………………………….
…………………………………………………………………………….

3) Business Form:

…………………………………………………………………………….
…………………………………………………………………………….

4) Business Activity:

…………………………………………………………………………….
…………………………………………………………………………….

5) Aims:
…………………………………………………………………………….
…………………………………………………………………………….

6) Objectives:
…………………………………………………………………………….
…………………………………………………………………………….

7) Market Size and Growth:

…………………………………………………………………………….
…………………………………………………………………………….

8) Competitors:
Name Strengths Weaknesses

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 Business Idea 9) Your Business
Selection and
Feasibility
Strengths Weaknesses

10) Competitive Advantage

…………………………………………………………………………….
…………………………………………………………………………….

11) Proposed Customers:

…………………………………………………………………………….
…………………………………………………………………………….

12) Advertising and Promotion Strategy:

…………………………………………………………………………….
…………………………………………………………………………….

13) Pricing Strategy:

…………………………………………………………………………….
…………………………………………………………………………….

14) Premises:
…………………………………………………………………………….
…………………………………………………………………………….

15) Equipment:
…………………………………………………………………………….
…………………………………………………………………………….

16) Key People and Job Functions

…………………………………………………………………………….
…………………………………………………………………………….

17) Background details of Key people

…………………………………………………………………………….
…………………………………………………………………………….

FINANCIAL HIGHLIGHTS (12 Months): As regards:

Turnover: ……………………………………………………………

Profit: …………………………………………………………………

Break Even: …………………………………………………………

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 Funding Requirement: ……………………………………………… Business Plan
Preparation
Sources of Funds: ……………………………………………………

Forecasted Profit and Loss Account:

Name of the Business: ……………………………………….

Period Ending: ……………………………………………….

Sales: I n Rs. (‘000)

Less:Direct (Variable) Cost

1) Raw materials
2) Direct wages
3) Overtime
4) Other
Total direct costs: ……………………………

Gross profit/ Contribution: ………………………………………..

Less: Fixed costs (Overheads):

1) Wages/ salaries (including taxes)
2) Rent
3) Heat and Power
4) Advertising
5) Insurance
6) Transport
7) Stationary
8) Repairs/ renewals
9) Depreciation
10) Local taxes
11) Other professional fees
12) Others

Total fixed cost …………………………………………….

Net Profit: ………………………………………………….

Less: Interest
Net profit after Interest ………………………………………

Less: tax

Profit Retained in the Business: ……………………………….

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 Business Idea Projected Balance Sheet:
Selection and
Feasibility
Business :……………………………………..

Period ending: ……………………………………..

Fixed Assets:
1) Car
2) Computer and other equipment
3) Machinery

Less: Depreciation ……………………………………..

Current Assets:
1) Debtors
2) Cash/ bank

Less: Current Liabilities

Net Current Assets: ……………………………………..

Total Assets: ……………………………………..A

Represented By:

Capital Introduced:
1) Promoters Equity
2) Loans/ secured/ unsecured
3) Other assets
4) Retained Profits

Net profit for the year

Less: drawings

Total capital: ……………………………………………………………..B

A and B must balance

Check Your Progress A

1) What do you mean by the business plan?

2) What is executive summary of business plan?

3) Distinguish between business plan and marketing plan.

4) State whether the following statements are True or False:

i) Potential investors regard the marketing plan as critical to the

success of the new venture.
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 ii) The executive summary lays out all the vital information about your Business Plan
Preparation
business within ten-twelve pages.
iii) The first perspective of writing business plan is for potential
investors view-point.
iv) A business plan should give as much details as possible but also
these should be in concise manner so that the reader reads it
completely.
v) Business plan can be used to get debt from banks, raise funds
through securities and angel investors or venture capitalists

5) Fill in the blanks:

i) ……………………. determines the potential investment

commitment needed for the new venture and indicates whether the
business plan is economically feasible.
ii) ………………………. describes the form of ownership of the firm.

iii) ……………………………… should begin with describing mission

and vision of the firm.
iv) ………………………………….. describes the production of goods
and services and the flow of goods and services from producers to
customers.
v) The business plan is valuable to the ……………………..
and………………………. .

7.6 DETAILED PROJECT REPORT

Business Plan that we have discussed so far, presents the techno-economic
feasibility of a proposed business idea. After the feasibility studies are carried
out, a detailed project report (DPR) is required to be drawn up based on the
data and results obtained from the studies. The preparation of the DPR is the
final and most important stage of pre-investment phase of project. A project
report is a detailed plan of action and particulars about the proposed project.

The company will submit the copies of the detailed project report to the
banks and financial institutions for their participation in the scheme of
finance and also for working capital requirements of the project. A project
report consists of analytical study of the proposed project and conclusion can
be drawn about its viability. The promoter’s capacity and competence will
also reflect in the project report.
The preparation of DPR is undertaken only after the investment decision is
made on the basis of the technical, economic, and financial feasibility studies,
so that the expensive efforts involved in the preparation of DPR are not
wasted. Process designs, layout drawings and construction data are absolutely
necessary for the preparation of DPR.

151

 Business Idea The project report will be prepared for a plan of action to be undertaken
Selection and
Feasibility which covers various aspects which are as follows:
i) Technical,
ii) Financial,
iii) Marketing,
iv) Management and
v) Social.

The outline and the content of DPR is the same as the techno-economic
feasibility report. All the vital aspects of location and site costs,
process/technology, market demand, plant capacity, product revenue,
production costs, profitability, economic benefits, etc. must be covered in
much greater detail in the DPR. The basic difference between the feasibility
study report and DPR is the level of accuracy and degree of detail.

Contents in Detailed Project Report

A detailed project report, generally, contain the following information:

i) General information about the Entrepreneur(s):

Detailed project report begins with the introduction of the entrepreneurs. It
contains basic and general information regarding the name of the
entrepreneur, address of his residence, communication information, age etc.
When the entrepreneur approaches a bank or any other financial institution,
he is a stranger to those parties and thus, his complete details must be
required by those parties. It is obligatory for him/her to introduce
himself/herself to those authorities. The main components that come under
this section are:
1) Name and address of the entrepreneur
2) Contact information
3) Date of birth and age
4) Educational and professional qualifications
5) Special and vocational training
6) Qualities, skills, values, attitude and aptitude of the entrepreneur
7) Family background

ii) Introduction to Project and Industry:

This section gives the introduction of the project. The entrepreneur is
required to give details about the industry he/ she wishes to enter and also
analyse the competition available in the industry. The main elements under
this section are:
1) Industry position in the world scenario
2) Industry position in the country
3) Value addition by the industry
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 4) Profile of the industry in the country Business Plan
Preparation
5) Description of product selected

iii) Project Details:

By the time entrepreneur prepares detailed project report, the location of the
business must have been decided. This section gives description of the
promoters of the firm, reason for selecting a particular location. The major
components of this section are:
1) Promoters
2) Registered office
3) Location of the factory
4) Line of activity
5) Background of other directors
6) Scheme of project
7) Land and site development
8) Building and civil works
9) Plant and machinery
10) Contingencies to plant and machinery
11) Utilities
12) Miscellaneous fixed assets
13) Vehicles
14) Quality control and testing equipment
15) Erection and commissioning
16) Technical knowhow fee
17) Deposits
18) Preliminary and preoperative expenses
19) Working capital margin
20) Schedule of implementation
21) Management etc.

iv) Raw Materials Details:

Raw materials constitute major percentage of the production cost.

Information about the raw material is to be compiled as given in the proforma
below. The quantity and quality of raw material, its price, sources of raw
materials and the reason for selecting a particular supplier etc. needs to be
described in this section. The main components of this section are:
1) Requirement of raw materials
2) Situation of raw material availability indigenously
3) Feasibility of import of raw materials
4) Areas from which raw material can be procured
153

 Business Idea 5) Suppliers of raw materials
Selection and
Feasibility 6) Annual requirement
7) Transportation of raw materials
8) Varieties and grades of raw material
9) Cost of raw materials and transportation cost to the factory
10) Linkages with suppliers of raw material.

v) Utilities Details:

Utilities do not form the part of the end product or service. The nature of the
product and production process determines the type of utilities. An
entrepreneur has to carefully analyse the requirements of utilities in advance.
Utilities facilitate the production process and are constituted mainly by items
like:
1) Power
2) Steam
3) Compressed air
4) Fuel
5) Water
6) Chilled water
7) Effluent and waste disposal etc.

vi) Manpower Details:

A large percentage of the project cost is constituted by the labour cost making
it necessary for the entrepreneur to estimate carefully the manpower
requirements and disclose the same in the detailed project report. It is
customary to classify labour into categories like: skilled, semi-skilled,
unskilled labour and administrative staff. The wages and competitive wage
rates should also be disclosed in this section. The major elements of this
section are:
1) Manpower requirement
2) Organization chart
3) Availability of manpower
4) Total cost of labour

vii) Technical Details:

This section begins with factual description of the production programme for
the given time period which is usually one year which may extend up to three
years. It gives details about the plant capacity and its utilization, a detailed
description of the product in terms of its size, weight, colour, taste, quality,
packaging, usage, etc. It also describes technical details regarding the
technology required and the expertise required for the same. The main
components of this section are:
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 1) Plant capacity Business Plan
Preparation
2) Capacity utilization
3) Manufacturing process with flow chart
4) Plant layout
5) Product description and properties
6) Packing and its cost
7) Technical know-how
8) Plant and machinery details
9) Plant and machinery suppliers

viii)Financial Details:
The cost on account of land and building, machinery and equipment, working
capital requirements, preliminary expenses etc. are to be estimated and
enclosed in this section. This section should also cover the estimated
financial position of the firm, its cash flows, projected sales and break-even
point. It is also required to determine the profitability of the firm in advance
in order to ascertain the return on investments to the investors so that they are
enticed to invest in project. This section is the most important section as it
provides financial and economic viability of the project and helps the investor
in taking the final decision. The main elements of this section are as under:
1) Cost of project, with details to individual cost items
2) Means of finance
3) Assumptions made in financial projections
4) Estimates of production and sales
5) Estimated cost of production and profitability
6) Estimated funds flow statement
7) Projected balance sheet
8) Statement of debt service coverage ratio
9) Statement of computation of working capital
10) Statement of break-even analysis
11) IRR calculations
12) Payback period calculations
13) Return on investment calculations
14) Debt-equity ratio calculations
15) Promoters’ contribution to Cost of project
16) Promoter’s contribution to Total equity
17) Workings for financial projections

155

 Business Idea ix) Marketing Details:
Selection and
Feasibility
This section begins with the description of the target market, preferences of
the target customers, distribution channel etc. the major components under
this section are:
1) Present state of the industry
2) Consumer preferences
3) Market requirements
4) Market segments
5) Distribution channels
6) Market characteristics of the product
7) Export prospects and international market
8) Marketing and selling arrangements
x) Project Evaluation-Social Angle:

Finally, last section gives analysis of the project from social angle and its
implications to the society. This section is important as the entrepreneur
might get subsidies or tax advantages if they are providing any social benefit
to the society. This section includes:
1) Analysis of critical factors
2) Socio Economic benefit
3) Labour availability
4) Impact on ecology
5) Foreign exchange earnings
6) Value addition
7) Import substitution
8) Technology absorption etc.

7.9 PROFORMA OF PROJECT REPORT

1) The Enterprises and the Entrepreneurs

Project report for the manufacture of ………………………………

i) Name of the Item/ Items
…………………………………………………………………………

ii) Name of the units and address

…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………

iii) Telephone No. Office………………….. ; Factory ………………..

156

 iv) Name (s) and addresses of the promoters in block letters Business Plan
Preparation
…………………………………………………………………………
…………………………………………………………………………

v) Constitution of the Firm Proprietary/ Partnership/ Pvt. Ltd./ Coop.

Society
…………………………………………………………………………
…………………………………………………………………………

vi) Qualifications both Academic/ Professional of the Entrepreneur (s)

Name
…………………………………………………………………………

Qualification
…………………………………………………………………………

vii) Production / working experience of the Entrepreneur(s)

Name of the Organization

…………………………………………………………………………

Items manufactured
…………………………………………………………………………
…………………………………………………………………………

Period
…………………………………………………………………………

Family Background (please give details of close relations who are in

the industry/ business)

Name and Address of the Units and Items manufactured

…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………

viii)Location/ Proposed locations

…………………………………………………………………………

ix) Name and address of the bank with which you want to deal with
…………………………………………………………………………

2) Economic Viability and Marketability

i) Introduction
…………………………………………………………………………
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 Business Idea ii) (Basis & Presumptions)
Selection and
Feasibility …………………………………………………………………………
…………………………………………………………………………
iii) Scope
…………………………………………………………………………
…………………………………………………………………………
iv) Marketability (please give proposed selling arrangements & list of
places where the products will be mainly sold & likely buyers, if
any)

3) Technical Feasibility
i) Manufacturing process (please give process flowchart).

ii) Please indicate the process which will get done from outside.
iii) Specifications (whether proposed to adopt ISI specifications or some
other)
iv) Components to be purchased from outside.

S NO. Name of the components No. Specifications

1. Installed Capacity Qty. Value
2. Proposed capacity to be Qty. Value
utilised
3. Motive power
Requirements (HP)
approx.
4) Financial Projections
A) Fixed Capital
i) a) Land, Area and Value
b) Building area, Value owned/ rented or leased
c) please mention if some arrangements have made in this respect.
(please append the proposed layout plan)
ii) Machinery & Equipment
S. Description Indigenous/ Qty. Price Sales Installations Total Name &
No. and Imported tax Address
Specifications of the
Suppliers

158

iii) Testing equipment (with details as above) Business Plan
Preparation

S. Description Indigenous/ Qty. Price Sales Installations Total Name &

No. and Imported tax Address
Specifications of the
Suppliers

iv) Electrification and Installation Charges and Maximum 10% of cost of

machinery and equipment.

v) &RVWRIWRROV-LJV)L[WXUHVPRXOG:RUNLQJWDEOHVHWF

vi) Cost of Office Equipment’s

vii) Pre-operative expenses if any, (cost of project preparation, technical
know-how expense royalties etc.)

viii)Total non-recurring expenditure

(i+ii+iii+iv+v+vi+vii)

B) Working capital (per month)

i) Staff & Labour

Staff and Designation No. Salary Total

Labour
Technical
Office
Sales
Others
Salaries per
month
Perquisites (10
to 20% of
salaries)
Total Salary

159

 Business Idea ii) Raw materials (per month on single shift basis including packing
Selection and
Feasibility materials)

Name with Indigenous/ Qty. Rate Total

specificati imported
ons

iii) Other overhead expenditure (per month basis on single shift basis)
a) Utilit
Power ……….. KWH unit @ ……… per unit cost Rs. …………….
Fuel (Steam/ Furnace oil etc.) tonnes @ Rs. ……………………..
Water ………………….. kilo litre ………… per Kl. ……………….
Total Cost of Utilities ………………………………………….
b) Advertisement and publicity
c) Transport
d) Commission to Distributors/ Agents
e) Consumable stores
f) Rent
g) Taxes (other than income taxes)
h) Insurance
i) Stationery
j) Postage and telephone etc.
k) Repair and maintenance
l) Sales expenses
m) Other miscellaneous (not given above)
Total overheads (a+b+c+d+e+f+g+h+i+j+k+l+m)
iv) Total recurring expenditure (per month) (i+ii+iii)

Working capital for two/ three months (depending upon need or worked
out on the bank system of assessment of working capital needs).
2/3 X expenditure

C) Total investments
i) Fixed capital ……………………………….
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 ii) working capital …………………………… Business Plan
Preparation
Total …………………………………………

D) Cost of production (per year)

i) Total expenditure recurring (per year)
ii) Depreciation on building @ 5%
iii) Depreciation on machinery and equipment’s @10 %
iv) 'HSUHFLDWLRQRQ-LJV)L[WXUHVPRXOGWRROV#
v) Depreciation on office equipment’s @ 20%
vi) Depreciation on total furnaces
vii) Interest on Total investment @ …………………
(Actual to be charged by Financial Institution or Banks)

E) Total Cost of Production ……………………………………….

F) Turnover per year

Sr No. Sales Qty Rate Total

G) Net profit per year (F-E)

(Before taxes)

H) Financial Assessments
i) Return on Sales = Profit (per year) x 100

Total Sales (p. a.)

ii) Rate of Return = Profit (per year) x 100

Total Investment

iii) Break Even Point (BEP)

Total Fixed Cost (FC) per year

a) Depreciation
b) Rent
c) Interest on total Investments
d) 40% of Salary & Wages
e) 40% of overheads (Excluding Rent and Insurance)
f) Insurance
161

 Business Idea BEP: FCx 100
Selection and
Feasibility
FC+ Profit

iv) Name & addresses of the Suppliers (Raw Material’s & Machines)

The detailed project reports whose format is given above may vary from
financial institution to financial institution. However, the information asked
by the financial institution more or less remains the same. It is important for
the entrepreneur to first of all finalise the financial institution from where to
get the funding of the project and then ask them to supply the copy of DPR
format and use that format to supply the information to them which will be a
right step on the part of the entrepreneur. These project reports are subject to
appraisal by the financial institution and based on their appraisal report it is
decided by the banker/ financial institution to fund the proposal or not.

Check your progress B

1) What do you mean buy Detailed Project Report?

2) List out various technical details of DPR.

3) List out various financial details of DPR
4) State whether the following statements are True or False:

i) The preparation of the DPR is the final and most important stage of
pre-investment phase of project.

ii) A project report consists of analytical study of the proposed project

and conclusion can be drawn about its viability.
iii) A detailed project report can be prepared before conducting
feasibility study.
iv) Marketing plan can be skipped while preparing detailed project
report as it is not necessary for the investors to know.

v) Financial assessments should include break even analysis of the

company.

5) Fill in the Blanks:

i) The outline and the content of DPR is the same as the
………………………………………… .
ii) The basic difference between the ……………………… and DPR is
the level of accuracy and degree of detail.

iii) Socio Economic benefit is needed to be considered while evaluating

the project from ………………………………….. .

iv) …………………………. consists of Market segments and

Distribution channels required.

v) ……………………. point reflects the no profit and no loss situation

of the business.
162

 Business Plan
7.8 LET US SUM UP Preparation

Founders and owners typically develop an initial business plan before start-
up. They build the plan anticipating using it as a tool for supporting their
requests for investment capital or loans to start the business. The business
plan is a written document prepared by the entrepreneur that describes all the
relevant external and internal elements involved in starting a new venture. A
business plan should give as much details as possible but also these should be
in concise manner so that the reader reads it completely. It can be used to get
debt from banks, raise funds through securities and angel investors or venture
capitalists.

The business plan is valuable to the entrepreneur to avoid a project that may
result in ultimate failure through planning and research in advance.It helps to
determine the viability and potential of the venture, provides guidance to the
entrepreneur in organizing his or her planning activities. It is an important
tool in helping to obtain financing. It also helps to find alliances if required to
reach new markets, develop new products, etc. and attracting and employing
experienced top-level employees and professionals.

The business plan may be read by employees, investors, bankers, venture

capitalists, suppliers, customers, advisors, and consultants. The actual content
and focus of the business plan depend upon who is expected to read the
business plan. While preparing business plan, the entrepreneur must carefully
analyse the three main view points. First is the perspective of the
entrepreneur himself as he is the one who develops the venture and clearly
has the most in-depth knowledge of the creativity and technology involved.
Second is the marketing perspective which requires critical emphasis that an
entrepreneur must incorporate while preparing business plan. Third the
entrepreneur should try to view his or her business through the eyes of the
investor.
A business plan should be comprehensive enough to give any potential
investor a complete picture and understanding of the new venture. The
elements of business plan are: Introductory page, Executive Summary,
Industry Analysis, Business Description, Production Plan, Operations Plan,
Marketing Plan, Human Resource Plan, Organizational Plan, Assessment of
Risk, Financial Plan, and Appendix
The preparation of the DPR is the final and most important stage of pre-
investment phase of project. A project report is a detailed plan of action and
particulars about the proposed project. A project report consists of analytical
study of the proposed project and conclusion can be drawn about its viability.
The project report will be prepared for a plan of action to be undertaken
which covers various aspects which include: Technical, Financial, Marketing,
Management and Social. A detailed project report, generally, contain the
following information: Introduction to Project and Industry, Project Details,
Raw Materials Details, Utilities Details, Manpower Details, Technical
Details, Financial Details, Marketing Details, and Project Evaluation-Social
Angle.
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 Business Idea
Selection and 7.9 KEY WORDS
Feasibility
Business plan: The business plan is a written document prepared by the
entrepreneur that describes all the relevant external and internal elements
involved in starting a new venture. It is often an integration of functional
plans such as marketing, finance, manufacturing, and human resources.

Detailed Project Report (DPR): It is a detailed plan of action and

particulars about the proposed project.

Executive Summary: It is a high-level look at everything and summarizes

the other sections of the plan in two-three pages.

Industry Analysis: Any climate change, current government policies,

changes in policies, economic trends that might impact the whole industry
entrepreneur wishes to enter

Potential Investors: Those parties that might be interested in giving finance

to the business.

7.10 ANSWERS TO CHECK YOUR PROGRESS

A) 4. (i) True, (ii) False, (iii) False, (iv) True, (v) True

5. (i) Financial Plan, (ii) Organisational Plan, (iii) Business Description,

(iv) Production Plan, (v) entrepreneur and potential investors
B) 4. (i) True, (ii) True, (iii) False, (iv) False, (v) True

5. (i) the techno-economic feasibility report, (ii) feasibility study report,

(iii) social angel, (iv) marketing details, (v) break-even

7.11 TERMINAL QUESTIONS

1) What do you mean by business plan?

2) Discuss various elements of business plan?

3) What is the importance of writing a business plan?

4) What do you mean by a detailed project report? When it should be

prepared and why?

5) What are the major areas covered by detailed project report?
6) Discuss various elements of financial projections required to be prepared
in financial plan.

7) Describe marketing plan in brief.

8) Write short notes on:
x Executive summary
x Industry analysis
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 x Production plan Business Plan
Preparation
x Readers of business plan

Note: These questions will help you to understand the unit better. Try to
write answers for them. But do not submit your answers to the University for
assessment. These are for your practice only.

FURTHER READINGS
x Hisrich, R. D., Peters, M. P., and Shepherd, D. A. 2016.
Entrepreneurship, Indian Edition, Mc Graw Hill Education; (Part three,
Chapter 7).

x .DSODQ - 0 DQG :DUUHQ $ &  3DWWHUQV RI (QWUHSUHQHXUVKLS
Management, Wiley; (Part one, Chapter 5).

x Kaulgud, A. 2003. Entrepreneurship Management, Thomson; (Chapter 6)

x Kuratko, D. F. and Rao, T.V. 2016. Entrepreneurship, A South-Asian

Perspective, Cengage Learning; (Part three, Chapter 9).
x Roy R. 2009. Entrepreneurship, Oxford; (Section two, Chapter 9)
x Zimmerer T.W. & Scarborough N. M., 2013. Essentials of
Entrepreneurship and Small Business Management, PHI Leaning;
(Section II, chapter 3)

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 Business Idea
Selection and UNIT 8 BUSINESS PLAN FEASIBILITY
Feasibility

Structure
8.0 Objectives
8.1 Introduction
8.2 Project Feasibility Analysis
8.3 Technical Analysis
8.3.1 Technical Appraisal
8.4 Market Feasibility Analysis
8.5 Financial Analysis
8.6 Environmental Analysis
8.6.1 SWOT Analysis
8.6.2 PESTLE Analysis
8.6.3 QUEST
8.6.4 CPM
8.6.5 ETOP Analysis
8.7 Let Us Sum Up
8.8 Key Words
8.9 Answers to Check Your Progress
8.10 Terminal Questions

8.0 OBJECTIVES
After studying this unit, you should be able to:
x explain the meaning of project feasibility analysis;
x explain technical feasibility of business;
x discuss market analysis of a project;
x forecast financial projections of a project;
x explain the application of the break-even point for the new venture;
x explain and understand environmental analysis of a business or a project;
and
x conduct SWOT, PESTLE QUEST, CPM and ETOP analysis.

8.1 INTRODUCTION
In unit 7, you have learnt about the business plan and DPR preparation (what
elements should be there in the document). The next step is to check the
feasibility of your business idea. Unless the idea is feasible it should not be
attempted to convert it into a business venture as all the efforts and resources
will go waste. Feasibility study is a means to investigate the potential
outcome of a project, but most of entrepreneurs are ignorant of this before
166 setting up a business. Feasibility Report is a detailed study that examines the
profitability, feasibility, and effectiveness of a proposed investment Business Plan
Feasibility
opportunity.
It is estimated that one of the hundreds idea can be proved to be
commercially viable. Therefore, it is necessary to conduct business feasibility
study in order to ascertain its viability in advance and safeguarding from
employing time and resources to ill-fated business ideas or projects.

Feasibility study is conducted by analysing the business from various aspects

like- technical analysis, environmental analysis, financial analysis, market
feasibility analysis, etc. Let us now take you into a detail discussion on it.

8.2 PROJECT FEASIBILITY ANALYSIS

Feasibility which can also be termed as workability literally means whether
some idea will work or not. It is the preliminary evaluation of a business idea,
conducted for the purpose of determining whether the idea is worth
pursuing. Feasibility analysis takes the guesswork (to a certain degree) out of
a business launch, and provides an entrepreneur with a more secure notion
that a business idea is feasible or viable. It means knowing beforehand
whether there exists a sizeable market for the proposed product/ service?
What would be the investment requirements and where to get the funding
from? Whether and where from the necessary technical know- how to convert
the idea into a tangible product may be available and so on. In other words,
feasibility study involves an examination of the technical, financial, HR and
marketing aspects of a business on ex ante (before the venture comes into
existence) basis.

Feasibility studies also can provide a company's management with crucial

information that could prevent the company from entering blindly
into risky businesses. Business feasibility study is used to support the
decision-making process of the business based on the cost-benefit analysis of
the business or the project viability. Feasibility study is to be conducted even
before the commencement of a formal business plan. A business feasibility
study is heavily dependent on market research and analysis. The findings and
recommendations of business feasibility study gives insights to the investors
to judge the commercial viability of the project before investing their money
into it. The entrepreneur also should make sure in advance that there are no
major road blocks in the way of success before launching the business or a
project.
As the name implies, these studies ask: Is this project feasible? Do we have
the people, tools, technology, and resources necessary for this project to
succeed? Will the project get us the return on investment (ROI) that we need
and expect? Basically, it is a COST-BENEFIT Analysis.

The goals of feasibility studies are as follows:

x To understand thoroughly all aspects of a project, concept, or plan.
x To become aware of any potential problems that could occur while
implementing the project.
167
 Business Idea x To determine if, after considering all significan
nt factors, the project is
Selection and
Feasibility viabble—that is, worth undertaking.

Importaance of Feasibility Studies: Feasibility studies are important to

businesss development. They can allow a business to o address where and how
will it opperate. They can also identify potential obstaacles that may impede its
operations and recognize the amount of funding it will need to get the
businesss up and running. Feasibility studies aim for marketing strategies that
could heelp convince investors or banks that investingg in a particular project or
businesss is a wise choice. It aims to provide the basic information for
effectivee decision making with respect to the prroposed investment. By
showingg the market potentialities, technical and finaancial implications of the
proposedd opportunities, the feasibility report enab bles the entrepreneur to
accept oor reject the project. It also helps to asssist the entrepreneur in
developiing future plans for the organization and serves as the basis for
measurinng the performance of the proposed business..
Feasibiliity analysis is different for different purrposes. However, every
feasibilitty analysis should consist of Technical Analysis, Market Analysis,
Financiaal Analysis and Environmental Analysis. See Figure 8.1

Market
Analysis

Project
Technical Financiaal
Analysis Feasibilty Analysis
Analysis

Environment
Analysis

Figure 8.1 Project Feasibility Analy

ysis

Let us noow try to understand each of them one by onee.

8.3 TECHNICAL ANALYSIS

The techhnical feasibility refers to the ability of the process
p to take advantage
of the cuurrent state of art technology in pursuing fu urther improvement. The
technicaal capability of the personnel as well as the caapability of the available
technoloogy in relation to the requirements of the prop posed project idea should
168 be consiidered and the extent of compatibility shou uld be studied. Technical
feasibility also involves the evaluation of the hardware, software, and other Business Plan
Feasibility
technical requirements of the proposed system. For projects concerning
manufacturing activities, technical analysis is must. It lays out details on how
will a good or service be delivered, which includes transportation, business
location, technology needed, materials and labour. Technical analysis can be
done by answering to the following questions:
x Is the technology proposed to be used the latest technology?
x What is the likelihood of the proposed technology becoming obsolete in
the near future?
x Is the technology proposed to be used a process technology?
x Is the technology proposed to be used available indigenously?
x In case of imported technology, is the technology freely available?
x Is the technology proposed to be used cost effective in the long run?
x Is the technology proposed to be used capable of producing goods and
services according to the requirements and satisfaction of the customers?
x Is there any ongoing or additional research and development needs?

Once you have explored the answer of these questions, you need to do
technical appraisal. Only after getting positive response from technical
analysis you should move further.

8.3.1 Technical Appraisal

It involves critical study of the following aspects besides technology. These
are:

1) Scale of Operations: This section needs description of the scale of

operations and the estimated growth in the future.
2) Raw materials: It gives a complete detail about the selection of raw
materials to be used, name and address of the suppliers, terms of
contract, cost and quality of raw materials to be used. It includes
information such as whether volume discounts will be available as your
business grows or if you plan to manufacture your parts at some point of
time. It also needs to mention if its available locally or needs to be
imported. If it needs to be imported then the import duty and other
agreements should be discussed. The durability of materials from which
the product is made is also required to be considered. The detailed
analysis of raw materials as an input of production has to be carried out
considering availability, cost and quality.

3) Location of the Project: Location of the business affects the success of
the business and thus it becomes important to select the location for the
business carefully. The important factors which determine the selection
of project location are following:

x Availability of land (proper acreage and reasonable costs).

169
 Business Idea x The impact of the project on the environment and the approval of the
Selection and
Feasibility concerned institutions for license.
x The costs of transporting inputs and outputs to the project location
(i.e., the distance from the markets).

x Availability of various services related to the project such as

availability of extension services or veterinary or water or electricity
or good roads etc.

4) Technical Know How: It involves selection of the experts and the
professionals for their expertise in required technical know-how to be
used in the business. It also needs analysis of reasonable utility and the
accepted rate of obsolescence of technology.
5) Calculating Labour Requirements: In this section, a list of the number
and types of employees needed to run the business is prepared which
may be employed in the future as your business grows. One may break
labour into categories if necessary:
x Senior Level Management
x Office and Clerical Support
x Production or Distribution Staff
x Professional Staff (i.e., lawyers, accountants, engineers, marketing)
x Fulfilment (i.e., mail room, shipping department)

6) Possibility of Collaborative Agreements: If the organization plans to

collaborate in future or as start-up then it should be analysed in this
section. Collaboration may facilitate the managerial, financial and
technological availability to the organisation.
7) Plant Layout: A plant layout study is an engineering study used to
analyse different physical configurations for a manufacturing plant. Plant
layout is the most effective physical arrangement, either existing or in
plans of industrial facilities. These may be arrangement of machines,
processing equipment and service departments to achieve greatest co-
ordination and efficiency of 4 M's (Men, Materials, Machines and
Methods) in a plant. The adequate layout may help in smooth operations
of manufacturing.

8) Project Scheduling and Implementation: It should describe the project

implementation schedule. The schedule is an important time
management document that defines and schedules the major phases
of project work being carried out to fulfil the desired project objectives
and achieve the expected outcomes. The well documented scheduling
may facilitate smooth process of production.
9) Product Design: The product design refers tofunctional design of the
product and the attractiveness in appearance. It involves flexibility,
permitting ready modification of the external features of the product to
meet demands or technological and competitive changes. It should have
170
 descriptions of how will users use and buy the product. It also needs Business Plan
Feasibility
description of how the product can be expanded and modified in future.
The results of these investigations provide a basis for deciding whether a new
venture is feasible from technical point of view or not.

Check your progress A

1) What do you mean by Project Feasibility analysis?

2) Why should you carry out the Project Feasibility Studies?

3) What is Technical Analysis?

4) State whether the following statements are True or False:

i) It is necessary to conduct feasibility study before launching a

project.

ii) Feasibility study is conducted to test the viability of the project.

iii) Businesses should not consider about any collaborative agreements

in advance.

iv) It is not important to consider the sources of raw materials.

v) Technical know-how is a part of technical analysis.

5) Fill in the Blanks:

i) Plant layout is the most effective ……………………….. of a
manufacturing plant.
ii) For projects concerning ………………….. activities, technical
analysis is must.

iii) Technical feasibility also involves the evaluation of the

……………………………, ……………………………, and other
technical requirements of the proposed project.

iv) The findings and recommendations of business feasibility study

gives insights to the investors to judge the ………………………..
of the project before investing their money into it.

v) A business’s feasibility study is heavily dependent …………………

8.4 MARKET FEASIBILITY ANALYSIS

This is one of the most important sections of the feasibility study as it
examines the marketability of the product or services and convinces investors
that there is a potential market for the product or services. If a significant
market for the product or services cannot be established, then there is no
project. Market Feasibility is all about how will the real-world market be
reacting towards a particular development. It is concerned with gaining the
in-depth knowledge and doing a deep analysis of market and knowing how is
the target market going to respond towards particular project/product.
171
 Business Idea Assemblling and analysing relevant information about the marketability of
Selection and
Feasibility new vennture are essential for judging its potential su
uccess. Market feasibility
studies sshould include a description of the industry, current market analysis,
competittion, anticipated future market potential, poteential sources of revenue,
and sales projections.

Three m
major areas in this type of analysis are:
x Inveestigating the full market potential and id
dentifying customers for
goods or services
x Anaalysing the extent to which the enterprise might exploit this potential
marrket
x Usinng market analysis to determine the opportun
nities and risks associated
withh the venture.

To addrress these areas various sources can be ussed like market data of
customeers demand patterns, seasonal variations in
i demand, government
policies affecting demand; range of prices of substitutes goods,
complem mentary goods and the prices of compettitor’s goods; customer
spendingg and purchasing power; major competitorrs and their competitive
strength.

Market feasibility can be tested by following the below

b steps (See Figure
8.2):

Industry Analysis

Demand of the Product

Potential Markets

Customer Segmentation and Targeeting

Marketing Strategies

Costs, Pricing methods and Profitab

bility

Competitors Analysis

Figure 8.2 Steps in Market Feasibility Analysis

A

1) Industry Analysis: While conducting industry analysis

a the entrepreneur
shouuld describe the industry in which the entreepreneur wishes to enter.
He/sshe should also ascertain the size of the indusstry and the market share
expeected, growth rate expected and the outlook. It should also reflect the
trennds of demand and supply factors and a briief description about the
forcces that drive the market whether it be innov vations, cultural changes
172 or reegulations.
2) Demand of the product: It involves investigating and forecasting the Business Plan
Feasibility
demand of the product in advance by using methods like expert’s
opinion, customer’s survey, sales forecasts, trend analysis, Delphi
method, jury of expert method, etc. the forecasting of demand will
facilitate in ascertaining the current and future demand patterns, seasonal
variations in demand, purchasing power of the target market, government
policies affecting demand. It also should provide description of what
level of actual product demand can be ascertained correctly. Some of the
demand forecasting techniques are as follows:

x Jury of Expert Method: The researcher identifies the experts on

the commodity whose demand forecast is being attempted. He/She
further probes with them on the likely demand for the product in the
forecast period. This method consists of securing views of the
salesmen and/ or sales management personnel. There may be many
variations. The entrepreneur has to ascertain precise demand
condition with the help of the expert.

x Delphi method: The Delphi method is a facilitated process of

gaining consensus within a group of anonymous participants. The
facilitator sends a forecast questionnaire to each member of the
Delphi group. Anonymity is critical in this method to prevent a few
group members from dominating the decision. When the
questionnaire is returned, the responses are statistically summarized
and then sent back out to the group. Under Delphi method opinions
are collected from experts and efforts are made to match them.

x Market Experiments: Market experiments (actual or simulated) are

performed to generate demand forecasts. A potential problem with
survey method is that survey responses may not translate into actual
consumer behaviour. Consumers do not necessarily do what they say
that they are going to do. This weakness can partially be overcome
by use of market experiments designed to generate data prior to the
full-scale introduction of a product or implementation of a policy.

x Trend Analysis: Under this method, the demand is forecasted by

analysing past records of sales data of the target customers. In this
method, a large amount of reliable data is required for forecasting
demand. In addition, this method assumes that the factors, such as
sales and demand, responsible for past trends would remain the same
in future.
x Survey Method: Survey method is one of the most common and
direct methods of forecasting demand in the short term. This method
encompasses the future purchase plans of consumers and their
intentions. In this method, an organization conducts surveys with
consumers to determine the demand for their existing products and
services and anticipate the future demand accordingly.

3) Potential markets: Potential market is the part of the total population
that has shown some level of interest in buying a particular product or
service. This section aims at identifying the market potential and who
173
 Business Idea will buy the product. The entrepreneur makes a detailed analysis of
Selection and
Feasibility market and the products and determines the potential market
accordingly.
4) Customer Segmentation and Targeting: A target market is the specific
group of people you want to reach with your marketing strategy. They
are the people who are most likely to buy your products or services, and
they are united by some common characteristics, like demographics and
behaviours. Knowledge of the target market provides a basis for
determining the appropriate marketing action strategy that will
effectively meet its needs. The defined target market will usually
represent one or more segments of the entire market. The entrepreneur
should also distinguish between end users of the products and its
customers. Market segmentation means dividing the whole population
into small homogenous group on the basis of demographics factors such
as age, income, occupation, gender, etc. The geographical factors;
psychographic factors and relevant behavioural factors such as frequency
of purchases, reasons for buying the product are considered. Considering
these factors the entrepreneur responds more effectively to the needs of
more homogeneous consumers. It is essential to identify the target
market segment in order to judge the feasibility of the product in the
market.

5) Marketing strategies: The marketing mix is a crucial tool to help

understand what the product or service can offer and how to plan for a
successful product offering. It means formulating various strategies with
regard to marketing mix of the firm i.e., formulating strategies
concerning the 4 Ps- product mix, price mix, promotion mix and place
mix which are discussed in detail in chapter 6.

6) Cost, Pricing Methods and Profitability: It involves ascertaining

various costs involved in marketing of the product and the method which
will be used to calculate and fix the price of the product. Price is the
revenue generated by the firm, therefore the entrepreneur must analyse
the cost price and profitability to obtain the expected amount of profit.
7) Competitors Analysis: Competitor analysis refers to an assessment of
the strengths and weaknesses of current and potential competitors
relative to those of your own product or service. A competitive
analysis is a critical part of market feasibility analysis. It should describe
both the direct and indirect competition. It should also identify the key
competitors of the business and their market share, their strategies,
strengths and weaknesses. It should give details about how their product
can be differentiated by that of competitors and is their product able to
meet the unmet needs of the customers in unique way. The entrepreneur
should also aim to determine the possible reactions of the competitors on
their product launch and the estimation of the time required by the
competitors to imitate your product/ service. Entrepreneur should also
describe strategies to respond to these reactions.
174
 It is needless to mention here that market feasibility analysis gives green Business Plan
Feasibility
signal to go further. If market analysis says that the project is not viable
the project is to be dropped then and there. If market feasibility analysis
gives possible indication to go further than you need to do financial
analysis.

8.5 FINANCIAL ANALYSIS

Financial analysis is the process of evaluating businesses, projects, budgets,
and other finance-related transactions to determine their performance and
suitability. Typically, financial analysis is used to analyse whether an entity is
stable, solvent, liquid, or profitable enough to warrant a monetary investment.
The primary purpose of doing a financial analysis of a project is to evaluate
the project's profitability or cost-effectiveness relative to some alternative
project or investment. Frequently, the results of the financial analysis are
used to compare alternative projects to select which ones should be
implemented.

Financial analysis will include analysis of data with regard to:

1. Capital requirements: It refers to the fixed capital requirement of the
project and its time frame during which the capital will be required.
Various components of capital cost of a project/business are:
™ Land and building
™ Plant and machinery
™ Electricals
™ Transportation
™ Knowledge and Consultancy fees
™ Miscellaneous assets
™ Preliminary expenses
™ Margin money for working capital

2. Sources of Capital: There are various sources with which capital can be
generated which are as follows:
™ Ordinary shares
™ Preference shares having pre-determined rate of dividend
™ Debentures
™ Bonds
™ Term loans
™ Deferred credits
™ Capital investment subsidy
™ Lease financing
™ Public deposits etc.

