Meaning of Innovation and Creativity

Creativity is about creation. It’s about harnessing the power of the mind to
conceive new ideas, products plans, thought experiments, tastes, sensations or
art. Creativity can be a form of expression or a way of solving problems. Anyone
can be creative, and in any context. There’s creativity in the marketing
department, just as there can be creativity on a football pitch.

Creativity has traditionally been left to those ‘wacky’ companies that are
deliberately trying to do things differently, with the majority of businesses
tending to favour a traditional and monotone approach to running their
organizations. However, the changing business landscape means that
companies are beginning to consider a more creative approach to working.

Need of creativity

Creativity can help a company manage tasks, improve staff performance and
create quality products. It is also vital in fostering a likeable and aspirational
company image. With consumers now able to get a snapshot of what company
life is like, businesses need to be able to depict their inner culture in a way that
makes it seem appealing.

As new technologies continue to develop and become available, companies have

to be flexible and able to keep up to date. Creativity allows them to easily identify
new ways in which technology can be applied to help their businesses. Likewise,
with social media and other interactive forms of marketing now available, it’s
never been more important for companies to be able to be creative.

Allowing employees to be more creative can inspire them to come up with more
interesting ideas as well as improve their overall output. Many of the world’s
leading companies have started to adopt unorthodox methods of encouraging
maximum creativity from their employees, such as sleeping pods and flexible
working areas.

Types of Creativity

1. Deliberate and Cognitive creativity

People who possess deliberate and cognitive characteristics are purposeful.

They have a great amount of knowledge about a particular subject and combine
their skills and capabilities to prepare a course of action to achieve something.
This type of creativity built when people work for a very long time in a particular
area.
People who fall under this type of category of creativity are usually proficient at
research, problem- solving, investigation and experimentation. This type of
creativity is located in the brain’s prefrontal cortex, which is at the front part of
the brain. These types of creative people spend a great deal of time every single
day testing to develop new solutions.

Thomas Alva Edison is one prominent example of this type of creative people. He
ran experiment after experiment before inventing electricity, the light bulb, and
telecommunication. Hence, deliberate and cognitive creativity requires a great
deal of time, dedication and abundance of knowledge about a particular subject.

2. Deliberate and Emotional Creativity

People who are categorized as deliberate and emotional let their work influenced
by their state of emotions. These types of creative people are very emotional and
sensitive in nature. These individuals prefer relatively quiet and personal time to
reflect and they usually have a habit of diary writing. However, they are equally
logical and rational in decision making.

Their creativity is always a balanced product of deliberate emotional thinking

and logical actions. This type of creativity is found in the amygdala and cingulate
cortex parts of the human brain. Amygdala is responsible for human emotions
whereas cingulate cortex helps in learning and information processing. This type
of creativity happens to people at random moments. Those moments are usually
referred to as “a-ha!” moments when someone suddenly thinks of a solution to
some problem or think of some innovative idea.

For example, there are situations when you feel low and emotional which
distracts you from your work. In those kinds of situations, you should take 5
minutes and point out the things which are making you sad and keep them aside
and focus on the work in hand. It will help you to get improvised results and you
will get work done easily. One should seek “quiet time” for deliberate and
emotional creativity to happen to them.

3. Spontaneous and Cognitive creativity

There are times when you spend a long time to crack a problem but can’t think of
any solution. For example, when you want to make a schedule for a month to get
a job done, but you can’t seem to think of any possible way and when you are
watching television and having your relaxed time and suddenly you think of a
solution and everything falls in place. The same case happened with the great
scientist Isaac Newton. He got the idea about the law of gravity when an apple hit
his head while he was sitting under a tree and relaxing.
This is the “Eureka!” moments for Newton and an excellent example of a
spontaneous and cognitive person. This type of creativity happens when one has
the knowledge to get a particular job done, but he requires inspiration and a hint
to walk towards the right path. This type of creativity usually happens at the
most inconvenient time, such as, when you are in bed with your partner or having
a shower. Spontaneous and cognitive creativity takes place when the conscious
mind stops working and go to relax and unconscious mind gets a chance to work.

Mostly, this type of creative person stops conscious thinking when they need to
do “out of the box” thinking. By indulging in different and unrelated activities,
the unconscious mind gets a chance to connect information in new ways which
provide solutions to the problems. Therefore, to let this type of creativity happen
one should take a break from the problem and get away to let conscious mind
overtake.

4. Spontaneous and Emotional Creativity

Spontaneous and emotional creativity takes place in the “amygdala” part of the
human brain. Amygdala is responsible for all emotional type of thinking in the
human brain. Spontaneous ideas and creativity happen when conscious and
Prefrontal brain is resting. This type of creativity is mostly found in a great artist
such as musicians, painters, and writers etc. This type of creativity is also related
to “epiphanies”.

Epiphany is a sudden realization of something. Spontaneous and emotional

creativity is responsible for a scientific breakthrough, religious and also
philosophical discoveries. This allows the enlightened person to look at a
problem or situation with a different and deeper viewpoint.

Those moments are defined as rare moments when great discoveries take place.
There is no need to have specific knowledge for “spontaneous and emotional”
creativity to happen but there should be a skill such as writing, musical or artistic.
This type of creativity can’t be obtained by working on it.

Innovation

Innovation, on the other hand, needs stability and establishment. It’s about
changing a common or long-standing process by improving it. It’s only by having
a status quo in existence, that you can develop it in order to innovate. So, while
creativity and innovation share strong links, the processes are entirely different.

Innovation is about taking newly created ideas and developing them into
something useful and practical. In many ways, innovation is the process of
converting theory into action.
The most common type of innovation is evolutionary, which means finding ways
of making incremental improvements to your products and services. This type of
innovation carries fewer risks, as it’s generally easier to establish demand for
these improvements and to calculate the likely return on investment. However,
it still requires a strategic, targeted approach – there’s little point in improving a
product in a way that customers don’t value.

The best way to identify opportunities for evolutionary innovation is to talk to

existing customers and find out what they value most about your products and
services, and what aspects they’d like to see improved. If longer battery life is
their number one priority, then it probably should be your number one target for
innovation. However, if they also value the product’s easy portability, it’s
probably not a good idea for your new version to be much larger or heavier.

Need of innovation

Innovation is important because it’s the only way that you can differentiate your
products and services from those of your competitors. For customers and clients
to choose your business, your offer needs to be distinctive and valuable, and the
only way to achieve this is through innovation.

