Chapter 03

E N T E R P R I S E , B U S I N E S S G ROW T H A N D S I Z E
MARK ZUCKERBERG – CEO - FACEBOOK
JEFF BEZOZ –FOUNDER - AMAZON
R I T E S H A G A RW A L
F O U N D E R – OYO RO O M S
V I J AY S H E K H A R S H A R M A
F O U N D E R - PAY T M
N . R N A R AYA N M U RT H Y – F O U N D E R -
NANDAN NILEKANI – CO-FOUNDER
INFOSYS
 B Y J U R AV E E N D R A N
FOUNDER & CEO
BYJU’S THE LEARNING APP
KUNAL SHAH –FOUNDER- CRED
CARL PEI – FOUNDER - ONEPLUS
SAMEER NIGAM – CEO - PHONEPE
 ENTREPRENEUR

• Def : Entrepreneur is a person who

organizes, operates and takes the risk for a
new business venture
Advantages of being Entrepreneur Dis-advantages of being Entrepreneur

1. Independence – Able to choose how to use time and 1. Due to poor planning, business fails even if idea is innovative
money

2. Able to use its own ideas into practice 2. Need to invest its own capital if other sources of finance not
available

3. May become famous and successful, If business become 3. Lack of knowledge and experience in starting business
successful

4. Earn high profits than an employee 4. Opportunity cost – lost income from not being an employee

5. Makes use of personal interests and skills

CHARACTERISTICS OF SUCCESSFUL
ENTREPRENEURS
1. Hard
Working

8. Effective
Communicator 2. Risk Taker

7. Independent 3. Creative

6. Innovative 4. Optimistic

5. Self
Confident
 BUSINESS PLAN
• A bank will ask an entrepreneur for business plan before giving loan to help

finance the new product.

• Definition

• A business plan is a document containing the business objectives and

important details about the operations, finance and owners of new business

1. What products/service do I intend to provide, and which consumers are your

aim?

2. What will be may main costs and will enough products be sold to pay for
them?

3. Where will be firm located?

4. What machinery and how many people will be required in the business?
 BUSINESS PLAN
• Without detailed business plan, banks will not lend money to the business

• Owners of new business cannot show about seriousness and future of the

business.

• Sometimes Bank manager may be reluctant to provide loan because he may

find business plan is not prepared well

 CONTENTS IN
BUSINESS PLAN

1. Description of business

Provide brief history and summary of the business and objectives of the business

2. Products and Service

Describes what business sells or delivers

Strategy for continuing

Developing products / service in future to remain competitive and grow

3. Market

Total Market Size Predicted Market Growth

Target Market Predicted changes in market in the future

Analysis of competitors Forecast sales revenue from the product

 CONTENTS IN
BUSINESS PLAN

4. Business Location and how products will reach customers

Describe the physical location

Describe how firm deliver products and services to customers

5. Organization structure and management

Require organization structure, management, details of employees

Require number and level of skills required for the employees

 CONTENTS IN
BUSINESS PLAN

6.Financial Information

Projected Profit and Loss Statement and Balance sheet

Source of capital (Bank Loan, Owner Savings, Venture Capitalist, Crowdfunding)

Predicted Cost – Fixed and Variable Costs

Cashflow forecast and Working Capital

Projected Profitability and Liquidity Ratios

7. Business Strategy

How business will satisfy customer needs and gain brand loyalty

Type of strategy will be implemented by business to be successful

 To Reduce Unemployment

To Increase Competition
WHY
G OVER NMENT
S U P P O RT
To Increase Output
BUSINESS
S T A R T- U P S To Benefit Society

Can Grow Further

H OW G O V E R N M E N T S U P P O RT B U S I N E S S
S T A R T- U P S

1. Business Organising training for entrepreneurs and Support sessions offered by

Idea and Help experienced business people
2. Premises Provide Low-Cost premises for business start-ups

3. Finance Bank loans at lower interest rate, Subsidies, Grants

4. Labour Providing grants / finance to train employees and increase in

productivity
5. Research Encouraging universities to make research facilities available for new
business entrepreneurs
 METHODS OF MEASURING BUSINESS
SIZE