175
 Business Idea Before selecting any of these options, the entrepreneur has to carefully
Selection and
Feasibility analyse the costs of raising capital from these sources.
Cost of capital can be calculated as follows:

i) Cost of Equity Capital: The cost of equity is the return (often
expressed as a rate of return) a firm is required to pay to its equity
shareholders, to compensate for the risk they undertake by investing
their capital. It is calculated as:
ࡰ૚࢞૚૙૙
Ce (%) = ࡼ૚
Ψ

Where D1= dividend per share

And P1= market price of equity share

If the dividend is expected to grow at a rate of G% every year, then the

cost of equity capital will be calculated as
ࡰ૚࢞૚૙૙
Ce (%) = ࡼ૚
Ψ+ G%

ii) Cost of Debt Capital: The cost of debt is the effective interest rate a
company pays on its debts. It is the cost of debt, such as bonds and loans,
among others. It is calculated as:
Cd (%) = C(1-t) %

Where Cd= after tax cost of debt

C= before tax cost of debt

t= tax rate

iii) Cost of retained earnings: The cost of retained earnings is

the earnings foregone by the shareholders. In other words, the
opportunity cost of retained earnings may be taken as the cost of retained
earnings. It is equal to the income that the shareholders could have
otherwise earned by placing these funds in alternative investments. The
formula for calculating this is the same as that of cost of equity.

iv) Cost of Preference Share Capital: Cost of preference share capital is

that part of cost of capital in which we calculate the amount which is
payable to preference shareholders in the form of dividend with fixed
rate.
஽௜௩௑ଵ଴଴
Cp (%) = ௉
Ψ

Where, Cp= cost of preference share

Div= stated preference dividend

P= Issue price of preference share

v) Weighted Average Cost of Capital: Weighted Average cost of capital

is the sum of all the above costs. It is calculated when the entrepreneur
176 uses more than one sources of finance.
 3. Working capital: Workinng capital is the difference between a Business Plan
Feasibility
company’s current assets, such as cash, accounts receivable and
inventories of raw materiials and finished goods, and its current
liabilities, such as accounts payable. It is basically the analysis of
firm’s liquidity position. Coompanies are required to make analysis of
working capital requiremennts at various stages of the project as well
as day-to-day expenses. It hhelps to ascertain the requirements of cash
by ascertaining the timee periods required for raw materials
procurements to work in pprogress to selling the goods and finally
realizing money from the ddebtors. Longer the time taken to convert
raw materials into sales rrealisation, higher shall be the required
working capital. Various staages of working capital requirement are as
follows (Figure 8.3):

Raw Mterial
Procurement

Sales Work-in-
Realization progress

Finished
Debtorss
Goods

Figure 8.3 W
Working Capital Cycle

4. Financial history, if any

5. Potential sources of funds like debt financing or equity financing or other
lending institutions.
6. Required borrowing capital
7. Repayment conditions
8. Fixed and variable costs
9. Projected profitability and returrn on investments
10. Financial Analysis such as:

™ Profit and Loss analysis: Youur income statement that subtracts the costs
of the business from the earninngs over a specific period of time, typically
a quarter or a year. It is recoommended to show income statement of
initial three years where first yyear’s projections will be made on monthly
or quarterly basis and secondd- and third-year’s projections on annual
basis. In preparation of the proo forma income statement, sales by month
must be calculated first. As indicated above, sales may be projected
177
 Business Idea using many different techniques. The pro forma income statements also
Selection and
Feasibility provide projections of all operating expenses for each of the months
during the first year.
™ Cash-flow analysis: Cash flow is not the same as profit. Profit is the
result of subtracting expenses from sales, whereas cash flow results from
the difference between actual cash receipts and cash payments. An
overview of the cash you anticipate will be coming into your business
based on sales forecasts, minus the anticipated cash expenses of running
the business. It is also called the income statement of the project. It is
recommended to show cash flows of initial three years where first year’s
projections will be made on monthly or quarterly basis and second- and
third-year’s projections on annual basis.
™ Break-even analysis: Demonstrates the point when the cost of doing
business is fully covered by sales. The break-even analysis helps you in
determining what do you need to sell, monthly or annually, to cover your
costs of doing business. You need to determine the break-even point. To
calculate breakeven point, the entrepreneur should determine variables
like selling price, variable cost and fixed cost of the product. It gives the
quantity that a firm should sell in order to be in no profit no loss
situation.
™ Balance sheet: The entrepreneur should also prepare a projected balance
sheet depicting the condition of the business at the end of the first year.
In other words, it tells the entrepreneur a measure of the company’s
solvency. The balance sheet will require the use of the proforma income
and cash flow statements to help justify some of the figures.
Assumed and anticipated balance sheet of the project’s financials is required
to be prepared. This includes including assets that represents everything that
is owned by the company; liabilities which represents everything that the
company owes to creditors; and equity which represents excess of assets over
liabilities. Balance sheet should be projected for the initial three years. Every
business transaction affects the balance sheet, but because of the time and
expense, as well as need, it is common to prepare balance sheets at periodic
intervals (i.e., quarterly or annually). Thus, the balance sheet is a picture of
the business at a certain moment in time and does not cover a period of time.
™ Ratio Analysis: It gives various ratios regarding the profitability and
viability of business and associated risks by calculating returns on
investment, debt-equity ratio, etc.

Various important ratios are:

i) Performance Drivers:
ே௘௧௉௥௢௙௜௧ሺ௔௙௧௘௥௜௡௧௔௡ௗ௧௔௫ሻ
a) Return on Shareholder’s Funds (%)= ௌ௛௔௥௘௛௢௟ௗ௘௥ ƍ ௦௙௨௡ௗ௦

ை௣௘௥௔௧௜௡௚௣௥௢௙௜௧௕௘௙௢௥௘࢏࢔࢚ࢋ࢘ࢋ࢙࢚
b) Return on Total Assets (%) = ࢀ࢕࢚ࢇ࢒ࢇ࢙࢙ࢋ࢚࢙

ii) Profitability Drivers:

178
 ࡺࢋ࢚௉௥௢௙௜௧ Business Plan
a) Net Margin (%) = ௌ௔௟௘௦ Feasibility
ீ௥௢௦௦௉௥௢௙௜௧
b) Gross Margin (%) = ௌ௔௟௘௦
ை௩௘௥௛௘௔ௗ௖௢௦௧௦
c) Overhead Costs (%) = ௌ௔௟௘௦

iii) Assets Efficiency:

ௌ௔௟௘௦
a) Capital/ Net Assets Turnover= ே௘௧௔௦௦௘௧௦
ௌ௔௟௘௦
b) Debtor Turnover= ஽௘௕௧௢௥௦
ௌ௔௟௘௦
c) Fixed Assets Turnover= ி௜௫௘ௗ஺௦௦௘௧௦

iv) Liquidity Drivers:

஼௨௥௥௘௡௧஺௦௦௘௧௦
a) Current Ratio= ஼௨௥௥௘௡௧௅௜௔௕௜௟௜௧௜௘௦
஼௨௥௥௘௡௧஺௦௦௘௧௦௘௫௖௟௨ௗ௜௡௚ௌ௧௢௖௞
b) Quick Ratio= ௖௨௥௥௘௡௧௟௜௔௕௜௟௜௧௜௘௦

v) Risk Drivers:

ௌ௔௟௘௦ି஻௥௘௔௞௘௩௘௡ௌ௔௟௘௦
a) Margin of safety= ௌ௔௟௘௦

After getting positive result from financial analysis, you are determined that
the proposed project is more likely to be potentially profitable.

8.6 ENVIRONMENTAL ANALYSIS AND

REGULATIONS
You have learnt about technical feasibility, market feasibility and financial
analysis. Let us now learn about the environmental analysis and regulation.
The external environment consists of a general environment and an operating
environment. The general environment consists of the economic, political,
cultural, technological, natural, demographic and international environments
in which a company operates. The operating environment consists of a
company's suppliers, customers, market intermediaries who link the company
to its customers, competitors and the public. Both the general and operating
environments provide business opportunities, harbour uncertainties and
generate risks to which a business must adapt.
The environmental analysis refers to conditions and factors external to the
company which are outside of the company’s control, that might affect its
sales, market, costs, and so forth. These are often grouped into kinds of
factors, such as the common PESTLE, which stands for political, economic,
social, technological and legal factors that might affect the company. It can
be analysed by SWOT analysis. It aims at highlighting non-economic factors
that may affect the performance of the firm. It includes factors such as:
x Government policies with regard to particular industry.
x Government incentives for special zones for location of the plant.
179
 Business Idea x Wasste disposable plans, if required.
Selection and
Feasibility x Poliitical Stability.
x Envvironment Regulations.
x Reggulations related to operations of the business.

An orgaanization relies on strengths to capture opportunities and recognize

weaknessses to avoid becoming a victim of environmeental threats. A company
performss an environmental analysis to gain an understanding of these
strengthss, weaknesses, opportunities and threats .Th he company then gathers
informattion about the selected set of environmenttal factors that are most
likely too impact business operations. For example, thhe company might review
governm ment and industry reports and surveys that relay information about
trade barrriers that companies face in particular countrries.

Variouss Techniques of Environmental Analysis arre as follows:

8.6.1 SWOT Analysis

A SWOT T analysis is a method used to evaluate the business' Strengths,
Weaknesses, Opportunities, and Threats. Using a SWOT S analysis helps to
identify areas that business can improve and maximize opportunities present
in the environment, while simultaneously determ mining negative factors
(threats)) that might hinder the chances of success. Neew businesses should use
a SWOT T analysis as a part of their planning processs. There is no “one size
fits all” plan for your business, and thinking abou ut your new business in
terms off its unique ‘SWOT’ will put you on the right track right away.

OPPORTUNITY

STRENGTHS
SWOT WEAKNESS
ANALYSIS

THREATS

Figure 8.4 SWOT Analysis

1) Streengths (internal, positive factors): Strengtths describe the positive

attriibutes, tangible and intangible, internal to you
ur organization. They are
180
 within your control. It cann be the competitive advantage over Business Plan
Feasibility
competitors, new technology, eetc.
2) Weakness (internal, negativee factors): Weaknesses are aspects of your
business that detract from thhe value you offer or place you at a
competitive disadvantage. Youu need to enhance these areas in order to
compete with your best comppetitor. It aims at analysing what lacks in
your business model, is your loocation or technology poor, etc.
3) Opportunities external, posiitive factors): Opportunities are external
attractive factors that represent reasons your business is likely to prosper.
4) Threats(external, negative ffactors): Threats include external factors
beyond your control that couldd place your strategy, or the business itself,
at risk. You have no control oover these, but you may benefit by having
contingency plans to address thhem if they should occur.

8.6.2 PESTLE Analysis

There are many companies the worrld over, that conduct PESTLE analysis on
their brands in order to ascertain strrategies for the future or else to understand
the market before launching them. IIt is a fundamental tool of market planning
and strategizing that must be carriedd out to comprehend market trends and the
systematic risks involved. It is an acronym for political, economic, social,
technological and legal factors. Leet us learn them.

Political
Factors

Ecological
Social Factors
Fcators

PESTLE
ANALYSIS

Technological
Legal Factors
Fcators

Economic
Factors

Figure 8..5 Pestle analysis

1) Political Factors: It refers to vvarious regulations and policies framed by

the government like initiatives taken, subsidies provided, duties imposed
any other special policies with regard to particular industry etc. It is also
affected by various factors succh as the party in power, attitude towards
the business, political stability and the form of government.
181
 Business Idea 2) Economic Factors: It includes factors such as GDP, income of the
Selection and
Feasibility consumer, their purchasing power, standard of living, inflation rates,
disposable income, exchange rates, interest rates, unemployment rates,
money supply etc.
3) Social-cultural Factors: It includes factors such as lifestyles and
attitudes of the customers, cultural backgrounds, social classes and
status, concern for fitness and healthy diets, postponement of having
children, consumption pattern of people, tastes and preferences etc. of
the target market.
4) Technological Factors: It involves study of various technological
changes, investments in research and development, state of technology
development, Innovation level etc.
5) Legal Factors: It involves study of various laws like consumer
protection laws, labour laws; product safety issues competition laws etc.
6) Ecological Factors: It includes various policies with regard to climate
changes, wastage disposal laws, land, water and air pollution, global
warming and green house effects etc.

8.6.3 QUEST
QUEST is an acronym for Quick Environment Scanning Technique. This
method uses scenario’s Building for environmental analysis:
1) Managers make observations about major events and trends in the
environment.
2) They speculate on wide range of issues that are likely to affect the future
of the organisation.
3) A report is prepared summarizing the issues and their implications to the
firms two or three scenarios.
4) The report of scenarios is required by strategy part based on which they
identify feasible options.

8.6.4 CPM
CPM is an acronym for Competitive Profile Matrix. The Competitive
Profile Matrix (CPM) is a tool that compares the firm and its rivals and
reveals their relative strengths and weaknesses. In order to better understand
the external environment and the competition in a particular industry, firms
often use CPM.
It starts with assigning weights to various critical factors indicating the
importance of success for each critical factor. After assigning the weights, the
rating is assigned to the firm and competitors based on the factor ranging
from 1 (major weakness) to 4 (major strength). The score is the result of
weight multiplied by rating. Each company receives a score on each factor.
Total score is simply the sum of all individual score for the company. The
182
firm that receives the highest total score is relatively stronger than its Business Plan
Feasibility
competitors.

Firm Competitor A Competitor B

Critical success Factors Weight Rating Score Rating Score Rating Score
1. Market share 0.10 4 .40 4 .4 3 .3
2. Product Quality .25 3 .75 3 .75 3 .75
3. Customer Loyalty .05 4 .2 4 .2 3 .15
4. Price competitiveness .10 2 .2 3 .3 2 .2
5. Sales Distribution .10 4 .4 3 .3 2 .2
6. Customer Service .10 3 .3 2 .2 1 .1
7. Global Expenses .10 2 .2 3 .3 4 .4
8. Advertising, etc. .05 1 .5 4 .2 2 .1
Total 1 .97 .94 1.03

8.6.5 ETOP Analysis

Environment Threat and Opportunity (ETOP) Analysis is a management
tool that analyses environmental information and determines the relative
impact of threats and opportunities for the systematic evaluation of the
environment. ETOP process involves dividing the environment into different
environmental sectors and then analysing the impact of each sector on the
organisation.
ETOP gives a clear picture to the strategies about each aspect of the business
environment, the various individual factors within each sector which affect
the business favourably or otherwise. It consists of a three-step process:
x List all environmental factors
x Access Impact of Each factor
x Get a Big Picture

It provides a clear picture of all the environmental factors and shows which
factors have a favourable impact and which have an adverse impact.

Environmental Factors Nature Of Impact Impact Of The Sector

Economic Factors x Rising income levels

x Price competition

Social Factors x Changes in Lifestyle

x Changes in
customer’s tastes
Technological Factors x Product becomes
unique
x Acquisition of New
183
 Business Idea technology needed
Selection and
Feasibility and expenses
Customer Behaviour x Loyalty in purchase
x Buyer’s preferences
for differentiated
goods

Suppliers x High input costs

x Improved quality

Check Your Progress B

1) What do you mean by market feasibility analysis?
2) What is financial analysis?

3) What is PESTLE analysis?

4) State whether the following statements are True or False:

i) Social factors involve study of various laws.

ii) It is necessary to make financial projections for first year only.
iii) The primary purpose of doing a financial analysis of a project is to
evaluate the project's profitability.

iv) Profit is the result of subtracting expenses from sales, whereas cash
flow results from the difference between actual cash receipts and
cash payments.
v) A competitive analysis is a critical part of market feasibility
analysis.

5) Fill in the Blanks:

i) …………………… demonstrates the point when the cost of doing

business is fully covered by sales.
ii) …………………… means dividing the whole population into small
homogenous group.

iii) ………………………….. is the part of the total population that has

shown some level of interest in buying a particular product or
service.

iv) …………………………….. concerns about formulating strategies

concerning the 4 Ps.

v) An organization relies on …………………………….. to capture

opportunities.

184
 vi) The entrepreneur should also prepare a projected Business Plan
Feasibility
………………………….. depicting the condition of the business at
the end of the first year.

6) Multiple Choice Questions:

i) ……………………….. is not a part of SWOT analysis
a) Weakness
b) Strength
c) Opportunities
d) Tricks

ii) ……………………. is not a part of PESTLE Analysis

a) Political
b) Legal
c) Strengths
d) Economical

iii) ……………………. are the internal positive factors.

a) Strengths
b) Weakness
c) Tricks
d) Strategies

iv) ………………….. involves policies and regulations framed by the

government.
a) Legal factors
b) Economic factors
c) Political factors
d) Technological factors

v) ……………………. tells the entrepreneur the condition of the

company at the end of the financial year.
a) Cash Flow Statement
b) Balance Sheet
c) Income Statement
d) Ratios

8.7 LET US SUM UP

Feasibility analysis takes the guesswork (to a certain degree) out of a
business launch, and provides an entrepreneur with a more secure notion that
a business idea is feasible or viable.
185
 Business Idea Business feasibility study is used to support the decision-making process of
Selection and
Feasibility the business based on the cost-benefit analysis of the business or the project
viability. Feasibility study is to be conducted even before the commencement
of a formal business plan. Feasibility studies are important to business
development. They can allow a business to address where and how will it
operate. They can also identify potential obstacles that may impede its
operations and recognize the amount of funding it will need to get the
business up and running.

Every feasibility analysis should consist of Technical Analysis, Market

Analysis, Financial Analysis and Environmental Analysis.

The technical feasibility refers to the ability of the process to take advantage
of the current state of art technology in pursuing further improvement.
Technical feasibility also involves the evaluation of the hardware, software,
and other technical requirements of the proposed system. Technical appraisal
involves the study of various aspects which include: Scale of Operations,
Raw materials, Location of the Project, Technical Know How, Calculating
Labour Requirements, Possibility of collaborative Agreements, Plant Layout,
Project scheduling and implementation and Product Design.

Market Feasibility is all about how will the real-world market be reacting
towards a particular development. Market feasibility studies should include a
description of the industry, current market analysis, competition, anticipated
future market potential, potential sources of revenue, and sales projections.
Market feasibility can be tested by analysing Industry, Demand of the
product, Potential markets, Customer Segmentation and Targeting, Marketing
strategies, Cost, Pricing Methods and Profitability and Competitors Analysis.

Financial analysis is the process of evaluating businesses, projects, budgets,

and other finance-related transactions to determine their performance and
suitability. Typically, financial analysis is used to analyse whether an entity is
stable, solvent, liquid, or profitable enough to warrant a monetary investment.
The projected income statement provides a sales estimate in the first year
(monthly basis) and projects operating expenses each month. These estimates
are determined from the appropriate budgets, which are based on marketing
plan projections and objectives.
Cash flow is not the same as profit. It reflects the difference between cash
actually received and cash disbursements. Some cash disbursements are not
operating expenses (e.g., repayment of loan principal); likewise, some
operating expenses are not a cash disbursement (e.g., depreciation expense).
Many new ventures have failed because of a lack of cash, even when the
venture is profitable.
The entrepreneur should also prepare a projected balance sheet depicting the
condition of the business at the end of the first year. In other words, it tells
the entrepreneur a measure of the company’s solvency. The balance sheet is a
picture of the business at a certain moment in time and does not cover a
period of time.

186
Break even analysis gives the quantity that a firm should sell in order to be in Business Plan
Feasibility
no profit no loss situation. Ratio Analysis gives various ratios regarding the
profitability and viability of business and associated risks.

The environmental analysis refers to conditions and factors external to the

company which are outside of the company’s control, that might affect its
sales, market, costs, and so forth. These are often grouped into kinds of
factors, such as the common PESTLE, which stands for political, economic,
social, technological and legal factors that might affect the company. It can
be analysed by SWOT analysis which stands for strengths, weaknesses,
opportunities and threats.

8.8 KEYWORDS
Break-Even Point: The point at which there is no profit and no loss.

Competitors Analysis: Competitor analysis is an assessment of the strengths

and weaknesses of current and potential competitors relative to those of your
own product or service.

Feasibility Study: It means whether some idea will work or not. It is the
preliminary evaluation of a business idea, conducted for the purpose of
determining whether the idea is worth pursuing or not.

Financial analysis: It is the process of evaluating businesses, projects,

budgets, and other finance-related transactions to determine their
performance and suitability

Market Feasibility: It is concerned with gaining the in-depth knowledge and

doing a deep analysis of market and knowing how the target market is going
to respond towards particular project/product.

Market segmentation: Itmeans dividing the whole population into small

homogenous group on the basis of demographics, geographical,
psychographic and behavioural factors.

PESTLE Analysis: It is an acronym for political, economic, social,

technological and legal factors.
Plant Layout: It refers to the physical arrangement, either existing or in
plans of industrial facilities i.e. arrangement of machines, processing
equipment and service departments to achieve greatest co-ordination and
efficiency of 4 M's (Men, Materials, Machines and Methods) in a plant.

SWOT Analysis: A SWOT analysis is a method used to evaluate

the business' Strengths, Weaknesses, Opportunities, and Threats.
Target Market: A target market is the specific group of people you want to
reach with your marketing message. They are the people who are most likely
to buy your products or services, and they are united by some common
characteristics, like demographics and behaviours.

Technical feasibility: It means the evaluation of the hardware, software, and

other technical requirements of the proposed project. 187
 Business Idea
Selection and 8.9 ANSWERS TO CHECK YOUR PROGRESS
Feasibility
A) 4.i True, iiTrue, iii.False, iv.False, v.True
5. i.physical arrangement; ii.manufacturing; iii. hardware, software;
iv.commercial viability, v. market research and analysis
B) 4. i.False, ii.False, iii.True, iv.True, v.True
5. i.Breakeven Point, ii.Market Segmentation, iii.Target Market,
iv.Marketing Mix, v.Strengths, vi.Balance sheet
6. i. d ii. c iii.a iv. c v. b

8.10 TERMINAL QUESTIONS

1) Why is it important to conduct feasibility analysis before launching a
product?
2) Explain the important questions that are required to be answered by the
entrepreneur while conducting technical analysis?
3) Briefly explain the Projections required to me made in financial analysis.
4) Why is it important to conduct Market feasibility analysis? Briefly
describe the components of market feasibility analysis.
5) What are the various demand forecasting methods?
6) What aspects of environmental analysis is required to be done before
launching the project?
7) Write short notes on:
x Market segmentation and targeting
x SWOT analysis
x PESTLE analysis
x Breakeven analysis

Note: These questions will help you to understand the unit better. Try to
write answers for them. But do not submit your answers to the University for
assessment. These are for your practice only.

FURTHER READINGS
x Hisrich, R. D., Peters, M. P., and Shepherd, D. A.
2016.Entrepreneurship, Indian Edition, Mc Graw Hill Education; (Part
three, Chapter 8).
x Kaplan J. M. and Warren, A. C. 2015.Patterns of Entrepreneurship
Management, Wiley; (Part one, Chapter 4).
x Kaulgud, A. 2003. Entrepreneurship Management, Thomson; (Chapter 9)
x Kuratko, D. F. and Rao, T.V. 2016.Entrepreneurship, A south-asian
perspective, Cengage Learning; (Part two, Chapter 10).
x Roy R. 2009. Entrepreneurship, Oxford; (Section three, Chapter 12)
x Zimmerer T.W. & Scarborough N. M., 2013. Essentials of
Entrepreneurship and Small Business Management, PHI Leaning;
(Section II, chapter 4)
188
 Business Plan
UNIT 9 BUSINESS PLAN Implementation

IMPLEMENTATION

Structure
9.0 Objectives
9.1 Introduction
9.2 What is Location Layout?
9.3 Factors Affecting the Location Decisions
9.4 Business Process
9.4.1 Designing the Business Process
9.4.2 Key Elements of Business Process
9.5 Deciding about operation, planning and control
9.6 Preparation of Project Report/ Business Plan
9.7 Selection of Financers
9.8 Let Us Sum Up
9.9 Key Words
9.10 Answers to Check Your Progress
9.11 Terminal Questions

9.0 OBJECTIVES
After studying this unit, you should be able to:
x discuss the designing of business process;
x explain the meaning of location layout;
x describe the factors affecting selection of a plant location;
x explain the meaning of business process;
x design business process;
x explain key elements of a business process;
x decide about operations, planning and control;
x prepare a business plan; and
x explore various sources of funds available to the entrepreneur.

9.1 INTRODUCTION
As discussed in the previous unit, once you are done with your Business
Plan/ DPR preparation and evaluation, you need to focus on implementation
part such as location decision/choice, designing business process,
organization and management planning and selection of investors/financers.
Let us now dig deeper and discuss the implementation part one by one.
Location decisions are the strategic decisions that require large financial
investments and they are irreversible in nature. A number of factors like
189
 Business Idea market related factors, tangible or cost factors and intangible or qualitative
Selection and
Feasibility factors affect and are affected by the location choice. The choice is made
only after considering cost and benefits of different alternative sites. It is a
strategic decision that cannot be changed once taken. If at all changed only at
considerable loss, the location should be selected as per its own
requirements and circumstances. Similarly the other decisions (mentioned
above) while planning the implementation part are a tricky affair.

9.2 WHAT IS LOCATION LAYOUT?

Plant location refers to the choice of region and the selection of a particular
site for setting up a business or factory. Entrepreneurs who choose their
locations wisely with their customers’ preferences and their companies’
needs in mind establish an important competitive advantage over rivals who
choose their locations hap hazardly. The physical disposition of the facilities
of a plant is referred to as the plant layout. The basic types of layouts are:
process layout, product layout, fixed-position layout, cellular manufacturing
layout and hybrid layout.
A process layout is the layout in which similar machinery are grouped
together. In product layout the machines are arranged according to the
progressive steps by which a product is made. In a group technology layout,
dissimilar machines are grouped into cells, and each cell functions like a
product layout within a larger job shop or process layout. In a fixed layout,
all the necessary inputs men, materials, and equipment are brought to a fixed
location where the product is actually manufactured. A hybrid or combination
layout constitutes combination of two or three types of layouts.

9.3 FACTORS AFFECTING THE LOCATION

DECISIONS
One of the most important steps in the critical path of the establishment of a
business is the selection of adequate location for the business as this can be
irreversible in nature. The old axiom from marketing is that the three keys to
business success is Location, Location, Location. Location is thus, a critical
item for the successful operations of a new business. Therefore, the
entrepreneur must identify and select the location site very carefully. The
success of the a business to a large extent depend on ideal selection of
location site. The important considerations for selecting a suitable location
are given as follows:
1) Market Proximity: Production has no value without consumption. All
business comes into existence to serve its customers. Locating business
close to markets, the entrepreneurs plan to serve is extremely critical to
manufacturers especially when the cost of transportation of finished
goods is high relative to their value. Locating near customers can also
give competitive advantage. The more the need for after sale services,
more the cost of transportation and lower the shelf life of the finished
goods, the more proximity towards the market will be required. Nearness
190
 to the market ensures a consistent supply of goods to customers and Business Plan
Implementation
reduces the cost of transportation.
2) Supply of required raw material:When the raw material required by
the business are either heavy or bulky and involves huge transportation
cost then it is suggested to keep the location of the business near to the
sources of raw material. It is essential for the Organization to get raw
material in right qualities and time in order to have an uninterrupted
production. This factor becomes very important if the materials are
perishable and cost of transportation is very high. It is not profitable to
transport the heavy and low value material over long distances. Selecting
the location near to the raw material source can also reduce the cost of
holding inventory as the suppliers can make quick deliveries. However,
when the raw material is easily available, then one should strategize to
keep the location near to the market and not to the source of raw
material.

3) Availability of Labour and Skills: For labour intensive organizations,

especially, the availability of labour supply and required skills becomes a
critical factor while selecting the location of the business. Entrepreneurs
must consider the number of workers available in the area and their
levels of education, training, adaptability and experience and the number
of workers qualified to the required work of the entrepreneur in the area.
Knowing the exact nature of the labour needed and preparing job
descriptions and job specifications in advance will help a business owner
to determine whether there is a match in the area of the business.
Besides, an entrepreneur should also study labour relations through
turnover rates, absenteeism and liveliness of trade unionism in the
particular area.Such information can be obtained from existing industries
working in the area. Similarly, the wage rates prevalent in the area also
have an important bearing on selection of location decision.While one
can get cheaper labour in industrially backward areas, higher cost of their
training and fall in quality of production may not allow the entrepreneur
to employ the cheap manpower and, thus, establish his/her enterprise in
such areas. Thus, the entrepreneur should be careful in selecting location
based on man power requirements.

4) Infrastructural facilities: For any business, adequate infrastructural

facilitiesis a must. However, the degree of dependency upon
infrastructural facilities may vary from industry to industry, yet there is
no denying of the fact that availability of infrastructural facilities plays a
deciding role in the location selection of an industry. The infrastructural
facilities include: power, transport and communication, water, banking,
etc. If power is the main source of energy to be used, then the
entrepreneur should place the location of the plant in the area where the
cost of power is less, or where subsidy is being provided for the same
and where the power supply is consistent without any disturbances.
Similarly, if water supply is the main consideration then adequate water
supply at low cost may become a dominant decisional factor in case of
selection of industrial location for leather, chemical, etc.
191
 Business Idea 5) Traansportation Networks: business owners mu ust investigate the quality
Selection and
Feasibility of thhe local transportation network. He should co onsider the availability of
nearrby airports, ports or railways to connect to required cities. Is the area
feassible to connect to major highways? How much m would be the travel
distaance of the customers? How much time will w it take to deliver the
shippment to them from that location. The rates of o transportation are also
an iimportant consideration. The loading and unloading
u space are also
requuired to be considered for a retail business.
6) Govvernment Policy: Government policies play a very significant role in
the selection of a business location as these affect many aspects of
busiiness operations from acquiring business licenses and building
permmits to dumping trash.In order to promotee the balanced regional
deveelopment, the Government also offerrs several incentives,
conccessions, tax holidays for number of years,, cheaper power supply,
factory shed, etc., to attract the entrepreneurs to
o set up industries in less
deveeloped and backward areas. Then, other facctors being comparative,
thesse factors become the most significant in decciding the location of an
induustry. For example, government of India has h established various
zones known as special economic zone and provides subsidies and
variious tax advantages to the enterprisess established in these
locaations.

Supply of
required raw
material
Avvailability of
Climate
Laabour and
Condition
Skills

Internet Market
Access Proximity

Factots
affecting
selection of a
location for
new business

Political Infrastructural
Condition facilities

Traansportation
Competition
N
Networks

Government
Policy

Figure 9.1 Factors affecting Selection of locatio

on of a business.

192
7) Competition: For some retailers, it is advantageous to open the business Business Plan
Implementation
in the location where the competitors are already available because
locating business near to one another may serve to increase traffic flow
to both. This strategy is mainly beneficial for those where the customers
feel need comparisons amongst the products/shops. However, this
strategy has its limitations, too many businesses of same type in the area
can create an undesirable impact on the profitability of all the firms.

8) Climate condition: Climatic conditions vary from place to place in any
country including India. The climatic conditions affect both people and
manufacturing activity. It affects human efficiency and behaviour to a
great extent. Wild and cold climate is conducive to higher productivity.
Likewise, certain industries require specific type of climatic conditions
to produce their goods. For example, jute and textiles manufacturing
industries require high humidity. As such, these can be established in
Kashmir experiencing humidity-less climate. On the other hand,
industrial units manufacturing precision goods like watches require cold
climate and hence, will be established in the locations having cold
climate like Kashmir and Himachal Pradesh.

9) Internet access: With the increasing growth of e-commerce businesses,

high speed internet availability has become one of the critical factors in
the selection of the location of the business. High tech and e-business
requires speedy and reliable and cost-effective internet connections so
that their business activities do not get hampered.
10) Political condition: Political stability is essential for industrial growth.
The political stability fosters industrial activity and political upheaval
derails industrial initiatives. This has been experienced by analyzing the
political situations across the countries and regions within the same
country. The reason is not difficult to seek.The political stability builds
confidence and political instability causes lack of confidence among the
prospective and present entrepreneurs to venture into industry which is
filled with risks.Besides, an entrepreneur will have also to look into the
availability of community services such as housing, schools and colleges,
recreational facilities and municipal services. Lack of these facilities
makes people hesitant and disinterested to move to such locations for
work. Hardly any entrepreneur will be interested to establish his / her
industry in an area trouble-torn by terrorists. People will be interested to
move to areas having no law and order problem to establish their
industries.

9.4 BUSINESS PROCESS

After selecting the location for the business the next step is to identify the
sequence of activities that need to be carried out and their process. Business
process chart presents a bird eye view of those activities. A business
process or business method is a collection of related, structured activities
or tasks by people or equipment which in a specific sequence produce a
service or product for customers. A business process has also been defined as
193
 Business Idea a set of activities and tasks that, once completeed, will accomplish an
Selection and
Feasibility organizaational goal. The process must involve cleaarly defined inputs and a
single ouutput. These inputs are made up of all of the factors which contribute
(either ddirectly or indirectly) to the added value of o a service or product.
These faactors can be categorized into management processes, operational
processees and supporting business processes. A business process may
often be visualized as a flowchart of a sequence of acctivities with interleaving
decisionn points or as a process matrix of a sequ uence of activities with
relevancce rules based on data in the process. The beenefits of using business
processees include improved customer satisfaction and a improved agility for
reacting to rapid market change.Process-oriented orrganizations break down
the barriiers of structural departments and try to avoid
d functional issues.

9.4.1 Designing the Business Process

A busineess process is a building block of any kind off business. By definition,
it is a seeries of repeatable steps that are critical for achieving
a some sort of a
businesss goal. It is something the business does on a regular basis.The more
efficientt the business processes, the better the businesss will perform.
Businesss processes have always played a vital role in
i the proper functioning
of an oorganisation and in its structure. A well planned
p and strategized
businesss process will help a business in reducing g the expenditure, risks,
resourcees and duplication of work; improvising effficiency, reduce human
error, ennsuring time management, etc. The example of
o a business process of a
burger jooint business is explained below:

Inputs- Buns,
Onions, Tomatoes, A
Apply spreads and
Toast Buns
Patty, sauces and sauces
spreads

Prepare burger by
Prepare placing Patty,
Fry Patty
ingredeients Onions and
T
Tomatoes on Buns

Chop onions and Prepare ingredient

Output - Burger
tomatoes for Patty

Figure 9.2 Business process of a Burger Joint

194
Steps in Business Process Design Business Plan
Implementation
For designing the business process, following steps must be taken care of:
1. Write down the inputs, outputs, and steps needed to achieve the business
goal, each one on a separate note.
2. Create the process on the whiteboard (virtual or real) with post-its, each
note containing the finest, most granular steps you can get down to.

3. Draw the links between the different steps and how do the process flow
from one to the next.

4. Once the initial process mapping has been done, carry out several
workshops to identify any gaps in the design.

9.4.2 Key Elements of Business Process

1. Business Process Automation: It is a technology-driven strategy to
automate a business process in order to accomplish it with minimum cost
and in a shorter time. It is extremely useful for both simple and complex
business processes and is used to execute recurring tasks or processes in
a business where manual effort can be replaced.It can streamline
a business for simplicity, achieve digital transformation, increase service
quality, improve service delivery or contain costs.

For example, Purchase order requests are recurring processes in most

organizations. The requesting team fills out a form and sends it to the
purchasing team. The approving authority then examines the request and
rejects the request in case information is inadequate or if there are
budgetary constraints. It is then sent back to the requesting team. If
approved, a purchase order is created and copies are sent to the supplier
as well as the inventory team.

Without automation, the issues like delayed PO approval; impacted

productivity; incomplete records; errors in the PO; errors while taking
delivery of the supplies could crop up.

Business process automation can help improve accountability,

transparency and enable accurate data recording, which can be accessed
by relevant stakeholders when necessary. It will also retain all process-
related communication within the workflow to make execution easier
and faster.

2. Business Process Improvement: It is a strategic planning initiative that

aims at reshaping business processes based on operations, complexity
levels, employee skills, etc. in order to make the entire process more
meaningful, efficient, and contribute to overall business growth. It is a
rather drastic way to rediscover more efficient ways to run a business
process rather than taking small incremental steps.

The example of business process improvement involved the merger of

two companies in the waste handling equipment industry having a
common set of customers. They analysed significant value in a merger.
195
 Business Idea When joining the two companies, they found disparate systems and
Selection and
Feasibility processes, and operational redundancies.
Following Ultra’s tried-and-true methodology, the ERP consultant
team conducted a current state analysis, identified change management
processes to align the two companies, and defined the desired future
state. Finally, they set the foundation for selecting and implementing a
new ERP solution that would scale for their expected growth.

Among the values realized by the project, the company reduced costs,
improved customer response times, reduced manual efforts, improved IT
management, and upgraded its vendor management.

3. Business Process Modelling: It is a diagrammatic/structural

representation of flow of business activities in an organization or
function within an organization. Its primary use is to document and
baseline the current flow of activities in order to identify improvements
and enhancements for speedy accomplishment of tasks. This is usually
done through different graphing methods, such as the flowchart, data-
flow diagram, etc. Look at Figure 9.3 which shows the diagrammatic
presentation of business process modeling.

yes
Receive Distributio Stock Print
Order n center Invoice

No
Shipping

Advise Marketing Inform

Customer

Figure 9.3: Business Process Modelling

4. Business Process Reengineering: It is a complete redesign of business

processes after thorough analysis in order to bring drastic impact. It
involves identifying the core of inefficiency, culling out tasks that do not
add any value, and even implementing a top-to-bottom change in the
way a process is designed in order to bring about an overall
transformation.

An example of business process reengineering is that of a fast food

company. Sometimes completely redesigning the delivery of products
can give unexpected results. In this type of restaurant, the process goes
like all others, the customer orders, the order goes to the kitchen, which
prepares the meal and then delivers to the consumer.Business process
analysts realized that it would be more advantageous if the meal portions
196
 were previously prepared in a separate center, and delivered to the Business Plan
Implementation
restaurants daily.When the customer orders, staff place everything
together and deliver it. This is a complete change in the process,
resulting in greater control, fewer accidents, greater employee
satisfaction, and increased ability to focus on customer needs, all without
losing quality.
5. Business process optimization: It takes an existing process and uses
analytics and business process mining tools to weed out bottlenecks and
other significant inefficiencies in a process.
Another business process optimization example is the social networking
marketing. Let us assume a company wants to post something on
Facebook three times a day. They assign someone to take care of that,
the employee thinks about the posts, and three times a day takes time to
log in to Facebook, write everything and publish it. Note that like this we
are spending time, preventing the employee to focus on other tasks and
spending resources three times a day.Optimizing this process, we would
get the employee to plan the posts for a week or two weeks, and get a
software that publishes it automatically. Thus, the posts will go up
punctually, daily and consistently. No matter if there is someone to do it
or not.
6. Business process mapping: It is a procedure to document, clarify, and
break down process sequences into logical steps.Business process
mapping is a way to visualize what a business does by taking into
account roles, responsibilities and standards. The mapping is either done
in written format or visualized using flow charts. Choose a process
mapping software that empowers business users to map all the processes
based on logical steps with an intuitive visual interface.

Check your progress A

1) What do you mean by Location Layout?

2) What is Business Process?

3) List out key elements of Business Process.

4) State whether the following statements are True or False:

i) A business process is a set of activities and tasks that, once

completed, will accomplish an organizational goal.
ii) Entrepreneurs must consider the number of workers available in the
area and their levels of education, training, adaptability and
experience for location decision.
iii) The physical disposition of the facilities of a plant is referred to as
the plant layout.

iv) Business Process Reengineering is a diagrammatic/structural

representation of flow of business activities in an organization or
function within an organization.
197
 Business Idea v) Business Process Modelling is a technology-driven strategy to
Selection and
Feasibility automate a business process in order to accomplish it with minimum
cost and in a shorter time.
5) Fill in the Blanks:

i) ……………….. is a complete redesign of business processes after

thorough analysis in order to bring drastic impact.

ii) A …………………….. may often be visualized as a flowchart of a

sequence of activities or as a process matrix of a sequence of
activities with relevance rules.

iii) ………………… is a diagrammatic/structural representation of flow

of business activities in an organization or function within an
organization.

iv) The more the need for after sale services, more the cost of
transportation and lower the shelf life of the finished goods, the
more ………………………. will be required.
v) For some retailers it is advantageous to open the business in the
location where the …………………..are already available because
locating business near to one another may serve to increase traffic
flow to both.