It can be tempting to let your rivals do all the heavy lifting of creativity and
innovation, with all the investment, experimentation and risks that this entails.
Then, when they come up with a dazzling new product or improvement, you can
simply copy what they’ve done at a fraction of the effort. However, there are
several pitfalls to this approach.

Most importantly, you’ll always be playing catch-up. However quickly you get
your version to market, your rivals will always have the lead on you and they’ll
already be planning their next move. This means customers will go to your rivals
first, who will maintain a reputation for leading the pack. Your business won’t
stand out because there’ll always be someone else who’s already met the needs
and desires of your customers. You’ll harm your own brand, and could also risk
infringing on your competitor’s intellectual property rights.

However, innovation doesn’t have to be focused on changing a product or

service. If you can find an innovative new process that enables you to create a
product more efficiently without compromising on quality, you’ll be able to
stand out from your rivals by undercutting their prices. Similarly, your
innovation could come in the form of a new distribution system, enabling you to
stand out by offering the fastest delivery to customers.

Creativity and innovation in the workplace

Exploiting both creativity and innovation in business can boost performance and
the bottom line. But first, you need to make space for both to happen.

Encouraging creativity can involve lots of different strategies, from enabling

employees to work outside the office to letting people come into and leave the
office when they feel ready to, not when they’re expected to. The office itself
needs to be creativity-friendly and there are ways you can adapt the working
environment to support employees’ talents.

It’s important to let staff feel free when exploring new ideas – whether it’s
tweaking your existing product or developing a whole new concept. Involve the
team, share accountability, reward good work and be ready to respond to market
feedback. Remember, your ideas and innovation, no matter how amazing, still
need to fulfil a need among customers.

There’s no guaranteed source of great ideas, but they do tend to be generated by

the most engaged, positive employees. They don’t come from staff who are
bored or stressed. Great ideas sometimes come from brainstorming sessions,
but trying to force out ideas can be counterproductive. In reality, great ideas are
equally likely to occur when a particular problem occurs that requires a solution,
or even when an employee is on their way home, thinking about their day.

The key is to use your business’s culture and processes to capture these ideas
when they happen, wherever they come from. Staff suggestion boxes and
allocated creative time can work well, but sometimes all that’s required is a clear
message from the boss that all ideas are welcome.

Difference between innovation and creativity

Last updated on November 16th, 2022 at 01:56 pm

There’s a lot of confusion surrounding creativity and innovation. “Creative

types,” in particular, claim that creativity and innovation can’t be
measured. Performance, however, demands measurement so you can
identify what success looks like. In a world that changes every second, it’s
must be imperative that companies figure out the difference between
creativity and innovation.

Creativity and innovation are not one and the same, but they do
complement one another. In fact, one can’t function without the other.

The primary difference between creativity and innovation is that the former
refers to conceiving a new idea while the latter involves converting that
idea into a marketable commodity.
Creativity is the act of conceiving something new, whether a variation on
an existing theme or something wholly original. Innovation is the act of
putting that concept into practice. It’s the difference between suggesting
the idea that an aircraft could fly through space and actually building a
rocket that astronauts can use to get to the moon.

Creativity

Creativity is the characteristic of a person to generate new ideas,

alternatives, solutions, and possibilities in a unique and different way.

Creativity is the ability to conceive something unpredictable, original and

unique. It must be expressive, exciting and imaginative. It is the mirror of
how beautifully a person can think in any given circumstance.

It is not genetic but can be developed if someone keeps on learning and

comprehending things with a rare and exclusive perception. Creativity is a
brainstorming and mind-blogging activity in which a person has to think
beyond his imagination for bringing something worthwhile. It is an activity
of unveiling something which was previously hidden.

Innovation

Innovation is an act of application of new ideas to which creates some value

for the business organization, government, and society as well. Better and
smarter way of doing anything is innovation. It could be the introduction
of:

• New technology.
• New product line or segment.
• A new method of production.
• An improvement in the existing product.

Creativity and Innovation

Innovation Creativity

Innovation is the exercise to create something Creativity is the ca

Definition
new which already has a large value to others. up something unco

Innovation acts by putting those new ideas in

Their actions Creativity acts by
reality.
 Measurable Easy to measure. Hard to measure.

Innovation can cause liability as the idea Creativity doesn’t

Liability
becomes reality. a thought or idea.

Not every creativit

Expression Every innovation is a result of creativity.
innovation.

Process Productive Imaginative

Quantifiable Yes No

Related to Introducing something new Thinking somethin

Money
Yes No
Consumption

Risk Yes No

Business Model Innovation

Business model innovation is the art of enhancing advantage and value creation by
making simultaneous and mutually supportive changes both to an organization’s value
proposition to customers and to its underlying operating model. At the value
proposition level, these changes can address the choice of target segment, product or
service offering, and revenue model.

A business model is nothing more than a model, holistic description of the logical
contexts how a company generates value for its customers and itself. The detailed
illustration of this logic makes the business model visible, assessable and
subsequently changeable. At the operating model level, the focus is on how to drive
profitability, competitive advantage, and value creation through these decisions on
how to deliver the value proposition:

• What cost model is needed to ensure attractive returns.

• Where to play along the value chain.
• What organizational structure and capabilities are essential to
success.
The digital age has become an impetus for business model innovation, as technology
has dramatically changed how companies operate and deliver services to customers.
This digital disruption has shortened business model lifecycles and made innovation
key to financial success. The global marketplace has further driven the need for
business model innovations, as companies must react to stiffer international
competition and the increased potential for systemic risk. These factors are forcing
companies to turn to business model innovation to stay competitive and foster growth
in the competitive global marketplace.

Pursuing Innovation in Business

In addition to business model innovation, companies could also pursue other types of
innovation, including:

Product Innovation: This describes the development of a new product, as well as an

improvement in the performance or features of an existing product. Apple’s continued
iteration of its iPhone is an example of this.

Process Innovation: Process innovation is the implementation of new or improved

production and delivery methods in an effort to increase a company’s production levels
and reduce costs. One of the most notable examples of this is when Ford Motor
Company introduced the first moving assembly line, which brought the assembly time
for a single vehicle down from 12 hours to roughly 90 minutes.

Business Model Canvas

The “Business Model Canvas” by Alexander Osterwalder and Yves Pigneur. It is

somewhat more comprehensive than the before mentioned 4-dimension concept and
therefore also allows a higher degree of complexity with regard to the description of
the functioning of a company.

The canvas concept is based on nine basic building blocks that cover the four most
important areas of the company (customer, offer, infrastructure, finance):

Customer segments

People or organizations to be reached.