1. Number of People Employed

• Easy way to calculate and compare with other business

Limitations
• Employing less candidates results Less Output
 METHODS OF
MEASURING BUSINESS
SIZE

2. Value of Output
• Calculating the value of output a common way of
comparing business size in same industry

Limitations
• High level output does not mean that business is large
• Value of output in any time period cannot be same as sales
value
METHODS OF MEASURING
BUSINESS SIZE

3. Value of Sales
Comparing the size of retailing business –
Selling same products

Limitations
Misleading to use when comparing the size
of business that sells different products
 METHODS OF MEASURING BUSINESS
SIZE

4. Value of Capital Employed

Total value of capital invested in business

Limitations
Cannot judge the amount or value of money that is
required by a business
 D I F F E R E N T WAY S
T H RO U G H W H I C H
B U S I N E S S C A N G ROW

1. Internal Growth
• Def : Internal Growth occurs when a
business expands its existing operations
• Its is quite slow but easy to manage

2. External Growth
• Def : External Growth is when a business
takes over or merges with another business. It
is often called integration as one business is
integrated into another one
• Takeover or Merger
 TA K E OV E R

Def : A takeover or acquisition is when a business buys

out the owners of another business which then becomes
part of the ‘predator’ business

1. Walmart takeover Flipkart,

2. Tata Motors takeover Jaguar Land Rover
3. Tata Steel acquired Corus
4. Louis Vuitton acquired Tiffany & Co
 M E R G E R ( I N T E G R AT I O N )

Def : A merger is when the owners of two

businesses agree to join their business together to
make one business
• Types of Merger
1. Horizontal Merger
2. Vertical Merger
• Forward Vertical Integration
• Backward Vertical Integration
3. Conglomerate Merger
 H O R I Z O N TA L
MERGER

Def : Horizontal Integration is when one

business merges with or takes over another one
in the same industry at same stage of
production
Benefits :
• Reduces number of competitors in industry
• Opportunities for economics of scale
• Larger market share
V E RT I C A L I N T E G R AT I O N

Def : Vertical Integration is when one business merges

with or takes over another one in the same industry but
at different stage of production. Vertical integration can
be forward or backward
 F O RW A R D A N D B A C K W A R D I N T E G R A T I O N

Forward Integration Backward Integration

When a business integrates with another business which When a business integrates with another business at an
is at a later stage of production (Closer to consumer) earlier stage of production (Closer to raw materials)

Benefits Benefits

Information about consumer needs and wants can be Assured supply of important components
obtained
Retailer is prevented from selling competing products Cost of components and supplies will be controlled

Profit margin is absorbed by expanded business Profit margin is absorbed by expanded business
 C O N G L O M E R AT E I N T E G R AT I O N

Def : Conglomerate Integration is when one

business merges with or takeover a business in
completely different industry. This is also
known as diversification

Benefits
• Diversified activities
• Spread of risks (Low Risk)
• Transfer of ideas between different sections
of business
 P RO B L E M S A N D S O L U T I O N S L I N K E D
W I T H B U S I N E S S G ROW T H
Problems Solutions

Larger Business difficult to Control Operate Business in Small Units

Large Business leads to Poor Communication Operate Business in Small Units

Use of Latest IT Equipment and Telecommunication

Expansion Cost Expand Slowly

Ensure sufficient Long-Term Finance is Available

Difficulty in Integrating with Another Business Introduce Different Style of Management

Good Communication with Employees

 C AU S E S O F
BUSINESS FAILURE
1. Lack of Management Skills
• Lack of Experience leads to bad decisions (Wrong Business
location, High Business Expenses, Selling product having low
demand)
2. Change in Business Environment
• Fail to plan for change add risk and uncertainty of operating a
business.
• Reluctant to change to New Technology, Powerful
Competitors, Country Economic Changes
3. Liquidity Problems / Poor Financial Management
• Shortage of Cash
• Failure to forecast cash flows
4. Over Expansion
• Quick expansion can lead to Management and Finance
Problems
• Can lead to closing the business