9.5 DECIDING ABOUT OPERATION,

PLANNING AND CONTROL
Operations planning and control follows operations design because once a
product/service has been designed, it needs to be produced. Operations
planning and control is concerned with ensuring that the day-to-day
production process proceeds smoothly.The operations and management plan
is designed to describe just how does the business functions on a continuing
basis. The operations plan will highlight the logistics of the organization such
as the various responsibilities of the management team, the tasks assigned to
each division within the company, and capital and expense requirements
related to the operations of the business. Operational planning is an
estimation of what needs to be done to ensure operational processes are
efficient and effective-that supply always meets demand. Operational control
is to ensure that operations conform with this estimation, and if they do not
conform adjustments can be made.

Maximum production, highest quality and minimum cost are the guiding
principle of production management. Production implies a process of
converting a raw material into finished products which is directly associated
with customers’ satisfaction. Thus, production management plays a
significant role in providing satisfaction to the customers.

Typical activities in the planning and control process include:

x Setting objectives-so that you know what is to be achieved by your plans

198 and by when.
x Allocating tasks and responsibbilities-who is to be involved with the new Business Plan
Implementation
product and service and how arre they to be involved.
x Scheduling-work patterns, prrocess scheduling, supply and demand
scheduling
x Assessing resource requirem ments-people and their skills, money
(budgets), time, raw materials, plant and equipment, capacity.
x Monitoring and evaluating pperformance-the control part, involving
control activities, measures andd control techniques.

Selection of Technique of Production

n

Selection, Utilization and Maintainan

nce of Machinery

Working Conditions

Production Planning nad Scheduling

Easy flow of Materials

Inventory/ Stock Control

Cutting and Controlling the Materiall Cost

Skilled Workers

Materials Handling

Quality Control

Figure 9.4 Thrust areaas of Operations Management

The major thrust areas of operatiions, planning and control are:

1) Selection of Technique of P Production: The success of the business
depends upon the selection of aan appropriate technique for production of
products and services. The requirements of plant and machinery,
equipment and instruments andd labour requirements also varies with the
techniques of production. T There are mainly two techniques of
production. First is Labour-Inntensive technique in which most part of
production is done by using llabour force and the use of machinery is
avoided. Second is the Capitaal-Intensive technique in which most of
the production is done using m machinery and the requirement of labour
force is less. The selection off appropriate technique depends on many
factors like availability of resources, nature of product, scale of
operations, etc.

199
 Business Idea 2) Selection, Utilization and Maintenance of Machinery: It concerns
Selection and
Feasibility with the decision regarding which machinery to choose amongst
different alternatives available. The factors like price of machinery,
availability of financing, maintenance and repairs requirements and
availability of spare parts, availability of skilled personnel etc. are
important to consider while selecting the machinery.

3) Workplace Layout: Workplace layout means the internal arrangement

of the machines and equipment, storage of raw materials, moving space,
restroom, work space, packing space, storage of finished product etc. of
an enterprise. It basically means the optimum utilization of the available
space. Good layout results in maximum utilization which facilitates easy
handling, safety, time and energy saving work and ultimately ensures
higher productivity.
4) Working Conditions: In order to ensure complete efficiency of
employees, the entrepreneur must ensure the proper working conditions.
Important areas that should be focussed are: proper lighting, sanitation,
good ventilation, cleanliness, medical facilities, availability of safety
equipment, fire fighting equipment etc.

5) Production, Planning and Scheduling: It is concerned with the flow of

material from each phase of production.Production, Planning and
Scheduling basically involves the functioning of operating cycle from
operations to delivery of finished product. Time slots required for each
phase of production including material handling, loading and unloading
from machines, actual production operation, packaging and
transportation, etc. is required to be calculated. The time at each work
phase is thus, can be scheduled in such a way that the machine and the
worker do not remain idle or under-utilised or overburdened.
6) Flow of Materials: High rate of production depends upon the easy
availability of the materials. An entrepreneur has to ensure timely supply
of all materials required in the production process. Depending upon the
nature of business, the stock of raw materials, spare parts and accessories
should be made available well before their requirement. It saves time and
the cost of obtaining money for these supplies. It is always beneficial to
purchase the stock of raw material from a known source and caution
must be taken about the adulteration and supply of materials of an
inferior quality.

7) Inventory/ Stock Control: An inventory control system is a system

which encompasses all aspects of managing a company's inventories;
purchasing, shipping, receiving, tracking, warehousing and storage,
turnover, and reordering. It is an important area in production
management. Inventory is the stock of either the materials required for
production or the stock of finished products. Both the types increase
financial burden of an entrepreneur. Inventory of raw material should be
carefully planned so that production does not stop and the men and
machineries do not remain idle. This involves planning of how much raw

200
 material should be stored, re-order level, the quantity to be re-ordered, Business Plan
Implementation
the time required to deliver etc.
8) Cutting and Controlling the Material Cost: As a manufacturer, there
is always a hope to be able to reduce the manufacturing costs without
having to lessen the quantity and quality of the products. However, one
should not be reckless while choosing cost-saving ideas, because they
may ruin the business instead of growth. Cost of raw material constitute
a major share of production cost. Sometimes, the materials are so scarce
and valuable that an entrepreneur cannot afford to waste it. Therefore,
measures should be taken to control the cost of materials. This can be
done by carefully buying the quality raw material as the cheap material
may hamper the quality leading to rejections by the customers; cutting
down the waste materials or by making good use of waste materials (by
products) resulting from production; waste recycling etc.

9) Skilled Workers: In order to increase efficiency and productivity and

quality, the entrepreneur has to carefully adopt a professional outlook
while recruiting skilled workers as skilled workers have the necessary
skills and expertise to do specific jobs. They can achieve quality
standards and complete a job within a stipulated time. The entrepreneur
might have to pay high charges for these workers but the efficiency they
provide is worth spending for.

10) Material Handling:Essentially, material handling is a process that

includes short distance movement inside the scope of a building, or
between the transportation vehicle and the building. It uses various types
of equipment such as manual, automated, and semi-automated. In
addition, the material handling process involves the movement,
protection, storage, and control of materials. This handling process
occurs in manufacturing shop floors, warehousing, distribution, and even
in material disposal. This is why material handling is an important
process in every facility.
11) Quality Control: Quality control is a process through which a business
seeks to ensure that product quality is maintained or improved. Quality
control requires the business to create an environment in which both
management and employees strive for perfection. This is done by
training personnel, creating benchmarks for product quality and testing
products to check for statistically significant variations.A major aspect of
quality control is the establishment of well-defined controls. These
controls help standardize both production and reactions to quality issues.
Limiting room for error by specifying which production activities are to
be completed by which personnel reduces the chance that employees will
be involved in tasks for which they do not have adequate training.

9.6 PREPARATION OF PROJECT REPORT/

BUSINESS PLAN
A business plan is a guide—a roadmap that provides directions so a business
can plan its future and helps it avoid bumps in the road. It is a plan which 201
 Business Idea outlines goals and details about how to achieve those goals. The business
Selection and
Feasibility plan is a written document prepared by the entrepreneur that describes all the
relevant external and internal elements involved in starting a new venture. It
is often an integration of functional plans such as marketing, finance,
manufacturing, and human resources. Business plan is used by entrepreneur
for various purposes. Business plans are important to allow a company to lay
out its goals and attract investment. It can be used to get debt from banks,
raise funds through securities and angel investors or venture capitalists. It
helps the entrepreneur to be prepared in advance for the initial years of
business as it provides blue prints of the strategies prepared by the
entrepreneur. It describes clearly the goals and objectives of the firm and how
can these be achieved. Entrepreneur can also set performance benchmark to
judge the effectiveness of business plan.

It is important to first know the audience to whom the business plan should
be addressed as to for whom the business plan is written. The business plan
may be read by employees, investors, bankers, venture capitalists, suppliers,
customers, advisors, and consultants. The actual content and focus of the
business plan depend upon who is expected to read the business plan. Since
each of these groups reads the plan for different purposes, the entrepreneur
must be prepared to address all their issues and concerns. Like every other
project, business plan writing also requires some preparation and should be
carefully planned and systematically executed. A business plan should be
comprehensive enough to give any potential investor a complete picture and
understanding of the new venture, and it should help the entrepreneur clarify
his or her thinking about the business. The elements of business plan are:
x Introductory page
x Executive Summary
x Industry Analysis
x Business Description
x Production Plan
x Operations Plan
x Marketing Plan
x Organizational Plan
x Assessment of Risk
x Financial Plan
x Appendix
This section is discussed in detail in Unit 7.

9.7 SELECTION OF FINANCERS

Dun & Bradstreet stated that, “Almost half of all new ventures fail because of
poor financial management”. One of the most difficult problems in the new
venture creation process is obtaining finance. For the entrepreneur, financing
for the private firm should be considered from theperspectiveof debt versus
202
equity and using internal versus exxternal funds. The various alternatives for Business Plan
Implementation
raising money for a new venture are: Personal Financing, Debt Financing,
Equity Capital & Creative Sources. Let us learn them in detail:

PERSONAL
FINANCING

SOURCES
DEBTT EQUITY
FINANC
CING OF CAPITAL
FINANCE

CREATIVE
SOURCES

Figure 9.5 Sources of Finance

1) Personal Financing: The m main sources for start-up money for
entrepreneurs include: friendss, family and other resources, such as
savings, credit cards, loans, andd investments.
i) The vast majority of foundders contribute personal funds, along with
sweat equity, to their venttures. Sweat equity represents the value of
the time and effort that a foounder puts into a new venture.
ii) Friends and family are tthe second source of funds for many new
ventures. Taking help fromm near and dear ones for financing the new
business venture is a com mmonly used method. While borrowing
money from family and friiends may seem an easy alternative to deal
with bankers, it can actuallly be a much more delicate situation and it
is important to be as disciiplined as you would be in dealing with a
professional investor.

iii) Bootstrapping: A third soource of seed money for a new venture is

referred to as bootstrappinng. Most people who engage in bootstrap
financing want to avoid taking out loans. Bootstrapping is finding
ways to avoid the need ffor external financing or funding through
creativity, ingenuity, thhriftiness, cost-cutting, or any means
necessary. Many entreprreneurs bootstrap out of necessity. For
example: operating with vvendors through letters of credit without
actually providing cash; B Buying used instead of new equipment;
leasing instead of buyingg; obtaining payments in advance from
customers; sharing office sspace with other businesses; hiring interns;
avoiding unnecessary expeenses etc.
2) Equity Financing: Equity financing means exchanging partial
ownership in a firm, usually inn the form of stock, for funding. It offers
the investor some form of oownership position in the venture. The
investor shares in the profits off the venture, as well as any disposition of
203
 Business Idea its assets on a pro rata basis based on the percentage of the business
Selection and
Feasibility owned. It can be of three types: Venture Capitalists; Angel investors and
Initial Public Offerings.
i) Angel Investors: An angel investor is a private, non-professional
investor, such as a friend, a relative, or a business associate, who
funds start-up companies. They are individuals who invest their
personal capital directly in start-ups.The prototypical business angel
is about 50 years old, has high income and wealth, is well educated,
has succeeded as an entrepreneur, and is interested in the startup
process.

“Angels” are wealthy individuals who invest personal capital in

startups in exchange for equity or sometimes a seat on the board of
directors.

It is critical for the entrepreneur to develop a network of individuals

within the industry to gain introductions to potential financiers
because “angels” seldom look at unsolicited business plans.
Business plans are evaluated based on the quality of the
management team, market potential for the business idea, and the
track record of the entrepreneur. “Angels” tend to be more involved
in the day-to-day operations of startups.

ii) Venture Capital: Venture capital is Capital/Money provided by

investors to boost up the Venture/ concept/idea of the entrepreneur.
This is a start-up firm and small businesses with perceived long-term
growth potential but not having any asset to get bank finance or not
having past track record or having limited operating history to
justify the venture revenue. Venture capital funds are investment
funds that manage the money of investors who seek private equity
stakes in start-up and small-to-medium-sized enterprises with strong
growth potential. These investments are generally characterized as
high-risk/high-return opportunities. Venture capitalists often
provide managerial and technical expertise to small businesses.

Stages of Venture Capital Financing:

x Seed Stage: Seed funding takes place at this stage. It is considered
as the setup stage where a person approaches an angel investor or an
investor in a venture capital firm for funding for their idea/product.
During this stage, the person or venture has to convince the investor
why is the idea/product worthwhile. The investor will investigate the
technical and economic feasibility (feasibility study) of the idea and
will invest if he finds the idea of the product is worth investing in.
x Start Up Stage: At this stage, the idea has been transformed into a
product and is being produced and sold. The venture is trying to
squeeze between the rest and it tries to get some market share from
the competitors. If at this stage the management team has proven
their capability of standing hold against the competition, the venture
capital firm will probably give a go for the next stage. However, if
204
 the management team is not competent enough then the venture Business Plan
Implementation
capitalists may suggest modifications and improvements or
restructuring.

x Expansion Stage: This stage is seen as the expansion/maturity

phase of the previous stage. The venture tries to expand the market
share they gained in the previous stage. This can be done by selling
more of the product and having a good marketing campaign. The
venture capitalist will continue evaluating the product and the
venture and may give additional funds for expansion if the firm has
required potential for growth.

x Bridge/ Pre IPO stage: In general, this is the last stage of the
venture capital financing process. The main goal of this stage is for
the venture to go public so that investors can exit the venture with a
profit commensurate with the risk they have taken.VC firm sells
stock once company matures.

iii) Initial Public Offerings (IPOs): Initial public offering is the

process by which a private company can go public by sale of its
stocks to general public. It could be a new, young company or an old
company which decides to be listed on an exchange and hence goes
public. It is an act of offering the stock of a company on a public
stock exchange for the first time. There are five steps to become a
public company with stock for sale on a public exchange.
x Choose an underwriter or investment banker.
x Draw up a letter of intent.
x File a registration statement with the SEC.
x Announce the offering in the financial press.
x Do a road show.

3) Debt Financing: Debt financing involves borrowing a fixed sum from a
lender, which is then paid back with interest.When a company borrows
money to be paid back at a future date with interest it is known as debt
financing. It could be in the form of a secured as well as an
unsecured loan. A start-up firm may take up a loan in order to start its
operations if the outside institutions are convinced with the idea of the
business. Bonds, debentures, leases, certificates, bills of exchange and
promissory notes are examples of debt instruments.Sources of debt
capital are far more numerous than sources of equity capital, but the
entrepreneur must be certain that the business can generate enough cash
flow to repay the loan.

i) Banks were once the primary source of operating capital, but today
they are much more conservative in their lending practices.

ii) An established business can usually get a line of credit from a bank.
The business can borrow against this credit. Line of credit is an
arrangement whereby a lender agrees to lend up to a specific amount
of money at a certain interest rate for a specific period of time.
205
 Business Idea iii) Some businesses may seek trade credit from other companies in
Selection and
Feasibility their industry as a form of debt financing. Trade credit is a credit
one business grants to another business for the purchase of goods or
services. This is a source of short-term financing provided by one
business within another business, industry or trade.

iv) Businesses can borrow money by pledging as collateral otherwise

idle assets – accounts receivable, inventory, and others.

v) Leasing: Itis a contract between the leasing company, the lessor,
and the customer (the lessee). The leasing company buys and owns
the asset that the lessee requires. The customer hires the asset from
the leasing company and pays rental over a pre-determined period
for the use of the asset.

4) Creative Sources: Some other creative sources of finance are:

i) Business incubators: These generally focus on the high-tech sector
by providing support for new businesses in various stages of
development. However, there are also local economic development
incubators, which are focused on areas such as job creation,
revitalization and hosting and sharing services. Commonly,
incubators will invite future businesses and other fledgling
companies to share their premises, as well as their administrative,
logistical and technical resources. For example, an incubator might
share the use of its laboratories so that a new business can develop
and test its products more cheaply before beginning production.
Generally, the incubation phase can last up to two years. Once the
product is ready, the business usually leaves the incubator's premises
to enter its industrial production phase and is on its own.

ii) Government grants and subsidies: Government agencies provide

financing such as grants and subsidies that may be available to the
business. There are other grants available to the entrepreneur at the
central, state, and local levels. These take many different forms and
vary greatly depending on the objectives of the level of government
involved and the geographic area. Sometimes the federal and some
state governments provide training grants to companies particularly
to those locating in and/or hiring in what has been determined to be
a labour surplus area.

iii) Crowdfunding: It presents an opportunity to overcome the

challenges of traditional access to finance. According to Bi, Liu, &
Usman (2016), crowdfunding is an emerging approach for
entrepreneurs to implement their ideas despite not having traditional
monetary resources such as banks and venture capital. It is a method
of collecting many small contributions, by means of an online
funding platform, to finance or capitalize a popular
enterprise.Through crowdfunding platforms, the crowd can invest in
business ideas and projects, and entrepreneurs can raise funds via the
Internet.
206
The following Figure 9.6 summarizzes the above sources of funds available to Business Plan
Implementation
the new business venture:

Sourcees of Funds
Personal Financing Equity Financccing Debt Financing
ͻ>ŝŶĞŽĨƌĞĚŝƚ
Creative Sou
urces
ͻ^ǁĞĂƚƋƵŝƚLJ ͻAngel Investttors
ͻ&ƌŝĞŶĚƐĂŶĚ&ĂŵŝůLJ ͻVenture Cap p
pitalists ͻdƌĂĚĞƌĞĚŝƚ ͻBusiness
ͻŽŽƚƐƌĂƉƉŝŶŐ ͻInitial Publicc ͻ>ĞĂƐŝŶŐ Incubators
Offerings
ͻŽŶĚƐ͕ĚĞďĞŶƚƵƌĞƐ ͻƌŽǁĚͲfund
ding
ͻŝůůƐŽĨĞdžĐŚĂŶŐĞ ͻ'ŽǀĞƌŶŵĞŶŶƚ
and promissory Grants and
notes Sunsidies

Figure 9.66 Sources of Funds

Check your Progress B

1) What do you mean by Businesss Plan?
2) Distinguish between Angel Invvestors and Venture Capital.
3) List out the sources of Funds.

4) State whether the following staatements are True or False:

i) Bootstrapping is finding ways to avoid the need for external
financing.

ii) Initial public offering is thhe process by which a private company can
go public by sale of its stoccks to general public.
iii) Line of credit is a part of ccreative source of funds.
iv) In order to ensure coomplete efficiency of employees, the
entrepreneur must ensure tthe proper working conditions.
v) Start up is the first stage inn Venture Capital Financing.
5) Fill in the Blanks:

i) An ………………………… is a private, non-professional investor,

such as a friend, arelative,, or a business associate, who funds start-
up companies.

ii) ………………………….. are investment funds that manage the

money of investors who sseek private equity stakes in start-up and
small-to-medium-sized entterprises with strong growth potential.

207
 Business Idea iii) …………………………… generally, focus on the high-tech sector
Selection and
Feasibility by providing support for new businesses in various stages of
development.
iv) ……………………………, highest quality and minimum cost are
the guiding principle of production management.
v) …………………………….. means the internal arrangement of the
machines and equipment, storage of raw materials, moving space,
restroom, work space, packing space, storage of finished product etc.
of an enterprise.

9.8 LET US SUM UP

Plant location refers to the choice of region and the selection of a particular
site for setting up a business or factory. Entrepreneurs who choose their
locations wisely with their customers’ preferences and their companies’
needs in mind establish an important competitive advantage over rivals who
choose their locations haphazardly. One of the most important steps in the
critical path of the establishment of a business is the selection of adequate
location for the business as this can be irreversible in nature. The important
considerations for selecting a suitable location are given as follows: Market
Proximity; Supply of required raw material; Availability of Labour and
Skills; Infrastructural facilities; Transportation Networks; Government
Policy; Competition; Climate condition; Internet access and Political
Conditions.

A business process or business method is a collection of related, structured

activities or tasks by people or equipment which in a specific sequence
produce a service or product for customers. A business process may often be
visualized as a flowchart of a sequence of activities with interleaving decision
points or as a process matrix of a sequence of activities with relevance rules
based on data in the process. A business process is a building block of any
kind of business. A well planned and strategized business process will help a
business in reducing the expenditure, risks, resources and duplication of
work; improvising efficiency, reduce human error, ensuring time
management, etc. Key Elements of Business Process are: Business Process
Automation, Business Process Modelling, Business Process Improvement,
Business Process Reengineering, Business process optimization and Business
process mapping.
Operations planning and control is concerned with ensuring that the day-to-
day production process proceeds smoothly. The operations and management
plan is designed to describe just how the business functions on a continuing
basis. Maximum production, highest quality and minimum cost are the
guiding principle of production management.The major thrust areas of
operations, planning and control are: Selection of Technique of Production;
Selection, Utilization and Maintenance of Machinery; Workplace Layout;
Working conditions; Production, Planning and Scheduling; Flow of
Materials; Inventory/ Stock Control; Cutting and Controlling the Material
208 Cost; Skilled Working; Material Handling; Quality Control.
A business plan is a guide and a roadmap that provides directions so that a Business Plan
Implementation
business can plan its future and helps it avoid bumps in the road. It is a plan
which outlines goals and details about how to achieve those goals. A
business plan should be comprehensive enough to give any potential investor
a complete picture and understanding of the new venture, and it should help
the entrepreneur clarify his or her thinking about the business.

One of the most difficult problems in the new venture creation process is
obtaining financing.The various Alternatives for Raising Money for a New
Venture are: Personal Financing, Debt Financing, Equity Capital & Creative
Sources. The main sources for start-up money for entrepreneurs include:
friends, family and other resources, such as savings, credit cards, loans, and
investments.

Equity Financing means exchanging partial ownership in a firm, usually in

the form of stock, for funding. An angel investor is a private, non-
professional investor, such as a friend, a relative, or a business associate, who
funds start-up companies.

Venture capital is Capital/Money provided by investors to the boost up the

Venture/ concept/idea of the entrepreneur which is a start-up firm and small
businesses with perceived long-term growth potential but not having any
asset to get bank finance or not having past track record or having limited
operating history to justify the venture revenue.
Stages of Venture Capital Financing include: Seed Stage, Start Up Stage,
Expansion Stage, Bridge/ Pre IPO stage. Initial public offering is the process
by which a private company can go public by sale of its stocks to general
public.

Debt financing involves borrowing a fixed sum from a lender, which is then
paid back with interest. Bonds, debentures, leases, certificates, bills of
exchange and promissory notes are examples of debt instruments.
Some other creative sources of finance are: Business incubators, Government
grants and subsidies, Crowdfunding, etc.

9.9 KEY WORDS

Angel Investor: A private, non-professional investor, such as a friend, a
relative, or a business associate, who funds start-up companies.

Bootstrapping: Operating a business as frugally as possible and cutting all

unnecessary expenses, such as borrowing, leasing, and partnering to acquire
resources.
Debt capital: Money raised by taking out loans, which must be repaid with
interest.

Equity: An ownership in a business.

Equity capital: Cash raised for a business in exchange for an ownership

stake in the business.
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 Business Idea Venture capital: A source of equity financing for small businesses with
Selection and
Feasibility exceptional growth potential and experienced senior management.
Venture capitalists: Individual investors or investment firms that invest
venture capital professionally.

9.10 ANSWERS TO CHECK YOUR PROGRESS

A) 4. i.True, ii.True, iii.True, iv.False, v.False

5. i. Business Process Reengineering; ii. Business Process; iii. Business

Process Modelling; iv. Proximity to market; v. Competitors

B) 4. i.True, ii.True, iii.False, iv.True, v.False

5. i. Angel Investors; ii. Venture capital funds; iii. Business incubators;

iv. maximum production; v. workplace layout.

9.11 TERMINAL QUESTIONS

1) What do you mean by a business process? How is it designed? Explain
with the help of an example.

2) What is Location Layout? What are the factors affecting location
decisions?
3) How can political and climate conditions play an important role for
selection of a location decision?
4) What do you mean by business plan?Discuss various elements of
business plan?

5) What are the sources of funds available for new investors?

6) What do you mean by Equity financing? Explain the types of equity
financing.

7) What do you mean by Debt Financing? Explain the types of debt
financing.

8) Write short notes on:

x Crowd-funding
x Business process re-engineering
x Bootstrapping
x Angel investors
x Venture capitalists

Note: These questions will help you to understand the unit better. Try to
write answers for them. But do not submit your answers to the University for
assessment. These are for your practice only.

210
 Business Plan
FURTHER READINGS Implementation

x Hisrich, R. D., Peters, M. P., and Shepherd, D. A.

2016.Entrepreneurship, Indian Edition, Mc Graw Hill Education; (Part
three, Chapter 8).

x Kaplan J. M. and Warren, A. C. 2015.Patterns of Entrepreneurship

Management, Wiley; (Part one, Chapter 4).

x Kaulgud, A. 2003. Entrepreneurship Management, Thomson; (Chapter 9)

x Kuratko, D. F. and Rao, T.V. 2016.Entrepreneurship, A south-asian

perspective, Cengage Learning; (Part two, Chapter 10).
x Roy R. 2009. Entrepreneurship, Oxford; (Section three, Chapter 12)

x Zimmerer T.W. & Scarborough N. M., 2013. Essentials of

Entrepreneurship and Small Business Management, PHI Leaning;
(Section II, chapter 4)

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Business Idea
Selection and
Feasibility
 Business Plan
Implementation

Block

3
MOBILISING RESOURCES AND START-UP
UNIT 10
Start-up Initiatives
UNIT 11
Mobilising Financial Resources
UNIT 12
Mobilising Non-Financial Resources

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Business Idea
Selection and
Feasibility
  Start –Up Initiatives
UNIT 10 START –UP INITIATIVES

Structure
10.0 Objectives
10.1 Introduction
10.2 What is a Start-up?
10.3 Start-up India
10.4 Incubation Network in India
10.5 Atal Innovation Mission
10.6 Challenges Faced By Start-ups
10.7 Measures to Support Start-ups
10.8 Let Us Sump Up
10.9 Key Words
10.10 Answers to Check Your Progress
10.11 Terminal Questions

10.0 OBJECTIVES
After studying this unit, you should be able to:
x explain what is a start-up;
x describe the government initiatives towards development of start-up
ecosystem in India;
x explore the incubation network in India;
x enumerate the challenges faced by startups in India;
x discuss the measures to overcome the challenges faced by startups in
India; and
x discuss the growth and development of start-up ecosystem in India.

10.1 INTRODUCTION
As discussed in the previous units, entrepreneurship plays an important role
in the economic development of a nation, especially in the developing/
emerging economies like India. The demographics, economic environment,
and culture of entrepreneurship present in India make it an ideal environment
for entrepreneurship.
Entrepreneurship in India has grown significantly, and start-ups are
beginning to have a significant impact on the economy. Both in urban and
rural areas, there may not be an impressive rise in wage employment but
there are enough scope for self-employment. The emphasis, therefore, has
been on creating self- employed persons and entrepreneurs.

The Government of India has undertaken several initiatives and instituted

policy measures to foster a culture of innovation and entrepreneurship in the
215

 Mobilising country. In the recent years, a wide spectrum of new programs and
Resources and
Start-Up opportunities to nurture innovation have been created through engaging with
academia, industry, investors, small and big entrepreneurs, non-governmental
organizations and the most underserved sections of society.

India’s start-up ecosystem has become vibrant and mainstream in many ways
– in terms of job creation, in terms of solving consumer problems, and
creating products for the rest of the world. The Government is implementing
policies for the promotion and development of the start-ups which include
providing concessional credit, training in entrepreneurship development,
marketing assistance, research support etc. to inculcate entrepreneurial
culture especially among the first-generation entrepreneurs.

In this unit, you will learn about start-ups, the initiatives taken by the
Government of India to foster start-ups, the challenges faced by start-ups and
the measures adopted to overcome these challenges.

10.2 WHAT IS A START-UP?

Nowadays, the term "Start-up" has become very popular. Many people are
interested in becoming entrepreneurs and therefore seeking to start their own
businesses. The term start-up is not officially defined anywhere in the world,
so there are no fixed parameters as to what type of a venture can be
considered a start-up. Some of the definitions of “Start-ups” given by
prominent researchers in the field are discussed below:

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In India, start-ups have been defined under the “Start-up India” which is a
flagship initiative of the Government of India for development of a strong
start-up ecosystem.
An entity shall be considered as a Start-up: (for the purpose of Government
Schemes only)

1) If it is incorporated as a private limited company or registered as a

partnership firm or a limited liability partnership in India.

2) Up to ten years from the date of its incorporation/registration.

216

3) If its turnover for any of the financial years since Start –Up Initiatives

incorporation/registration has not exceeded INR 100 Crores.

4) If it is working towards innovation, development or improvement of
products or processes or services, or if it is a scalable business model
with a high potential of employment generation or wealth creation.
Note: An entity formed by splitting up or reconstruction of a business already
in existence shall not be considered a ‘Start-up’.
Considering the above parametersa startup may be defined as an innovative
firm that develops or offers innovative products, processes, or service. In
addition to innovative products and services, start-ups usually exhibit
several characteristics such as sustainable business model, fast growth,
and an early stage of business.

10.3 START-UP INDIA

India has the world’s third largest start-up ecosystem. The Government of
India launched the “Start-up India” initiative to empower start-ups in the
country. Start-up India aims at creating an ecosystem that nurtures innovation
and entrepreneurship in the country to foster sustainable growth and create
jobs on a large scale.
Start-up India was launched on 16th January 2016 to build a self-reliant India
and harness the potential of a nation bestowed with the largest youth
population in the world. A “19 Point Action Plan” was framedunder this
initiative to make India one of the largest start-up ecosystem in the world.
The 19 Point Action Plan was divided across the following 3 areas:
x Simplification and Handholding
x Funding Support and Incentives
x Industry-Academia Partnership and Incubation

Start-up India is expected to enhance the start-up ecosystem and its

performance. It is therefore important to know about the various programs
and policies which are implemented under this initiative to build a strong
start-up ecosystem.The following table gives summary of the 19 Point Action
Plan:

AREA ACTION PLAN OBJECTIVE

1.Compliance Regime To reduce the regulatory

based on Self- burden on Start-ups
certification thereby allowing them to
focus on their core business
and keep compliance cost
low.

2.Startup India Hub To create a single point of

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 Mobilising contact for the entire Start-
Resources and
Start-Up up ecosystem and enable
knowledge exchange and
access to funding.

3.Rolling out of To serve as the single

Mobile App and Portal platform for Start-ups for
interacting with
Simplification and Government and
Handholding Regulatory

Institutions for all business

needs and information
exchange among various
stakeholders.

4.Legal Support and To promote awareness and

Fast-tracking Patent adoption of IPRs by Start-
Examination at Lower ups and facilitate them in
Costs protecting
andcommercializing the
IPRs by providing access
to high quality Intellectual
Property services
andresources, including
fast-track examination of
patent applications and
rebate in fees.

5.Relaxed Norms of To provide an equal

Public Procurement platform to Start-ups (in
for Startups the manufacturing sector)
vis-à-vis the experienced
entrepreneurs/companies in
public procurement.

6.Faster Exit for To make it easier for

Startups Start-ups to windup
operations.

7.Providing Funding To provide funding support

Support through a for development and
Fund of Funds with growth of innovation
a Corpus of INR driven enterprises.
10,000 crore

8.Credit Guarantee To catalyse

entrepreneurship by
218

 Fund for Startups providing credit to Start –Up Initiatives

innovators across all

Funding Support sections of society.
and Incentives

9.Tax Exemption on To promote investments

Capital Gains into Start-ups by mobilizing
the capital gains arising
from sale of capital assets.

10.Tax Exemption to To promote the growth of

Startups for 3 years Start-ups and address
working capital
requirements.

11.Tax Exemption on To encourage seed-capital

Investments above investment in Startups.
Fair Market Value

12.Organizing Start-up To galvanize the Start-up

Fests for Showcasing ecosystem and to provide
Innovation national and international
andProviding a visibility to the Start-
Collaboration Platform upecosystem in India.

13.Launch of Atal To serve as a platform for

Innovation Mission promotion of world-class
(AIM) with Self- Innovation Hubs, Grand
Employmentand Challenges, Start-
Talent Utilization up businesses and other
Industry-Academia (SETU) Program self-employment activities,
Partnership and particularly in technology
Incubation driven areas.

14.Harnessing Private To ensure professional

Sector Expertise for management of
Incubator Setup Government sponsored /
funded incubators,

Government will create a

policy and framework for
setting-up of incubators
across the country in public
private partnership.

15.Building To propel successful

Innovation Centres at innovation through
National Institutes augmentation of incubation
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 Mobilising and R&D efforts.
Resources and
Start-Up
16.Setting up of 7 To propel successful
New Research Parks innovation through
Modeled on the incubation and joint R&D
Research Park efforts between academia
Setup at IIT Madras and

Industry.

17.Promoting Startu-ps To foster and facilitate bio-

in the Biotechnology entrepreneurship.
Sector

18.Launching of To foster a culture of

Innovation Focused innovation in the field of
Programs for Students Science and Technology
amongst students.

19.Annual Incubator To support creation of

Grand Challenge successful world class
incubators in India.

6RXUFHStart-up India Action Plan Report 2016

The objective of the Action Plan is to give push to the start-ups in the
country. The plan envisions setting up of incubators across the country,
timely filing of patents, ease of starting up a venture, tax exemptions, and
also, creating a corpus fund etc. The programs under this initiative are
managed by a Startup India Team, which reports to the Department for
Industrial Policy and Promotion (DPIIT).

10.4 INCUBATION NETWORK IN INDIA

Incubators are typically known to provide support to new enterprises during
their early stages. Incubators are institutions that help entrepreneurs to
develop their business, especially in the initial stages. Incubator support
includes providing technological facilities and advices, network and linkages,
co-working spaces, lab facilities, mentoring and advisory support.

According to a report by NASSCOM titled “Start-up Catalysts-Incubators &

Accelerators 2020”, India has the 3rd highest number of programs for start-
ups in the world and 520+ incubators and accelerators in thecountry. These
incubators offer their own set of resources, network connections, and
infrastructure. The incubators in India can be broadly classified into four
categories:-
i) Government Incubators – Established/ Supported by Government

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ii) Academic Incubators – Established in Academic Institutions (University, Start –Up Initiatives

Colleges)
iii) Corporate Incubators – Established and run by large corporates
iv) Independent Incubators – Established and run by private centres

Most incubators provide their physical infrastructure as one of the critical

offerings for the start-ups. These incubators have specialised labs and
equipment. Incubators also provide value added services like mentoring,
assistance with various IPR processes, legal, accounting and other business
services. Some incubators also provide access to capital. Most of the
incubators are supported under a government scheme.

Atal Innovation Mission was launched under the Start-up India initiative for
the establishment of sector-specific incubators based on the Public-Private
Partnership model. The NITI Ayog provides funding for the establishment of
the incubators under the Atal Innovation Mission. The Ministry of Micro,
Small and Medium Enterprises,Department of Science and Technology,
Department of Biotechnology, Department of Electronics and Information
Technology,and Department of Higher Education, with the active support of
NITI Ayogand the Department of Industrial Policy and Promotion are
involved in setting up the incubators.
Let us learn about some of the prominent incubation support provided by the
Government of India:

i) Ministry of Micro, Small and Medium Enterprises (MSME):

Ministry ofMSME established the National Small Industry Corporation
(NSIC) in 1955 to support and promote skill-based small businesses
making it one of the oldest known governmental institutions supporting
small businesses. NSIC has undertaken various initiatives largely aimed
at enabling small businesses with inputs around tendering, market access
and intelligence, promotion, credit and financing support, and training. In
order to impart training assistance in manufacturing and services sector,
NSIC had established NSIC Training cum Incubation Centre (NSIC-
TIC). There are more than 94TICs to offertraining and subsequent
support to trainees to establish their businesses.

The Ministry of MSME in 2015 launched A Scheme for Promotion of

Innovation, Rural Industries and Entrepreneurship (ASPIRE) to set
up incubation centres and foster innovation and entrepreneurship in the
country. ASPIRE provides financial assistance for setting up of
Livelihood Business Incubation (LBI) and Technology Business
Incubation(TBI).

The Livelihood Incubator incubates and empower low-end technology

based enterprises at the local level in rural areas, which enhances
employment generation and eliminates unemployment. On the other
hand, Technology Business Incubators incubate innovative or tech based
enterprises in the agro-based industry. In 2020-2021 there are 102 LBIs
and 22 TBIs Pan India.

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 Mobilising ii) Department of Science & Technology (DST) –TBI: The largest
Resources and
Start-Up supporter of incubation in India, DST, through National Science &
Technology Entrepreneurship DevelopmentBoard (NSTEDB), runs a
scheme called NIDHI-Technology Business Incubator.

The objective of NIDHI-TBIs is to assist start-ups which will create jobs

and wealth in alignment with national priorities by providing the
required technology/knowledge/innovation, to provide a quick
commercialization platform for technologies developed by them and to
offer cost-effective mentoring, legal, financial, technical & intellectual
property services to the start-ups.

iii) Department of Biotechnology (DBT)- BioNEST:Biotechnology

Industry Research Assistance Council (BIRAC), a not-for-profit state
owned enterprise under the Department of Biotechnology (DBT),
Government of India has launched, BioNEST(Bioincubators Nurturing
Entrepreneurship for Scaling Technologies) to provide Incubation
support to the Biotech / Life science based start-ups. Biotechnology
Incubation is different from the other incubation as biotechnology based
start-ups requires a large space for wet laboratory along with excellent
instrumentation facilities to conduct the experiments. The objective is
scaling up biotech incubation in India.

iv) Ministry of Electronics and Information Technology (MEITY): The

Technology Incubation and Development of Entrepreneurs (TIDE) was
launched by MEITY in 2008to set up and support Technology
Incubation Centres (TIC) in academic institutions to facilitate aspiring
entrepreneurs and students to build high quality startups/companies.The
objectives of this scheme include: bridging the gap between R&D and
commercialization, promoting R&D that is more product oriented, and
encouraging and accelerating development of indigenous products in
electronics and information technology. Under TIDE, a significant part
of the financial support given to incubators is for investment in startups.
The scheme also mandates that incubators provide physical space for a
period of two years and support, as needed to the startups.

v) Atal InnovationMission’s AIC and EIC: AtalInnovation Mission

supports the establishment of new incubation centres called Atal
Incubation Centres (AICs) and also helps in the upgradation of an
already established incubation centres called Established Incubation
Centres (EICs). Atal Innovation Mission(AIM) supports and encourage
start-ups in specific sectors such as manufacturing, transport, energy,
health, education, agriculture, water, and sanitation, etc. and provide
them with necessary infrastructure facilities and other value added
services.AIMs wokswith the aim of creating world-class incubation
facilities across the country.
In addition to providing physical infrastructure, the incubation centres
established under AIMs offer entrepreneurs access to mentorship, education,
business planning support, seed money, industry partnerships, training, and

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other elements required to support innovative start-ups.According to reports Start –Up Initiatives

68 AICs/EICs have been established by 2020-2021.

10.4 ATAL INNOVATION MISSION

Atal Innovation Mission (AIM) is Government of India’s initiative to create
and promote a culture of innovation and entrepreneurship across the length
and breadth of our country. AIMwas setup in 2016 by NITI Ayog with the
objective of developing programs and policies for fostering innovation and
entrepreneurship in different sectors of the economy. It runs various
programs for school students, budding entrepreneurs and incubators to
develop a strong entrepreneurship ecosystem.The Atal Innovation Mission
(AIM) have two core functions:
x Entrepreneurship promotion, and
x Innovation promotion.

The major initiatives taken under AIM are as follow:

1) Atal Tinkering Labs: In order to foster an innovative mindset among

students. School-based Atal Tinkering Labs (ATL) are being set up in all
districts in India by AIM. An ATL is a dedicated innovation workspace
where students from Grade VI to Grade XII can experiment with various
technologies like 3D Printers, Robotics, Internet of Things (IOT), and
Miniaturized electronics to create innovative solutions. The purpose of
this is to enable millions of students to develop a problem solving,
innovative mindset. There are more than 8,700 Atal Tinkering labs and
more than 70 lakhs students are actively engaged in these ATLs.

2) Atal Incubation Centres: In order to foster scalable and sustainable

business enterprises, AIM aims to establish new incubator centers called
Atal Incubation Centres (AICs) which will nurture innovative start-
ups.Incubation centres have also been set up through the efforts of
academia, industry, investors, entrepreneurs, government agencies, and
non-governmental groups in recent years. AIM also intends to upgrade
these Established Incubators Centres (EICs).