Value propositions

products and services that solve a problem for a customer segment or meet a need
and thus value.

Channels
sales channels through which the company reaches and responds to its customers to
convey the values offered.

Customer relations

The company’s different relationships with its customers (customer acquisition,

customer care, sales promotion, personal or automated)

Sources of income: Income from a company from the various customer segments.

Key resources

Basic resources needed to operate the business model (physical, intellectual, human,
financial).

Key Activities

The key business model processes that provide the key resources described above.

Key partnerships

The main partners of the business model (suppliers, strategic alliances and
partnerships, joint ventures)

Cost structure

The most important of the costs incurred in the business model.

Four Approaches to Business Model Innovation:

• The adventurer approach aggressively expands the footprint of a

business by exploring or venturing into new or adjacent territories. This
approach requires an understanding of the company’s competitive
advantage and placing careful bets on novel applications of that
advantage in order to succeed in new markets.
• The maverick approach deploys business model innovation to scale
up a potentially more successful core business. Mavericks which can
be either startups or insurgent established companies employ their
core advantage to revolutionize their industry and set new standards.
This requires an ability to continually evolve the competitive edge or
advantage of the business to drive growth.
• The adapter approach is used when the current core business, even
if reinvented, is unlikely to combat fundamental disruption. Adapters
explore adjacent businesses or markets, in some cases exiting their
 core business entirely. Adapters must build an innovation engine to
persistently drive experimentation to find a successful “new core”
space with the right business model.
• The reinventor approach is deployed in light of a fundamental
industry challenge, such as commoditization or new regulation, in
which a business model is deteriorating slowly and growth prospects
are uncertain. In this situation, the company must reinvent its
customer-value proposition and realign its operations to profitably
deliver on the new superior offering.

Service Innovation
Service innovation as “a new or significantly improved service concept that is
taken into practice. It can be for example a new customer interaction channel, a
distribution system or a technological concept or a combination of them. A
service innovation always includes replicable elements that can be identified
and systematically reproduced in other cases or environments. The replicable
element can be the service outcome or the service process as such or a part of
them. A service innovation benefits both the service producer and customers
and it improves its developer’s competitive edge. A service innovation is a service
product or service process that is based on some technology or systematic
method. In services however, the innovation does not necessarily relate to the
novelty of the technology itself but the innovation often lies in the non-
technological areas. Service innovations can for instance be new solutions in the
customer interface, new distribution methods, novel application of technology
in the service process, new forms of operation with the supply chain or new ways
to organize and manage services.”

Another definition proposed by Van Ark states it as a “new or considerably

changed service concept, client interaction channel, service delivery system or
technological concept that individually, but most likely in combination, leads to
one or more renewed service functions that are new to the firm and do change
the service/good offered on the market and do require structurally new
technological, human or organizational capabilities of the service
organization.” This definition covers the notions of technological and non-
technological innovation. Non-technological innovations in services mainly
arise from investment in intangible inputs.

Service innovation is used to refer to many things. These include but not limited
to:

Innovation in services, in service products: New or improved service products

(commodities or public services). Often this is contrasted with “technological
innovation”, though service products can have technological elements. This
sense of service innovation is closely related to service design and “new service
development”.

Innovation in service processes: New or improved ways of designing and

producing services. This may include innovation in service delivery systems,
though often this will be regarded instead as a service product innovation.
Innovation of this sort may be technological, technique- or expertise-based,or
a matter of work organization (e.g. restructuring work between professionals
and paraprofessionals).

Innovation in service firms, organizations, and industries: Organizational

innovations, as well as service product and process innovations, and the
management of innovation processes, within service organizations.

Areas of innovation: Den Hertog’s model

Thus den Hertog who identifies four “dimensions” of service innovation, takes
quite a different direction to much standard innovation theorizing.

The Service Concept refers to a service concept that is new to its particular
market a new service in effect, or terminology, a “new value proposition”. Many
service innovations involve fairly intangible characteristics of the service, and
others involve new ways of organizing solutions to problems (be these new or
familiar ones). Examples might include new types of bank account or
information service. In some service sectors, such as retail, there is much talk
about “formats”, such as the organization of shops in different ways (more or
less specialized, more or less focused on quality or cost-saving, etc.).

The Client Interface refers to innovation in the interface between the service
provider and its customers. Clients are often highly involved in service
production, and changes in the way in which they play their roles and are related
to suppliers can be major innovations for many services. Examples might include
a greater amount of self-service for clients visiting service organizations. There
is a French literature on service innovation that focuses especially on this type of
innovation, identifying it as innovation in “servuction”.

The Service Delivery System also often relates to the linkage between the
service provider and its client, since delivery does involve an interaction across
this interface. However, there are also internal organizational arrangements
that relate to the ways in which service workers perform their job so as to deliver
the critical services. Much innovation concerns the electronic delivery of
services, but we can also think of, for instance, transport and packaging
innovations (e.g. pizza delivery). An emerging concept of SDP is the idea of
taking a “factory” approach to Service Innovation. A “service factory” approach
is a standardized and industrialized environment for more effective service
innovation, development and operations for the IP era.

Technological Options resemble most familiar process innovation in

manufacturing sectors. New information technology is especially important to
services, since it allows for greater efficiency and effectiveness in the
information-processing elements that are, as we have seen, prevalent to a great
extent in services sectors. We also often see physical products accompanying
services, such as customer loyalty cards and “smart” RFID cards for transactions,
and a wide range of devices for communication services.

Features of services associated with service production

• Technology and Plant (Low levels of capital equipment; heavy

investment in buildings >>> Reduce costs of buildings by use of
teleservices, toll-free phone numbers, etc.)
• Labor (Some services highly professional, esp. requiring
interpersonal skills); others relatively unskilled, often involving
casual or part-time labor. Specialist knowledge may be
important, but rarely technological skills (other than Information
Technology) >>> Reduce reliance on expensive and scarce skills
by use of expert systems and related innovations; Relocation of
key operations to areas of low labor costs (using
telecommunications to maintain coordination).
• Organization of Labor Process (Workforce often engaged in craft-
like production with limited management control of details of
work. >>> Use IT to monitor workforce (e.g. tachometers and
mobile communications for transport staff; Aim for ‘flatter’
organizational structures, with data from field and front-office
workers directly entering databases and thence Management
Information Systems.)
• Features of Production (Production is often non-continuous and
economies of scale are limited >>> Standardize production (e.g.
‘fast-food’ chains), reorganize in more assembly-line-like
feature with more standard components and higher division of
labor.)
• Organization of Industry (Some services state-run public
services; Others often small-scale with high preponderance of
family firms and self-employed >>> Externalization and
privatization of public services; combination of small firms using
network technologies; IT-based service management systems.)
Features of services associated with service product

• Nature of Product (Immaterial, often information-intensive;

Hard to store or transport; Process and product hard to
distinguish. >>> Add material components (e.g. client cards,
membership cards). Use telematics for ordering, reservation, and
if possible delivery. Maintain elements of familiar ‘user-
interfaces’.)
• Features of Product (Often customized to consumer
requirements.>>> Use of Electronic Data Interchange or Internet
for remote input of client details; use software to record client
requirements and match to service product.