3) Mentor India: Atal Innovation Mission has established more than 8700
Atal Tinkering Labs across India, and Mentor India is a nation building
initiative organized by Atal Innovation Mission to engage human
resources to mentor students. Mentor of change serve as facilitators and
coaches who work tirelessly to ensure students develop future skills such
as design and computational thinking by providing their time and
expertise. Students gain valuable advice from industry leaders and put it
into practice by interacting with Mentors of Change and make tinkering
labs successful.

4) Atal New India Challenges: Atal New India Challenge is an initiative
of Atal Innovation Mission to foster innovation by providing grant-based
financial support to innovators who are working on products and
solutions based on advanced technologies which are of national
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 Mobilising importance and social relevance. As part of the Atal New India
Resources and
Start-Up Challenge, entrepreneurs are invited to create and demonstrate market-
ready products based on emerging technologies. The Indian government
will award grants up to INR 1 crore to the applicants showing capability,
intent, and promise to commercialize their technologies.

5) Atal Community Innovation Centre: Atal Community Innovation

Centers are being established in India with the goal of encouraging
entrepreneurship in underserved/underserved areas by providing the
required infrastructure and innovative environments. The ACIC focuses
on Tier 1 and Tier 2 cities, especially in the north-eastern part of the
country, as well as in Jammu and Kashmir and rural and tribal areas.

6) Atmanirbhar Bharat ARISE: The AtmaNirbhar Bharat ARISE-ANIC

program aims to foster research and innovation within Indian start-ups
and MSMEs to improve their competitiveness. In order to help catalyze
research, innovation and facilitate solutions to sectoral problems,
Aatmanirbhar Bharat ARISE-ANIC works in partnership with esteemed
Ministries and industries. The objective is to develop and supply a steady
flow of new, innovative products and solutions for the Central
Government Ministries / Departments, thereby enabling them to become
the first purchasers. 15 challenges were defined in the Aatmanirbhar
Bharat ARISE-ANIC Challenge Statement, which came from five
ministries: Ministry of Defence, Ministry of Food Processing Industries,
Ministry of Health and Family Welfare, Ministry of Housing and Urban
Affairs, and ISRO.
There are many other strategic campaigns run by AIM namely AIM-
PRIME Program, AIM-iCREST, Youth Co:Lab, AIM ICDK Water
Challenge, Zootopia 2021 and AIM-iLEAP to promote the culture of
entrepreneurship and innovation in the country.

Check Your Progress A

1) What do you mean by Incubation Network?

2) What is Livelihood Business Incubation Centre?

3) What is Atal Innovation Mission?

10.6 CHALLENGES FACED BY START-UPs

Startups are exploding everywhere at the moment like never before. Some of
these companies are able to make a significant impact on the global stage,
while others ultimately fail. Founders have witnessed time and time again
that the road ahead is not easy. In this section, we will discuss the main
challenges faced by start-ups.
1) Lack of Financial Resources: Availability of finance is critical for the
start-ups and is always a problem to get sufficient amounts. Startups are
often considered as high-risk loan areas and therefore banks are often
skeptical to provide them loans. Most of start-ups start working with
224

 their own funds but the requirement starts increasing as the business Start –Up Initiatives

progresses. Scaling of business requires timely infusion of capital. Proper

cash management is critical for the success of the startups.

2) Poor Revenue Generation: Several start-ups fail due to poor revenue
generation as the business grows. As the operations increase, expenses
grow with reduced revenues forcing startups to concentrate on the
funding aspect, thus, diluting the focus on the fundamentals of business.
Hence, revenue generation is critical. The challenge is not to generate
enough capital but also to expand and sustain the growth.

3) Lack of Skilled Personnel: Start-ups normally start with a team

consisting of trusted members with complementary skill sets. Usually,
each member is specialized in a specific area of operations. But as the
start-up grows, the team may struggle to manage the operations
effectively. Thus, it is essential to recruit the right employees, not having
the right people sometimes could break the startup.

4) Ineffective Marketing Plan: Many Start-ups fail due to flawed

marketing strategy. The environment for a start-up is usually more
difficult than for an established firm due to uniqueness of the product.
Thus, the startup has to build everything from scratch.

5) Lack of Mentorship: Lack of proper guidance and mentorship is one of

the biggest problems that exist in the Indian startup ecosystem. Most of
start-ups have brilliant ideas and/or products, but have little or no
industry, business and market experience to get the products to the
market. It is a proven example that a brilliant idea works only if executed
promptly. Lack of adequate mentoring/ guidance is the biggest challenge
among startups.

6) Poor Business Plan: A lot of new businesses fail within the first year
because of inadequate planning. The startups might have innovative
ideas, but if their business plans lack perspective, they are destined to
fail. Or, they need to constantly redesign them in order to succeed.

7) Fierce Competition: Start-ups face stiff competition from established

companies that dominate the market and make it difficult for new
entrants to succeed. In addition, there is no shortage of companies with
innovative ideas that are launched constantly. If a start-up isn't able to
differentiate itself from the crowd for long, it will be swallowed up by
the competition.

10.7 MEASURES TO SUPPORT START-UPs

In spite of challenges and problems that start-ups are facing, Indian markets
provide a plethora of opportunities for startups, which have great potential to
create jobs and promote growth.Several startups have established themselves
in India, and related ecosystems have flourished. The support required for
fostering the start-up culture is spread across several dimensions, which are
discussed below:
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 Mobilising 1) Providing infrastructure facility: One measure of assisting start-ups is
Resources and
Start-Up providing workspace. These can include providing office space and some
basic facilities such as computers, printers, Wi-Fi, hardware, and
software that start-ups need for product development, lab facilities, etc.
Incubators provide subsidized physical space to new businesses in return
for monthly rent during the early phases of their operations.
2) Financial assistance: Fund raising is the most challenging part of
starting a business. A number of programs and policies have been
introduced by the government of India to ensure loans are easily
accessible to startups such as the Credit Guarantee Scheme and Stand-Up
Loans. Start-ups have a wide range of financing options available,
including funding by family members, friends, loans, grants, angel
investors, venture capitalists, crowd funding, etc.

3) Mentoring Support: Startups, especially the first generation of

entrepreneurs, may lack the necessary knowledge or connections to build
a successful business. Therefore, startups may seek advice from mentors
who can assist with practical issues and provide support. Mentors may
offer assistance to start-ups who have little experience or knowledge by
using their industry experience, expertise, and specialised knowledge.
Mentors may also offer one-on-one advice to startups.
4) Promoting Research and Development: In the early stages of a
company, research and development are the most challenging. It is
essential for startups to invest in research and development, especially if
they are dealing with technology. There are several government schemes
designed to encourage and assist entrepreneurs in their research and
development activities, such as Promoting Innovations in Individuals,
Startups and MSMEs (PRISM) scheme, Atal Innovation Mission, the
establishment of innovation centers and research parks, etc.

5) Providing Business Support Services: The startup support

organizations have a pool of service providers with expertise in HR,
marketing, accounting, and legal areas that can offer valuable advice and
services to start-ups for smooth functioning. These organizations also
helps the start-ups to collaborate with various ecosystem partners. In
order to encourage startups to collaborate with ecosystem partners, the
government has created a portal called ‘Start-Up India Hub’. The portal
allows the start-ups registered on it to connect with government entities,
investors, banks, incubators, accelerators, legal partners, consultants,
universities, and R&D institutions on a single platform.
6) Regulatory support: Entrepreneurs often believe start-up companies
face many legal and regulatory hurdles as they strive to establish
themselves. These obstacles consume their time and resources that could
otherwise be utilized for innovation. The government has therefore
relaxed various regulations in order to ease the regulatory burden on
start-ups. Start-ups can avail the benefit of self-certification. By filling an
online form, they can have their start-up formally registered without
paying any fee. Unlike other business enterprises they are exempted
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 from prior experience/turnover criteria which is required for government Start –Up Initiatives

procurement and thus can apply for government tenders. As long as they
get a certification from the Inter-Ministerial Board, they are exempted
from paying income tax for 3 years. They are also exempt from capital
gains taxes.

7) Protection to Intellectual Property Rights: Frequently, we hear that

one company has claimed the right to an invention owned by another
company. While one company developed an innovative technology, a
similar product was launched by another company before it was
patented. Thus, it is imperative to protect Intellectual Property [IP].
Initiatives such as the Start-Up Intellectual Property Protection (SIPP)
facilitate the filing of Patents, Trademarks, and Designs by innovative
start-ups and their protection.
8) Global Tie-ups: Startups find it difficult to enter the international
markets and keep up with the international competition. Through the
government's Start-up India initiative, the Indian startup ecosystem was
made more connected to the global start-up ecosystem. G2G partnership,
participation in international forums and hosting global events have all
been instrumental in achieving these goals. These factors have made it
easier for start-ups to expand internationally.

Over the last five years, new systems and policies of the Government
have been put in place to strengthen the start-up ecosystem in the
country. The interventions being deployed by the Government are
fostering innovation driven entrepreneurial climate in the country.

CheckYour Progress B
1) List four major challenges faced by start-ups?
2) State whether the following statements are True or False:

i) Incubator support includes providing technological facilities to the

aspiring and existing entrepreneurs.
ii) India has the first largest incubator network in the whole world.

iii) The purpose of ATL is to enable millions of students to develop a

problem solving, innovative mindset.

iv) Start-ups cannot do business internationally.

v) Start-ups can avail the benefit of self-certification

3) Fill in the Blanks:

i) The National Small Industry Corporation (NSIC) was established in
the year ………..…

ii) ……………. a policy think tank of the Government instituted Atal

Innovation Mission.

227

 Mobilising iii) The Government of India consider an entity as start-up up to
Resources and
Start-Up …………. years from the date of its incorporation/registration.
iv) ……………… helps the start-ups to connect with government
entities, investors, banks, incubators, accelerators, legal partners,
consultants, universities, and R&D institutions on a single platform.
v) TBI stands for ……………………… Business Incubators.

10.8 LET US SUMP UP

India’s start-up ecosystem has become vibrant and mainstream in many ways
– in terms of job creation, in terms of solving consumer problems, and
creating products for the rest of the world. The Government is implementing
policies for the promotion and development of the start-ups which include
providing concessional credit, training in entrepreneurship development,
marketing assistance, research support etc. to inculcate entrepreneurial
culture especially among the first-generation entrepreneurs.

A start-up is an innovative firm that develops or offers innovative products,

processes, or service. In addition to innovative products and services, start-
ups usually exhibit several characteristics such as sustainable business model,
fast growth, and an early stage of business.
The Government of India launched the “Start-up India” initiative on 16th
January 2016, to empower start-ups in the country to create an ecosystem that
nurtures innovation and entrepreneurship in the country to foster sustainable
growth and create jobs on a large scale. A “19 Point Action Plan” was
framed under this initiative which was divided across the following 3 areas:
Simplification and Handholding, Funding Support and Incentives and
Industry-Academia Partnership and Incubation.
Incubators are typically known to provide support to new enterprises during
their early stages. Incubators are institutions that help entrepreneurs to
develop their business, especially in the initial stages. Incubator support
includes providing technological facilities and advices, network and linkages,
co-working spaces, lab facilities, mentoring and advisory support.

The Ministry of Micro, Small and Medium Enterprises, Department of

Science and Technology, Department of Biotechnology, Department of
Electronics and Information Technology, and Department of Higher
Education, with the active support of NITI Ayog and the Department of
Industrial Policy and Promotion are involved in setting up the incubators in
India.

Atal Innovation Mission (AIM) is Government of India’s initiative which

was setup in 2016 by NITI Atyog to create and promote a culture of
innovation and entrepreneurship across the length and breadth of our country.
It runs various programs for school students, budding entrepreneurs and
incubators to develop a strong entrepreneurship ecosystem. The Atal
Innovation Mission (AIM) have two core functions: Entrepreneurship
promotion, and Innovation promotion.
228

Start-ups face number of challenges which are: Lack of Financial Resources, Start –Up Initiatives

Poor Revenue Generation, Lack of Skilled Personnel, Ineffective Marketing

Plan, Lack of Mentorship, Poor Business Plan, and Fierce Competition.

The support required for fostering the start-up culture is spread across several
dimensions, which are: Providing infrastructure facility, Financial Assistance,
Mentoring Support, Promoting Research and Development, Providing
Business Support Services, Regulatory support, Protection to Intellectual
Property Rights and Global Tie-ups.

10.9 KEYWORDS
Incubators: institutions that help entrepreneurs to develop their business,
especially in the initial stages.Incubator support includes providing
technological facilities and advices, network and linkages, co-working
spaces, lab facilities, mentoring and advisory support.

Livelihood Incubator Centres: LICs incubates and empower low-end

technology based enterprises at the local level in rural areas, which enhances
employment generation and eliminates unemployment.
Start-up: an innovative firm that develops or offers innovative products,
processes, or service. In addition to innovative products and services, start-
ups usually exhibit several characteristics such as sustainable business model,
fast growth, and an early stage of business.
Start-up India: a flagship initiative of Government of India to empower
start-ups in the country by creating an ecosystem that nurtures innovation and
entrepreneurship in the country to foster sustainable growth and create jobs
on a large scale

Technology Business Incubators: TBIs incubate innovative or tech based

enterprises.

10.10 ANSWERS TO CHECK YOUR PROGRESS

B) 3. i. True ii. False iii. Trueiv.Falsev.True

4. i. 1955 ii. NITI Aayog iii.10 iv. Start-up India Hub v. Technology

10.11 TERMINAL QUESTIONS

1) What do you understand by the term start-up?

2) What is Start-up India Initiative? Discuss the 19 Point Action Plan of
Start-up India.

3) What do you understand by the term Incubator? Enumerate the

prominent incubation support provided by the Government of India.

4) Explain ASPIRE scheme by the Ministry of MSME.

5) What are the features of Atal Innovation Scheme?

229

 Mobilising 6) Enumerate the reasons for failure of Start-ups.
Resources and
Start-Up
7) Discuss the measures deployed by the Government to strengthen the
start-up ecosystem in India.

Note: These questions will help you to understand the unit better. Try to
write answers for them. But do not submit your answers to the University for
assessment. These are for your practice only.

FURTHER READINGS
‡ KWWSVZZZVWDUWXSLQGLDJRYLQ
‡ ,YDWXUL9. *DQHVK0  7KH0DQXDOIRU,QGLDQ6WDUWXSV
Penguin Random House.
‡ 9DVLVKWD *   6WDUWXS   -XVW 6WDUWXS $ 6WHS E\ 6WHS *XLGH RQ
How to Become a Successful Entrepreneur. Notion Press.

230

  Mobilizing Financial
UNIT11 MOBILIZING FINANCIAL Resources

RESOURCES

Structure
11.0 Objectives
11.1 Introduction
11.2 Need and Importance of Financial Resources
11.3 Sources of Finance
11.3.1 On the Basis of Duration
11.3.2 On the Basis of Ownership
11.3.3 On the Basis of Source of Generation of Funds
11.3.4 Other Sources of Finance
11.4 Details of Various Sources of Finance
11.5 Factors Affecting Selection / Choice of Sources of Finance
11.6 Prime Minister’s Employment Generation Programme (PMEGP)
11.7 MUDRA Yojna
11.8 Let Us Sum Up
11.9 Keywords
11.10 Answers to Check Your Progress
11.11 Terminal Questions

11.0 OBJECTIVES
After studying this unit, you should be able to:

x acquire the necessary knowledge and skills regarding resource

mobilization and financial resources management;

x equip with a detail knowledge of various types of sources of funds

available for financing to a business organizations;
x describe the various criteria which are generally used by the lending
organizations/ agencies to grant loans to the business organizations;

x analyse advantages, disadvantages and limitations of various sources of

funds to help the students in taking appropriate decision in this regard;
and

x describe government initiatitives like Prime Minster Employment

Generation Programme (PMEGP) and MUDRA Yojna.

11.1 INTRODUCTION
It is well known that every business organization requires finance for its
business operations. Finance is also known as blood of the business and

231

 Mobilising without finance the business cannot be run. Mobilizing financial resources is
Resources and
Start-Up an important task that an entrepreneur needs to perform.
The resources which are generally required by an entrepreneur may be
classified into two categories namely financial and non-financial (human
resources). As we all know that finance is known as blood of the business, it
becomes necessary to ensure adequate arrangement of finance / funds not
only for a new venture but also for existing business organizations for their
growth oriented financial needs. The financial needs of a business vary as per
the nature of business activities or business operations performed by business
organization along-with the size of the business organization. For example, a
manufacturing enterprise may require more financial resources as compared
to service sector enterprise. The reason for requiring more capital by
manufacturing enterprise is that they are more capital intensive because of the
huge investment in their plant and machinery infrastructure. In this unit, you
will develop an understanding about various kinds of financial resources
available and the ways to evaluate/conduct the cost benefit analysis of the
various resources and factors to be considered while making a good selection
of financial resources.

11.2 NEED AND IMPORTANCE OF FINANCIAL

RESOURCES
Finance is required by businesses for not only to meet their startup related
costs but also for meeting the financial needs of day to day business
operations. Finance is needed to establish a business, to run it, to modernize it
and to expand or diversify it. Finance is also needed for buying variety of
assets both tangible (such as land, buildings, machinery, furniture) and
intangible like trademarks, patents, technical expertise and other assets. Hence,
every entrepreneur has to look for various sources of finance so that the
entrepreneur can meet the financial needs of their business. It is needless to
mention here that a systematic assessment of the financial needs of the
business organization would be very important in determining the sources of
finance. It is also important to note here that the funds are required not only to
start business activities but also for growth and expansion needs of the business
as well. The finance is required for the following purposes:

1) Fixed capital requirements: The fixed capital is required for the purpose
of purchasing fixed assets like land, building and plant and machinery.
Therefore, financing of fixed capital is important. For the business you
should also note that this fixed capital requires long term financing.
Hence, the selection of source of finance is very important. The cost of
capital is also involved in the long term capital financing. It is also
important to note that the fixed capital requirement for a business may
vary as per the nature of business. For example, the manufacturing sector
enterprise may require more fixed capital as compared to service sector
enterprise.

2) Working capital requirement: A business not only needs finance for its
fixed assets but also requires adequate amount of finance for its working
232

 capital requirements. Despite varied nature and size of the business, Mobilizing Financial
Resources
finance will be required for day to day business operations. Hence, to
ensure smooth running of the business operations, adequate working
capital should also be arranged. The working capital may be required for
the purpose of obtaining current assets and meeting day to day expenses of
the business.

In addition, the business also requires finance for expansion,

modernization, technological requirements, innovation etc.

11.3 SOURCES OF FINANCE

Understanding of sources of finance is very important as it provides detail of
various types of sources of funds available which can be utilized to finance a
business organization. There are several financial institutions / organizations/
agencies both governments owned as well as privately owned which are
engaged in financing the business organizations for their various financial
needs. A good understanding of various sources of finance will always be
helpful in arranging finance for business organization effectively and
efficiently.
There are different basis on which the sources of finance can be classified.
The detail classification of various sources of finance is as follows:

11.3.1 On the Basis of Duration

On the basis of duration, the sources of finance can be classified as: 1) Short-
term sources 2) Medium-term sources, and 3) Long-term sources. Let us learn
them in detail.

1) Short-Term Sources

When funds are required in the business for a period not exceeding one year
are referred as short-term requirement of funds. The short term requirement
can be met through the short term sources of finance. Short term finance may
be required for meeting financial needs towards arranging current assets and
also to ensure stock of raw materials in the business. Seasonal businesses
require more short-term funds for the purpose of various day to day
requirements of their business. They are required to maintain the appropriate
level of inventory stocks including raw materials and paying wages to labor
during the season when production level increases in peak season. The
following are some of the short term sources of finance:
x Trade Credit
x Banks
x Commercial Papers
x Factoring

233

 Mobilising 2) Medium-Term Sources
Resources and
Start-Up
Medium term sources of finance are used in businesses when the funds are
required for a period of more than one year but generally up to three or five
years. The following are some of the medium term sources of finance:
x Loan from commercial banks
x Financial Institutions
x Public deposits
x Lease financing

3) Long-Term Sources

When funds are required for a period of more than 5 years, are known as long
term fund requirements and requires a long term source of finance. There are
different long term sources of finance like issuing shares and debentures and
also some relates with long-term borrowings and loans from various financial
institutions. Long term finance is generally required to purchase fixed assets
in the business like land, buildings and machinery, equipments and other
fixed assets needed to setup a new business as well as expansion of the
existing business operations. The following are some of the long term sources
of finance:
x Loan from commercial banks
x Loan from financial Institution
x Shares
x Debentures
x Retained Earnings

11.3.2 On the Basis of Ownership

On the basis of ownership, the sources of funds may be categorized as: 1)
Owner’s fund, and 2) Borrowed fund. Let us learn them in detail.

1) Owner’s Fund

Owner funds refer to funds which are brought by owner into the business.
Owner’s fund may come from sole proprietor, partner and shareholders (in the
case of a company structure). Apart from the capital or fund invested by the
owners, this type of fund also includes the profits which are reinvested in the
business and generally termed as retained earnings. The following are some of
the sources of finance which can be considered under the category of owner’s
fund:
x Personal Sources of finance
x Equity shares / Equity capital
x Retained Earnings

234

2) Borrowed Fund Mobilizing Financial
Resources
Borrowed funds are the funds which are borrowed from someone else or from
some financial institutions in the form of loans and other borrowings. This may
include: loans from commercial banks, loans from various financial
institutions, and also through issue of debentures, getting public deposits and
trade credits as well. The borrowings can also be considered as debt capital as
in this type of capital the owner is supposed to repay the borrowed amount
with interest. The debt capital allows an entrepreneur to keep complete
ownership and control of the business. The debt capital also increases the
liability side of the balance sheet because the entrepreneur needs to pay with
interest at a specific due date. The following are some of the important sources
of funds which may be kept under the category of borrowed funds:
x Commercial banks
x Financial Institutions
x Debentures
x Borrowings from friends and relatives
x Public deposits
x Lease financing

11.3.3 On the Basis of Source of Generation of Funds

Sometimes the sources of funds are categorized on the basis whether the funds
are being generated from the various sources within the organization or the
funds are generated from outside the organization through external sources. Let
us discuss them in detail.

1) Internal Sources of Funds

When funds are arranged and generated within the organization is referred to
internal sources of funds. The various internal sources of funds are as follows:
x Equity share capital
x Retained Earnings

2) External Sources of Funds

When the funds are generated through some external organizations/ institution
or parties are referred to external sources of funds. The following are some of
the external sources of funds:
x Loans from banks
x Financial institutions
x Public deposits
x Debentures
x Lease financing
x Commercial papers
x Trade credit
235

 Mobilising x Factoring
Resources and
Start-Up
11.3.3 Other Sources of Finance
There are some other sources of funds which are as follows:
x Angel Investors
x Venture capitalists
x Crowd funding
x Deferred Income

Check your progress A

1) List out two purposes for which the finance is required.

2) What do you mean by borrowed fund?

3) List out five external sources of finance.

4) State whether the following statements are True or False:

i) Equity share capital is an external source of funds.
ii) Retained earning comes under the internal sources of finance.
iii) Debentures are long term sources of finance.
iv) Trade credit relates with the internal sources of finance.
v) Commercial papers provide short term financing.
5) Fill in the Blanks:

i) ……………………… is known as blood of the business.

ii) Fixed capital requires ……………………… financing

iii) ………………….. may be required for meeting financial needs

towards arranging current assets.

iv) Apart from the capital invested by the owner, the owner’s fund also
includes the ………………….. which are reinvested in the business.
v) When funds are required for a period of more than …………….,
they require a long term source of finance.

11.3 DETAILS OF VARIOUS SOURCES OF

FINANCE
Let us now discuss about the various sources of finance which have been listed
in the previous section in detail:

1) Trade Credit

Trade credit is a very common form of credit which is used in the business.
Trade credit is the credit which is generally extended by one trader to another
for various goods and services in their business. Trade credit is generally used
236

as a short term source of fund. The trade credit facilitates the purchase of Mobilizing Financial
Resources
supplies, goods and materials without immediate payment to the vendor.
Further, trade credit is offered to those customers having good image towards
financial standing and handling or good paying capacity. How much credit and
the period for which the credit facility would be extended depend upon various
factors like image of the buyer / entrepreneur, financial position of the vendor,
and also the quantity of goods to be purchased.

Advantages of Trade Credit: Trade credit has the following advantages:

i) Easy availability of trade credit particularly for those companies /

business organizations having strong financial positions.

ii) May be used as continuous source of funds.

iii) Good amount of credit can be obtained in case of good credit worthiness
of the buyer which is known to seller.

iv) Trade credits are also flexible in nature.

v) From seller point of view, trade credit may contribute significantly in
increase of the sale of the seller.
Disadvantages / Limitations of Trade Credit: Following are the limitations
of trade credit:
i) The main disadvantage or limitation of trade credit as a source of finance
is that it is not much useful source of finance for those business
organizations / companies which are financially weak.
ii) Sometimes the cost of trade credit may be high.

iii) A limited amount of fund can be generated through this source of fund
and would be available only for a short period of time.

2) Factoring
Factoring refers to a kind of ‘financial service’ under which the ‘factor’
renders various kinds of services like discounting of bills (with or without
recourse) and also collection of client’s debts. Under this mechanism, the
receivables relating to sale of various goods and services are sold to the
‘Factor’ at a certain discounting rate. This would be the responsibility of the
‘Factor’ to collect debt amount from the buyer. The Factor also provides a
protection against any bad debts losses to the firm if the method of factoring
is a non-recourse method. There are generally two methods through which
the factoring can happen. These are recourse and non-recourse method.
Under the recourse factoring method, the protection is not given to the client
against any risk of bad debts. However, in non-recourse method of factoring,
the entire risk of credit is assumed by the ‘Factor’ and ensures a protection to
the client against any bad debt amount. This means that entire amount of the
invoice is to be paid to the client in case of any bad debt. There are some
organizations like Canbank Factors Ltd. And SBI Factors and Commercial
Services Ltd. engaged in providing factoring services.

237

 Mobilising Advantages: The following are some of the advantages of the factoring as a
Resources and
Start-Up source offinancing:
i) Obtaining funds through factoring is easy and does not include much
legal formalities as compared to other sources like IPO, issuing shares
and debentures where many legal formalities need to be performed to
raise capital.
ii) By using the Factoring method of financing, the cash flow can be
maintained effectively and be used for paying liabilities promptly.
iii) The client would be free from any kind of risk relating to the bad debts in
case of non-recourse method of factoring is used.
Disadvantages/ Limitations: The limitations of the factoring as a source of
finance are as follows:

i) This source of finance may be expensive particularly where the invoices
are of small amounts.

ii) The cost of raising finance through Factoring is also more costly because
of the charges of ‘Factor’ when compared with other sources of funds.

3) Commercial Paper

Commercial Papers are very important source of funds for short term period to
meet the various short term financial needs of a business. Commercial papers
are unsecured promissory notes to raise funds for a short period ranging from
90 days to 364 days. These are issued by primary dealers (PDs) and some all
India Financial Institutions. Commercial paper may be a good source for
getting large amount of funds but for a short period of time. The regulation of
commercial papers comes under the purview of the Reserve Bank of India
(RBI) and generally firms and institutions having good credit are allowed to
issue the commercial papers. As the RBI does not want to risk the funds, only
the firms having good credit rating can arrange finance through the commercial
paper.

Advantages of Commercial Paper: The advantages of commercial paper

are as follows:

i) As Commercial Papers are generally issued on an unsecured basis and

does not impose many restrictions.

ii) The Commercial Paper is a freely transferable instrument; it can help in

maintaining high liquidity in the business.

iii) The business organizations can also use their excess funds in commercial
papers and this may help them in generating good return on the same.
iv) It offers flexibility and a commercial paper may provide a continuous
source of funds.

Disadvantages/Limitations of Commercial Paper: The disadvantages/

limitations of commercial paper are as follows:
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i) Generally, financially high rating organizations having good credit Mobilizing Financial
Resources
records are allowed to raise money through commercial paper.

ii) It becomes difficult for small firms to arrange finance from this type of
source.

iii) The commercial paper can be used just for only the short term financing
of the business organizations.

4) Debentures
Debentures are also a good source of funds particularly as a long term source
of fund. Debentures are the debt instruments which are issued at a fixed rate of
interest. Debenture holders are considered like creditors of the company as
they have paid a certain amount to the company. It is the obligation of the
company to repay the amount with interest at a certain date generally referred
as maturity date or due date.

Advantages: The advantages of debentures are as follow:

i) Debentures are preferred by those investors who want a fixed income at
lesser risk.
ii) For company, arranging finance through debentures does not dilute
control of the equity shareholders on the management and control
because a debenture does not carry voting rights.
iii) The company does not require distributing its profit to debenture holders
and hence, it may be a kind of advantage to the company particularly
when the company earns huge profit.

Disadvantages: The disadvantages of debenture are as follows:

i) The main disadvantage of debenture is that it puts a permanent burden on

the earnings of the company and hence, it may have more risk
particularly when there is a reduction in the earnings of a company.

ii) The other disadvantage is that with the issue of debentures, the
company’s borrowing capacity reduces.

5) Personal Sources of Finance

To a new startup, personal sources of finance are very important where
entrepreneur uses his / her own money for his/her venture. This is the least
expensive source of the finance and is important because the lenders also see
that how much money is to be invested by the entrepreneur.
Advantages: The main advantages of this source of finance are as follows:

i) Entrepreneur can arrange finance for his/her business either without
interest or at a low interest rate.

ii) It does not increase any external liability. Also, it does not require many
legal formalities to perform in arranging finance for the business as this
investment is done by the entrepreneur itself.
239

 Mobilising iii) It also helps in convincing other external investors to attract fund
Resources and
Start-Up because external fund providers/lenders would like to see how much
money is invested by the entrepreneur.
Disadvantages/Limitations: The following are the disadvantages of this
source of finance:
i) This type of financial sources may only provide a very limited finance
for business which may be adequate for a micro or small businesses. This
may not be appropriate for a medium or large kind of enterprises where
huge money is required.

ii) Through this source only a limited amount can be arranged for the
business activities because of financial resource limitation of the
entrepreneur.

iii) This source of fund is about the risk of the investment in case of any
adverse situation occurs in business which may reduce the profit.

6) Share Capital / Equity Shares / Issue of Shares

When the capital is obtained by issue of shares is referred to as share capital.
It is a very common source of fund which is generally used by a company.
Regarding the share capital, it is important to note that the capital of company
is divided into small units which are termed as shares and each share has its
nominal value.

For example, if a company is issuing 10,000 shares of Rs. 10 each then the
value of share capital of that company would be Rs. 100,000. The persons
holding shares are known as shareholders of that company and are entitled to
get dividend declared by the company. There are two types of shares which
are known as equity shares and preference shares. When the capital is raised
by issuing equity shares, the obtained capital in this manner is known as
equity share capital. The capital raised by issuing of preference shares is
known as preference share capital. The details of the equity shares and
preference shares are as follows:

a) Equity Shares

Equity shares are very important shares generally used to raise long term
capital for the company. The persons holding equity shares are known as
equity shareholders and they get ownership in the company when they buy
shares of the company. This is the reason that the capital provided by equity
shareholders is also known as ownership capital. As owner of the company,
the equity shareholders are entitled to get a portion of profit known as
dividend which is declared by the company on the basis of its earning. At the
same time because of being owner of the company, the equity shareholders
have also to bear risk but their risk and liability is limited up to the capital
contributed by them to the company which they have invested by purchasing
shares in that company. Needless to mention here that an existing company
also issue shares to general public through stock market operations for the
purpose of raising funds for its growth and development operations.
240

Advantages: The advantages of equity share capital are as follows: Mobilizing Financial
Resources
i) The advantage of raising capital through equity share is that by using this
source of finance, the company can raise capital for its long term capital
needs.
ii) Amount raised through equity shares can be utilized for a long period of
time and the capital acquired through this mode will be permanent capital
in nature.
iii) Raising capital through equity shares also ensures participatory and
democratic management and control of the company as the shareholders
are entitled to vote in company.
iv) The other advantage is towards attracting and retaining key employees.
Benefits of listing on a stock exchange helps more access to future
financing for growth and expansion needs of the business.
v) The other advantage of this method of financing is that it can provide
adequate finance for the expansion and growth needs of the business
where huge financial resources are required.
Disadvantages/ Limitations: The disadvantages of equity share capital are as
follows:
i) Equity capital financing requires fulfilling lot of legal formalities and that
is why sometimes it might not be appropriate for micro and small
businesses.
ii) The other disadvantage is regarding the complexity and concerns relating
to the high cost of capital.
iii) From shareholders point of view, the biggest disadvantage is that it offers
fluctuating returns on the investment.
iv) The cost of capital is comparatively high as compared to other sources of
funds because of costs involved in performing legal formalities and other
processes in raising funds.

b) IPO (Initial Public Offerings)

When a company which is previously unlisted in the stock market offers its
shares for sale to the general public is known as IPO (Initial Public
Offerings). To raise money through IPO may require the following:
x Consistently good growth rate of the company
x A good record of earnings through business operations
x A good entrepreneurial / management team along-with the experienced
and strong board of directors in the company.

The advantage of IPO is that through this, a business organization can raise
adequate finance particularly for its expansion and growth needs. Regarding
disadvantage of IPO kind of source of fund is towards dilution of funder’s
ownership along-with the loss of control to some extent in the company. It
241

 Mobilising increases cost of capital in raising funds because of several legal expenses
Resources and
Start-Up involved in filing and reporting of various details of the company.

c) Preference Shares

Preference shares are used to raise preference share capital and the people
holding preference shares may be referred as preference shareholders.
Preference Shareholders have a preferential position over equity shareholders
towards receiving a fix rate of dividend and receiving their capital in case of
the claim settlement.
Advantages: The advantages of preference share capital are as follows:
i) Raising finance through preference shares does not affect the management
and control of the company because preference shareholders do not have
the voting rights in the company.
ii) From shareholders point of view, the preference shareholders get fixed
return on their invested capital and hence, they do not carry much risk of
fluctuations.
Disadvantages: The disadvantages of preference share capital are as follows:
i) The preference shareholders get dividend on preference shares only when
the company earns profits and hence no assured return on investment
made by preference shareholders.

7) Retained Earnings

Retained earnings are that portion of profit which is not distributed among
shareholders and is kept reserved for the purpose of reinvesting in the business.
Generally, retained earnings are used for working capital, allocation towards
debt obligations and also for meeting some expenses towards fixed assets
purchase. As retained earnings is an internal source of financing and hence,
depends on various factors like age of the company, the net profit of the
company and also the dividend policy of that company.
Advantages: The advantages of retained earnings are as follows:
i) The main advantage of retained earnings as a source of finance is that it
offers a permanent kind of source of funds for business organization.
However, the fund raised by this method may vary as per various factors
mentioned above like age and size of the company, the net profit from the
business operations along-with dividend policy of the company.
ii) This source of fund does not include any explicit cost of raising capital.
iii) Retained earnings also offer more flexibility in terms of financing.
Disadvantages / Limitations: The following are some of the disadvantages of
the retained earnings using as a source of fund:
i) Excessive usage of retained earnings as a source of financing for business
activities may cause dissatisfaction among some of the shareholders as
there would be lower amount towards the dividend.
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ii) The other disadvantage or limitation of this source of fund is that it is an Mobilizing Financial
Resources
uncertain source of fund as this can be used only when profit is generated.
This may be uncertainty characteristics regarding fluctuations in the profit
earned by the business organization.

8) Friends and Relatives

Though, most of the entrepreneurs are seen to look for their own personal
funds to finance the business activities / operations. Sometimes they try to look
for funds from their friends, relatives and other family members as well who
might be willing to invest in business activities but they do not want any risk of
running a business. Generally the fund generated from this source of fund
would be in the form of equity financing in which the friends/ family members
and relatives receive an ownership interest / stake in the business. However,
based on nature, sometimes this type of source of fund may also be in the
category of borrowings especially in case when friends and relatives might not
be interested to take any risk of the business and would like to get their money
with interest without any risk. In such a situation, the financing obtained by
friends and relatives may be in the form of borrowings.
Advantages:The advantages of this source of funds are as follows:

i) The major advantage of this source of fund coming from friends, family
members and relatives is that it is very easy to get funds from them
without having many formalities to perform. However, sometimes a little
bit legal formalities may have to perform as per the nature and amount of
the investment.

ii) The other big advantage towards raising funds under this manner is that it
is also not very costly.

Disadvantages/Limitations: The disadvantages of this source of fund are as

follows:

i) It provides small amount of funds and may be appropriate for financing
small businesses or new ventures at the early stage.

ii) This type of source of fund may not be appropriate in arranging adequate
finance for the expansion and growth needs of the business organization.

9) Financial Institutions

There are various specialized financial institutions which are established by
central government and also by state governments. For example like SIDBI
which is established by central government to provide loan and other
financial support to small sector business organizations. Similarly, there are
SFCs (State Financial Corporation) which acts for providing financial
assistance and support to business organizations in the respective states.
These financial institutions provide financial assistance to medium term and
also long term duration. As these financial institutions are supposed to
promote industrial development, they are also known as development banks.
Advantages: The advantages of financing through financial institutions are as
follows:
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 Mobilising i) They provide long term finance which is very important for obtaining
Resources and
Start-Up fixed assets for the business.
ii) These financial institutions also provide various kind of technical and
managerial support to the business organizations if requested.

iii) These institutions provide funds even when there is a slowdown or

depression in the economy / market when it becomes difficult to raise
funds from other sources.
Disadvantages / Limitations: The disadvantages of this source of financing
are as follows:

i) The major limitation of this source of fund is that getting loans involves
many processes and procedures.

ii) The criteria which is adopted to grant loans and advances to business
organizations is also very rigid.

10) Commercial Banks

Commercial banks are very good source of funds for any duration and for a
wide range of purposes. Regarding duration, the commercial banks gives
loans of all kind of durations like loans for short term duration, medium term
duration and also for a long term duration. Short term loans are the loans
which are given by the banks for less than one year duration. Medium term
loans are provided for three or more years but not greater than five years.
However, the long term loans are those loans which are given for a period of
more than five years. This type of loans are generally required by large
industries/ or by business organizations for meeting their long term financial
needs of rapid growth and long term expansion plans. Similarly, the
commercial banks provide loans to both the new ventures/ startups and also
to existing enterprises. The commercial banks are run under both the
government ownership as well as under the private ownership. When the
ownership is with the government they are said government commercial
banks / public sector banks operating under the government. The following
are some of the ways through which commercial banks provide loan
facilities:

x Overdraft facility: Overdraft facility is a facility through which a bank

offers / allows its customers / borrowers to withdraw more funds in
excess to the balance available in the customers/borrowers account for a
specific period of time.
x Loans of different durations (short term, medium term and long
term loans) and advances:Loans are known as advances as lump sum
amount which is given to the borrower against some security.
x Cash credit:A cash credit is very important particularly as a source of
finance for working capital arrangement. In this kind of facility, a bank
permits a borrower or the customer to withdraw money as per the
predetermined sanctioned credit limit against some tangible security or
guarantees.
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x Discounting of bills: Bills receivable are created against credit sales of Mobilizing Financial
Resources
some goods and services. In this process, the seller of goods draws a bill
on the buyer of some specific amount of the transaction. When the bill is
accepted by the buyer, the drawer (seller) of the bill can move to the
bank requesting discounting of the bill. Based on the creditworthiness of
the buyer, bank purchases or discounts the bill and hence, provides a
specific amount to the drawer (seller) of the bill. It is also important to
note here that the credited amount that is provided to the drawer (seller)
would be less than the bill amount.
x Letter of Credit: The letter of Credit is a non fund based mechanism for
the purpose of arranging finance for working capital relating to purchase
of goods and services. In the letter of credit mechanism, this is issued by
the buyer’s banker on request of buyer. The credit is issued in the favor
of seller in which buyer’s banker issues / gives an undertaking to seller
that the buyer’s banker will pay up to a certain amount to the seller. This
payment will be made in case if the buyer is not able to pay the
transaction amount.
Advantages The advantages of financing through commercial banks are as
follows:

i) Interest rate is comparatively lower as compared to raising finance from

other private sources / lending organizations providing loan facility.
ii) The bank loan can also be obtained under the various schemes of the
government like MUDRA Yojna, Startup India initiative and make in
India initiative of the government.
iii) Incentives and subsidies can be obtained under various schemes of the
government while taking loans from the commercial banks as most of the
financial schemes and incentives are generally routed through commercial
banks.

iv) Banks provide adequate finance as and when needed by the business
organizations and also provide technical support sometimes as per request.
Disadvantages/Limitations: The disadvantages of this source of finance are
as follows:

i) The main disadvantage is that it is difficult for getting finance sometimes
for those business organizations which are small and are not having very
strong financial position.

ii) Sometimes, some restrictions are imposed on the business organizations

towards granting loan facility to the business organizations especially for
those business organizations which are not having very strong financial
indicators.

11) Public Deposits

When the business organizations directly raise deposits from the general public
is known as public deposits. In case of public deposits, the firms are supposed
to offer a higher interest rate on the public deposits as compared to the interest
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 Mobilising rates provided by the banks so that the business organizations can attract
Resources and
Start-Up adequate public deposits. Under this method the depositors are required to fill
the appropriate form of deposit of that business organization and in return the
business organization is supposed to issue the deposit receipt to the depositor
to make the transaction happen. However, it is important to note here that
business organizations looking for public deposits as a source of finance need
to follow all rules and regulations made for such purposes of accepting public
deposits as accepting public deposits are regulated by RBI. This source of fund
may also be used for short term and also for medium term duration.
Advantages: The advantages of public deposits are as follows:

i) The biggest advantage of public deposits as a source of finance is that it

is easy and simple and involves less legal formalities as compared to
legal formalities which are in raising finance through IPO or equity
shares.

ii) In this case of financing, the management and control of the business
organization remains with the owner of the business organization as the
depositors would not have any voting rights in the business organization.

iii) The other advantage is regarding the lower cost of capital as compared to
the cost of capital through borrowings.
Disadvantages/Limitations: The disadvantages of public deposits are as
follows:

i) It is not very effective source of finance because it may also happen that
public would not respond and deposit adequate money to the business
organization / company when the business organizations really requires
money for its business operations.

ii) Limited amount of funds can be obtained under this source of finance
and the new companies / business organizations may find it difficult to
raise funds under this source of finance.

iii) Generally funds are provided for short term and medium term duration.

12) Lease Financing

Lease financing can be generally used for such kind of assets which becomes
obsolete quickly. A lease can be understood as a contract between two parties,
where one party allows or gives right to use some specific assets in return for a
periodic payment that may be referred as lease rent. The owner of the assets is
known as ‘lessor’ while the other party which will be using the assets is
referred as ‘lessee’. The various terms and conditions to use the said assets are
mentioned in the contract done between ‘lessor’ and ‘lessee’.
Advantages: The advantages of Lease Financing are as follows:

i) The main advantage of lease financing as a source of finance is that it

helps the ‘lessee’ to get asset with a lower investment in the said asset.

ii) It is also easy and involves only a little bit legal formalities like making
246 contract between the parties.

iii) Financing assets through this method may be helpful in ensuring good Mobilizing Financial
Resources
availability of cash for other business operations. In this source of finance,
the asset would be acquired through lease finance and only some amount
of cash is to be invested in getting that asset.
Disadvantages/Limitations: The disadvantages of Lease Financing are as
follows:

i) The main limitation of this method is that lease agreement may impose
some kind of restrictions on using the asset which is taken through lease
finance. Similarly, restrictions may also be imposed towards any kind of
modifications in the said asset.

ii) It also increases the payout obligations of the firm as the firm need to pay
the rental amount periodically.

iii) The ‘lessor’ remains the owner for the asset which is acquired through
lease finance.

13) Angel Investor

Generally, an angel investor is referred to as an individual who is ready to
provide funding for such kind of start-ups, which are not able to get funding
from any other institutions / sources of finance. These angel investors
generally provide fund in exchange for an ownership stake in the start-up. It
is also to be noted that in most cases, angel investors have been found as the
last option for start-ups that don’t qualify for bank financing and may be too
small to have interest in a venture capital (VC) firm.

The main advantage of the financing through angel investor is that they can
provide the seed capital for the business. They may provide a good source of
finance when the other investors and lenders have denied funding the new
venture based on their evaluation of the proposed opportunity for which the
fund is required. The other advantage of angel investors is that they are good
source for financing private sector business organizations / companies.

This source of fund is very much useful for creative and innovative business
ideas. However, if we see the disadvantage of the angel investor, we can say
that in this method of financing the owner has to sacrifice some portion of the
ownership in the business.

14) Venture Capitalists

Venture capital firms are the firms which generally comprises a group of
professional investors. Venture capital financing refers to that type of
financing that comes from professional companies or individuals specially
investing in growth oriented privately held companies. The capital may come
from various sources like individuals, corporations, pension funds and other
similar kind of sources. Venture capitalists take interest towards investment
in the early stage of the companies as well as more developing companies
having high growth and profit potential. Thus, these venture capitalists
provide finance for not only early stage funding but also for growth needs of
the companies. The venture capital firms prefer to invest in those companies
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 Mobilising that have already received enough equity investment from the founders and
Resources and
Start-Up having strong value proposition. Venture capitalist firms also look for
competitiveness of the company before investing in the firm.
The main advantage of this source of fund is that it is easy to raise finance
from venture capitalists firms as compared to government financial
institution. One more advantage is that it does not increase any external
liability as venture capital firms get some stake in the ownership of the
company. So it is a kind of equity financing rather than borrowings.

Regarding disadvantage of financing through venture capitalists firm is the

level of difficulty in convincing to venture capital firms as they consider
various parameters. For example, competitive position of the company,
expected growth and also the founder’s investment in the company. It also
requires a good negotiation regarding pricing of the ownership stake or to
decide how much ownership stake can be given towards getting which
amount of finance.

15) Crowd Funding

In Crowd funding, funds are collected from the general public with the help
of internet and through social media or other online platforms.

The main advantage of this source of fund is that it may be very much
helpful in creating a pool of fund through small amounts and can be used in
an effective manner. The disadvantage of this source of fund is that it
becomes difficult to convince the crowd particularly on the internet/social
media and create difficulty in getting funds.

16) Deferred Income

Sometimes deferred income is also considered as a source of finance
particularly as a short term source of finance for purchasing goods and
materials. Deferred income is the income which is generally received in
advance by the firm for the purpose of supplying of some goods and material
in near future. The income received in this manner increases the firm’s
liquidity and becomes as a short term financing source.

The major advantage of deferred income is that it increases the liquidity of

the firm. However, the limitation of this source of fund is that financing
through this source requires good credit worthiness of the parties engaged in
the transaction.

Check your progress B

1) What do you mean by retained earnings?
2) What is Letter of Credit?

3) What do you mean by crowd funding?

4) State whether the following statements are True or False:

i) Venture capitalists are non professional firms.

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 ii) Commercial banks are a good source for getting finance for all kind Mobilizing Financial
Resources
of duration (short, medium and long term duration)

iii) IPO stands for Initial Public Offerings

iv) The person holding shares is known as debenture holder
v) People holding preference shares are referred as preference
shareholders

5) Fill in the blanks:

i) ………………. can happen through two methods namely, recourse

and non-recourse method.
ii) Commercial papers are ……………………. promissory notes.

iii) ……………………….. generally comprise a group of professional

investors.

iv) In…………………….., funds are collected from the general public

with the help of internet and through social media or other online
platforms.

v) ………………………… generally provide fund in exchange for an

ownership stake in the start-up.

11.5 FACTORS DETERMINING THE

SELECTION / CHOICE OF SOURCE OF
FUNDS
As we know that every business requires finance towards meeting its various
financial needs. On the basis of duration, the financing sources may be
categorized as short term sources, medium term financing sources and long
term financing sources. Similarly, there are various types of institutions and
organizations offering finance for different durations and for various purposes
as well. It is also important to note here that raising finance also involves some
cost which varies as per the duration for which the finance is raised and also
the type of organization/ institution through which the financing is to be done.
Hence, the source of finance should be selected very carefully. The following
are some of the important factors which play an important role in the choice of
a suitable source of finance:

i) The most important factors which affects the choice of source of finance is
the cost factor and a good finance manager or entrepreneur should always
try to raise funds from such sources where the cost of capital is low.

ii) The other factor affecting selection of financing source is the financial
stability of the company along-with the image of the company.

iii) The time period for which the finance is required will also affect /
determine which source of finance should be selected. For example, if the
business organization wants finance for the purpose of buying fixed assets
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 Mobilising then the company should go and choose long term financing sources of
Resources and
Start-Up funds.
iv) The form and ownership structure of the business organization is also
an important factor which determines the choice of sources of funds. For
example it is the company structure which can use issue of shares and
debentures as a source of fund.
v) Risk factor is also important in determining the choice of source of fund
as there are some sources of funds which include more risk in raising
funds for the business.

vi) Simplicity and ease of raising finance is another important determinant in

deciding source of funds. Entrepreneurs / finance managers will look for
ease of raising finance which means looking for the complexity level
involved in financing along-with the legal formalities need to be
performed in raising finance. For example, raising finance through IPO
and by issuing shares and debentures may involve more legal formalities
and complexities as compared to other sources of finance.

11.6 PRIME MINISTER’S

EMPLOYMENT GENERATION
PROGRAMME (PMEGP)
The scheme of Prime Minister’s Employment Generation Programme
(PMEGP) was introduced by Government of India in 2008 which is a credit-
linked subsidy programme. The Ministry of MSME, Government of India
administers the said Prime Minister’s Employment Generation Programme
(PMEGP) and the implementation body for this scheme at national level is
Khadi and Village Industries Commission (KVIC).
It is also important to note here that this PMEGP scheme was emerged as an
outcome of merging two different schemes named ‘Prime Minister’s Rojgar
Yojna’ and Rural Employment Generation Programme scheme.

The main objective of this PMEGP scheme is to create more self employment
opportunities both in rural and urban areas for the unemployed youths who
want to setup their own venture / micro enterprise either in manufacturing
sector or service sector. The target beneficiaries of this scheme are mainly
unemployed youths and artisans. The scheme also aims to provide continuous
and sustainable employment opportunities to artisans in the rural and urban
areas as well.
The Prime Minister’s Employment Generation Programme is implemented
through Khadi and Village Industries Commission (KVIC) which has been
appointed as the nodal agency at national level. However, at state level, the
said scheme is implemented through the network of KVIC directorates,
district industry centers (DICs, State Khadi and village industries boards
(KVIBs) and the banks. Regarding the financial assistance provided under
this PMEGP scheme, there is a provision regarding the cost of the project and
in case of manufacturing sector enterprise, the maximum cost of the project
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limit that is provided for consideration is Rs. 25 Lakhs and for service sector Mobilizing Financial
Resources
enterprise the maximum cost of the project should not exceed Rs. 10 Lakhs.
Eligibility: The following are some of the criteria which are considered
under the PMEGP scheme for providing financial assistance:
x Individuals with age of 18 years or more.
x Production based co-operative societies.
x Self-help groups and charitable trust.
x Passing standard VIII is required for a project above Rs 5 lakh in the
service sector and above Rs 10 lakh in the manufacturing sector.
x Institutions registered under Societies Registration Act- 1860.
Regarding subsidy under this scheme, the subsidy amount for general
category is 25% of the project cost in rural areas and 15% of the project for
the urban areas. For special category, the subsidy is 35% of the project cost in
rural areas and 25% in urban areas.No collateral security or any third party
guarantee is insisted under this scheme.

11.7 MUDRA YOJNA

MUDRA, stands for Micro Units Development & Refinance Agency Ltd.,
which is a financial institution set up by Government of India for the purpose
of ensuring development and refinancing of micro units enterprises in India.
The major objective of MUDRA yojna is to ensure financial assistance to all
kind of micro enterprises through various financial institutions like Banks,
NBFCs and MFIs. It is also important to note here that MUDRA is a
refinance agency and not a direct lending institution and hence, MUDRA
provides refinance support to its intermediaries viz. Banks, Micro Finance
Institutions and NBFCs. There are three categories which are made for the
purpose of providing financial support which are as follow:
Shishu: Covering loans upto Rs. 50,000/-
Kishor: Covering loans above Rs. 50,000/- and upto Rs. 5 lakh
Tarun: Covering loans above Rs. 5 lakh to Rs. 10 lakh
MUDRA’s delivery channel is conceived to be through the route of refinance
primarily to Banks/NBFCs/MFIs.At the same time, there is a need to develop
and expand the delivery channel at the ground level. In this context, there is
already in existence, a large number of ‘Last Mile Financiers’ in the form of
companies, trusts, societies, associations and other networks which are
providing informal finance to small businesses.
For getting financial support under this MUDRA Yojna, Any Indian Citizen
having a good profitable business plan / business project in the non – farming
sector like manufacturing and services sector or any other processing activity
may approach Bank or NBFC or any MFI. However, it is important to note
here that there is a maximum limit under each category under the MUDRA
Yojna and the maximum credit limit is up to Rs. 10 lakh which means any
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 Mobilising business project exceeding the Rs. 10 lakh credit requirement would not get
Resources and
Start-Up benefit under this scheme.

11.9 LET US SUM UP

Mobilizing financial resources is very important task for any business
organization as we all know that a business organization cannot run without
financial resources. The business organizations not only requires finance /
funds for starting their business organization but also need adequate funds /
finance for their growth and development activities of the business. Further, it
is also to note here that funds which are required to purchase fixed assets like
land, buildings and machinery need long term financial sources while working
capital requirement of the business can be done with the help of short term
financing sources.

Sources of funds / finance can be classified on several bases. For example, on

the basis of duration, the sources of funds may be classified as short term,
medium term and long term sources of funds. On the basis of ownership, the
sources of funds can be classified as owner’s fund and borrowings. On the
basis of generation of funds, the classification can be done as internal sources
of finance and external sources of finance.

Each source of funds has its own advantages and disadvantages or limitations
and hence, the decision regarding selection of a source of finance should be
done very carefully as each source of fund has its own cost of raising fund.
Here, one needs to know the various factors like risk, fund required, cost of
raising fund, ownership structure of the business organization, and time
period for which finance is required which determine or affect the choice of
appropriate source of fund.

At the end, it can be said that decision of selecting / choosing a source of

finance is very important because it affects entire business operations and
also the earnings and profits of the business organization. A good source of
finance will always be helpful in not only ensuring smooth management of
the liquidity of the firm but also reduces the cost of capital which ultimately
contribute to more profit and growth of the business organization.

Check Your Progress C

1) What do you mean by PMEGP?

2) List out five factors determining the choice of sources of funds.

3) What is Mudra Yojna?

11.9 KEYWORDS
Share: When the capital of a company is divided into small units, that small
unit is termed as share and the persons holding shares are referred to
shareholders.

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Debentures: Debentures are the debt instruments which are issued at a fixed Mobilizing Financial
Resources
rate of interest.

Source of finance: A source of finance can be any organization/agency/

financial institution/individual that can provide finance to the business
organization.

Factoring: Factoring refers to a kind of financial service under which the

‘factor’ renders various kinds of services like discounting of bills (with or
without recourse) and also collection of client’s debts.

Crowd funding: In crowd funding, funds are collected from the public
(crowd) with the help of internet and through social media or other online
platforms.

Angel investor: An angel investor is referred to an individual who is ready to

provide funding for such kind of start-ups, which are not able to get funding
from any other institutions. These angel investors generally provide fund in
exchange for an ownership stake in the start-up.

Venture capitalists: Venture capital firms generally comprise a group of

professional investors generally in the form of professional firms. These
firms are interested in investment at the early stage of the companies and
particularly more developing companies having high growth and profit
potential.
Public deposits: When the business organizations directly raise deposits from
the general public is known as public deposits.
Letter of credit: In the letter of credit mechanism, the buyer’s banker on
request of buyer and in the favor of seller gives an undertaking to the seller
that the buyer’s banker will pay up to a certain amount to the seller in case if
the buyer is not able to pay the transaction amount.
Overdraft: Overdraft is a kind of facility where a bank offers / allows its
customers / borrowers to withdraw more funds in excess to the balance
available in the customers/borrowers account for a specific period of time.
Retained earnings: Retained earnings are that portion of profit which is not
distributed among shareholders and is kept reserved for the purpose of
reinvestment in the business.
IPO (Initial Public Offerings):When a company previously unlisted in the
stock market offers its shares for sale to the general public is known as IPO
(Initial Public Offerings).
Commercial papers: Commercial papers are unsecured promissory notes to
raise funds for a short period ranging from 90 days to 364 days which are
issued by primary dealers (PDs) and other all India financial institution.

11.10 ANSWERS TO CHECK YOUR PROGRESS

A) 4. i. False ii.True iii.True iv. False v. True
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 Mobilising 5. i. Finance ii.long term iii. Short term finance iv. profits v. 5 years
Resources and
Start-Up
B) 4. i. False ii.True iii. True iv. False v. True

5. i.Factoring ii.unsecured iii.Venture capitalists iv.Crowd funding v.

angel investors

11.11 TERMINAL QUESTIONS

1) Explain the various types of sources of finance based on the ownership.

2) What do you understand by short term and medium term sources of

funds?

3) Do you agree that a business organization not only requires access to

funds but also the adequacy of fund? Comment and justify you answer.

4) Discuss the need and significance of finance for a business organization.

5) What is meant by debentures? How debentures differ from shares?

6) Differentiate between angel investors and venture capitalist.

7) Differentiate between the equity shares and preference shares.

8) Discuss any three advantages of raising finance from a bank.

9) What do you mean by crowd funding?
10) What type of source of fund would you like to choose to arrange the
working capital to buy raw material for your production of goods?
Justify your answer with appropriate arguments.

11) Discuss in detail the various sources of funds categorized based on the
duration.
12) Explain the various types of funding sources which are classified based
on the ownership.

13) Discuss in detail the various modes / methods through which bank
provides loan and advances to its customers/ or companies.

14) What factors do you think that a financial institution / funding

organization would see while granting a loan for a new business relating
to opening a new small size restaurant? Justify your answer with
appropriate arguments.

15) What do you understand by IPO (Initial Public Offerings). Discuss its
advantages and disadvantages/limitations as a source of fund.

16) Discuss in detail the ‘Public Deposits’ as a source of finance. Also

mention the various advantages and limitations of getting funds under
this public deposits method.

17) Explain the various sources of funds available under the category of
‘Borrowed Funds’.
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18) Differentiate between the ‘Letter of Credit’ and ‘Discounting of bill’. Mobilizing Financial
Resources
19) Do you agree that ‘Retained Earnings’ is a good source of financing for a
business? Justify your answer with at least three reasons in support of
your answer.

20) Discuss in details the features of ‘Commercial Paper’ along-with the

advantages and disadvantages/ limitations of this source of funds.

Note: These questions will help you to understand the unit better. Try to
write answers for them. But do not submit your answers to the University for
assessment. These are for your practice only.

FURTHER READINGS
x Chandra Prasanna (2017), FINANCE SENSE (5th Edition), McGraw
Hill (Chapter 15: Sources of Finance)
x Stephen A. Ross, Randolph W. Westerfield, Jeffrey Jaffe, Bradford D.
Jordan (2017), Corporate Finance (11th Edition), McGraw Hill (Chapter
20 - Raising Capital & Chapter 26 - Short-Term Finance and
Planning)
x Prasanna Chandra (2019), Financial Management: Theory & Practice
(10th Edition) (Chapter 17: Sources of Long Term Finance & Chapter
18: Raising Long Term Finance)
x Khan M Y (2019 ), Financial Services, (10th Edition) McGraw
Hill,(Chapter 2: Lease Financing &Chapter7: Venture Capital
Financing)
x Sharan Vyuptakesh (2012), Fundamentals of Financial Management,
Pearson Education (Chapter12: Sources of Short – Term Finance)

x https://msme.gov.in/11-prime-ministers-employment-generation-
programme-pmegp

x https://www.mudra.org.in/

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 Mobilising
Resources and UNIT 12 MOBILISING NON-FINANCIAL
Start-Up
RESOURCES

Structure
12.0 Objectives
12.1 Introduction
12.2 Resources For Setting Up of An Enterprise
12.3 Importance of Non-Financial Resources
12.4 Non-Financial Resources
12. 4.1 Human Resources
12.4.2 Mentoring Resource
12.4.3 Other Non-Financial Resources
12.5 Mobilising Non-Financial Resources
12.6 Let Us Sum Up
12.7 Key Words
12.8 Answers to Check Your Progress
12.9 Terminal Questions

12.0 OBJECTIVES
After completion of this unit, you will be able to:
x describe various types of resources that are required for setting up an
enterprise;
x enlist non-financial resources that are important for setting up an
enterprise;
x describe the importance of non-financial resources for business
enterprise;
x identify the sources to acquire non-financial resources; and
x explain the meaning of mobilising the non-financial resources.

12.1 INTRODUCTION
In order to set up your own enterprise, you need to explore and analyse,
select and procure the resources that are required to set up an enterprise and
run it successfully. Entrepreneurs require various resources to run an
enterprise. If we categorise all the resources required it may be categorized
into two broad categories: financial and non-financial resources. It is not
only the money, which is essential for any business. There are pools of
resources other than money that are crucial for businesses. You have already
learnt about the financial resources required, their type and how to acquire
and use them. In this unit, you will learn about all the non-financial resources
which are required to set up an enterprise and run it successfully.
256
 Mobilising Non-
12.2 RESOURCES FOR
R SETTING UP AN Financial Resources
ENTERPRISE
An entrepreneur needs support (bessides money) from various sources such as
family, friends, consultants, expperienced employees, takers of his/her
business offering i.e., customers etc. While setting up an enterprise, an
entrepreneur has to take into accoount all the stakeholders of her business.
Right from deciding about what to offer, whom to offer and how to offer, at
every step, entrepreneur needs suppport from various sources. Besides, he/she
needs to identifying location and acccommodation, utilities that are required in
running the business. He/she requirres advice from specialist and consultants,
various services that are required to carry out a business such as bankers,
transportation, warehousing, insuraance etc. This list is big. For various kinds
of businesses the requirement may vary. An entrepreneur has to explore and
analyse these resources before settinng up an enterprise.
The resources that are needed to sstart a business can be broadly classified
into two broad categories; Finanncial and Non-Financial resources. Non-
Financial resources may further bee divided into seven categories. They are
as follows:
x Human resources i.e., the emplloyees of the business organisation
x Knowledge resources,
x Mentoring resources,
x Material resources,
x Moral resource,
x Cultural knowledge resource, aand
x Relational resource.

ZĞƐŽƵƌĐĞƐĨŽƌƌƐĞƚƚŝŶŐƵƉĂŶĞŶƚĞƌƉƌŝƐĞ

EŽŶͲ&ŝŶĂŶĐŝĂůƌĞƐŽƵƌĐĞƐ
1.Human resources
2. Mentoring resources
3. Educational resources
&ŝŶĂŶĐŝĂůƌĞƐŽƵƌĐĞƐ 4. Emotional resources
5. Physical resources
6. Moral resources
7. Cultural knowledge
8. Relational resource

Figure 12.1Resources req

quired for setting up an enterprise

257
 Mobilising
Resources and 12.3 IMPORTANCE OF NON-FINANCIAL
Start-Up
RESOURCES
When the thought of creating or setting up a business enterprise comes into
mind, the first concern that strikes our mind is the requirement and
procurement of financial resources for the business. We generally do not pay
much heed to the requirement and importance of non-financial resources. It is
only when you actually initiate the process of setting up an enterprise; you
understand the importance of non-financial resources. Most of the businesses
that fail during their early start up years may be due to lack of non-financial
resources also. According to the researches and surveys the failures are not
mainly because of the lack of financial resources but majorly because of
inadequacy of the founders’ ability to mobilise adequate and appropriate non-
financial resources and their own managerial and leadership skills. For the
preparedness of the business organisations to face the challenges that
environment poses, support from these non-financial resources is critical.
Following are the importance of non-financial resources:
1) Offer valuable advice: Non-financial resources in the form of vendors,
suppliers, or mentors helps in expanding the knowledge of the
entrepreneur by sharing their viewpoints and prior experience. For
example, if an entrepreneur is thinking of exporting some products,
he/she may get some valuable advice from people who have prior
experience in the field.
2) Offer different perspective: The non-financial resources helps
entrepreneurs look at problems and situations from perspectives that
they would not have thought of on their own. For example, a new
business owner may not look at the opportunities or threats present in
the environment but experts, mentors and other people dealing in the
same business line may help him/her scan the environment.
3) Helps in developing and improving skills: When entrepreneurs takes
guidance from an expert or mentor, participate in industry events and
meet new people who have expertise and prior experience, it helps
them to develop their business skills. For example, if suppliers are
complaining that they are not able to understand the directions given by
the entrepreneur, business mentor or an expert may help him/her
improve their communication skills.
4) Helps in expanding network: Mentors, experts or participation in
industry events helps an entrepreneur in making contacts who can help
him/her to make the business more successful. In business, it is very
popularly said that network is equal to networth. These mentors,
professional experts and co-founders help the entrepreneur (budding
entrepreneurs) in getting connected to the influential and important
alliances in the industry.
5) Helps in problem-solving: Mentors and co-founders can be a boon for
the new ventures. Their expertise and experience in the area is very
258
 important for the business. They may facilitate in dealing with the Mobilising Non-
Financial Resources
troubles.

6) Helps budding entrepreneurs in innovation: Early stage enterprises

may have high potential ideas. If they are not able to mobilise the
required support to develop and refine their innovation, they may end up
in failure. In the economies like ours, where low-income market provides
a huge potential for business, there is no much invention and
intervention. Investors are also apprehensive and sceptical to take risk by
investing in the business enterprises targeting these markets. Therefore,
non-financial resources become essential for the budding entrepreneurs.
7) Helps in understanding trends of the industry: The non-financial
resources help the entrepreneur in analysing and understanding the
market and make them aware of the latest trends or technology in the
industry.

8) Helps in effective decision making: Mentors, cofounders and

professional experts extend their guidance in effective decision making
and formulating strategies for the business. Their experience and
expertise in the diverse field are very useful in analysing the market and
making policies for the business. These non–financial resources enable
the budding entrepreneurs for long-term preparedness for investment,
profit and perpetual social impact.
It is important to keep in mind that nothing comes for free. So
identifying and using these resources is very tricky. Therefore, entering
into contracts while accessing these non-financial resources makes much
more sense.

12.4 NON-FINANCIAL RESOURCES

It may sound very easy to get access to the non-financial resources but these
resources may be very scarce. Sometimes, its accessibility may be very costly
too. Many new entrepreneurs may not find it affordable. In some of the
Indian states like Gujarat, Maharashtra, Punjab, Tamil Nadu etc., there are
more developed entrepreneurial activities and it may be easier to get access to
these non-financial resources but in small cities and less developed states, it
is still a challenge to get adequate non-financial resources. Let us discuss the
non-financial resources and try to explore the ways and means to attain them.

12.4.1 Human Resources

Human resources are the only active resources in the business organization.
All the other resources such as, machine, money, raw material etc., these are
all passive resources. These resources cannot work on their own. Human
resources (employees) of the organization put them to use. Their effective
and optimum utilization is in the hand of human resources therefore it is very
important to hire talented people in the organization. One should try to have
talented employees with good track record, even if the organization needs to

259
 Mobilising pay little higher prices. Besides employees, an organization should also focus
Resources and
Start-Up on the following for running their enterprise successfully.
x Vendors
x Suppliers
x Bankers
x Customers
x Mentors
x Co-founder
x Expert guidance

Let us now discuss them one by one.

Vendors: Vendors are crucial for the success of any business organization.
They are the individuals or business organization that sells your market
offerings to the customers with an objective to earn money from the
manufacturer. For example, vendors are in close and direct contact with the
customers so they are aware of the latest trends in the industry and they can
share the information with the entrepreneurs so that the business can offer
those products and services in the market and enhance their brand value.

Suppliers: Suppliers, on the other hand are the individuals or business

organisations that provides the business organisations the goods and services
which are required to run their businesses. For example,when entrepreneurs
work closely with their suppliers and maintain cordial relations with them,
both of them will have seamless co-ordination. The business will know the
right time to order from their supplier so they receive the order on time and as
the supplier understands the nature of the product offered by the business,
they may provide unique and exclusive products that may help the
entrepreneur to create a competitive advantage over other businesses in the
market.

Bankers: Commercial banks play a very important role in setting up,

survival and growth of a business enterprise. They are crucial in providing
working capital assistance to the business organization. Working capital is
the oxygen for the business. Apart from providing financial services banks
also providenon-financial services in the form of information, education,
networking, access to markets and recognition. They complement the
financial offerings of a bank. Banks also provide credit certification to help
raising funds.

As you know that all business transactions are mostly credit dependent. The
market offerings (products or services) are sold to the agents and wholesalers
by the entrepreneurs on credit. There may be a possible delay in realizing the
sales proceed (cash) as credit period is provided to the marketing
intermediaries. The entrepreneurs need to make payments to certain service
providers, for their utilities, employees etc. For this purpose working capital
is required. This working capital is provided by banks. If banks do not lend
working capital assistance to businesses their business system may collapse.
260
So not only banks by providing financial assistance play an important role in Mobilising Non-
Financial Resources
setting up of the business but also helps in their expansion.

When it comes to non-financial services banks play an important role as well.

Bankers have their networks with investors as well as business idea
generators; their relationship with these people is valuable. Banks may
connect the entrepreneurs to these people who may help the small businesses
to grow. Sometimes, they act as advisor or guide to the entrepreneurs as they
have knowledge and experience of the financial markets. They may also
guide the entrepreneurs to help in deciding about the profitable investments
etc. They enable to entrepreneurs to make more informed investment
decisions and choices. They also enable them to avoid mismanagement of
funds. Thus they provide important counseling services to the entrepreneurs.
Customers: Customers provide authentic feedback and a complete sense and
feel of the market. The good feelings as favourable feedback of the customers
may be very helpful in creating satisfied customers. Satisfied customers are
crucial for the success of the enterprise. As a business person you need to
create good reputation in the market. Having good reputation is the key to
attract valuable investors, partners and employees. Good reputation comes
from the positive feedback of the customers and in order to earn reputation
you must make sincere efforts to develop satisfied and delighted customers.

Co-founders: A co-founder is a person who accompanies the founder in

establishing the enterprise.Many a time a budding entrepreneur look for co-
founders for their new business venture as he/she may not have adequate
resources or skills for smooth operation of the business enterprise. These co-
founders provide both financial and non-financial resources to the business
enterprise. They are the investors in business who take participation in
business decisions. They are of immense help in building a strong network.
For example, the idea of Facebook was defined by Mark Zuckerberg and
initially the use of Facebook was limited to students of Harvard University
only but when he aimed to expand Facebook worldwide, other fellow
students helped him and taken responsibilities as co-founders.

Expert Guidance: Besides mentors, there are other experts also whose help,
guidance and advice may be vital for the business. An expert is an individual
with relevant industry experience and expertise. They are professional
experts such as corporate lawyers, chartered accountants, investment bankers,
insurance advisors etc. They also play a very important role in a business
enterprise. For example, an entrepreneur may have a brilliant business idea
and skills as well but he lacks the required knowledge of international
business environment to upscale his business globally so he/she can take the
help of an expert for their business expansion.

12.4.2 Mentoring Resources

Mentors are as important as the financial resources of the businesses.
Mentors are important not only while setting up an enterprise but also at the
different stages of growth of their business ventures. The entrepreneur

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 Mobilising requires mentoring support in some form or the other while initiating or
Resources and
Start-Up running the business.
Startup mentors are expert drawn from the industry or the professionals. They
are experts in technical know-how, in marketing, in operations, human
resource management, leadership, investment decision etc. They have vast
experience and knowledge about the business. Sometimes, successful
entrepreneurs also provide mentoring support to the budding entrepreneurs.
Venture capitalists, Angel investors and other investors of the business also
render mentoring support to the entrepreneurs.

In-fact, mentors play significant role for setting up and growth of business
ventures. They are very important asset of the business enterprise. Mentors
help in validating the business offerings in the market. Besides, they can get
the entrepreneurs connected to the partners. The experience that you can get
by years of research and hard work will be instantly given by the mentors.

When you are planning to expand your business, senior experts of the
industry can be of great help. Mentors also help in raising fund for the
business. They introduce you to the investors and sometimes, they
themselves make investment in your business. Therefore, you need to select
suitable mentor for your business.

Characteristics of a good mentor: Given below are the characteristics of a

good mentor.
x He/She should be accessible most of the times.
x He/She should have vast experience of the industry.
x He/She should be passionate.
x He/She should be an excellent communicator.
x He/She should be able to foresee challenges and problems.
x He/She should be able to suggest you a right course of action.
x He/She should be a good critic as well.
x He/She should be trust worthy.
x He/She should be knowledgeable.
x He/She should be well connected.

Advantages of having a good mentor: A good mentor helps you in

choosing the right goal and enables you to develop a workable vision. They
help the emerging entrepreneur with their own vast and long experience of
the business. They help in making a good team of people to work for your
business enterprise. They hold hand in rough times and makes the way easier
to sail through the tough time. Mentors who are well connected can get the
emerging entrepreneurs connected to the people who can provide them start-
up funds, business. It is important to remember here that everything in
business comes with a price. Therefore, choosing a right mentor for your
business enterprise is critical.

262
The disadvantage may be the poor or inadequate or wrong mentoring may Mobilising Non-
Financial Resources
lead to the failure of the business.

Check Your Progress A

1) Distinguish between financial and non-financial resources.

2) How can a bank provide non –financial resources?

3) What do you mean by mentoring resources?

1) Fill in the blanks:

i) ……………….. are the only active resources in the business

organization.

ii) ……………… are the individuals or business organization that sells

your market offerings to the customers.

iii) Satisfied customers are …………… for the business.

iv) …………….. help in validating the business offerings in the market.
v) …………………….. provides the business organisations the goods
and services which are required to run their businesses.

2) State whether the following statements are True or False:

i) Human resources of the organization put all the other resources of
the organisation to use.

ii) Suppliers play a crucial role in providing working capital assistance

to the business organization.

iii) If banks do not lend working capital assistance to businesses their

business system may collapse.

iv) A good mentor should not be a critic.

v) An entrepreneur only requires financial resources to establish and
run an enterprise.

12.4.3 Other Non-Financial Resources

Some other non-financial resources are discussed below:

Access to Industry Events: Access to industry events provides opportunities

to the entrepreneur to understand the trends or scenario of industrial
marketing activities. Both emerging and growing entrepreneurs need to
participate in the industry events. The industry events can be in the form of
competition, business award ceremony or networking events. Events are full
of opportunities. It increases awareness of the entrepreneur, helps him/her to
make contacts, generate leads, promote their business and also provide
recruiting opportunities. For example, Government of India organizes Start-
up India Yatra under which series of events are held to search for
entrepreneurial talents in Tier 1 and 2 cities in India.
263
 Mobilising Knowledge/Information/Intellectual Resources: Knowing industry, to
Resources and
Start-Up which the business belongs, is very important. While setting up an enterprise,
it is very important for the entrepreneurs to know the industry and their
competitors in the market. For this, an entrepreneur needs to have
information. This information can be attained through professional trade
associations, local chamber of commerce, small business administration etc.

Besides, If the business has innovative ideas or market offering (especially in

case of developing a product prototype), it is very important to protect the
innovation. Intellectual property needs to be protected by patents, copyrights
etc. The term "Intellectual Property Rights" has not been defined under any
Indian statute. As per the World Intellectual Property Organization (WIPO),
“Intellectual property refers to creations of the mind, such as inventions;
literary and artistic works; designs; and symbols, names and images used in
commerce”. An entrepreneur needs guidance in protecting her IPR too. It
gives a competitive edge to the company.
Physical/Material Resources: There are physical or material resources such
as office premises, equipment, utilities (water, electricity, telephone etc),
location, factory space, furniture etc. which are required to be procured while
starting an enterprise. They are essential for functioning of the business and
its survival. Proper caution is to be taken while acquiring these resources as
they involve high cost. One has to make realistic assessment of these
resources. Most of the start-ups initially start their businesses from home,
garage etc. the entrepreneur has to consider the cost, quality, suitability etc.
for selecting these resources.
Emotional Resource: Setting up a business enterprise is not a piece of cake.
It may be also very stressful. Understanding emotion may be helpful in
interacting, accommodating or establishing harmonial relationships among
the members of the organisation. Emotional support may be more important
during early start up phases when there can be turbulence in business.
Emotional support help the entrepreneur to stay calm, positive and patient.
The team is important for motivation, inspiration and guidance too. This team
may be from family, friends, relatives, mentors etc. Understanding emotions
help entrepreneurs to communicate better and promote team effort. It also
helps to develop good customer relationships. For example, entrepreneurs
who lacks emotional intelligence struggles to have good professional
relationships.

12.5 MOBILISING NON-FINANCIAL

RESOURCES
As we have discussed that non-financial resources play very significant role
in the starting as well as sustaining the growth of the business organizations.
These resources are critical. Like all other resources, non-financial resources
also involve cost. As a businessperson, if you want to get support from these
non-financial resources for a long time, you cannot get it for free. Mentors,
expert advice, bankers and all other non-financial resources demand their
share of fee (or share in profit/ ownership of business etc). This cost can also
264
be very high, therefore, exploring and mobilizing these resources is a skill Mobilising Non-
Financial Resources
that may be vital for the business. You may have to enter into a contractual
agreement with these persons or paarties. Without fee, you may be able to get
support for a short period of time, but for long term relationship (supply of
these resources) you need to make payment as fee or as granting them equity
stake in your business organization..
Mobilisation means exploring the rresources, procuring them at an affordable
costs and putting them into use in aan efficient and effective manner. In a nut
shell resource mobilisation means selecting and procuring three A’s (3 A’s)
i.e., Adequate resources at appropriiate time and at affordable cost. (See figure
12.2)

Adequate
Resources

Appropriate Time

Affordable Cost

Figure 12.2: 3 A’ss of Resource Mobilisation

Exploring a mentor: Finding a m mentor is a very important and tricky step.

Sometimes a friend or family may be playing a role of mentor. In this case,
you may not have to give much thhoughts (off course you should have trust
and confidence in them). In case yyou are looking for a mentor outside your
own circle of family, friends, relatiives and acquaintances, you have to put in
a conscious effort to find a good mentor. Industry events are an important
source to look for mentors. There aare many speakers and experts in the event,
attending the same. They can be possible mentors. You need to approach
them and introduce your start-up/ idea with them. If it clicks to them they
may agree to hold your hand as menntor.
Besides, Business-Incubators also ccan act as good mentors. You may look for
the networks of incubators availabble in your proximity. You may also look
for Venture capitalists and Angel innvestors to be your mentor.
An entrepreneur need to approacch those mentors who can help him/her
making a good business model andd introduce and get them connected to the
right team to work with. It is needleess to mention here, the mentors should be
selected very carefully.

265
 Mobilising How to choose a good mentor
Resources and
Start-Up
You should follow the following steps while choosing a good mentor for
your start-up or business venture:

1) Analyse and understand what for are you looking a mentor? Which is the
area of expertise or execution that you want to do under supervision and
guidance of an experienced mentor. Do you need help for networking,
seed money, working capital or technical know-how etc.? Or do you
need help in exploring, analysing and choosing the market for your
offerings, validating and developing your offerings. Different individuals
have different skill set therefore; you need to select a mentor according
to the skill set that can help you in overcoming your weaknesses.

2) Create a checklist of skills and attributes that you are seeking in your
mentor. With the passage of time, the need for skills and expertise may
be keep on changing. Therefore, these changes must be considered while
making the checklist. Accordingly, you may need more than one mentor.
Make a comprehensive list to select the best suitable person for your
business.
3) Explore all the sources from where you can get and approach the mentor.
Try to match their abilities, skills and experience with your checklist. If
you are attending an event to get your mentor, listen to them carefully so
that you can make more informed decision. Active listening will be very
helpful in taking appropriate decision. You may find your mentor(s)
from Chamber of Commerce meetings, Local business meets, Industry
Associations, Industry conferences and social media.
4) Find out the cost they will carry with them and also access that whether
it suits to your budget. There are mentors who give mentoring support
for free for a short period of time, you may explore them (if required)
and try to get their time for interaction. Reading autobiographies/
biographies of successful entrepreneurs can also be helpful in learning
their respective style and approach of work.

5) The last step is to approach them and enter into a contract with them (if
need be).

There are many start-up networking groups in every locality. The

entrepreneur may try to contact them. They may introduce him/her to the
industry leaders. Identify people who can set up their meeting with them.
After meeting the entrepreneur can decide whether they are the ones
whom he/she is looking for or not and then approach them accordingly.

Successful entrepreneurs also sometimes offer their services as mentors

if they find the business idea promising and interesting. It depends on the
entrepreneurs as mentee how carefully and truthfully they follow the
advice of their mentors.

266
Check Your Progress B Mobilising Non-
Financial Resources
1) What do you mean by emotional resources?

2) List out the steps of choosing a good mentor?

3) Write three importances of non-financial resources.