Features of services associated with services consumption

• Delivery of Product (Production and consumption coterminous in

time and space; often client or supplier has to move to meet the
other party. >>> Telematics; Automated Teller Machines and
equivalent information services.)
• Role of Consumer (Services are consumer-intensive, requiring
inputs from consumer into design/production process. >>>
Consumer use of standardized menus and new modes of
delivering orders.)
• Organization of Consumption (Often hard to separate production
from consumption; Self-service in formal and informal
economies commonplace.>>> Increased use of self-service,
utilizing existing consumer (or intermediate producer)
technology e.g. telephones, PCs and user-friendly software
interfaces.)

Features of services associated with services markets

• Organization of Markets (Some services delivered via public

sector bureaucratic provision; Some costs are invisibly bundled
with goods (e.g. retail sector).>>> Introduction of quasi-markets
and/or privatization of services; New modes of charging (pay per
society), new reservation systems; more volatility in pricing using
features of EPOS and related systems.)
• Regulation (Professional regulation common in some services.
>>> Use of databases by regulatory institutions and service
 providers to supply and examine performance indicators and
diagnostic evidence.)
• Marketing (Difficult to demonstrate products in advance.>>>
Guarantees; demonstration packages (e.g. demo software,
shareware, trial periods of use).)

Design-led innovation, Improvisation

Design-led innovation

Design-led innovation is a process that shifts the role of a designer to work across an
organization to radically change a company’s view of the value proposition offered to
customers to co-design, and to generate a unique and sustainable competitive
advantage. With the relative newness of design-led innovation, case study research
into the complexities faced by companies with the implementation and integration of
this process is quite sparse. To add a new perspective, this research presents a case
study of one Australian manufacturing company operating in the mining equipment,
technology, and services (METS) sector, and how design-led innovation fits within
their family-owned and engineering-driven organizational and cultural framework.

All businesses treat design differently so it is in sync with their brand identity. There is
no set formula for design. As Nathan Sinsabaugh wrote in his Wired article, “Design
is about understanding people in the context and culture they live in to develop
genuine empathy, and testing and iterating solutions with customers to explore the
validity of decisions.” This way of thinking doesn’t suit the mathematical mindset of
traditional business innovation, so you’ll need innovative people working in a creative
environment that encourages out-of-the-box ideas and intuition.

Design is about creating solutions and providing what users need. That’s the essence
of design-led innovation: being user-friendly. If your clients and customers like
engaging with you, that’s good news for everyone. So if you’re interested in the
advantages of design-led innovation, then perhaps it’s time to change the way your
company thinks.

Design-led innovation is broadly defined as a method that allows a company to

consider and evaluate radically new propositions from multiple perspectives, typically
spanning user needs, business requirements, and technology demands.

Key to this process is that design is core to a company’s vision, strategy, culture,
leadership, and development processes. The design-led innovation framework
outlined below Figure, provides a conceptual structure to assist the development of
innovation through collaboration across the entire organization; it integrates the
operational functions with the strategic vision by combining internal and external
sources.
Design thinking uses a method of prototyping to reduce the risk in a business model
concept by testing it with the marketplace; it allows for the creative development of an
idea. By taking a holistic systems perspective, design thinking creates strong value
propositions that interweave through business model development so the value
received is greater than the sum of the parts. Design as an innovation mechanism is
an iterative process that can assist in both uncovering problems with stakeholders,
analyzing some possibilities, and then synthesizing multiple elements to form new
solutions. During this process, the practitioner moves between the concrete and
abstract worlds of understanding (Beckman & Barry, 2009) to build new value
propositions.

Design-led innovation builds on this theory by internally aligning the solution with the
company’s strategy, resources, and brand. Design and innovation as organizational
processes work with the staff who deliver the resultant innovation, not in isolation from
organizational systems. Design-led innovation can also align corporate ideologies to
fit and potentially leverage the company’s internal capabilities, resources, and brand
(business model) in order to generate an innovative solution that creates a competitive
advantage.

Design thinking is a foundational activity within design-led innovation, by leveraging a

creative systems perspective that integrates the design of the business models.
Design-led innovation is a philosophy that “examines every core facet of the business,
to realign business strategy with customer needs and possible market futures”
(Pozzey et al., 2012). Design-led innovation is derived through a creative
interrelationship between these fundamental business elements to generate true value
for the customer and to capture profits for growth, as shown in Figure 2.
Improvisation

Improvisation is the ability to create and implement a new or an unplanned solution in

the face of an unexpected problem or change. It is often seen as a spontaneous,
intuitive, creative problem-solving behavior that mostly happens “on the fly.”

Improvisation has also been studied in organizational strategy and product

development. Studies have found positive correlations between improvisation in
product development and team performance. It is considered a spontaneous behavior
(collectively or individually), and therefore dependent on team members’ attitudes,
experience, motivation, intuition, and individual skills. Despite a number of studies on
improvisation in the management context, there is no consensus on the most effective
approach to develop this competence in project teams.

Improvisation may seem incompatible with the well-defined processes that govern
most mature business practices. Hiring teams don’t often screen for improvisation
skills, and most employee training programs focus on developing leadership or
technical skills rather than helping employees to become better improvisers. However,
improvisation is in fact key to organizational agility. Managers and employees who are
capable improvisers will steer their companies through crises and paradigm shifts,
from technological breakthroughs and changing trade regulations to environmental
disasters and the myriad challenges associated with the Covid-19 pandemic.