4) Fill in the blanks:

i) ……………… are the investors in business who take participation

in business decisions.

ii) ……………………. needs to be protected by patents, copyrights

etc.

iii) ………………………. means exploring the resources, procuring

them at an affordable costs and putting them into use in an efficient
and effective manner.

iv) ………………….. are an important source to look for mentors.

v) In business, it is very popularly said that network is
………………….. to net worth.

5) State whether the following statements are True or False:

i) Non-financial resources also involve cost.

ii) When entrepreneurs are not able to mobilise the required support to
develop and refine their innovation, they may end up in failure.

iii) Non –financial resources enable the budding entrepreneurs only for
short-term preparedness for investment, profit and perpetual social
impact.

iv) Emotional support help the entrepreneur to stay calm, positive and
patient.

v) Industry information can be attained through professional Trade

Associations, local Chamber of Commerce, small business
administration etc.

12.5 LET US SUM UP

Entrepreneurs require various resources to run an enterprise. If we categorise
all the resources required it may be categorized into two broad categories:
financial and non-financial resources. It is not only the money, which is
essential for any business. There are pools of resources other than money that
are crucial for businesses.
Non-Financial resources may further be divided into seven categories. They
are as follows: Human resources i.e., the employees of the business
organization, Knowledge resources, Mentoring resources, Material

267
 Mobilising resources, Moral resource, Cultural knowledge resource, and Relational
Resources and
Start-Up resource.

For the preparedness of the business organisations to face the challenges that
environment poses, support from these non-financial resources is critical.
Following are the importance of non-financial resources:Offer valuable
advice, Offer different perspective, Helps in developing and improving
skills, Helps in expanding network, Helps in problem-solving, Helps
budding entrepreneurs in innovation, Helps in understanding trends of the
industry, and Helps in effective decision making.

Human resources are the only active resources in the business organization.
All the other resources such as, machine, money, raw material etc., these are
all passive resources. Besides employees, an organization should also focus
on the following for running their enterprise successfully: Vendors, Suppliers
Bankers, Customers, Mentors, Co-founder, Expert guidance.

Mentors are experts in technical know-how, in marketing, in operations,

human resource management, leadership, investment decision etc. They have
vast experience and knowledge about the business. Sometimes, successful
entrepreneurs also provide mentoring support to the budding entrepreneurs.
Venture capitalists, Angel investors and other investors of the business also
render mentoring support to the entrepreneurs.
Some other non-financial resources are: Access to industry events which
provides opportunities to the entrepreneur to understand the trends or
scenario of industrial marketing activities, Knowledge resources which are
required while setting up an enterprise as it is very important for the
entrepreneurs to know the industry and their competitors in the market. There
are physical or material resources such as office premises, equipment,
utilities (water, electricity, telephone etc), location, factory space, furniture
etc. which are required to be procured while starting an enterprise. Emotional
resources as understanding emotions help entrepreneurs to communicate
better and promote team effort. It also helps to develop good customer
relationships.

Mobilisation means exploring the resources, procuring them at an affordable

costs and putting them into use in an efficient and effective manner. In a nut
shell resource mobilisation means selecting and procuring three A’s (3 A’s)
i.e., Adequate resources at appropriate time and at affordable cost.

As an entrepreneur you need to approach those mentors who can help you
making a good business model and introduce you and get you connected to
the right team to work with. It is needless to mention here, the mentors
should be selected very carefully.

12.7 KEY WORDS

Co- founders:They are the investors in business who take participation in
business decisions.

268
Human resources: They are only active resources in the business Mobilising Non-
Financial Resources
organization. Human resources (employees) of the organization put the
passive resources (machine, money, raw material etc.) to use.

Mentors: They are experts from the industry in technical know-how, in

marketing, in operations, human resource management, leadership
investment decision etc. who also have vast experience of the industry.

Resource Mobilisation: Exploring the resources, procuring them at an

affordable costs and putting them into use in an efficient and effective
manner.

Suppliers:They are the individuals or business organisations that provides

the business organisations the goods and services which are required to run
their businesses.

Vendors: They are the individuals or business organization that sells your
market offerings to the customers with an objective to earn money from the
manufacturer.

12.8 ANSWERS TO CHECK YOUR PROGRESS

A) 4. i. human resources ii. vendors iii. crucial iv. mentors v. suppliers
5.i. True ii. False iii. True iv. False v. False
B) 4..i. co-founders ii. Intellectual property iii. Mobilization iv.Industry
events v. equal
5.i. True ii. True iii. False iv. True v. True

12.9 TERMINAL QUESTIONS

1) What are non-financial resources? Discuss about the different types of
non-financial resources.
2) “Human resources are the only active resources in the business
organization”. Comment
3) “Mentors are indispensable for setting up and growth of business
ventures”. Discuss
4) What do you understand by the term mobilisation of non-financial
resources?
5) Who is a mentor? What are the characteristics of good mentor and
discuss how to choose a good mentor?
6) “To prepare the business organisations to face the challenges that
environment poses, support from the non-financial resources are
critical”. Elaborate

Note: These questions will help you to understand the unit better. Try to
write answers for them. But do not submit your answers to the University for
assessment. These are for your practice only.

269
 Mobilising
Resources and FURTHER READINGS
Start-Up
x https://www.businessmanagementideas.com/startups/mobilising-
resources-for-startups-types-problems-and-solution-entrepreneurship-
business/18188

x https://ssir.org/articles/entry/early_stage_enterprises_need_more_than_m
oney#:~:text=Where%20investment%20is%20probable%2C%20the,indu
stry%20events%E2%80%94essential%20for%20entrepreneurs.

x https://edurev.in/studytube/Mobilising-Resources--Entrepreneurship--
Commerce-/059a8b65-671b-45b0-8de1-473002a2730c_p

x https://smallbusiness.chron.com/5-resources-need-succeed-start-
business-23.html

x https://medium.com/@KeithKrach/5-points-on-the-importance-of-
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270
 Mobilising Non-
Financial Resources

Block

4
ENTREPRENEURSHIP AND MICRO, SMALL AND
MEDIUM ENTERPRISES (MSMES)
UNIT 13
Entrepreneurship Development and MSMEs
UNIT 14
Family Businesses in India
UNIT 15
Success Stories

271
Mobilising
Resources and
Start-Up
  Entrepreneruship
UNIT 13 ENTREPRENERUSHIP Development and
MSMEs
DEVELOPMENT AND MSMEs

Structure
13.0 Objectives
13.1 Introduction
13.2 Micro Small and Medium Enterprises (MSMEs)
13.2.1 Role of MSMEs in Economic Development
13.2.2 Definition of MSMEs
13.2.3 Key Highlights of the New Classification
13.3 MSMED Act, 2006
13.3.1 National Board for Micro, Small & Medium Enterprises(NBMSME)
13.3.2 Advisory Committee
13.3.3 Promotion, Development and Enhancement of Competitiveness of MSME
13.3.4 Some Other Provisions
13.4 Role of Government in Development of MSMEs
13.4.1 Statutory Bodies, and Other Attached Offices under the Ministry of Micro,
Small and Medium Enterprises
13.4.2 Major Programmes and Schemes of the Ministry of MSME
13.4.3 Some Recent Initiatives by the Government for the Development of MSMEs
13.5 Role of MSMEs in Entrepreneurship Development
13.6 Let us Sum up
13.7 Keywords
13.8 Answers to Check Your Progress
13.9 Terminal Questions

13.0 OBJECTIVES
After completion of this unit, you will be able to:
x describe the meaning and scope of Micro, Small and Medium
enterprises;
x discuss the importance of MSMEs in the economic development of a
nation;
x analyse the MSME development Act;
x acquaint with the government’s concern and role in promoting MSMEs;
x explore various institutions that facilitate the growth and development of
MSMEs; and
x describe the importance of MSMEs in entrepreneurship development of a
nation.

273

Entrepreneurship and
Micro, Small and 13.1 INTRODUCTION
Medium Enterprises
(MSMEs)
Micro, Small and Medium enterprises are crucial for growth and
development of an economy, especially for developing economies like ours.
Contribution of MSMEs in the Gross Domestic Product (GDP) of our
country is 30 percent. They contribute about 40 percent in the overall exports
of India.

In any country like ours, MSMEs play very important role in socio-economic
development. Whatever funds are available with the government is mostly
used for infrastructure development of the country. For socio-economic
development, government relies heavily on MSMEs. They make adequate
utilisation of the resources available in the society and pay for them. They are
great employment generators. They also contribute immensely in rural
development as more than half of the MSMEs operate in rural India. Thus the
MSMEs are crucial for reducing regional imbalances and assuring more
equitable distribution of National Income and wealth.This provides a spin to
entrepreneurship development also as the MSMEs are Innovative and
responsive to changing market dynamics. Their existence is crucial for large
industries too as they are complimentary to the large industries.

Ever since the Industrial Policy Resolution, 1956, came into being,
establishment and growth of village and small industries were given due
consideration and importance along with the agriculture. Growth Potential of
MSMEs and their significant contribution to the growth and development of
our economy attracted the attention of the Indian Government. MSMED Act,
2006 was enacted by the parliament to encourage and promote this MSME
sector.
In this unit, you will learn about the legal definition of MSMEs, their
features, MSME Development Act and its role in entrepreneurship
development.

13.2 MICRO, SMALL AND MEDIUM

ENTERPRISES (MSMEs)
Governments support business enterprises to facilitate the industrial and trade
activities. Micro, Small, and Medium Enterprises (MSMEs) deserve special
attention. In spite of being small investment enterprises, MSMEs may
contribute a significant in the economic development of the country. Over the
last five decades, the Micro, Small, and Medium Enterprises (MSME) sector
has emerged as one of the most dynamic and vibrant sectors of the Indian
economy. By fostering entrepreneurship and creating large employment
opportunities at relatively low capital costs, the sector contributes
considerably to the country's economic and social development. As ancillary
units, MSMEs are complementary to large industrial sectors and they
contribute greatly to the inclusive industrial development of the nation.
MSMEs are broadening their reach across several sectors of the economy,
producing a multitude of products and services to meet the needs of the
global as well as domestic markets.
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13.2.1 Role of MSMEs in Economic Development Entrepreneruship
Development and
MSMEs
Employment opportunities: MSMEs create employment opportunities for
people at large at comparatively lower cost of capital. In the economy like
ours where unemployment and underemployment pose a big challenge.
MSMEs are crucial for us as government alone cannot provide employment
opportunities to the people.

Optimum utilisation of resources: MSMEs make proper and optimum

utilisation of the local resources available such as land and building, human
resources, raw materials etc. in the society which may remain idle otherwise.

Balanced regional growth: Micro and small enterprises are scattered across
the length and breadth of the country which enables balanced regional
growth.

Rural Development: MSMEs contribution in the rural areas has been

tremendous. It uses local available resources that lead to socio-economic
development of rural areas.

MSMEs have also contributed in the development of handicraft industry,

labour intensive industries, and export sector. It also helped in the
empowerment of local people, have made India self sufficient through
emphasise on the production and use of swadeshi products, have increased
rural-urban interaction and self-employment.

Considering the role of MSMEs in economic development of our nation,

government is paying great attention to MSMEs. To assist the MSMEs and
help them to scale up, the Ministry of Micro, Small and Medium
Enterprises (M/o MSME) was formed in 2007 by merging the Ministry of
Small Scale Industries and the Ministry of Agro and Rural Industries.
With a view to boost the development of small enterprises in the country, the
Government of India has enacted Micro Small and Medium Enterprises
Development (MSMED) Act, 2006. Through MSMED Act, 2006 the
Government aims to facilitate the growth of these enterprises as well as boost
their competitiveness.

13.2.2 Definition of MSMEs

The Micro Small & Medium Enterprises (MSMEs) are defined in India
under the MSMED Act 2006.

Micro, Small and Medium Sized Enterprises (MSME) have different

definitions across countries and organizations, based on variables such as
number of employees, turnover, investment in assets, or a combination of
these. According to the World Bank, Micro, Small and Medium Enterprises
(MSMEs) have been defined in terms of numbers of employees. In micro
enterprises: 1–9 employees; small: 10–49 employees; and medium: 50–249
employees.

The MSMED Act, 2006 defines the Micro, Small and Medium Enterprises
based on:
275

Entrepreneurship and 1) The investment in plant and machinery for those engaged in
Micro, Small and
Medium Enterprises manufacturing or production, processing or preservation of goods and,
(MSMEs)
2) The investment in equipment for enterprises engaged in providing or
rendering of services.

On 26.06.2020, a new composite criterion of classification for manufacturing

and service units was notified which came into effect on 1st July, 2020. The
MSMEs are now classified according to a composite criterion that includes
both their investment and sales turnover.
Let us now know the definitions of MSMEs, both old as well as new so that
we can understand their nature and features.

Old Definition of MSMEs (as per MSMED Act, 2006)

The guidelines with regard to investment in plant and machinery or
equipment as defined in the MSMED Act, 2006 are:

Nature of Investment in plant and Investment in

Enterprise machinery excluding land and equipment excluding
building for enterprises engaged land and building for
in manufacturing or production, enterprises engaged in
processing or preservation of providing or rendering
goods of services

Micro Not exceeding Rs.25.00 Lakhs Not exceeding Rs.10.00

Lakhs

Small More than Rs.25.00 lakhs but does More than Rs.10.00 lakhs
not exceed Rs.5.00 crore but does not exceed
Rs.2.00 crore

Medium More than Rs.5.00 crore but does More than Rs.2.00 crore
not exceed Rs.10.00 crore but does not exceed
Rs.5.00 crore

Considering the importance of MSMEs in the economic development,

Government focuses on promotion of activities and facilities to the
businesses that come under the ambit of MSMEs. The old definition given
above was restricting many MSMEs that grew and wanted to expand further,
from taking facilities and privileges provided to them by the Government.
There was a demand from MSME sector to change this definition. Union
Finance Minister, Ms. Nirmala Sitaraman made the announcement of new
definition of MSMEs saying “, the decision to change the definition of
MSMEs was made mainly because of the low threshold limit under the old
definition of MSMEs”. She further added that the old definition of MSMEs
created a "fear” among them that if they expand further, they may lose the

276

benefits that MSMEs enjoy. She said this has been "killing the urge to grow" Entrepreneruship
Development and
among the MSMEs. MSMEs

New Definition of MSME

You have already learnt above that the criterion of classification of MSMEs
under MSMED Act, 2006 was based on investment in plant and machinery /
equipment. It was different for manufacturing and services units. It was also
very low in terms of financial limits. Consequently, the Indian MSME sector
has been calling for an amendment to the MSME definition for a long time.

The central government has attempted to revise the definition of MSMEs

given in the MSMED Act, 2006 on two occasions previously. The
government introduced the MSME Development (Amendment) Bill, 2015
which proposed to increase the investment limits for manufacturing and
services MSMEs but this Bill was withdrawn in July 2018 and another Bill
was introduced. The MSME Development (Amendment) Bill, 2018
proposed to use annual turnover as criteria instead of investment for
classification of MSMEs but the 2018 Bill lapsed with the dissolution of 16th
Lok Sabha.
Finally, a new composite classification criteria was approved which was
announced by the Finance Minister Mrs. Nirmala Sitharaman in the
Aatmanirbhar Bharat Package on 13th May 2020. The new classification went
into effect on 1st July, 2020.

In accordance with the composite criterion of classification the Micro, Small

and Medium Enterprises (MSME) are classified as below:

Nature of Investment in Plant and Annual Sales Turnover

Enterprise Machinery and Equipment

Micro Does not exceed one crore Does not exceed five crore
rupees rupees

Small Does not exceed ten crore Does not exceed fifty crore
rupees rupees

Medium Does not exceed fifty crore Does not exceed two
rupees hundred and fifty crore
rupees

13.2.3 Key Highlights of the New Classification

As the economy has changed significantly since the enactment of the
MSMED Act in 2006, a revision in the definition was required in order to be
realistic with time and to establish an objective system of classification and to
promote ease of doing business. As a result of new composite criteria of
classification for manufacturing and service units:
277

Entrepreneurship and x There will be no difference between manufacturing and service sectors.
Micro, Small and
Medium Enterprises x In addition to the investment in plant and machinery criteria, a new
(MSMEs)
criterion of turnover has been added to the previous classification
criteria.
x MSMEs will benefit from MSMEs' new threshold limit in many ways,
including growth in size.
x The turnover from exports will not be counted in the limits of turnover
for micro, small or medium units.
x It will benefit the MSME sector by attracting more investments and
creating more jobs.

Overall, the new definition of MSMEs is a substantial improvement over the

previous definition and is expected to help these enterprises to face new
challenges in a better frame and help them grow and expand further.

13.3 MSMED ACT, 2006

Different stakeholders from time to time have emphasized that the small
business sector had a long need for a comprehensive Act for the development
and regulation of small enterprises in order to free themselves from the
plethora of laws and regulations. Further, committees such as the Abid
Hussain Committee (1997) and Study Group under Dr. S.P. Gupta have made
recommendations to provide a proper legal framework for small business to
relieve it of the burden of complying with multiple rules and regulations.

Although small scale manufacturing industries have continued to be

important for the economy, in the past few years, small scale services have
also emerged as a substantial sector that contributes substantially to the
economy and employs millions of workers. Therefore, in accordance with
worldwide practice, it became necessary to combine the concerns of
manufacturing and services together and identify them as a composite sector.
An economy like India, which is experiencing rapid growth, requires policy
interventions and a legal infrastructure that facilitates the development of
small scale business enterprises. With these objectives in view, the
Government came with an exclusive legislation for micro, small and medium
enterprises known as the Micro, Small and Medium Enterprises Development
Act, 2006.

The Micro, Small and Medium Enterprises Development (MSMED) Act,

2006 is an act to provide for facilitating the promotion and development
and enhancing the competitiveness of micro, small and medium
enterprises and for matters connected therewith or incidental thereto.
Key Provisions of the MSMED Act 2006
x It provides the legal framework for recognition of the concept of
“enterprise” which comprises both manufacturing and service
enterprise. It defines the term as:

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 An enterprise is an industrial undertaking or a business concern or any Entrepreneruship
Development and
other establishment, by whatever name called, engaged in the MSMEs
manufacture or production of goods, in any manner, pertaining to any
industry specified in the first schedule of the Industries (Development
and Regulation) Act, 1951 or engaged in providing or rendering any
service or services.
x It broadly classifies the manufacturing and service entities into three
tiers, namely, Micro, Small and Medium.

x It establishes a National Board for Micro, Small and Medium

Enterprises. The role of the Board is to examine the factors affecting the
promotion and development of MSMEs, review the policies and
programmes of the Central Government and make recommendations in
regard to facilitating MSMEs promotion and development enhancing
their competitiveness.

x It empowers the Central Government to constitute an Advisory

Committee. The role of the Committee is to give recommendations to
the Board, Central and State government on the matters referred to it.
x It provides for the procedure for the filling of forms for registration
under MSME.

x It empowers the Central Government to undertake programmes and issue

guidelines and instructions to promote, develop and enhance the
competitiveness of MSMEs.

x It provides provisions for the delayed payments to micro and small

enterprises.

x It empowers the Central and State government to make rules to carry

out the provisions of the Act.
It should be kept in mind that the State governments are primarily responsible
for the promotion and development of MSMEs within their jurisdictions.
However, the Central Government, through its various initiatives,
supplements the efforts of the states. The Ministry of MSME and its
organizations are responsible for helping the States in encouraging
entrepreneurship, employment and livelihood opportunities, and to increase
the competitiveness of MSMEs amid the changing economic scenario.

Let us now discuss these key provisions in detail.

13.3.1 National Board for Micro, Small and Medium

Enterprises (NBMSME)
TheNational Board for Micro, Small and Medium Enterprises was
established under the MSMED Act, 2006. It consists of 47 members
including Chairman, Vice Chairman and Member Secretary. The Minister for
Ministry of MSME is the ex-officio chairman of the NBMSME and the head
office of the Board is at Delhi. Subject to the directions of the central
government, the Board should perform all, or any of the following functions:
279

Entrepreneurship and x Examine the factors affecting the promotion and development of micro,
Micro, Small and
Medium Enterprises small and medium enterprises and review the policies and programmes
(MSMEs) of the Central Government in this direction.
x Make recommendations for promotion and development of the micro,
small, and medium enterprises and increasing their competitiveness.
x Advice the Central Government on use of the Fund or Funds constituted
under Section 12 of the Act.

13.3.2 Advisory Committee

The MSMED Act, 2006 also provides for the constitution of an Advisory
committee for MSME. The advisory committee comprises five officers of
the central government having experience in matters relating to MSME, three
representatives of the state governments and one representative each from
MSME association. The Member Secretary of the National Board of Micro,
Small and Medium Enterprise is also the Secretary of the Advisory
committee. The role of the advisory committee is as follow:

x The Central Government before classifying any class or classes of

enterprise, should obtain the recommendation of an advisory committee.
x The Central Government may take advice of the advisory committee on
matters of:
¾ Promotion and development and enhancing competitiveness of
MSMEs;

¾ Credit facility for micro, small and medium enterprises;

¾ Preference policies in procurement of goods and services for micro

and small enterprises;

¾ Administration and utilisation of fund or funds.

x The State government may take advice from the advisory committee to
make rules to carry out the provisions of the MSMED Act, 2006.
x The advisory committee may give recommendations to the Board,
Central or State government on any of the following matters:

¾ Level of employment in a class or classes of enterprises;

¾ Level of investment in plant and machinery or equipment;

¾ The need of higher investment in plant and machinery or equipment

by the class or classes of enterprise for technological upgradation,
employment generation and enhanced competitiveness;

¾ The possibility of promoting and diffusing entrepreneurship in

MSMEs;

¾ The international standards for classification of SMEs.

280

13.3.3 Promotion, Development and Enhancement of Entrepreneruship
Development and
Competitiveness of MSME MSMEs

In accordance with MSMED Act, 2006, the following provisions facilitate

MSMEs promotion, development, and enhanced competitiveness.
1) In order to facilitate the promotion, development and enhancement of
competitiveness of MSME, the central government may launch programs
for:

¾ Development of skills in employees, management and

entrepreneurs;
¾ Technological upgradation;
¾ Marketing assistance;
¾ Infrastructure development; and
¾ Cluster development.
x Enactment of progressive credit policies for timely and smooth
availability of credit for micro, small and medium enterprises.
x Formulation of preference policies by Central and State
government in respect of procurement of goods and services for
micro and small enterprises,
x Constitution, administration and utilisation of funds by way of
grants by central government for the promotion, development
and enhancement of competitiveness of MSMEs.

13.3.4 Some Other Provisions

The MSMED Act, 2006 also provides for the rules and regulations related to
the registration and delayed payment in MSMEs. They are discussed below:

MSME Registration: According to the MSMED Act, 2006 registration

under MSME is discretionary for a micro or small enterprise (manufacturing
or service) and also for a medium enterprises engaged in providing or
rendering of services. It is compulsory for a medium enterprise engaged in
the manufacture or production of goods pertaining to any industry specified
in the First Schedule (IDR Act).

x For registration under the MSMED Act, 2006 the MSMEs entrepreneurs
earlier used to file Entrepreneurs Memorandum Part 1 (EM-I) at District
Industries Centres (DICs) before starting an enterprise, and
Entrepreneurs Memorandum Part 2 (EM-II) after commencement of the
operations.

x Since, September 2015 in order to promote ease of doing business the

Ministry replaces EM (I and II) filing with UdyogAadhaar Memorandum
(UAM). UAM is an online self-certification registration system.

x Based on the composite classification criteria of MSMEs notified on

26.6.2020, the Ministry has also now replaced the process of registration
by filing of UdyogAadhaar Memorandum (UAM), with ‘Udyam’. Now,
281

Entrepreneurship and the existing and prospective MSME entrepreneurs may do registration
Micro, Small and
Medium Enterprises online on portal: https://udyamregistration.gov.in.
(MSMEs)
Delayed Payments: The MSMED Act, 2006 makes provisions for the
matters relating to the delayed payments between the buyers and micro and
small enterprise suppliers of goods and services.
x The Act stipulates that the payments for goods or services have to be
cleared by the buyer in favour of the supplier on or before the date
agreed between them. In case of no agreed date, the payment period
should not exceed 45 days from the day of acceptance.

x If, in any case the buyer fails to make the payment, he is also liable to
pay interest on the amount due to the supplier.
x For any dispute related with delayed payment, the concerned party may
move to Micro and Small Enterprises Facilitation Council for redressal.
x To further the objective of MSMED Act, 2006 Ministry of MSME
launched a portal MSME SAMADHAAN
(http://samadhaan.msme.gov.in/) on 30.10.2017. The portal gives
information regarding the delayed payment status of micro and small
enterprises. It also facilitates these enterprise to file related complaints
online.

Check Your Progress A

1) Define MSME.
2) List the key provisions of the MSMED Act, 2006.

3) Fill in the blanks:

i) The Micro Small & Medium Enterprises (MSMEs) are defined in
India under the ………………….

ii) MSMEs are now classified according to a composite criterion that

includes both their ……………………. and ……………………..

iii) Under MSMED Act, 2006 registration is compulsory for a

…………………. engaged in manufacturing.

iv) ………………….. is constituted under MSMED Act, 2006 to give

recommendations to the Board, Central and State government on the
matters referred to it.

v) For any dispute related with delayed payment, the MSMEs may
move to ……………………. for redressal.

4) State whether the following statements are True or False:

i) MSMEs create employment opportunities for people at large at

comparatively lower cost of capital.

282

 ii) A medium enterprise is one where investment in plant and Entrepreneruship
Development and
machinery does not exceed ten crore rupees and annual sales MSMEs
turnover does not exceed fifty crore rupees.

iii) The Minister for Ministry of MSME is the ex-officio chairman of

the NBMSME.

iv) The old classification criterion for MSMEs was different for
manufacturing and services unit.

v) At present, the MSMEs entrepreneurs has to file Entrepreneurs

Memorandum Part 1 and 2 for registration.

13.4 ROLE OF GOVERNMENT IN

DEVELOPMENT OF MSMEs
The State Governments are primarily responsible for promoting and
developing MSMEs. The Government of India, however, supplements state
efforts through a variety of initiatives. The Ministry of Micro, Small &
Medium Enterprises (M/o MSME), which envisions a more progressive
MSME sector by promoting growth and development of the sector, has been
created by the Government of India in recognition of the role MSMEs play in
the Indian economy.

A number of statutory and non-statutory bodies work under the aegis of the
Ministry of MSME. These include: the Khadi and Village Industries
Commission (KVIC), The Coir Board, National Small Industries Corporation
(NSIC), National Institute for Micro, Small and Medium Enterprises
(NIMSME) and Mahatma Gandhi Institute for Rural Industrialisation
(MGIRI).The Ministry of MSME, as well as its organizations, are responsible
for supporting States that endeavour to promote entrepreneurship,
employment and livelihood opportunities. It also aims at improving the
competitiveness of MSMEs in a changing economic environment.

Together with other ministries, departments, and institutions, the Ministry of

MSME offers a wide range of assistance programs and other initiatives which
are designed to enhance MSMEs' financial capabilities, provide them
technology assistance, upgrade their infrastructure, increase their skills and
improve their competitiveness.

The Government, Ministry of MSME and its various organizations

frame and implement various policies and programmes in order to
provide following facilities to these enterprise:
x access to adequate credit from banks and financial institutions;
x support for technology upgradation and modernization;
x well-developed infrastructure facilities;
x state-of-the-art testing and certification facilities;
x familiarity with modern managerial practices;
x training programmes for entrepreneurship and skill development;
283

Entrepreneurship and x assistance with product development, design intervention, and
Micro, Small and
Medium Enterprises packaging;
(MSMEs)
x welfare support to artisans and workers;
x support for better access to both domestic and export markets; and
x cluster-based assistance to assist units and their collectives in
strengthening capacity building.

We will now discuss in detail about the organisations working under the
aegis of the Ministry of MSME, the programs and schemes developed by
them, and various recent initiatives undertaken. This will help you in
understanding the government's role in the development of MSMEs.

13.4.1 Statutory Bodies, and Other Attached Offices under

the Ministry of Micro, Small and Medium Enterprises
The following statutory bodies and institutions work under the ministry of
MSME:

1) Khadi and Village Industries Commission (KVIC)

2) Technology Centres (TCs)
3) Coir Board (CB)
4) National Small Industries Corporation Limited (NSIC)
5) Mahatma Gandhi Institute for Rural Industrialisation (MGIRI)
6) National Institute for Micro, Small and Medium Enterprises (NI-MSME)
Let us discuss about them in detail:

Khadi and Village Industries Commission (KVIC)

Khadi and Village Industries (KVI) are two national heritages of India.
Khadi& Village Industries Commission (KVIC) is a Statutory Organization
under the aegis of the Ministry of MSME which was established under the
Khadi and Village Industries Commission Act, 1956. In addition to
promoting and developing Khadi and Village Industries, KVIC works to
strengthen rural economies by providing employment opportunities in the
rural areas through the production and marketing of Khadi and Village
Industries products. The Commission's head office is located in Mumbai.

"Village Industry” means any industry located in a rural area that produces
any goods or renders any service with or without the use of power. In such
industry, the fixed capital investment per head of an artisan or a worker does
not exceed Rs.1.00 Lakh in plain areas and Rs.1.50 lakhs in hilly areas or
such other sum may be by notification in the official gazette, be specified
from time to time by the Central Government.

Village Industries comprise six different sectors: Agro Based and Food
Processing Industry (ABFPI); Mineral Based Industry (MBI); Wellness &
Cosmetics Industry (WCI); Hand Made Paper, Leather and Plastic Industry
(HMPLPI); Rural Engineering and New Technology Industry (RENTI) and;
284 Service Industry.

The main objectives of KVIC include: Entrepreneruship
Development and
MSMEs
x The social objective of providing employment in rural areas;
x The economic objective of producing saleable articles; and
x The wider objective of creating self-reliance amongst people and
building up a strong rural community spirit.

Coir Board
The Coir Board is a statutory body established under the Coir Industry Act,
1953 for the purpose of promoting the development of the coir industry. India
is the largest producer of coir fibre in the world, accounting for more than 80
percent of total global coir fibre production. The Board's headquarter is
located in Kochi, Kerala.

The main objectives of Coir Board includes:

x To facilitate and promote the production and marketing of coir yarn, and
its products;
x To promote exports of coir and coir-derived products;
x To improve the living conditions of workers engaged in this industry.

The National Small Industries Corporation (NSIC) Limited

The National Small Industries Corporation Limited (NSIC) is an ISO 9001-
2015 accredited Government of India Enterprise under Ministry of Micro,
Small and Medium Enterprises(MSME). NSIC operates its services through
eight technical centres throughout the country. NSIC has established
Training-cum-Incubation Centre and also offers a package of services
tailored for the needs of the MSME sector.

The main objectives of NSIC includes:

x To provide integrated services, including marketing, finance, technology,
and other services, in order to promote and support Micro, Small and
Medium Enterprises.
x To be the country's premier organization for the development of Micro,
Small, and Medium-sized Enterprises.

Mahatma Gandhi Institute for Rural Industrialisation (MGIRI)

The Jamnalal Bajaj Central Research Institute (JBCRI), Wardha was

redesigned in 2008 by the Indian Institute of Technology, Delhi as a national
institute under the Ministry of MSME and is now known as Mahatma Gandhi
Institute for Rural Industrialization (MGIRI).

There are six sections of MGIRI which conduct the organization's activities,
each sector has been headed by a senior scientist or technologist. These
divisions are: Chemical Industries Division, Khadi and Textile Division, Bio-
processing and Herbal Division, Rural Energy and Infrastructure Division,
Rural Crafts and Engineering Division, and Management & Systems
Division.
285

Entrepreneurship and The main objectives of MGIRI includes:
Micro, Small and
Medium Enterprises
(MSMEs) x To accelerate rural industrialization for a sustainable village economy, so
that KVI coexists with major industry;
x To bring professionals and experts to Gram Swaraj;
x To support traditional artisans;
x To develop innovative ideas through pilots and field trials; and
x To conduct research & development using local resources for alternative
technologies.

National Institute for Micro, Small and Medium Enterprises (NI-

MSME)
NI-MSME was originally set up as Central Industrial Extension Training
Institute (CIETI) in New Delhi in 1960 under the then Ministry of Industry
and Commerce, Government of India. In 1962, the Institute was shifted to
Hyderabad as a registered society called Small Industry Extension Training
Institute (SIET). After the enactment of MSMED Act, 2006, the Institute was
re-designated as National Institute for Micro, Small and Medium enterprises
(NI-MSME). The organization is currently operating under the Ministry of
Micro, Small and Medium Enterprises.
Activities of the Institute are organized through its four Schools of
Excellence namely, Enterprise Development; Enterprise Management;
Entrepreneurship and Extension; and Enterprise Information and
Communications.

The main objectives of NI-MSME includes:

x The primary goal of the National Institute for MSME is to train trainers;
x To conduct trainings on new areas of information technology;
x To bring to light a variety of topics through conferences and seminars.;
x To put emphasis on need based programmes;
x To adopt a client-oriented approach and innovative interventions;
x To evaluate the program's effectiveness; and
x To put strong emphasis on research publications.

Technology Centres
The Technology Centres, formerly known as Tool Rooms and Technical
Development Centres, are set up by the Ministry of MSME and play a crucial
role in providing practical skill and development training to over two lakh
unemployed youth and industry workers each year.

Currently, there are 18 technology centres in operation. Ten of these are for
the tooling industry, and eight of them are for other industries such as ESDM
(electronics, system design, and manufacturing), glass, footwear, and
fragrance and flavour.

286

A wide range of quality tools, skilled personnel, and consultancy services are Entrepreneruship
Development and
provided by these Technology Centres (TCs) to MSMEs in order to update MSMEs
technology in their processes and products.

13.4.2 Major Programs and Schemes of the Ministry of

MSME
The Ministry of MSME runs numerous schemes and programs which are
aimed at providing:
x credit and financial assistances;
x skill development training;
x infrastructure development;
x marketing assistance;
x technological and quality upgradation; and
x other services for the MSMEs across the country.

A snapshot of all the schemes and programs is provided below:

Name of the Scheme Objective of the scheme

Prime Minister Employment Generation Programme and Other Credit

Support Schemes

1. Prime Minister’s Employment To provide financial assistance for the

Generation Programme establishment of self-employment
(PMEGP) ventures. It aims at the creation of
sustainable employment opportunities
in rural and urban settings.

2. 2nd Loan for up-gradation of the To provide financial assistance for

existing PMEGP/MUDRA expansions and upgrades of
units PMEGP/MUDRA units that have
achieved success and high
performance.

3. Credit Guarantee Scheme for To provide collateral-free / third-party

Micro & Small Enterprises guarantee-free loans to Micro and
(CGTMSE) Small Enterprises (MSEs). It provides
grants especially without collateral, in
order to help first generation
entrepreneurs to venture into self-
employment.

4. Interest Subsidy Eligibility To provide concessional loan for khadi

Certificate (ISEC) programmes being conducted by
Khadi institutions.

Marketing Promotion Schemes

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Entrepreneurship and
Micro, Small and 5. Procurement and Marketing To promote new market access
Medium Enterprises Support (PMS) scheme initiatives and increase awareness of
(MSMEs)
topics related to trade fairs, digital
advertising, e-marketing, GST, the
GeM portal, public procurement, and
other topics related to market access.

6. International Cooperation (IC) To provide financial assistance to

Scheme improve export opportunities, access
to international business networks and
competitiveness by subsidizing
participation in international events.

7. Marketing Assistance Scheme To provide financial support to

participants or organizers of
exhibitions and trade fairs (domestic
and international).

Development of Khadi, Village and Coir Industries

8. Scheme of Fund for Regeneration To create clusters of traditional

of Traditional Industries industries and artisans to boost their
(SFURTI) competitiveness and long-term
sustainability.

9. Coir Industry Technology To help entrepreneurs upgrade,

Upgradation Scheme (CITUS) modernize and/or establish new coir
processing units.

10. Skill Upgradation and Mahila To train rural women artisans about
Coir Yojana self-employment opportunities in
regions that process coconut husk.

11. Science and Technology for To assist coir workers in the areas of
Coir Scheme technology transfer, incubation,
testing, and service.

12. Domestic Market Promotion To expand the coir market by

(DMP) providing financial assistance for
establishing sales depots, participating
in trade fairs, and expanding the
market network.

13. Export Market Promotion To provide financial and market

(EMP) assistance to the coir industry in order
to increase exports.

14. Welfare measures (under Coir Board Coir Workers Group

Pradhan Mantri Suraksha Personal Accident Insurance scheme
BimaYojna - PMSBY) has been converged to PMSBY with
effect from 1st June, 2016.
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 Entrepreneruship
15. Trade and Industry Related To collect statistical data for making Development and
Functional Support Services appropriate policy for the overall MSMEs
(TIRFSS) organized and systematic development
of the coir industry.

16. Work-Shed Scheme for Khadi To empower and facilitate the Khadi
Artisans spinners and weavers and provide
them with a better working
environment.

17. RojgarYuktGaon To develop sustainable and self-reliant

Khadi-based enterprises in
socioeconomically disadvantaged
villages.

18. Pottery Activity under To provide assistance to pottery

GramodyogVikasYojana (GVY) artisans for their holistic development.
scheme

19. Beekeeping Activity under To assist beekeepers in their overall

“GramodyogVikasYojana(GVY) development.
Scheme

20. Agarbatti Making Project under To support the development of

“GramodyogVikas agarbatti artisans on all fronts.
Yojana(GVY) Scheme

Technology Upgradation and Quality Certification

21. A Scheme for Promotion of To establish a network of technology

Innovation, Rural Industries and and incubation centres in order to
Entrepreneurship (ASPIRE) accelerate entrepreneurship. It also
aims at fostering innovation to develop
and enhance the competitiveness of
the MSME sector.

22. ZED Certification Scheme To ensure Zero Defect & Zero Effect
practices are incorporated in
manufacturing processes, so that
MSMEs can manufacture quality
products and support Make in India
programme.

23. Credit Linked Capital Subsidy To provide an upfront capital subsidy

Component (CLCS & TU of 15 percent for MSEs technology
Scheme) upgrades (on institutional finance of
up to Rs. 1 crore availed by them).

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Entrepreneurship and
Micro, Small and 24. Lean Manufacturing To finance the implementation of lean
Medium Enterprises Competitiveness for MSMEs manufacturing techniques, primarily
(MSMEs)
by paying for the consultant fee (80%
by the GOI and 20% by the
beneficiaries).

25. Design Clinic for Design To assist MSMEs through financing

Expertise to MSMEs for engagement of design consultants
for design intervention (GoI
contribution @ 75% for micro, 60%
for SMEs for the project range up to
Rs. 40 lakh).

26. Digital MSME To promote the adoption of

information and communication
technology (ICT) tools and
applications by the MSME sector for
production and business processes.

27. Entrepreneurial and Managerial To provide financial assistance for the

Development of SMEs development and transformation of
through Incubators innovative ideas into commercially
available products. It facilitates the
establishment of new companies
dedicated to the commercialization of
successful innovations.

28. Awareness on Intellectual To raise awareness among the MSMEs

Property Rights (IPR) about Intellectual Property Rights and
to take measures for protecting their
ideas and business strategies by
reimbursement of
Patent/Trademark/GI.

29. Marketing Support/ Assistance To conduct seminars and reimbursing

to MSMEs (Bar Code) registration fees associated with bar
coding in order to encourage SMEs to
use it.

30. Technology and Quality To provide financial assistance in the

Upgradation Support form of credit and subsidies in order to
encourage MSMEs to use energy
efficient technologies in
manufacturing units.

31. Enabling Manufacturing Sector To provide funding support to adopt

to be Competitive through QMS & the latest Quality Management
QTT Standards (QMS) and Quality
Technology Tools (QTT).

Entrepreneurship and skill Development Programme

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 Entrepreneruship
32. Entrepreneurship Skill To promote establishment of new Development and
Development Programme (ESDP) enterprises, strengthen existing MSMEs

Scheme MSMEs, and instil entrepreneurial

cultures in the country.

33. Assistance to Training To build a strong infrastructure and

Institutions (ATI) Scheme assistance support for entrepreneurship
and skill development training
programmes.

Infrastructure Development Programme

34. Micro & Small Enterprises To upgrade infrastructural facilities in

Cluster Development Programme the new / existing Industrial Areas /
(MSE Clusters of MSEs and to establish
– CDP) Common Facility Centres.

Some Other Schemes

35. National SC-ST Hub To provide professional support to

Scheduled Caste and Scheduled Tribe
Entrepreneurs.

36. Scheme of Surveys, Studies and To collect, study, and analyse data on
Policy Research MSME where the results are used for
effective policy design.

37. Scheme of Information, To publicize the different schemes that

Education and Communication the ministry runs in order to encourage
(IEC) MSMEs to take advantage of them.

6RXUFH: e-book on Schemes for MSMEs

13.4.3 Some Recent Initiatives by the Government for the

Development of MSMEs
Here are a few recent government initiatives geared toward promoting the
development of MSMEs:

Udyam Registration: The government has launched a zero cost MSME

registration portal, where the existing and prospective entrepreneurs may file
their ‘Udyam’ Registration online. Udyam Registration is a self-declaration
paperless and free of cost system. Using this system, entrepreneurs will no
longer have to go through the lengthy registration process and it will also
help the government to collect real- time data on the number of MSMEs in
the country.
My MSME: In order to make available all the schemes and programs at the
fingertips of the enterprises, the Office of Development Commissioner

291

Entrepreneurship and (MSME) has launched a web-based application module called My MSME.
Micro, Small and
Medium Enterprises This module can also be accessed from a mobile application.
(MSMEs)
MSME Data Bank: The government has now required MSMEs to provide
information about their enterprises in an online database it maintains at
www.msmedatabank.in. By using this data bank, the Ministry of MSME will
be able to streamline and monitor schemes and pass on the benefits directly to
MSMEs.

Direct Benefit Transfer in the M/o MSME: Governments of India have

brought all welfare and subsidy schemes under Direct Benefit Transfer
(DBT) in order to improve delivery by automating the existing procedure. It
ensures more efficient flow of funds, accurate targeting of the beneficiaries,
and to reduce fraud.

Grievance Monitoring: The Ministry has started an MSME internet

grievance monitoring system (eSAMADHAN) to address delayed payments
to micro and small enterprises.

Job Portal for MSMEs: The MSMEs have created a job portal called
“MSME SAMPARK” through which job seekers (e.g. graduate trainees /
students of MSME Technology Centres) and recruiters can interact for
mutual benefit.

Champions Portal: Creation and Harmonious Application of Modern

Processes for Increasing the Output and National Strength (CHAMPIONS)
has been launched on 1st June, 2020. This is an ICT-based technology system
designed to help and assist smaller organizations to grow. A system of
control rooms was created that provides every support on a local level. It
includes: financial, market access, technology upgrades, and skill
development to MSMEs.

Skill Training Ecosystem of Ministry of MSME: In order to build the

capacity of existing and prospective entrepreneurial ventures, the Ministry
has organized several skill development training programmes/courses. The
Ministry has taken initiatives to align its training courses with National Skill
Qualification Framework (NSQF), Ministry of Skill Development &
Entrepreneurship (MSDE). Skill trainings of the Ministry are reported to
Ministry of Skill Development & Entrepreneurship (MSDE) under Skill India
Mission convergence.

Government e-Market Place: GeM is an online portal that allows

government officials and agencies to buy and procure goods and services
from an online marketplace in order to achieve an efficient and transparent
procurement process. In order to encourage MSMEs to register on the GeM
Portal, the Ministry of MSME has already begun to make every effort.

Check Your Progress B

1) What is a village industry?

2) List the various marketing promotion schemes run by the Ministry of

MSME.
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3) What is e-samadhan? Entrepreneruship
Development and
MSMEs
4) Fill in the blanks:

i) The …………………… has a social objective of providing

employment in rural areas.

ii) NSIC operates its services through eight …………………

throughout the country.

iii) ………………. aims at creating clusters of traditional industries and

artisans to boost their competitiveness and long-term sustainability.

iv) The primary goal of the ………………….. is to train trainers.

v) Under ……………….. collateral free loans are provided in order to
help first generation entrepreneurs to venture into self-employment.

2) State whether the following statements are True or False:

i) A village industry is one where the fixed capital investment does not
exceed Rs.1 crore.

ii) India is the largest producer of coir fibre in the world.

iii) Champions’ portal is an ICT-based technology system designed to
help and assist smaller organizations to grow.

iv) ASPIRE establish a network of technology and incubation centres.

v) The Ministry has started an MSME internet grievance monitoring
system called MSME SAMPARK.

13.5 ROLE OF MSMEs IN ENTREPRENEURSHIP

DEVELOPMENT
Over the years, MSMEs sector has emerged as an effervescent and active
sector across all the economies, especially in developing economies. Its
contribution in socio-economic development of a nation is such that it is
widely and popularly called as engine of economic growth. This is giving flip
to entrepreneurship development as well as they are innovative in nature and
respond timely and effectively to the changing market scenario. They are
complimentary to the large industries. Let us now discuss the role of MSMEs
in entrepreneurship development.

1. Promotes Entrepreneurial opportunities: MSMEs provide real

platform to the budding entrepreneurs. Pools of entrepreneurs are created
by MSMEs who are considered to be the catalyst of socio-economic
growth and development of a nation.

2. Promotes Entrepreneurial culture: MSMEs nurture entrepreneurial

culture. It creates supportive environment and take various initiatives
ranging from implementing a receptive regulatory environment to

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Entrepreneurship and establishing access to technology and finance. This makes the
Micro, Small and
Medium Enterprises environment conducive for the aspiring and budding entrepreneurs.
(MSMEs)
3. Commercialise inventions: We all use mobile phones (smart phones
now a days). You must be aware of the fact that telephonic conversation
was invented long back in the year 1876 by Alexander Graham Bell. He
was not only an inventor but also an entrepreneur as he launched the Bell
Telephone Company in 1877. Since then, face of phone has witnessed
huge improvements through technological and other innovations. From
fixed dial phones to smart phones we have enjoyed varied services. Can
you imagine who undertook all these improvements? Yes, you are right!
Various telecommunication companies are responsible to offer these
services. Unless the inventions are commercialised it is of no use to the
society. This commercialisation encourages innovations from time to
time.
4. Encourages and exploit innovation: MSMEs help in creating
entrepreneurial culture through business innovation. As the saying goes
money begets money, similarly, an entrepreneur encourages others to
become an entrepreneur. Many companies support their ancillary units in
its establishment and expansion. Innovation and entrepreneurship go
hand in hand.

5. Facilitate and complement large industries: MSMEs are considered to

be complementary to the large industries. Many large enterprises depend
on MSMEs for supply of necessary raw materials for the production of
goods and services, and they also make use of these small firms in
distributing their final output.

6. Boost in Service sector: MSMEs are immensely contributing in service

sector. Its contribution in service sector is more vis-a-vis manufacturing
sector. There can be seen a huge prospect of entrepreneurship
development in service based MSMEs.

13.6 LET US SUM UP

Ever since the Industrial Policy Resolution, 1956, came into being,
establishment and growth of village and small industries were given due
consideration and importance along with the agriculture. Growth Potential of
MSMEs and their significant contribution to the growth and development of
our economy attracted the attention of the Indian Government. MSMED Act,
2006 was enacted by the parliament to encourage and promote this MSME
sector.

A number of statutory and non-statutory bodies work under the aegis of the
Ministry of MSME. These include the Khadi and Village Industries
Commission (KVIC), The Coir Board, National Small Industries Corporation
(NSIC), National Institute for Micro, Small and Medium Enterprises
(NIMSME) and Mahatma Gandhi Institute for Rural Industrialisation
(MGIRI).The Ministry of MSME, as well as its organizations, are
responsible for supporting States that endeavour to promote entrepreneurship,
294

employment and livelihood opportunities, and improve MSMEs' Entrepreneruship
Development and
competitiveness in a changing economic environment. MSMEs

The Ministry of MSME runs numerous schemes and programs which are
aimed at providing credit and financial assistances,skill development
training;infrastructure development, marketing assistance, technological and
quality up-gradation and other services for the MSMEs across the country.

Over the years, MSMEs sector has emerged as an effervescent and active
sector across all the economies, especially in developing economies. Its
contribution in socio-economic development of a nation is such that it is
widely and popularly called as engine of economic growth. This is giving flip
to entrepreneurship development as well as they are innovative in nature and
respond timely and effectively to the changing market scenario. They are
complimentary to the large industries.

13.7 KEYWORDS
Coir Board: A statutory body established under the Coir Industry Act, 1953
for the purpose of promoting the development of the coir industry.

Enterprise: An enterprise is an industrial undertaking or a business concern

or any other establishment, by whatever name called, engaged in the
manufacture or production of goods. The engagement is in any manner,
pertaining to any industry specified in the first schedule of the Industries
(Development and Regulation) Act, 1951 or engaged in providing or
rendering any service or services.
Khadi& Village Industries Commission (KVIC): A Statutory Organization
under the aegis of the Ministry of MSME which was established under the
Khadi and Village Industries Commission Act, 1956. It promotes and
develops Khadi and Village Industries and strengthens rural economies by
providing employment opportunities in the rural areas through the production
and marketing of Khadi and Village Industries products.

Mahatma Gandhi Institute for Rural Industrialisation (MGIRI): A

national institute under the Ministry of MSME to accelerate rural
industrialization for a sustainable village economy, so that KVI coexists with
major industry.
Medium Enterprise: An enterprise where investment in plant & machinery
and equipment does not exceed fifty crore rupees and annual sales turnover
does not exceed two hundred and fifty crore rupees.
Micro Enterprise: An enterprise where investment in plant & machinery
and equipment does not exceed one crore rupees and annual sales turnover
does not exceed five crore rupees.
MSMED Act: An act to provide for facilitating the promotion and
development and enhancing the competitiveness of micro, small and medium
enterprises and for matters connected therewith or incidental thereto.

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Entrepreneurship and National Board for Micro, Small and Medium Enterprises (NBMSME):
Micro, Small and
Medium Enterprises A board established under MSMED Act, 2006 to examine the factors
(MSMEs) affecting the promotion and development of MSMEs. It reviews the policies
and programmes of the Central Government and makes recommendations in
regard to facilitating MSMEs promotion and development enhancing their
competitiveness.

National Institute for Micro, Small and Medium Enterprises (NI-

MSME): A national institute under the aegis of ministry of MSME that has
been instrumental in conducting training programs.

National Small Industries Corporation Limited (NSIC): An ISO 9001-

2015 accredited Government of India Enterprise under Ministry of Micro,
Small and Medium Enterprises to provide integrated services. It includes
marketing, finance, technology, and other services, in order to promote and
support Micro, Small and Medium Enterprises.

Small Enterprise: an enterprise where investment in plant & machinery and

equipment does not exceed ten crore rupees and annual sales turnover does
not exceed fifty crore rupees.

13.8 ANSWERS TO CHECK YOUR PROGRESS

A. 3. i. MSMED Act, 2006 ii. Investment, sales turnover iii. medium
enterprise iv. Advisory Committee v. Micro and Small Enterprises
Facilitation Council
4.i. True ii. False iii. True iv. True v. False
B. 4.. i. KVIC ii. technical centres iii. SFURTI iv. National Institute for
MSME v. Credit Guarantee Scheme for Micro & Small Enterprises
(CGTMSE)
5.i. False ii. True iii. True iv. True v. False

13.9 TERMINAL QUESTIONS

1) How are micro, small and medium enterprises defined in India? Discuss
the distinctive characteristics of MSMEs.

2) Discuss the role MSMEs play in the economic development of a

developing country like India.

3) What is MSMED Act, 2006? Discuss the key provisions of the Act.

4) What is the need of the government in the development of MSMEs in

India? Critically examine the recent initiatives taken by the government
in this regard.

5) Discuss the various programs and schemes run by the ministry of MSME
for the growth of micro, small and medium enterprises.

296

6) “There are various statutory and non-statutory bodies working under the Entrepreneruship
Development and
aegis of the Ministry of MSME to promote entrepreneurship”. Discuss MSMEs

7) Discuss the role played by MSMEs in entrepreneurship development.

Note: These questions will help you to understand the unit better. Try to
write answers for them. But do not submit your answers to the University for
assessment. These are for your practice only.

FURTHER READINGS
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297

 
Entrepreneurship and
Micro, Small and UNIT 14 FAMILY BUSINESSES IN INDIA
Medium Enterprises
(MSMEs)
Structure
14.0 Objectives
14.1 Introduction
14.2 Concept of Family Business
14.2.1 Definition of Family business
14.2.2 Major Characteristics of Family business in India
14.2.3 Types of Family Business
14.3 Theories of Family Business
14.3.1 The System Theory
14.3.2 Agency Theory
14.3.3 Other Theories
14.4 Role of Family Business in India
14.5 Challenges of Family Business in India
14.6 Contemporary Role Models in Indian Family Business
14.7 Family Business Conflict
14.7.1 Reasons of Family Business Conflict
14.7.2 Types of Family Business Conflict
14.7.3 Managing Family Business Conflict
14.8 Let Us Sum Up
14.9 Key Words
14.10 Answers to Check Your Progress
14.11 Terminal Questions

14.0 OBJECTIVES
After studying this unit, you should be able to:
x describe the meaning and various definitions of family business;
x explain the role and importance of family business;
x discuss the types of family business;
x describe various theories/ models of family business;
x analyse the causes for pitfalls in family business;
x identify the challenges in family business;
x describe the importance of succession in family business; and
x explain the ways to manage conflicts in family business.

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 Family Businesses in
14.1 INTRODUCTION India

In the previous units, you have learnt about the concept of entrepreneurship
and its role in Indian economy. You have also learnt as to how can aspiring
entrepreneur sets- up his or her enterprise. But it is important to know that
there are second or next generation entrepreneurs who have also started
playing a very important role in the running and development of small
business. The next generation entrepreneurs also need to be equipped with
certain hard and soft skills to make significant contribution in the family
business. In this unit, you will be acquainted with the next generation
entrepreneurs, their family businesses/ business houses in which they are
contributing and taking it to a next level. You will also learn about the role of
family businesses in India, contemporary role models in Indian businesses,
their values, business philosophy and behavioural orientation. Besides, there
will be a discussion on various challenges faced by the family business in
India and measures taken to overcome them.
Family business in India ranges from small firms (such as kirana stores) to
large business houses. Many big business houses have started their operations
in foreign markets and are recognised as Multinational Corporations (MNCs).

Business houses play a very important role in the economy of a nation as they
contribute majorly in the GDP of the country. Big business houses in fact,
may depict the industrial scenario of the country. The Confederation of
Indian Industry (CII) states that family business contributes 60-70 percent of
GDP of most developed & developing countries. India is no exception to
it.They play a very important role in socio-economic development of our
country. In time of pandemic like covid-19, we have been witnessing their
importance in providing food and services to the customers. Let us now learn
the concept of family business.

14.2 CONCEPTOF FAMILY BUSINESS

Family business is not a new term. It is very common all across the globe.
First of all, at this point, let me tell you that various terms are used
interchangeably for family business. They are family-owned business,
family-controlled business, family-managed business, business houses,
business groups and industrial houses. Any of the said terms used in this
unit may be considered as family business.
Different people view family business in different ways. For some, family
business may mean traditional business while others may view it as home-
based business or community business.
Family business is a business (commercial organisation) in which two or
more family members are involved and major ownership and control is
vested within the family. Decision making in this kind of organisation is
influenced by many generations of a family, by family members we mean a
member (sane) related by blood, marriage or adoption. These members
should have the ability to influence the vision of the business and the
willingness to use this ability to achieve a higher goal. It is important to 299

Entrepreneurship and understand here that family business does not mean owner-manager
Micro, Small and
Medium Enterprises entrepreneurial business organisation. To be a family business, the element of
(MSMEs) multi- generational dimension is a must. Because of this multi- generational
dimension, there is a unique dynamismin the organisation.
Family businesses are the form of organisation which is quite dominant in
India. They are in all sizes from small business enterprises to large
multinational business organisations and in all sectors from agriculture to
industries to services.

14.2.1 Definition of Family Business

There is no consensus of opinion regarding what exactly constitutes a family
business. Experts emphasize different aspects of family businesses in their
definitions, particularly the type and depth of family involvement or
ownership control, the anticipation or occurrence of an intergenerational
transfer of ownership or management control.

Renowned researchers, Sharma, Chrisman and Chua in 1996reviewed the

prominent literature on family business and classified the various definitions
of family- run business into three groups which are discussed below:

1) Ownership- Management focused definition

Barry (1975) “an enterprise which, in practice, is controlled by the members
of a single family is termed as family business.”
Davis & Tagiuri (1985) “business in which two or more extended family
members influence the direction of the business.”
Leach, et. al (1990) “a company in which more than 50 percent of the voting
shares are controlled by one family, and/or a single family group effectively
controls the firm, and/or a significant proportion of the firm's senior
management is members from the same family.”

Gallo & Seveen (1991) “a business where a single family owns the majority
of stock and has total control.”

Covin (1994) “a business owned and operated by a family that employs

several family members.”

2) Generational Transfer focused definition

Churchill & Hatten (1987) “what is usually meant by family business ....is
either the occurrence or the anticipation that a younger family member has
or will assume control of the business from the elder”

Ward (1987) “a business that will be passed on for the family's next
generation to manage and control.”

3) Multiple Conditions definition

R.G. Donnelley (1964) “A company is considered a family business when it
has been closely identified with at least two generations of a family and when
300

this link has had a mutual influence on company policy and on the interests Family Businesses in
India
and objectives of the family.”

Astrachan & Kolenko (1994) “family ownership of more than 50% of the
business in private firms or more than 10% of the stock in public companies;
more than one family member works in the business or the owner anticipates
passing the business to the next generation of family members or the owner
identifies the firm as a family business.”

6RXUFH Sharma P., Chrisman J.J., Chua J.H. (1996) A Review of the Family
Business Literature. A Review and Annotated Bibliography of Family
Business Studies. Springer, Boston, MA, 2-50
The variety of definitions of what constitutes a family business makes
comparisons and generalizations difficult. Several factors are needed for a
universally accepted definition of the family business that Astrachan and
Shanker (1996) demonstrate in their study. They point out that the criteria
used to define a family business can include: Percentage of ownership;
Voting control; Power over strategic decisions; Involvement of multiple
generations; and Active management of family members.
Ernesto J. Poza in his widely popular book "Family Business" defined family
business as a synthesis of the following characteristics:
1) Ownership control (15% or higher) by two or more members of a family
or a partnership of families;
2) Strategic influence by family members on the management of the firm,
whether by being active in management, continuing to shape culture,
serving as advisors or board members, or being active shareholders;
3) Concern for family relationships;
4) The dream (or possibility) of continuity across generations.
By analysing the above definitions carefully, we can summarize that a family
business is an enterprise owned and/or operated by two or more
members of extended families who have kinship ties, management roles,
ownership rights, and financial control over an enterprise. Eventually,
the owner(s) of the family business transfer it to an heir.

14.2.2 Major Characteristics of Family Business in India

By going through the definitions given above we can say that following are
the characteristics of family business:
1) Ownership: Family business enterprise is actively owned and run
(managed) by two or more members of the single extended family.
2) Membership: Family business enterprise ensures effective utilisation of
in-house talent in the family. Family members are employed on key
positions in the business enterprise. Relationship amongst the family
members influences their respective positions in the enterprise.
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Entrepreneurship and 3) Succession Planning: Succession planning is an important decision in
Micro, Small and
Medium Enterprises the business. The succession of the family business goes to the next
(MSMEs) generation thus, it is important to determine who will take over
leadership and/or ownership of the company when the current generation
retires or dies.
4) Management and Operations: Generally, in these business enterprises
the senior most member of the family is the head of the business and
takes all the crucial decision. All the members have faith in the founder.
This results into uniform mindset of the members which ensures
uniformity in operation.
5) Long-term Orientation: The family business is not dissolved by the
death of the founder or the owner as the authority or ownership passes to
the next generation. Also, owners of family businesses are not only
concerned with the financial results of the business. They value the past
and plan for the future with the perspective of their next generation.
Thus, family businesses generally survive through the tough and rough
times and perform well in long term.
6) Mutual Influence: Policies of the family business enterprise are
influenced by the family members in the mutual interest of family and
business.
7) Embedded in Cultural Values: In India, family businesses are
predominantly caste-based, and their roots run deep and are embedded in
family values and traditions. As a result, their respective cultures can be
seen in the management, operations, and decision-making process of the
business.
8) Concentrated Structure: Ownership and management of family
businesses are handled by family members. Additionally, family
members serve on the boards of directors of the business. Due to their
family-controlled nature, these businesses are often fast-moving, with
quick decision-making processes because of the lack of external
influences.

14.2.3 Types of Family Business

Family businesses can be of three types. These are discussed below:
1) Family Owned Business: Family-Owned businesses are for-profit
organisations whose majority voting shares (or other form of ownership)
are typically but not necessarily controlled and owned by members of a
single extended family, or by one family member but significantly
influenced by other members.
2) Family Owned and Managed Business: Family-Owned and Managed
businesses are for-profit organisations whose majority voting shares (or
other form of ownership) are typically but not necessarily are controlled
and owned by members of a single extended family, or by one family
member but significantly influenced by other members. This controlling
302 authority enables the family to determine the company's objectives,

 methods, and strategies for reaching them, as well as policies for Family Businesses in
India
implementing those strategies. In addition, at least one family member
has active participation in the top management of the company, which
means one or more members of the family have ultimate control of the
company.
3) Family Owned and Led Business: Family-Owned and Led businesses
are for-profit organisations whose majority voting shares (or other form
of ownership), typically but not necessarily are controlled and owned by
members of a single extended family, or by one family member but
significantly influenced by other members. This controlling authority
enables the family to determine the company's objectives, methods, and
strategies for reaching them, as well as policies for implementing those
strategies. In addition, at least one family member is an active member of
the company's Board of Directors, so one or more family members have
at least a high level of influence over the company's direction, culture,
and strategies.

Check Your Progress A

1) Fill in the blanks:

i) Family business in India may also be in the form of small firms such
as ………………….. stores.

ii) To be a family business, the element of ……………………….

dimension is a must.

iii) …………………….. amongst the family members influences their

respective positions in the enterprise

iv) The …………………… of the family business goes to the next

generation

v) In a …………………….. anyone member has major influence on

business activities who is in charge of regulating activities of
business.

2) Sate whether the following statements are True or False:

i) Decision making family business is influenced by many generations

of a family.

ii) Owner(s) of the family business transfer it to a family heir.

iii) Succession planning is an important decision in the family business.
iv) In a family owned and managed business any one family member is
in top management.

v) In family business members do not have kinship ties.

303

Entrepreneurship and
Micro, Small and 14.3 THEORIES OF FAMILY BUS
SINESS
Medium Enterprises
(MSMEs)
Althoughh existence of Family Businesses is there in the
t society ever since the
term buusiness was recognised, there has been very v less clarity on its
definitioon. There is no doubt that family businesses are the oldest and most
prevalennt form of business ownership. Time and again various experts have
tried to study the characteristics and operations of family
f businesses and in
the proccess various theories have been evolved. Lets
L us now discuss few
predomiinant theoretical perspectives and approaches of family business.

Figure 1: Theories of Family Busin

ness

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A
Agency Theory
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O
Other theories
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14.3.1 System Theory

In the yyear 1978, Professor Renato Tagiuri and John Davis at Harvard
Businesss School, developed the Three Circle Mod del of Family Business
which w was first published in 1982. The Three Circle C Model of Family
Businesss describes various situations that arise in the
t family businesses all
across. TThis theory is considered to be central orrganizing framework for
understaanding family business systems. In this model,
m the three systems
(groups)) are represented in a circle where each circcle represents a group of
people w
with specific features in their relationship with
h the family business.
This syystem theory explains that there are thrree interdependent and
overlappping systems (they can also be termed as grroups) that comprise the
family bbusiness system, they are:

1) Thee Family System,

2) Thee Business System, and;
304 3) Thee Ownership System

Each of these systems in this 3-circle model has a developmental framework. Family Businesses in
India
In the portions where the circles are intersecting, represents people who own
both or all features. Because of overlap, there exist seven interest groups
(they are also termed as sub-system, these systems are overlapping). Each
group has its own legitimate perspectives, goals and dynamics. They argue
that the long term success of the family business system depends on the
functioning and mutual support of each of these groups. This theory basically
explains family business as a set of interaction among different elements
known as subsystem. Look at Figure 2 which shows the three circle model.

Figure 2: Three Circle Model of Family Business

6RXUFH: Tagiuri and Davis (1982)

In the figure 2, group 1, 2 and 3 are the people having association with
family, property and business. The portion where the circle are intersecting
(group 4,5,6) have family employees, family owners, non family owner
employees, they represent association with the family and business, family
and ownership and Business and ownership. The portion where (Family
owner employees) indicates the association of people in the group with all the
three Family, Business and Ownership. These are normally the founders of
the family business (group 7). These people of group 7 have their share of
ownership, they have some position in the company as they work in the
company and they also have family ties. 305

Entrepreneurship and This three circle model theory explains that there are three important
Micro, Small and
Medium Enterprises subsystems (groups) in family business which is overlapping, interlinked and
(MSMEs) interconnected. Functioning of each group will affect the functioning of the
other. Hence, the overall performance of the family depends upon the
effective functioning of all the three groups. The other important thing that it
describes is that the interactions amongst all the three groups have connection
to the seven interest groups. Those seven interest groups are:
1) Non-family and Non-manager Owners: They are not the family
members but they enjoy some degree of ownership in the company. For
example the external investors of the business having share in ownership.
2) Family Owners: These are the family members having share in
ownership although they do not work in the business.
3) Non-Family Owner Employees: These people are not the family
members but they have their share of ownership in the business and they
also work actively in the business.
4) Family Members: These people are family members but they neither
have ownership share nor do they work in/for the business.
5) Family Employees: These are the family members who work in the
family business but they do not have their share of ownership in the
business.
6) Non-family Employees: People working with the company/ business as
employees and they do not have ownership in the business.
7) Family Owner Employees: This represents the family members who
work actively in the affairs of the business and they have their share of
ownership also.
Each of these interest groups has its own approach, objective, goal and
dynamics. Thus their functioning styles are also different. Needless to
mention that besides different goals and dynamics, unless all the groups work
in harmony, the goals and objective of family business cannot be
accomplished.
All these three systems and seven subsystems need governance. This
governance gives direction to the company to work, grow and succeed. The
values are also given by the governance by which the company lives and
work. Governance also facilitates the family business to formulate,
understand and accept policies that leads to the survival and growth of
business by guiding the business to work and behave in certain
circumstances. This governance also attracts and inducts the right people
together to get associated to the business and work at right time and take up
the right things.

14.3.2 Agency Theory

The conceptual framework of the agency theory of family business is based
on the dominant organisational theory. This theory explains the relationship
306

between Principal and Agent. It believes that it is very unlikely that interest Family Businesses in
India
of owner and agents are aligned. Both of them have usually different interest
and preferences. Agents are more inclined towards their own monetary
incentives and give less attention the goal and welfare of the firm. On the
other hand owners of the firms are more concerned about the growth and
development of the firm.
Various experts have tried to explain and relate this theory to understand the
equations in a family business firm. Whenever a decision is made on the
basis of rational thinking and preference of the decision makers, a cost arises
which is called as “Agency Cost”. To elaborate it more, agency cost (in the
context of family business) can be described as all those expenses of the
business which is incurred internally due to core inefficiencies,
dissatisfactions and disruptions because of the conflict of interest between
owners (shareholders) and managers. More and more people involved in
decision making (as in decision making, along with owners, managers are
also involved) lead to rise in agency cost because of their differences of
opinion, interests, their individual preferences etc. For example, decision of
managers may be more focussed on short term financial gains whereas
owner’s orientation would be more towards long term financial gain and/or
sustainable development of the firm.
In family business, unlike other non -family businesses, generally both
owners and managers are from the same family. It is assumed that this
alignment will result into less difference of opinion, less individual interest
and preferences thus lesser conflicts will be there. Lesser cost in turn will
lead to lesser agency cost or may be avoidance of agency costs. This theory
emphasises that the owners of family business should structure their business
organisation in a manner that there can be a check on the dexterous conduct
of the management. This will reduce the conflict and will improve firms’
performances. Nevertheless, we should remember that there are always two
sides of a coin. We can see both good and bad sides of agency costs on
family business firms. The kinship culture which is prevalent in family
business firms is good in terms of lowering the agency cost. On the other
hand, there may be greater challenges in the firms because of family conflicts
and unprofessional management which eventually can lower the performance
of a firm.

14.3.3 Other Theories

with the help of systems and agency perspectives other theories have also
been given by various experts. Let us quickly discuss few of the theories:

Resource Based Theory

Resource based theory believes that since the ownership of key assets of the
firm is vested with the owners, there can be optimum utilisation of the assets
and performance. A family business firm can thus enjoy advantage over its
competitors who are non family business firms. This theory explains that
family business firms have certain inbuilt and intrinsic characteristics which
are passed on through generations after generations. This equips the family
307

Entrepreneurship and firm’s owners- managers with unique resources and capabilities which other
Micro, Small and
Medium Enterprises non family firms may not have.
(MSMEs)
Stewardship Theory
This theory says that the Principal (owners) and managers (agent) of family
firms have collaborative relationship and their goals are also converging.
Principal or leaders/owners focus on the long term success and growth of the
company and so do their agents as their success also lies with the success of
the company. Employees/ managers being from the same family with
different generations are highly committed towards the growth and
development of the firm. They have high stewardship (a sense of care takers)
as they want to maintain the legacy of their past generations and provide
better to their coming generations more effectively and gracefully.
Employees being from the same family have emotional attachment to the
firm and they give their best for the firm’s betterment. Therefore family firms
show high stewardship conduct.

Socio-emotional Wealth Theory

The concept of socio-emotional wealth (SEW) was developed by Gomez-
Mejia and colleagues (2007). The term socio-emotional wealth refers to “non
financial aspects of the firm such as identity, the ability to exercise family
influence, and the perpetuation of the family dynasty”. This theory suggests
that family firms, unlike non family firms, are motivated by other aspects
such as family legacy, values, and beliefs rather than merely by financial
returns. Because of this emotion, their strategic decision making is also
different vis-s-vis their non-family firms competitors. For want of preserving
the legacy of their families they may not accept the most lucrative offer (in
terms of financial gain) which otherwise firms would take.

Stakeholder Theory
People having interest in the firm in some way or the other are called its
stakeholders. Hence all the shareholders, employees, society/community,
family members, suppliers and customers are the shareholders of the
company. In case of family business firms, the stakeholders are by and large
from within the family who are the investors (as they have invested their
funds), owners (as they are the major shareholders) and also the employees of
the firm. The stakeholders outside the family relations largely are suppliers
and customers. In all the business firms all across, irrespective of family or
non family firms, interest of stakeholders should be balanced. Since many
stakeholders are from the family, they should focus on serving interest of
other stakeholders who are non family members.

14.4 IMPORTANCE OF FAMILY BUISNESS IN

INDIA
Family businesses make significant contribution in an economy, be it
underdeveloped, developing or developed. Family businesses contribute to
over 60-70 percent of the GDP (size of economy) of most developing and
308

developed countries. Deloitte research (2013) reports that family firms Family Businesses in
India
constitute 85 per cent of total companies in India and also contribute an
ample share of employment and domestic output. According to a report titled
‘Family Businesses in India’ by Alvarez & Marshal (2018) family businesses
contribute around 79 percent of national GDP annually in India. The report
also states that India has 108 publicly-listed, family-owned businesses,
making it the third-highest in the world behind China at 167 and the United
States at 121 (as of 2015). Now, let us discuss the role of family business in
India:
1) Role in Economic Development: Across the globe, family businesses
play a vital role in economic development of the countries. Family
businesses are present in many sectors, including the retail sector, small
industry and service sector. They also contribute substantially to the
national GDP. A study focusing on Indian family firms was conducted
by Bang, Ray and Ramachandran (2017). The study looked at listed
firms in the period 1990-2015. Ninety-one percent of the listed firms are
family firms, which contribute greatly to the growth of the Indian
economy. It was found out that the listed family firms contributed 26
percent of the GDP (total income).

2) Role in Industrialisation: Family business groups have dominated the

Indian industrial sector since its independence. Today, large scale
manufacturing companies in the organized sector are controlled by
Indian families, such as the Tata, Birla, and Ambani families, who have
promoted various industries. The Tata Group, for instance, is involved
in steel, commercial vehicles, passenger cars, light-duty vehicles, power,
chemicals, hotels, tea, coffee, software, and other industries. Birla Group
has established companies in multiple industries like textiles, fibre,
aluminium, cement, carbon black, apparel, petroleum, telecom, IT and
software. The Reliance Group operates across multiple industries, like
Petrochemicals, oil refining and exploration, textiles, telecom, and
finance.

3) Role in Development of Entrepreneurship: Family business inculcates

the spirit of entrepreneurship and contributes toward its development. In
a country like India it paves way to various families to initiate and bring
up new ventures in country.

4) Role in Social Development: Family businesses also contribute

significantly in the social development of a country. Many big hospitals,
educational Institutes, basic infrastructure such as road etc are developed
by big family businesses. For instance, Tatas are also respected for the
contribution in the social development of the society. They have set the
ground for Corporate Social Responsibility in India.

5) Role in Business Development: Small family businesses focus their

effort and resources to develop and manage a small range of segments
with specific products and services. They typically dedicate a high
degree of attention to managing relationships with partners, suppliers,
employees, channel partners, and customers. Consequently, interactions
309

Entrepreneurship and with stakeholders are more effective, issues are resolved quicker, and
Micro, Small and
Medium Enterprises clients are better served, all of which increase stickiness. For smaller
(MSMEs) businesses, this can be a competitive advantage. They have flexible
working hours and as the decision making power is restricted to one or
two key members it results in speedy decisions.

14.5 CHALLENGES OF FAMILY BUSINESSES IN

INDIA
In India, many businesses that are now public companies were once family
businesses. These family businesses have grown tremendously with the
passage of time. However, things are always not rosy. While family business
gets many advantages, they face certain challenges also. Let us discuss these
challenges below:

1) Innovation for a competitive advantage: The business environment

today is very competitive. To survive and grow in this competitive
environment it becomes very important to innovate and give unique
value proposition to the customers. To innovate, the business goals have
to be broadened and new strategies are to be formulated. This may mean
that businesses may have to leave the age-old style of functioning. But
family businesses may remain confined to their age-old practices and not
invest in research and development.

2) Limited Talent: In family business owners and managers are by and
large the family members. Members of the family may not necessarily be
talented and capable of taking the company’s legacy forward. Attracting
right talent from outside the family is crucial and retaining them is even
more important.
3) Lack of Succession Planning: There is lack of efficient succession
planning, mentoring and developing the next generation of successors
and leaders. Family businesses have to give proper attention to this issue.

4) Technology Needs: With the changing environment and rapid

technological developments, the business need to adapt to the new
technological advancements or bring in new, if need be. This may mean
that they may have to part with the older business models which have
been passed on to the present generation.

5) Sibling Rivalry: Sibling Rivalry is something that needs no

explanations. All the heirs of the family get share in the business. Some
may do well and flourish further, some may not. This often creates
rivalry and pulling down each other is started even at the cost of
organisational resources. This rivalry, if remains unsolved, may lead to
split in the family business.

6) Internal Conflict: Interest of the family members of family business is

varied. This may disturb business harmony. Handling this internal
conflict is very difficult. If it is not handled properly, this may lead to
failure of the business.
310

7) Biased Decision-Making: There is always a possibility that decisions in Family Businesses in
India
the family business may be biased for non-family members and
employees of the business. The family members may try to impress upon
their own ideas on the other members.

8) Too Much Emotional Attachment with Business: It is always said that
one should always be passionate about the business but not be emotional
as it may interfere with the tough decisions which might have to be taken
for the growth of business

9) Unclear Roles and Responsibilities: There is often a lack of proper

documentation which defines the roles and responsibilities of the
members of the family in family business organisation. This may lead to
chaos and mismanagement.
10) Lack of Professionalism: Professional business cultures are the result of
formal processes, which include setting clear goals and enforcing rules,
as well as hiring and promoting employees based on their potential to
contribute. However, in many family businesses, the informal structure
and culture may cause confusion among roles, lead to lack of talent, and
make it impossible for values, ethics, and philosophies to be defined.
11) Limited Finance: Family businesses have limited financing options
since they cannot raise large amounts of capital on their own, and
external financing options may not be attractive to them as outside debt
may lead to significant influence over the company. For family
businesses, determining where and how to get the capital and resources
needed to grow can be a challenge.

14.6 CONTEMPORARY ROLE MODELS IN

INDIAN FAMILY BUSINESS
There are many family businesses in India that are doing extremely well not
only in India but also cross borders. These businesses are contributing hugely
in socio-economic development of a nation. Few of the family businesses are
cited below as examples:

1) Tata Group
The Tata group was founded by Jamsetji Nusserwanji in the year 1868.
Jamsetji Nusserwanji Tata, an entrepereneur and philanthropist belonged to a
Parsi Zoroastrian priest’s family. Gujarat born and Mumbai educated J.N
Tata joined his father’s trading firm in the year 1858 when he was 19 years of
age. Ten years later, in the year 1868, he started trading company TATA
Sons. Tata sons Limited is the holding company of Tata Group. Tata group
has many businesses running together. In the year 1903, he inaugurated the
Taj Mahal hotel at Colaba in Mumbai. At that time, that was the only hotel to
have electricity. He had two sons Dorabji and Ratanji Tata. In the year 1907,
Dorabji Tata established Tata Steel which was founded by his father Jamsetji
Tata. In 1909, Indian Institute of Science was established in Bangalore.

.
311

Entrepreneurship and Ratan ji Tata, popularly known as RJD Tata is also taking the legacy forward.
Micro, Small and
Medium Enterprises There is no such area where Tata business is not running.With the passage of
(MSMEs) time, Tata group established many companies in various sectors such as Tata
Power, Tata Chemicals, Tata Finance, Tata insurance, Tata Croma, Tata
motors, Tanishq, Titan, tata Tata Global Beverages, Tata Teleservices,
Tanishq, Fasttrack, Croma, Tata Salt, Tata Starbucks, Voltas, Tata Sky, Tata
Docomo, Tata Steel etc. It has its enterprises in defense, electric utility,
finance, healthcare, IT Service, Real estate.

In the arena of online business also tata is not behind. Other than investing in
companies doing e-commerce such as Snapdeal, Ola, Paytm, the group is also
catering to the customers online named as tatacliq.com owned by tata
unistore limited.

Other than their businesses, Tatas are also respected for the contribution in
the social development of the society. They have set the ground for Corporate
Social Responsibility in India. In this regard also, Tata clan is taking the
legacy of jamshetjiTata forward.

2) TVS Groups
The founder of the TVS group Late Thiruvengudi Sundaram Iyenger, was a
man of principles, a true visionary, belonged to a Tamil Brahmin family. T.V
Sundaram Iyengar was born in 1877 in Thirukkurungudi in Thirunelveli
district in present day Tamil Nadu (then a part of Madras Presidency). In his
initial years, he tried his hands with many jobs. He worked as lawyer, in
Indian railways and in a bank. But he had a passion for business. He left his
job and ventured into motor transport industry. In the year 1912, he started
the first bus service in the city of Madurai. In 1923, he established the T.V
Sundaram Iyengar and Sons Group of Companies, which paved way for the
origin of the ‘TVS Group’. A business, which started as a passion of a single
man, evolved into a flourishing family business.

T.V Sundaram has four sons and three daughters. His business was passed on
to his sons. Thus there are four main branches of the company. They have
started companies in fields like textile, electronics, automotive and in places
like Chennai, Mumbai, Coimbatore, Spain, UK, and Iran.

T. S. Santhanam, the youngest son, who is regarded as the ‘Father of Truck

Finance Industry’ in India, is the founder of Sundaram Finance.