Types:

• Imitative improvisation, exhibited by the least-experienced players,

consists of observing what more-experienced people are doing and
matching their responses with minimal variation. For example, in one
scenario, we observed a new player whose character was entering a
coven for the first time. Unsure of what to do, he looked at the more-
experienced players and adjusted his costume and make-up on the
spot to be more in line with their styles. While this is the simplest type
of improvisation, it is an effective starting point that enables
newcomers with limited experience to get involved.
• Reactive improvisation: using inputs from both the environment and
other players to develop your own original reaction to an unexpected
situation, without relying on others’ actions as a guide. For instance,
when players faced an enemy attack and had to defend a fort, they
spontaneously reacted to the threat by moving their troops and
continuously reorganizing their defenses, demonstrating a novel
reaction to both their fellow players’ actions and those of their enemies.
We found that this type of improvisation was generally developed after
players had already mastered imitative improvisation, as it required
players to build on their existing experience to extrapolate new, original
courses of action.
• Generative improvisation is about probing into the future and
proactively trying new things in an attempt to anticipate and even
catalyze (rather than react to) what could happen. Because it is
fundamentally speculative, generative improvisation is inherently the
riskiest but it’s also often the most effective for developing truly unique,
innovative ideas. This type of improvisation was exemplified by a
moment when two players decided on the spot to embark on a
dangerous mission aimed at retrieving a powerful artifact in order to
avoid potential problems in the future, without any specific external
event triggering that decision.

Steps:

1. Build awareness of how different types of improvisation skills are

developed

As a first step, simply educating yourself and your team about the different types of
improvisation skills and how an emphasis on competition or collaboration can impact
their development is crucial. Greater awareness of these skills can inform team
composition, ensuring that newcomers are paired with more experienced improvisors
from whom they can begin to learn imitative improvisation skills. It can also inform
team allocation, enabling organizations to identify teams or individuals with strong
improvisational skills and assign them to the projects that are the most unstructured
and uncertain.

2. Balance collaboration and competition

Managers need to carefully manage this tension, pushing their employees to develop
collaborative skills without hampering the competitive instincts of ambitious
newcomers. An emphasis on collaboration is ultimately necessary to foster generative
improvisation, but without a strong competitive drive, employees may struggle to
develop the reactive improvisation skills that they’ll need as a foundation for further
growth.

3. Nurture social structures; especially when working remotely

Finally, the importance of strong social structures cannot be overstated. To foster true,
generative improvisation skills among their employees, managers must create a
psychologically safe environment of rich social interactions that engenders trust and
collaboration, enabling employees to gain inspiration from each other’s subtle cues
and work together to come up with new ideas without excessive fear of rejection. And
of course, this sort of environment can be challenging to maintain in the best of times,
but it’s even harder virtually. As such, especially in the face of limited in-person
interaction, managers should pay extra attention to supporting both formal and
informal mechanisms for building strong social connections between team members

Large firm Vs. Start-up innovation

Startup Culture

A startup environment is typically a fast-paced culture in which creativity and

communication are valued. Startups tend to be smaller than large corporations,
especially in the early stages of growth, enabling employees to build strong
relationships and freely exchange thoughts and ideas. They’re also capable of acting
nimbly to adjust business practices and hit shifting goals.

Corporate Culture

A corporate environment, on the other hand, is often characterized by a more

structured, formal approach to company culture. Because many corporations employ
thousands of workers, it’s not uncommon for employees to be unfamiliar with
colleagues outside of their immediate teams or departments.

Startup point of view

As they confront numerous challenges in their early life, startups need to work with
large groups if they want to increase their chances of survival. The large companies
in the CAC40 seem to be the ideal partners to tackle some of the issues that the
startups might face: the lack of financing, the lack of accompaniment, the poor market
knowledge.

Moreover, most entrepreneurs see partnerships as the cornerstone for the adaptation
and the evolution of their business. It is a way to challenge their ideas with a real client
that offers a leverage over their ongoing development without a heavy financial
compensation. Additionally, having a big firm that shows a strong interest in your
solution can prove useful when it comes to reaching out to new clients and investors.

Corporation point of view

Driven by the digital revolution, startups were first seen as fierce competitors that
corporations have long found hard to face.

Nowadays, this vision has changed, and some major groups have managed to turn
this challenge into an asset. Risk has been transformed into opportunity, and
innovation has been set as a goal for each company: It is now firmly integrated into
corporate strategies as a major goal for the large firms.

Former French Tech director, David Monteau, has confirmed this tendency stating that
“[…] for about 4 to 5 years, big French groups have communicated and invested a lot
into startups.” Many corporations are now chasing after startups, hoping to accelerate
or even save their activities.

Indeed, S&P 500 companies’ lifespan has decreased from 67 years a century ago to
15 years today. According to a study conducted by the John M. Olin School of
Business at the University of Washington, 40% of the Fortune 500 companies will no
longer exist in a decade as they desperately need new ideas and solutions to remain
competitive.

These numbers show the importance of partnering with a startup. It is a strategic

choice for corporations as it is a way to change their internal processes and disrupt
their market to avoid the decline of their activities.

Startups:

Huge risks with huge returns: According to Forbes and other sources like Wamda,
90% of all tech startups fail. Whether it’s the lack of funding, being pushed out by
competitions, poor management, or not adapting to users in time and evolve to
something better. There are many reasons that can lead to the failures of startups
because of their immaturity as a whole. However, what comes with this high risk is a
high return after success. Every startup company today dreams of being the next Uber
or the next Snapchat because of their fast and rapid success.
Small team: The reason why you feel impactful in a startup is often because you’re
part of a very small team. The average startup team can very well be within 10 people.
So when you’re part of that team, you are going to be tasked with tasks that are very
core to the survival of the entire team. It’s great to be impactful in a startup, but that
also means that it can go both ways. For example, Breezi, a website building tool,
once hired a customer service manager that couldn’t keep up with the pace. Though
the bullet was dodged at the end, it was still a close call for the team as a whole.

More than just a job: People often hear about the differences between working in a
startup and working in a big company. So what is it like working in a startup? Easily
put everyday is a battle. Startups are often working on tight schedules whether it’s to
meet product deadlines or meeting a different investor. Working in a startup also
means that you’re most likely going to have an active role in the growth of the
company. People who join to work in a startup often believe that they are part of
something bigger and it’s a valuable experience to watch a company they’re part of
grow and mature.

Always pivoting: One thing you hear all the time about startups is that they are always
pivoting, and that’s true. Pivoting correctly is crucial to the survival and growth of a
startup. Instagram isn’t always the photo sharing application you see today. It started
off as a check in application that allows you to show people where you are. Through
a series of pivots and edits Instagram became what it is today. This is why it’s
important to know that the final products of startups isn’t always what they set off to
create at the very start. There will be new challenges and opportunities that will either
evolve or destroy the startups.

Low cash flow: Another important but saddening fact about startups is their low cash
flow. One thing you hear most about startups is that they are always fundraising. If you
imagine a startup as a plane preparing to take off and its funds as the runway. The
longer the runway is the more likely it is for a startup to take off successfully. That is
why you often hear startups actively going through series of fundraising. Startups won’t
take off without the funds necessary. It’s great to have a dream of solving problems,
but there are also harsh realities that one must face when doing so.

Offering innovation: Startups normally set of their journey as an entity that is trying
to solve problems through innovation. Coursera and Udemy allows people to learn
anytime and anywhere via their platforms. Venmo allows people to pay each other
conveniently via their phones. Discord allows people to talk to each other as a team
when gaming. Point is, startups always have their eyes set on a problem and they
firmly believe that their products are the keys to solving these problems.

Big Corporations

Regular Jobs: Working in a big corporation means you’re the one out of thousand
people they hired this year. You feel more invisible in a big corporation, meaning you
hold less responsibility but less accountability as well. You will receive standard pay
and have high security in hold your job, but in exchange for that is probably a less
interesting life style.
Huge Team: According to CNN money, the total number of employees among all
Fortune 500 companies is 26,405,144 people. This makes the average number of
employees per firm 52,810 people. Big corporations offer more job security to people
because of how big they are. Big corporations aren not as likely to fail and go bankrupt
compared to small startups because of their solid foundations, well established
relationships with the government and people, and board of executives that makes
decisions together.

Emphasis on profits over risks: Once a company increases in size, it starts

becoming more risk adverse. Corporations know that for every success they get, there
is more failures coming their way. When a corporation get larger in size, there are
more things to consider such as the well being of its workers, its public images, and
its constant growth. With so many people’s well being as risk, corporations can no
longer take big leaps of faith. Instead, they have to focus on what they’ve been doing
and continuing that success.

Huge Pools of Funds: The biggest difference between startups and corporations is
probably their amount of funds. Startups are always tight in cash flow and always
looking for more. Corporations are always looking for profit, but a week without sales
will not have as much of an impact to the company’s well being compared to a startup.
Corporations also have more funds to spend on things like advertisements, talent
hiring, and opening up additional locations. Startups probably have to pick between
hiring a sufficient engineer and running online ads for 2 months. That is the main
different. Startups have to be careful in every step they take while big corporations
and more rebound for mistakes.

Doing similar things: Like previously stated, big corporations tend to be more risk
adverse. They won’t make huge pivots and conduct large scale company restructuring
like what some startups may do. They focus on doing what they do best and
substantially increasing profit. Companies like Walmart are still innovating, but what
keeps it alive is the everyday process of selling household goods to customers.

Co-creation and Open innovation

Co-creation

Co-creation is a shared process by which customers, suppliers, retailers, designers

and other relevant third-parties work together with the company to generate ideas
towards a mutually valued endpoint. Each party represents their unique perspective in
the product relationship ranging from buyer to developer and, via the process, is
encouraged to communicate their thoughts around things that work, things that don’t,
areas of need, opportunities for improvement and more. These discussions continue
from product inception through launch. Co-creation sessions are typically lively with
each party fully engaged as each party is regarded as equally invested and equally
important. This is a hallmark of co-creation.
While open innovation suggests active collaboration between different organisations
and the sharing of intellectual property, co-creation relates more specifically to the
relationship between an organisation and a defined group of its stakeholders, usually
its customers. The most common definition is: “An active, creative and social process,
based on collaboration between producers and users that is initiated by the firm to
generate value for customers.” (C.K. Prahalad and Venkat Ramaswamy, Co-Opting
Customer Competence, 2000). Co-creation means working with the end users of your
product or service to exchange knowledge and resources, in order to deliver a
personalised experience using the company’s value proposition. While crowdsourcing
is people creating a great idea for you, co-creation is about people working with you
to make a good idea even better. Co-creation is also a way of enhancing customer
engagement by directly involving them in the company’s value creation and product
development processes.

Co-creation can be executed as a simple process of gathering around a table for a

discussion with a group of internal and external experts, including customers, who
have an opinion on the product or product need being discussed. Co-creation can be
as elaborate as having product designers and marketers do double-duty as furniture
delivery people so that they can go into consumers’ homes. For IKEA, this clever
process allowed them to make observations and engage homeowners to understand
why they purchased and what product they wish they could buy but can’t yet find. In a
similar fashion, Lego® encourages its customers to engage and develop new designs
and upload them to the website where customers vote on the designs. Once a design
gets 10,000 votes, Lego® brings the design, and designer, internally through its stage-
gate co-creation product development process.

Corporations with successful product track records, such as Siemens™, Apple®,

GE®, P&G®, J&J® and so many others, apply open innovation daily, in every aspect
of product development. At J&J, the philosophy/process is so entrenched that it is
actually called out in the company’s credo which is the essence of the brand. GE
literally hangs a sign in every building lobby professing open innovation as its
manifesto, “We believe openness leads to inventiveness and usefulness”. Today,
companies commercialize combinations of internal and external ideas together with
in-house and third-party pathways to the market.

Open innovation

As the name implies, open innovation is about letting everyone in, whether they’re a
twenty-year employee or somebody who just wonders why your industry does things
this way when this other way seems so much easier. The boundaries are much
broader and it’s often a public process think the difference between an internal pitch
of a project to the board versus taking that project to Kickstarter.

Open innovation means creating and innovating with external stakeholders:

customers, suppliers, partners and your wider community. Companies are
increasingly seeking to work and source knowledge beyond their boundaries. Henry
Chesbrough defines open innovation as “the use of purposive inflows and outflows of
knowledge to accelerate innovation. With knowledge now widely distributed,
companies cannot rely entirely on their own research, but should acquire inventions
or intellectual property from other companies when it advances the business model.
Competitive advantage now often comes from leveraging the discoveries of others. An
“open” approach to innovation leverages internal and external source of ideas.”

Open innovation creates an environment where individuals and organisations can

actively get involved in the creation of mutually beneficial solutions. Through open
innovation decision making is becoming a truly democratic process. It allows for a
bolder, wider approach to problem solving. It suggests interacting with broader groups
of stakeholders and it builds collaborative community engagement around specific
challenges and issues: ideas and input flow into organisations from outside and smart,
innovative solutions are easily generated and processed using idea management
software. Open innovation is an inclusive, social way of solving complex issues and
improving processes.

Implementing the process in driving

innovation
Innovation Capabilities

We have identified four key capabilities that truly innovative organisations do

well.