Some of the companies that come under TVS group are:

x Wheels India
x Brakes India
x Sundaram Fasteners
x TVS InfoTech
x TVS Motor Company
x ZF Electronics TVS (India) Private Limited
x Sundaram Finance
312

x Turbo Energy Limited Family Businesses in
India
x Axles India
x Sundaram Clayton
x Lucas TVS
x Sundaram Motors
x Sundaram Brake Linings
x TVS Logistics
x TVS Southern Roadways LTD
x Sundaram Hydraulics Limited

3) Aditya Birla Group

Seth Shiv Narayan Birla was the founder of one of the most successful and
affluent Family business group in India. He founded this group in the year
1857. Initially he traded cotton in Ahmedabad and then moved to China with
his son Baldeo Das Birla. They started Chartering ships for which they
moved to Mumbai. Baldeo Das Birla started 2 firms one in Bombay and
another in Calcutta. These firms did business in grain, silver, cotton and other
commodities. He had 4 sons, Jugal Kishore, Rameshwar Das, Ghanshyam
Das, and Braj Mohan. The first 3 had actively contributed to the growth of
business related to their father but Ghanshyam Das was most successful
one.Ghanshyam Das expanded and diversified the business and had started
Birla Jute, Hindustan Motors, BITS Pilani, Technological Institute of Textile
& Sciences. He invested and bought Hindustan Times. He also invested in
steel tubes, rayons, chemical, and cement. He is regarded as the Founding
Father of Aditya Brla Group.Ghanshyam Das had 3 children, Lakshmi
Niwas, Krishna Kumar and, Basant Kumar Birla. Both his sons worked for
the growth of Birla Group. Ghanshyam Das Birla left most of his business
to his grandson Aditya Vikram Birla which is why it is now known as
Aditya Birla Group. Aditya Vikram Birla was the man who established
first India based multinational, putting India on World map. Under his
guidance, the company grew bigger and better with passing years. His
son Kumar Mangalam Birla is the current chairman of the company. It has its
ventures in agribusiness, financial services, banking, mining,
retail, telecommunication, wind power, e-commerce among many.
Mr. Ghanshyam Das Birla found no contradiction in pursuing business goals
with the dedication of a saint, emerging as one of the foremost industrialists
of pre-independence India. The principles by which he lived were soaked up
by his grandson, Mr. Aditya Vikram Birla, the Group's legendary leader.

4) Kirloskar Group
Founder of this group is Laxmanrao Kirloskar. This group was established
in the year 1911. Its headquarter is in Pune. Along with his son
Shantanurao Laxmanrao Kirloskar he started working hard in the business.
The company is the biggest producers of pumps and valves. It is known for
exporting them to about 70 countries. Further, ventures were started in the
production of oil engines, motors, electrical equipment etc. Kirloskar as a 313

Entrepreneurship and minority owner producing cars has Toyota for the Indian market. The
Micro, Small and
Medium Enterprises various businesses are handled by the extended family successfully in India
(MSMEs) and outside too.

5) Godrej
Godrej Family owns and runs the Godrej Group. It is an Indian
conglomerate company with its headquarter in Mumbai.This group was
founded in the year 1897 by the brothers Ardeshir Godrej and Pirojsha
Godrej. This group started with lock making business. Adreshir Godrej
was a law graduate. Law as profession did not fascinate him much. He
started to think of doing something on his own. He started manufacturing
surgical instruments, but it did not do well. Then he ventured into lock
making business which is a big hit till date. Now this group operates in
diverse sectors such as real estate, consumer products, industrial
engineering, appliances, furniture, security and agricultural products. Its
subsidiaries and affiliated companies include Godrej Industries and its
subsidiaries Godrej Consumer Products, Godrej Agrovet, and Godrej
Properties, as well as the private holding company Godrej & Boyce Mfg.
Co. Ltd.

6) Reliance
Reliance Industries Limited (RIL) is a renowned family business
headquartered in Mumbai, India. In the year 1966 the RIL was founded by
Shri Dhirubhai H. Ambani. It was started as a small textile manufacturer unit.
In May 8, 1973 RIL was incorporated and the company name is conformed
as RIL in the year 1985. It is one of the largest family-owned enterprises in
India. After Dhirubhai's death in 2002, his sons, Mukesh Ambani (Mukesh)
and Anil Ambani (Anil), took over the business. However, as their father
had died without leaving a will, they began to have disagreements over
ownership issues and business governance. In order to settle the conflict,
Kokilaben Ambani divided Reliance's firm between her two sons in 2005.
Despite this, the feud between the two brothers continued. After a series of
feuds, the two brothers made up in 2010. As a result, they did business
with each other's companies and had a very friendly connection, which was
also visible in public. Finally, in 2014, the third generation of the Ambani
family joined Reliance to establish their presence in the family-owned
enterprise. Mukesh's son and daughter, Akash and Isha Amabni, were the
first members of the Dhirubhai family's third generation to be appointed as
directors of Reliance Jio Infocomm (Jio) and Reliance Retail Ventures,
respectively. Anil's son, Jai Anmol, joined Reliance Capital the same year.
Over the years the company has transformed their business and has entered
many sectors. Relaince has entities across sectors like vitality,
petrochemicals, materials, common assets, retail, and broadcast
communications. Reliance is one of the most prominent businesses in India.
In 2004 Reliance Industries (RIL) became the first Indian private sector
organisation to be listed in the Fortune Global 500 list.

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 Family Businesses in
14.7 FAMILY BUSINESS CONFLICT India

Conflict is a very natural part of a business. Business Conflict is a

disagreement between individuals or groups in an organisation. It may be
defined as a clash between individuals or groups that arises because of
difference in thought process, opinion, understanding, attitude, interest
and approaches. It arises in business organisation at some point of time and
needs attention and management by the leaders. The conflict may be
managed through the effective leadership in the organisation. In case, it is not
managed, it may be detrimental for the business organisation.
Keeping family and business together is a challenge in itself. Like in any
business organisation, there may arise conflict in the family business which
can be detrimental for the health of a business. All members of the family
work together in the business as owners. Family overlaps on business system
and business system overlaps on family. This overlaps result into
disagreement, stress and conflict. As family grows, complexity also
increases. As discussed above there may be certain issues and challenges in
the family business which the business has to face. Personal relationship
among the family members may also have adverse impact on the business.
Besides, there may be conflict between family and non-family members/
employees of the business. It is very important to identify and analyse those
conflict and manage them effectively so that the business can prosper and
grow. Let us discuss various kinds of conflict that may arise in the business
and how they can be managed.

14.7.1 Reasons of Family Business Conflict

Family business conflict may arise over several issues; it may be over
genuine and significant differences. Sometimes it may be because of
emotional insecurity, differences in perception, miscommunication and
sometimes manipulation by individual or group wanting to gain something
from the conflict. Sometimes there can be conflict over trivial issues but may
become big, if left unattended. Some of the reasons can be listed as below:
x Different priority of different members in the family
x Emotional issues in the family
x Identity crises/ ego of members
x Communication Gap between individuals or groups in the family
x Lack of proper succession planning
x Unequal access of resources
x Dominant attitude of family member
x Personal biasness of family member
x Importance of few members

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Entrepreneurship and
Micro, Small and
14.7.2 Types of Family Business Conflicts
Medium Enterprises
(MSMEs) The conflicts of family business may be categorised into five broad
categories. They are:

Type of Conflicts Description

Conflict of Interest Conflict of interest results from people making

decisions which are driven by self-interest. These
conflicts can arise between an owner/founder and
the company's managers since principals and
agents have different interests. Majority and
minority family shareholders may also have
conflicts of interests when they place different
emphasis on growth and dividends.

Work Family Conflict When family members are involved in the family
business they have overlapping roles in work and
in family life. These overlaps increase the risk of
incongruent role expectations and incongruent
work-family conflicts. For example, A parent
interact with a next generation member not only
as a parent but also as a boss and business
partner, which can makes it challenging to know
how to treat one’s relative in any circumstance.

Relationship conflict A relationship conflict occurs when personal

animosities and incompatibilities cause negative
emotions like annoyance and frustration.
Relationship conflict can take place between
people at many different levels, but it is more
likely to appear among family members due to
their emotional bonds.

Task Conflict In general, Task conflicts arise from

disagreements about the content and purpose of
the tasks being undertaken. For example,
disagreements about a task (e.g. "that's not my
job").

Process Conflict Process conflicts exist when there is

disagreement over a method of completing a
task. For example, members might disagree
whether a decision should be made by group
consensus or a single individual.

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6RXUFH Qui, H. & Freel, M. (2019). Managing Family-Related Conflicts in Family Businesses in
India
Family Businesses: A Review and Research Agenda, Family Business
Review, 33 (1),90-113.

14.7.3 Managing Family Business Conflict

An important goal of a family business is to learn how to manage conflicts so
that good family decisions emerge, individuals grow in healthy ways, and
relationships flourish. There are some ways to avoid or manage family
business conflicts which are listed below:

1) Hire Wisely: The best idea would be to avoid hiring someone from the
family if they have little or no knowledge about how your business
operates. An organization should hire members who work wisely.
Relationships that are sensitive should be kept aside.

2) Development of Good Communication System: Communication is the

key to conflict resolution. Never shove conflicts under carpet. It is
imperative for the success of the organization to accept and handle them.
Make sure the organization has a proper communication system. In this
regard, family meetings can be beneficial.
3) Have Family Meetings: Holding family meetings frequently is a good
way to diagnose the conflict or to prevent conflicts from escalating.
Family meetings provide an opportunity for everyone to express their
opinions on company issues, share relevant information or updates; and
plan for the future.
4) Create a Shared Vision: It is important that the family understands
what the business aims to achieve and how achieving that goal will
benefit each family member and the business enterprise as a whole. In
addition, it's crucial that all participants adhere to the same family values
and that there's no misconduct that undermines the business goals.

5) Structured Approach to Problem-solving: Conflict is inevitable in any

business. Many companies have adopted conflict resolution processes
that may include the formation of a grievance committee. Using a forum
such as this can facilitate a safe, organized method of resolving issues
through dialogue.

6) Seek the Help of Mediators: Sometimes a family conflict may not be
resolved among members of family easily, so expert mediators may be a
better option to help resolve it through a formal mediation process.
Expert mediators may provide an objective view of the issue and lead the
family members through initial discussions until they reach an
agreement.

7) Deciding Upon Probable Disputable Issues in Advance: To avoid

issues and disagreements, it is preferable to identify problems ahead of
time and devise solutions that will lead to the members adopting a
unified course of action. Some of the difficult concerns that family
members should decide ahead of time include:
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Entrepreneurship and
Micro, Small and
Medium Enterprises
(MSMEs) x What should be done if more than two family members wish to run the
company?
x How should the business's heir be chosen?
x What if the younger generation refuses to participate in the family
business?
x How should members' duties and responsibilities be distributed?

Check Your Progress B

1) Fill in the blanks:

i) The ……………. theory is considered to be central organizing

framework for understanding family business systems.

ii) …………………. are the family members who work in the family
business but they do not have their share of ownership in the
business.

iii) Whenever a decision is made on the basis of rational thinking and

preference of the decision makers, a cost arises which is called as
………………….. .

iv) ………………… theory says that the Principal (owners) and

managers (agent) of family firms have collaborative relationship and
their goals are also converging.

v) ……………………. is a disagreement between individuals or

groups in an organisation.

2) State whether the following statements are True or False:

i) The system theory explains that there are three interdependent and
overlapping systems.

ii) Socio-emotional wealth refers to financial aspects of the firm.

iii) Multi-generational decision making may lead to task conflict.
iv) Family businesses should not hire people from outside the family.
v) Family businesses contribute significantly in the social development
of a country.

14.8 LET US SUM UP

Business houses play a very important role in the economy of a nation as it
contributes majorly in the GDP of any country. Big business houses in fact,
represent the industrial scenario of the country. Family Business contributes
60-70 percent of GDP of most developed & developing countries. India is no
exception to it.They play a very important role in socio-economic

318

development of our country. In time of pandemic like covid-19, we can Family Businesses in
India
witness their importance all the more.
A family business is an enterprise owned and/or operated by two or more
members of extended families who have kinship ties, management roles,
ownership rights, and financial control over an enterprise. Eventually, the
owner(s) of the family business transfer it to an heir. The characteristics of
family business are: managed by family members, utilise in-house talents,
succession planning, management and operations by senior most member,
long-term orientation, mutual influence, embedded in cultural values, and
concentrated structure. Family businesses can be of three types viz., A
Family Owned business, A Family Owned and Managed Business, and A
Family Owned and Led business.

Time and again various experts have tried to study the characteristics of
family businesses and in the process various theories have been evolved.
These theories can be categorised in three broad theories; The Systems
theory, The Agency theory and other theories like: resource based theory,
socio-economic theory, stakeholder theory, and stewardship theory.

Family businesses contribute to over 70-60 percent of the GDP (size of

economy) of most developing and developed countries. In India this
contribution is even more. It plays an important role in the economic, social,
entrepreneurship and industrial development of the country. This form of
organisation also offers many benefits in the form of competitive advantage,
flexible working hours, and speedy decisions and contributes in the
development of business.
While family business gets many advantages, they face certain challenges
also. These challenges are: Innovation for a competitive advantage, Limited
Talent, Lack of Succession Planning, Technology needs, Sibling Rivalry,
Internal conflict, Biased decision making, Too much emotional attachment
with business, Unclear roles and responsibilities of family members, Lack of
professionalism and Limited financing.
Like in any business organisation, there may arise conflict in the family
business which can be detrimental for the health of a business. Conflict can
happen over several issues, it may be over genuine and significant
differences. Sometimes it may be because of emotional insecurity,
differences in perception, miscommunication and sometimes manipulation by
individual or group wanting to gain something from the conflict. The
conflicts of family business may be categorised into five broad categories.
They are: Work Family Conflict, Conflict of Interest, Relationship conflict,
Task Conflict and Process Conflict. Conflicts in the family business can be
managed by Hire wisely, proper communication, have family meetings,
create a shared vision, taking a structured approach to find a solution, and
seek the help of mediators.

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Entrepreneurship and
Micro, Small and 14.9 KEYWORDS
Medium Enterprises
(MSMEs)
Family Business: A business in which the majority of the stake is held by the
person who has established or acquired the company (or by his or her parents,
spouse, child or child's direct heir) and at least one representative of the
family is involved in the management or administration of the business.

Family Business Conflict: A clash between individuals or groups in family

business that arises because of difference in thought process, opinion,
understanding, attitude, interest and approaches.
Family Owned Business: Family-Owned businesses are for-profit
organisations whose majority voting shares (or other form of ownership) are
typically but not necessarily controlled and owned by members of a single
extended family, or by one family member but significantly influenced by
other members.
Family Owned and Managed Business: In addition with family owned
business characteristics, at least one family member has active participation
in the top management of the company, which means one or more members
of the family have ultimate control of the company.
Family Owned and Led Business: In addition with family owned business
characteristics, at least one family member is an active member of the
company's Board of Directors, so one or more family members have at least a
high level of influence over the company's direction, culture, and strategies.

14.10 ANSWERS TO CHECK YOUR PROGRESS

A. 1.i. kirana ii. Multi-generational iii. Relationship iv. Sucession v.family
owned and led business
2. i. True ii. True iii. True iv. True v. False
B. 1. i. system ii. Family Employees ii. Agency cost iv. stewardship theory
v. Business Conflict

2. i. True ii. False iii. True iv. False v. True

14.11 TERMINAL QUESTIONS

1) What do you mean by Family Business? Describe their characteristics.
2) Discuss the various types of family business.
3) Describe the role played by family business in national economy.
4) Briefly discuss the various predominant theories of family business.
5) Describe the three circle model of family business.
6) Explain the major challenges faced by family businesses.
7) Discuss any two successful and affluent family business groups in India.

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8) “Like in any business organisation, there may arise conflict in the family Family Businesses in
India
business which can be detrimental for the health of a business.”
Elaborate.

FURTHER READINGS
x Kenon Alderson (2018), Understanding the family business Business
Expert Press ISBN:9781631575747
x Acquaah, M. (2016). Family Business Theories and Sub-Saharan African
Family Businesses. Family Businesses in Sub-Saharan Africa, 9–
42. doi:10.1057/978-1-137-36143-1_2
x Louangrath, P.I. (2015). Entrepreneurship Theories and Family Business
International Journal of Research & Methodology in Social Science Vol.
1, No. 3, p.1
x https://pdfs.semanticscholar.org/4625/e9311b83ab40d05e785f1e9526d6
82be4158.pdf

x https://www.yourarticlelibrary.com/business/meaning-of-family-
business-types-and-characteristics/41130
x https://www.pwc.in/assets/pdfs/family-business-survey/family-business-
survey-2013.pdf

x Kenon Alderson (2018), Understanding the family business Business

Expert Press ISBN:97816315757477
x Acquaah, M. (2016). Family Business Theories and Sub-Saharan African
Family Businesses. Family Businesses in Sub-Saharan Africa, 9–
42. doi:10.1057/978-1-137-36143-1_2

x Louangrath, P.I. (2015). Entrepreneurship Theories and Family Business

International Journal of Research & Methodology in Social Science Vol.
1, No. 3, p.1

x https://www.iimcal.ac.in/sites/all/files/FP-Dissertations-
2016/Abstract_Debarati%20Basu.pdf

x https://www.mapsofindia.com/my-india/india/major-business-houses-in-
india

x https://www.inc.com/encyclopedia/family-owned-businesses.html

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Entrepreneurship
 and
Micro, Small and UNIT 15 SUCCESS STORIES
Medium Enterprises
(MSMEs)
Structure
15.0 Objectives
15.1 Introduction
15.2 First generation entrepreneurs
15.3 Success Stories of First Generation Entrepreneurs Who Established
Large Enterprises
15.4 Success Stories of Small Business Owners
15.5 Let Us Sum Up
15.6 Terminal Questions

15.0 OBJECTIVES
After studying this unit, you should be able to:
x discuss the characteristics of first generation entrepreneur; and
x appreciate the success stories of first generation entrepreneurs.

15.1 INTRODUCTION
After understanding the details about how to go entrepreneurial, it is better to
get inspiration from the stories of hard work of the entrepreneurs and know
the whole process of establishing a business. The entrepreneurs who are first
in their family to initiate a business are termed as First generation
entrepreneurs. Although these first generation entrepreneurs lack business
background but their enormous hard work and dedication helps them to
achieve success.
Success stories of entrepreneurs are truly inspiring as it infuses a spark and a
ray of hope within people to work on their idea, take the risk and start
something of their own. This contributes in the development of the
entrepreneurial ecosystem. In this unit, you will learn about different success
stories of first generation of entrepreneurs who established large enterprises
in India and also the success stories of few of the micro business owners.

15.2 FIRST GENERATION ENTREPRENEURS

The aspiration to become an entrepreneur is a passion that does not allow a
person to work under someone’s authority. It is a calling that has to be
answered with a risk-taking appetite. First Gen entrepreneurs know in their
subconscious mind that they can do something that is against the tide. They
like to do things differently. First generation entrepreneurs are first in their
family to start their own business. They do not have any business
background. There is no one in their family who can guide them.

322

Establishing an organization and running it successfully is not a simple thing. Success Stories

Establishing and successfully running an organization requires great ability

and qualities. A first-generation entrepreneur has to learn from the
experiences of other counterparts, as well as his own mistakes and avoid
making those mistakes again.

15.3 SUCCESS STORIES OF FIRST

GENERATION ENTREPRENEURS WHO
ESTABLISHED LARGE ENTERPRISES
Entrepreneurial success is an outcome of enormous hard work and
dedication. In this section, you will learn about some inspiring entrepreneurs
in India who have a sheer determination to start something of their own and
how they fight all the odds to achieve their goals. They not only became the
first in the families to establish their own enterprise but also took their
business on heights and turned their small ventures into large enterprises
which earned global recognisation. The names and stories taken up of various
first generation entrepreneurs here are random in nature.

1) Dhirubhai Ambani

Dhirubhai Ambani was born in Gujarat. His father was Hirachand
Gordhanbhai Ambani. His father worked as a teacher in a small village
school. As soon as he completed his matriculation, he moved to Yemen and
became a gas-station attendant at an oil company. Later, he became the oil
company's filling manager. While living in Yemen, he dreamt of becoming a
businessman. After working in Yamen for a few years, he returned to India.

After returning to India in 1958, he established a textile trading company

together with his cousin Champaklal. The company imports polyester and
exports spices and rayon in Yamen. Ultimately, their partnership ended in
1956. In 1966 he founded Reliance Commercial Corporation, now named
Reliance Industries.

Reliance became the first Indian company to raise money on international

markets in 1992. Moreover, Reliance became the first Indian company to
feature on Forbes' list of the 500 largest companies in the world. The
Federation of Indian Chambers of Commerce and Industry (FICCI) named
Dhirubhai Ambani “The Indian Entrepreneur of the 20th Century.” Dhirubhai
Ambani was also honored with the Padma Vibhushan in January 2016.

Key Take-Aways:
x One needs to keep his/her mind open to opportunities and have patience
to achieve something big.
x One needs to build a strong foundation for establishing a big business.
x It takes years of hard work to become successful.

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Entrepreneurship and 2) Narayan Murthy
Micro, Small and
Medium Enterprises
(MSMEs) Narayan Murthy who is popularly known as the “Father of Indian IT
Industry” is a founder of Infosys, a multinational company which is
headquarted in Bangalore. He was born in Mysore, Karnataka in 1946. He
comes from a middle-class family. He aspired to become an engineer and
passed the entrance exam for the Indian Institute of Technology. In spite of
his efforts, he was not able to enroll in the college because his father could
not afford the fees. He then graduated from a local college with a degree in
Electrical Engineering. Then he enrolled in IIT Kanpur for his masters. After
completing his master's degree at IIT Kanpur, he decided to pursue a career
in IT.

Mr. Murthy began his career as a system programmer in IIM Ahemdabad.

Afterwards he started a company named Softronics which failed at an earlier
stage. Then along with six other software professionals Mr. Murthy founded
the Infosys company in 1981 with a capital of just Rs.10,000 which is now a
billion dollars company. He conceptualized and implemented the Global
Delivery Model, which became the backbone of Indian software
development. In 2011, Narayan Murthy took retirement from the company.
With his retirement the company went through hard times. Therefore, in
2013 he was called out to lead the company once again. He took the
challenge and revitalizes the company.

His name appeared in Forbes magazine among the top 12 greatest

entrepreneurs in 2012. He is the first Indian to win Ernst & Young's World
Entrepreneur of the Year Award. Also, he is honored with the Padma
Vibhushan and Padma Shri awards. As well as serving on boards at many
well-known universities throughout the world, he has also been a member of
several scientific societies.

Key Take-Aways:
x Mr. Murthy always believed in open and transparent dealings which
earned a great deal of credibility to the company under his leadership.
x What may go up, may also come down but an entrepreneur should not be
disheartened by the drop rather work hard and use their skills to create
value for the business.
x Mr. Murthy never promoted nepotism in his company. He always
believed that only the people who are best for the company should be
hired.
Source: Almeida, A. (2021, Aug 25).Narayana Murthy’s Success Story –
The Father of Indian IT Industry. Trade Brain.https://tradebrains.in/narayana-
murthy-success-story/

3) Kalpana Saroj

The story of Kalpana Saroj is referred to as the original "Slumdog
Millionaire" story of India. Kalpana was born in 1961 in a village of
Maharashtra in a poor family and being a Dalit girl brought her additional
324

struggles. She had been married away at the age of 12 and subjected to Success Stories

mental and physical abuse by her in-laws. She left her husband and returned
to her village and started living with her parents.

When she turned 16, she moved to Mumbai to live with her uncle. In order to
help her family, she worked in a garment factory. A tragic incident in her
family changed her purpose in life. Her younger sister died as her family
could not afford a mere amount of money for the treatment. This incident
shattered Saroj and she was now intent on earning money and helping the
unprivileged. A government loan for scheduled caste people helped her start
a furniture store along with her tailoring business. As her conditions
improved she also started an NGO which helped the underprivileged people
financially.

Impressed by her entrepreneurial skills, her NGO was approached by the

workers of the Kamani Tubes to help them overcome the debt of 116 crore to
which Kaplana agreed. She took over Kamani Tubes when it went into
liquidation in 2001. With her hard work and dedication she restructured the
company and brought it back to profitability. She is among the most
influential and inspiring entrepreneurs in India and runs a successful business
worth hundred crores.
Distinguished service in trade and industry earned Kalpana Saroj the Padma
Shri in 2013. She was also appointed to the board of directors of Bhartiya
Mahila Bank, a bank that has been established primarily for women by the
Government of India.

Key Take-Aways:
x Degrees do not make an entrepreneur rather it is their skills and
determination which helps them to succeed.
x She has proved that an entrepreneur should have vision and will power
to accomplish their goal.
Source:Kalpana Saroj: From a child-bride to the Chairperson of Kamani
Tubes. Top Success Story.https://www.topsuccessstory.com/kalpana-saroj-
from-a-child-bride-to-the-chairperson-of-kamani-tubes/

4) Vijay Shekhar Sharma

Vijay Shekar Sharma is the founder of Paytm. Paytm is a pioneer in the
online payment market in India and still serves as the representative for the e-
wallet system in India. According to Forbes' list of India's 100 Richest People
(2020), Vijay Shekhar Sharma is India's second-youngest billionaire with
2.35 billion dollar net worth.

Mr. Vijay Shekar hails from Aligarh. His father was a school principal. He
graduated from the prestigious Delhi Institute of Technology with an
engineering degree. Vijay's school education in his small town was
completed entirely in Hindi, so he was not familiar with English. However, in
college he soon realizes that if he wanted to survive college, he had to master
the language, and with the help of books, magazines, and his friends, he did
325

Entrepreneurship and so. During his studies, he learned about the success stories of world famous
Micro, Small and
Medium Enterprises owners of Apple, HP, Intel, and how they became the biggest names in
(MSMEs) startups. After learning about the Silicon Valley success stories he wanted to
move there. But, due to a lack of money and resources, this was not possible.
Nonetheless, he taught that despite being unable to move Silicon Valley, he
could make one in India.

Mr Vijay Shekar opened his own company in 2001 called One97

Communications, which offered people, as well as companies, a search
engine. As a result of One97 Communications, Vijay Shekhar also became
one of India's youngest businessmen. During One97 Communications'
expansion, the founder took out loans from various banks at higher interest
rates, with some of them being as high as 24%.

To pay off the loans, he started a consulting firm where he met Piyush
Agrawal. Mr. Vijay Shekhar helped him by developing software for his
company that doubled his profits. Piyush Agrawal was impressed by Vijay
Sharma's work and offered him the position of CEO in his company. But Mr.
Vijay Shekar turned down the offer as he wanted to build something of his
own. Eventually, the loan he had raised for One97 Communications came to
a whopping amount of Rs. 8 lakhs. Consequently, Mr. Vijay Shekhar shared
this information with Piyush Agrawal. Mr. Agrawal helped him by
purchasing 40% of One97 Communications which allowed him to repay the
loan of Rs 8 lakhs.

During his visit to Beijing, he observed that Beijing was rapidly growing in
terms of technology. He felt if a country like China can do this, then why can
not India. It was there and then that he came up with the idea of building an
online payment platform in India. Unfortunately, the idea was dismissed by
the Board of Directors of the company. They believed that Indians prefer
cash and digital transactions would not be approved by their countrymen.
Even then, Mr. Vijay Shekhar was given Rs. 5 crores for six months to see
whether Paytm will move forward or not. After that, Paytm came into being
and the rest is known to all of us. Paytm is the pioneer of mobile wallets.

Key Take-Aways:
x One should not let short term failures or challenges overcome their
long-term vision.
x What is of value for one person might be worthless for another but it is
the sheer determination and believe in your idea which helps you to
fight all the odds to achieve the desired goals.
x One needs to have the resilience and persistence in the goal which
makes a person a successful entrepreneur. It is Years of struggle, hard
work and the never giving-up attitude of Mr. Vijay Shekar that helped
him to make Paytm a grand success.

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Source: (2021, April 29). Defying The Odds: Story Of Paytm Founder Vijay Success Stories

Shekhar Sharma. Convey. https://www.convey.in/main/blogdetail/defying-

the-odds-story-of-paytm-founder-vijay-shekhar-sharma

5) Ritesh Agarwal

It is quite inspirational to see how Ritesh Agarwal went from a dropout to a
billionaire in just a few years. Mr. Riteh Agarwal is the founder and CEO of
OYO Hotels & Homes. Mr. Ritesh comes from Bissamcuttack, a small town
in Odisha with a history of Naxalite activity.

He is fond of travelling. Amidst his travels around India, he noticed an

absence of affordable and high-quality budget hotels. Mr. Ritesh took this
gap or problem as an opportunity and converted it into a business idea. He
launched Oravel Stays, an online hotel booking service that helps people find
and book affordable hotels nearby. While this service was helping travellers
in finding affordable hotels, the company was not serving the purpose he
intended.

To solve this problem, he realized that he had to make a thorough

investigation of hospitality services in India, so he visited many hotels and
traveled across the country. He discovered that the key problem in the
hospitality industry was their non-standard services and the unpredictability
of their operations. It was then that Riteish rebuilt his old business model and
created the OYO hotels we are all familiar with today. "OYO" is an acronym
for On Your Own. He founded the company at the age of 19. Since then, the
company has grown exponentially.

Key Take-Aways:
x Your passion is your ultimate goal. When you do something which
excites you the most you give your hundred percent and that’s make you
successful. Mr. Ritesh through his passion for travelling discovered that
the hotel line is a great opportunity to work and converted this
opportunity into a business idea.
x Age is just a number if you have the dedication toward your goal, no one
can stop you from achieving it.
x Research is one of the most effective ways to understand the customers
and the market. With the help of the information you get from research,
you may build an effective business model and make wise decisions to
ensure business success.
Source: (2020, April 20).The OYO success story: Ritesh Agarwal world’s
youngest self made billionaire after Kylie Jenner. Our Own Start-up
https://ourownstartup.com/ritesh-agarwal-the-man-behind-oyo-rooms/

6) Falguni Nayar

Falguni Nayar is the founder of Nykaa, a retail e-commerce platform that
sells products from the most prominent brands in beauty and wellness. Nykaa
was founded in 2012. Originally, it started as an online company. However,
in its later years, it switched to offline channels through stores.
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Entrepreneurship and Falguni Nayar is from a Gujarati family, but was born and raised in Mumbai.
Micro, Small and
Medium Enterprises Having a father who was a businessman gave her a keen interest in business
(MSMEs) at an early age. Falguni Nayar is a graduate in MBA from IIM Ahemdabad.
After graduating from IIM, she worked as an investment banker with the
Kotak Mahindra group for around 18 years. The firm also appointed her as
the Managing Director of its investment banking business in 2005.

In the year 2012, at the age of 50 she took the big step of giving up her job
and starting her own business. She recognized that beauty was an untapped
market in India, one that was on the cusp of explosion. As a result, she
launched Nykaa, which is now a well-known multi-brand retailer of cosmetic
and wellness products in India. Also Nykaa, has now started its own in-house
beauty brand “Nykaa Beauty”. Nykaa also launched “Nykaa Fashion” an e-
commerce platform having wide range of branded fashion merchandise
including clothes, footwear, bags, accessories, home decor, bed and kitchen
in order to cater four segments of customers: women, men, children and
home. Nykaa is also looking for IPO by the end of rhe year 2021 or early
2022.

Key Take- Aways:

x Be an early mover and take risks. As recognized by Falaguni Nayar that

beauty was an untapped market in India she became the pioneer of
change in this industry and established her online beauty and wellness
retail platform.
x Although Nykaa was started as an online beauty store Falguni Nayar
knew that in order to grow and expand she needs to keep evolving the
business to the needs of the consumers and market.
Source: Rangaiah, M. (2020, Nov 27). The Success Story of Nykaa.Analytic
Steps.https://www.analyticssteps.com/blogs/success-story-nykaa

15.4 SUCCESS STORIES OF SMALL BUSINESS

OWNERS
It is not only the big entrepreneurs, you can learn a lot from the life stories of
small entrepreneurs as well as irrespective of the size of business every
entrepreneur put his 100 percent efforts to make his venture successful. Let
us look at success stories of different small business owners who have been
able to establish their own enterprises and earned a good name in the market.

1) Mr. Ankit Pandey

With more than 10 years of experience and many awards for different
categories in the field of digital marketing by renowned names in the
industry, SEOEaze under Tripping Vibe Digital Private Limited is among
the best companies in the industry.
Mr. Ankit Pandey, is the founder of Tripping Vibe Digital. He holds a
328 degree in engineering. He comes from Mahoba, a small district of Uttar

Pradesh. His parents are Government Employees. Being an engineering Success Stories

student he had keen interest in information and technology and used to be

very active on the internet. He made his first website during his college
days and used to write blogs. After college he started his company as
content writing firm, but as his clients started asking for SEO services, he
later added the service as well and started with SEOEaze.
SEOEaze provides range of services from SEO Packages, Website
Development, Content Writing, Social Media Marketing, Pay Per Click
Service, Complete Link Building, Panda & Penguin Recovery, Advance
Website Audit to Reputation Management. SEOEaze have been featured in
Silicon India magazine for being among “20 Most Promising Inbound
Marketing Service Providers in India 2018”. They also have Google
Partner Badge in their basket. The company has also been featured in the
2017 issue of Digit Magazine as top 30 Digital Marketing Companies in
India.
Mr. Ankit finds that there are stiff competitions in the market nowadays
especially by the younger generation as they are very quick learner, so in
order to survive one have to be very quick to adapt to these changes. He
believes that in order to establish yourself and your business you should be
ready to take risk & keep calm during bad days & work hard to get over it.
Recently the company launched its own SaaS product, named Ranklogs.
He planned this product as he finds there are hardly any SaaS tools related
to digital marketing industry in India. The product will be soon available
for B2B clients.
He aims to expand his business & diversify the portfolio by starting some
retail business. On asking what success means to him, he says, “Reaching
your goals one by one is success, taking a small step is better than putting a
full stop to your dream”.

Key Take Aways:

Work hard in the right direction; follow your own interest rather than
starting something because others are doing it.

2) Mr. Praveen Chirania

Mr. Praveen Chirania is the founder of Muscle and Strength India, a health
supplement retail startup based in Delhi-NCR.

Telling about his startup Mr. Chirania says, “Muscle and Strength offers
high-quality fitness supplement and nutritional products which are
manufactured by international fitness brand under a single roof. It was started
with an aim to provide a consistent supply of high quality and genuine
nutritional and supplement products at an economical price point to Indian
fitness enthusiasts”.

Mr. Chirania holds a bachelor degree in commerce from West Guwahati

Commerce College. His father and mother both run individual business in
Pharmacy and Garment respectively. On asking about his motivation for
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Entrepreneurship and starting a business he says, “Growing Up in a business family I always aspire
Micro, Small and
Medium Enterprises to become an entrepreneur, my environment did not allow me to think of
(MSMEs) anything else”.
He believes decision making is the foremost requirement of any business thus
an entrepreneur should have that ability, to evaluate the alternatives rationally
and make a sound decision. He started his entrepreneurial journey by
working with his father in his pharmacy business. After gaining some
experience he started his own e-commerce business individually. As he was
fascinated by online business and wanted to build something of his own. Mr
Chirania’s e-commerce business was among the first 100 sellers when
Amazon was launched in India.

Muscle and Strength India is a growing retail chain in the health supplement
market. Muscle and Strength India is a brand which has association with
renowned people like Prince Narula, Bhupendra Dhawan, Mukesh Gehlot,
Mayank Pawar and Vipin Yadav.

Muscle and Strength India has expanded aggressively since its inception and
has 13 stores till now. It targets to open more and more stores across India
both in metros and tier 2/3 cities. The company offers a widest range of
fitness supplements and sports nutrition products in India, with over 1000
products from 42+ brands. It also plans to enter into Manufacturing of its
own product across various supplement categories which will widen its
portfolio.

Key Take Aways:

Always believe in your ideas and abilities. It is your confidence which helps
you to move forward.

3) Mr. Sanchit Mahajan

“In India Art is a hobby and not a career, my personal satisfaction is when
I see art growing”, these are the words of Mr. Sanchit Mahajan- founder of
Artysan Creative Ventures LLP.
Artysan lays expertise in Murals, Wall Art and Graffiti. They provide
services from residentials, restaurants, corporates, showrooms, to even NGOs
and government organisations. They also provide customised art services as
designs on papers, t-shirts or other products and also organize private and
public painting sessions.

Talking about his startup story he sates, “I am passionate about art and
Artysan is founded by an Artist for the Artist.” He holds a bachelors
degree in Mathematics from a reputed college of Delhi University. With such
good qualifications his family wanted him to settle with a decent job but he
followed his passion.
During his MBA he used to work as a freelancer and one of the project was
not a good experience for him and the people working with him. Mr. Sanchit
with his team was working on a roadside in the summers and the man for
whom they were working did not even provide them with basic facilities like
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food and drinking water. During this time a man came to him and asked him Success Stories

to write something on his Van and gave him Rs.10 in return and asks about
his qualifications. He did not believed that he holds a degree in Mathematics
and said if someone is doing this work means he is not good educated. That
was the day when Mr. Sanchit realised that if one wish to follow his/her
passion especially in arts people might not take you positively and judge you.
He feels, “when you follow your passion you will be judged, people will not
treat you right, because they don’t recognize art as a sound professional
career so there is a need to build a corporate structure wherein people can
actually work to build their passion in art and at the same can earn their
living.”

Artysan works PAN India and most of the people working with them are
college students. Artysan basically hunt for passionate people who are
interested in doing artistic things. In terms of qualification they do not need
to have any formal qualification like certificates or degrees all they need to
have the required skills and passion.

Mr. Sanchit founds the market for his product new. He feels people are not
very comfortable with anybody painting their wall as they are not confident
about the outcome. Especially when he started in 2016 it was a major
challenge to convince people that his team was capable enough to do good
work as they did not have a portfolio back then neither any formal
qualification in the field. He was quite young that time just 21 and his team
was younger than him.
He believes NETWORK as a very important aspect of present-day business.
According to him, “To create awareness about this new market networking is
required so that business can help each other and we can boost this creative
sector”.
From Wall Solutions, Art Solutions to Workshops, Mr. Sanchit has come up
with another service in Digital Marketing, where they handle pages and
social accounts of their clients to keep their customers in touch by making the
use of reliable content in the form of infographics. He aims at expanding his
services to more creative areas.

Key Take Aways:

In order to become successful one should be stubborn about his idea because
if they actually believe in it no matter what people are saying, all they are
focused toward the goal they fixed for themselves.

4) Ms. Priyanka Rawat

Ms. Rawat together with her friend Mr. Sahib Palgotra is translating dream
home ideas of people into reality through Innovant design. The firm was
established in the year 2015.
Innovant Design is an Interior Design consultancy that focuses on projects
that reflects their client’s personality and aspirations. They focus on-
Interior solution (residential or commercial), Furniture design and
manufacturing, and Vastu consultation as well.
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Entrepreneurship and Her father is a government employee and mother is a home-maker. Ms.
Micro, Small and
Medium Enterprises Rawat is a Graduate in Interior designing, and holds 5 years of relevant
(MSMEs) experience as a Interior Designer in firms namely, HBA International,
Incubis Consultant, Mansionaly Private Limited. On asking about the reason
to quit her corporate career and start her own business, she shares that the
idea came from one of her friend. As her company was relocating it was not
possible for Ms. Rawat to continue with job. His friend motivated her to start
something of her own instead of looking for another job as she holds a good
experience and skills required in the industry. So together with her friend she
started this business.
She founds that there is a stiff competition in the market and to cope up
with this promotion is the best option and tool. She says,” promoting ones
business is not that simple, it is a challenge in itself, there are number of
promotion methods available but they require proper planning, substantial
resources and efforts.”
Talking about success she says, “I just want to grow my business and stay
happy together. Every client and their requirements are different and hence
each project brings its own new challenge. And our dedication gives our
customer full satisfaction which helps us to grow our business and makes
us happy.”

Key Take Aways:

Use your talent to build something for your own self. You should be
focused towards your customer’s needs and requirements because happy
customers are the key to success.

15.5 LET US SUM UP

The entrepreneurs who are first in their family to initiate a business are
termed as First Generation Entrepreneurs. Although these first generation
entrepreneurs lack business background but their enormous hard work and
dedication helps them to achieve success.
Success stories of entrepreneurs are truly inspiring as it infuses a spark and a
ray of hope within people to work on their idea, take the risk and start
something of their own. This contributes in the development of the
entrepreneurial ecosystem.
Entrepreneurs like Dhirubhai Ambani, Narayan Murthy, Kalpana Saroj and
many not only become the first in the families to establish their own
enterprise but also took their business on heights and turned their small
ventures into large enterprises which earned global recognisation.

It is not only the big entrepreneurs, you can learn a lot from the life stories of
small entrepreneurs as well as irrespective of the size of business every
entrepreneur put his 100 percent efforts to make his venture successful.

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 Success Stories
15.6 TERMINAL QUESTIONS
1) Who are first generation entrepreneurs?

2) Based on the stories of first generation entrepreneurs you have read in
this unit discuss the challenges faced by them in establishing their
business.

3) List 5 learnings from the success stories of first generation entrepreneurs
which you have read in this unit.

4) Discuss the characteristics of successful entrepreneurs.

5) Discuss the success stories of two women entrepreneurs in India.

Note: These questions will help you to understand the unit better. Try to
write answers for them. But do not submit your answers to the University for
assessment. These are for your practice only.

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