Strategy: A clearly defined innovation strategy which guides decisions, and an

explicit innovation ambition from the Board and Top Management.

People: People are innovative, have a strong capability to innovate, and have
innovation tools and innovation metrics.

Process: Deep market and customer insights, constantly uncovering and

understanding today’s and tomorrow’s customer needs, collaborate well with
partners and leading-edge customers.

Culture: Encouraged to think big, dream big and take calculated strategic risks.
Great at making innovation investments, funding is easily available for new
innovative projects, and have the time and freedom to innovate.

Innovation as a Strategy

Innovation means different things to different people and is industry and sector
context specific. For example, an innovation in the health sector will differ from
an innovation that relates to the use of solar technology. In the former, people’s
health is at risk if the innovation’s downstream impacts are poorly understood,
while in the latter, failure would be an inconvenience, or even seen as a major
political issue in the rapidly evolving industry.
People

Innovation requires individuals who have a mindset which is comfortable

dealing with uncertainty and ambiguity. These individuals love to explore, learn,
create and test opportunities. They view roadblocks as learning opportunities to
reshape or pivot their innovation.

Highly-innovative organisations are encouraging their people to innovation,

without implementing disruptive change programs. The practical starting point
to improve an organisation’s chances of stimulating and sustaining innovation
is amongst the organisation’s people.

The leadership team is ultimately responsible for driving innovation and

manage it formally as part of the organisation’s strategy. Holding the leadership
team accountable for encouraging innovation makes a big difference through
formal innovation targets or metrics. In this way, innovation can be not only be
encouraged but can also be managed, tracked and measured as a core element in
an organisation’s strategic initiatives.

The four Innovation Phases are:

• Opportunity Identification: Ideation, finding great ideas,

concept development;
• Opportunity Development: Market research, strategy
development, developing, testing and piloting those ideas into
the new product, service, program or business;
• Scaling Up: Launching the innovation, testing and validating that
systems and processes are ready to scale;
• Growth: Delivering the innovation at scale, driving growth so that
the innovation is sustainable and merges successfully into the
organisation.

Culture

The cultural part of innovation is key. Innovation results from iterative

experimental learning. Innovation requires an empowering work environment.
To facilitate increased innovation, one needs to enable and drive innovative
behaviours by aligning culture, structure, leadership behaviours, measurements
and rewards.

Implementation Process

1. Create dedicated innovation teams

It is important to remember that there may be employees in your company who
have the best ideas but are not good at communicating them. Therefore, it is
important to have a team to help support and encourage idea sharing. If your
company does not have the resource for a dedicated team this can be made up of
members from different areas in your business.

2. Introduce an idea sharing platform

You need to bring employees together to share and collaboratively generate

ideas, whether in-person or virtually, the right platform is important.

For example, Dell IdeaStorm (www.ideastorm.com) provides a platform for

anyone to submit their ideas, and to comment and vote on ideas from other
people whereas HP organizes brown bag lunches for their employees to
encourage them to discuss their ideas.

3. Create a screening process for all the ideas

You need to have an idea screening processes in place so your employees know
that their ideas are being considered. This can be done in different ways.

At Electrolux, cross-functional team consisting of design, research and

development, and marketing professionals are involved in the screening process
which involves ideas being tested with focus groups. Any design failing to
achieve a 70% approval rating from the focus group is eliminated automatically.
Whereas Google simply collects ideas from employees through emails at a
company-wide suggestion box, and make the ideas available for all other
employees to rate and comment on.

4. Employ innovation advocates

Have a team of advocates on board who support the idea generation and
innovation process. This group will inspire change throughout the organization
by asking questions, supporting ideas, and demanding radical changes.

For example, at Boeing, a ‘Phantom Works’ group was created which supported
the idea generation and innovation process by communicating between
departments and sought ideas and technologies that could be applied in newly
identified areas of the organization.

5. Encourage collaborative experimentation

Organizations should employ collaborative experimentation to improve the

chance of success at innovation. Communicating with stakeholders brings new
ideas, corrects problems, addresses market needs, and speeds up the innovation
process.

An example of this is when Google made prototypes of products such as Gmail

and Google Earth available for existing users which helped with developments.

6. Communicate with your employees

It is important for your employees to ‘buy in’ to your ideas and know as much as
they can about the development of them.

For example, HP Labs uses electronic newsletters, informal coffee talks, and peer
reviews to convey its latest innovation developments to employees. Having
several venues for sharing information increases the likelihood that every
employee will find a useful source for information about innovation and new
ideas in the organization. This decreases uncertainty and negativity and helps
people to be open to new ideas.

7. Be specific with your communication

Beyond communicating to your employees, you need to let them know how the
innovation affects them and the positive outcomes it could bring. For example,
at PNC Bank, online learning courses for employees were tied to specific job skills
so each employee could tailor their online learning to meet their objectives. In
this way, employees could see how the innovative course offerings applied
directly to their situation and could then decide how to invest their time.

Sources of innovation
The 7 sources of innovative opportunity were listed by Peter Drucker in his book
“Innovation and Entrepreneurship. If you’re unaware, Peter Drucker is
considered one of the truly great management consultants.

Peter Drucker refers to innovation as the effort to create purposeful focused

change in an enterprise’s economic or social potential. Innovation must begin
with an analysis of opportunities, in a systematic and organized way. The
starting point in innovation is identifying the scope for improvement with
respect to customers, suppliers and internal processes. Innovations must be
market focused. Opportunities to innovate are provided by new customer
segments which are just emerging; customer segments that existing
competitors are neglecting or not serving well, new customer needs which are
emerging and new ways of producing and delivering products to customers.

New Knowledge, Both Scientific and Non-scientific

Every year new ideas are discovered and developed and a lot is added to the
existing knowledge base. Knowledge has always been a source of innovation yet
knowledge-based innovation has long lead time and convergence of knowledge.
Technological and scientific breakthrough are the source of innovation that
can’t be neglected. New knowledge can be applied in every aspect of the
organization, starting from learning more about emerging trends, customer
expectations, knowing how to use new technology, to improving customer
service and supply chain.

Demographics

Changes in demographics are defined as changes in population, size, age

structure, employment, educational status and income. They are the most
reliable indicators of future trends and offer diverse opportunities for
innovation. Each new generation demands new and unique products and
services. These changes affect the market as they determine the need for
products, the target population who are buying those products, as well as the
number of products being distributed.

Innovation Based on Process Needs

The weak spots in your organization workflows, processes and systems provide
practical opportunities for innovation. Innovation based on process needs is a
task-focused rather than situation-focused. It improves the process that
already exists, redesigns existing, old processes and reinforces the weak links.

The Unexpected

The ever-changing business world is full of surprises. Yet, not only the
unexpected failures but also the unexpected success, or even events that occur
in the organization can trigger innovative ideas and become the creative sources
of innovation. Unexpected situations can have a very powerful influence and can
inspire an organization to gain another, new, perspective on the situation.

Changes in Perception, Mood and meaning

With the growth of technology, there are significant changes in the way people
perceive the world. People change their perception about a certain product,
brand or even industry. This is basically the question “Is the glass half full or half
empty?”. Changes in perception are based on the mood rather than on the facts.
Changing your perception from “half empty“ to “half full” opens up incredible
innovation opportunities.

Changes In Industry Structure or Market Structure

As the business landscape evolves, every organization has to adapt. Changes in
industry shake-up businesses, yet they can inspire people to explore and create
new ideas as well. Generally, industry or market structure is ever-changing and
it can create great opportunities for innovation in order for organizations to
adapt and adjust quickly.

The Incongruity

When our reality doesn’t meet our

expectations we can discover new
insights and gain new perspectives.
Incongruity is a dissonance between
what is and what it is supposed to be.
It can be a great source of innovative
ideas as it compares what is and what
everybody else assumes it to be. Of all
incongruities, the dissonance
between perceived and actual
customers’ expectations is maybe the
most common one. Sources of innovation
The 7 sources of innovative opportunity were listed by Peter Drucker in his book
“Innovation and Entrepreneurship. If you’re unaware, Peter Drucker is
considered one of the truly great management consultants.

Peter Drucker refers to innovation as the effort to create purposeful focused

change in an enterprise’s economic or social potential. Innovation must begin
with an analysis of opportunities, in a systematic and organized way. The
starting point in innovation is identifying the scope for improvement with
respect to customers, suppliers and internal processes. Innovations must be
market focused. Opportunities to innovate are provided by new customer
segments which are just emerging; customer segments that existing
competitors are neglecting or not serving well, new customer needs which are
emerging and new ways of producing and delivering products to customers.
New Knowledge, Both Scientific and Non-scientific

Every year new ideas are discovered and developed and a lot is added to the
existing knowledge base. Knowledge has always been a source of innovation yet
knowledge-based innovation has long lead time and convergence of knowledge.
Technological and scientific breakthrough are the source of innovation that
can’t be neglected. New knowledge can be applied in every aspect of the
organization, starting from learning more about emerging trends, customer
expectations, knowing how to use new technology, to improving customer
service and supply chain.

Demographics

Changes in demographics are defined as changes in population, size, age

structure, employment, educational status and income. They are the most
reliable indicators of future trends and offer diverse opportunities for
innovation. Each new generation demands new and unique products and
services. These changes affect the market as they determine the need for
products, the target population who are buying those products, as well as the
number of products being distributed.

Innovation Based on Process Needs

The weak spots in your organization workflows, processes and systems provide
practical opportunities for innovation. Innovation based on process needs is a
task-focused rather than situation-focused. It improves the process that
already exists, redesigns existing, old processes and reinforces the weak links.

The Unexpected

The ever-changing business world is full of surprises. Yet, not only the
unexpected failures but also the unexpected success, or even events that occur
in the organization can trigger innovative ideas and become the creative sources
of innovation. Unexpected situations can have a very powerful influence and can
inspire an organization to gain another, new, perspective on the situation.

Changes in Perception, Mood and meaning

With the growth of technology, there are significant changes in the way people
perceive the world. People change their perception about a certain product,
brand or even industry. This is basically the question “Is the glass half full or half
empty?”. Changes in perception are based on the mood rather than on the facts.
Changing your perception from “half empty“ to “half full” opens up incredible
innovation opportunities.
Changes In Industry Structure or Market Structure

As the business landscape evolves, every organization has to adapt. Changes in

industry shake-up businesses, yet they can inspire people to explore and create
new ideas as well. Generally, industry or market structure is ever-changing and
it can create great opportunities for innovation in order for organizations to
adapt and adjust quickly.

The Incongruity

When our reality doesn’t meet our expectations we can discover new insights and
gain new perspectives. Incongruity is a dissonance between what is and what it
is supposed to be. It can be a great source of innovative ideas as it compares what
is and what everybody else assumes it to be. Of all incongruities, the dissonance
between perceived and actual customers’ expectations is maybe the most
common one.

Innovation Environment
Management and its people that have a mutual dependency. Culture can enhance or
inhibit the tendencies to innovate, it certainly has a profound influence on the
innovative capacity and provides the rich nutrients to nurture innovation or kill it.
Culture has always been regarded as a primary determinant of innovation.

To foster innovation and its environment, key levels of management and individuals
must be committed to creating an environment and culture that promotes creativity, be
engaged and promote the ability to promote change in nimble, agile and flexible ways
to meet changing conditions in the market place and with customers. It is this creativity
through the innovations that are flowing through the organization that often needs a
critical focal point to create a change that has impact.

Steps To Creating an Innovative Environment:

• Role Model: Ask powerful questions, engage in creative thinking and

use tools and exercises to get people “out of the box”.
• Dish Out Recognition: Recognize the right things including when
mistakes move you to another level.
• Make it Safe to Explore: Let it be okay to explore new or even crazy
ideas. Talk about what is “beyond” possible and what you can see or
the resources you currently have.
• Provide Time & Resources: Give people the time and space to be
innovative and they will. Provide spaces, technology or outside
resources for people to innovate.
 • Always Search for the Second Right Answer: Get in the habit of
always searching for the 2nd and 3rd right answer. Never stop at the
first right answer. This is what limits innovative thinking.
• Make it a Goal or Strategy: Make innovation an expectation or a way
that you do business.

Ekvalls Model

Ekvall’s model was divided into two halves, each comprising five factors. This also
allowed Ekvall’s model to be split over two pages, with the first entitled ‘atmosphere
for work’, and the second entitled ‘attitude to work.’ Maybe this is why I like it for this
defining split for deepening the conversation.

Again, to use this you attribute 100 points per section to gauge relative importance
using a simple Likert-type scale with anchor phrases at each extreme.

Organizational Climate for Creativity and Innovation (1996) is the article that sums up
all of Ekvall’s research within organizational climate and creativity throughout the
second half of the 20th Century.

This was where Ekvall formalized his ten dimensions of creative climate (challenge,
freedom, idea support, trust / openness, dynamism / liveliness, playfulness / humor,
debates, conflicts, risk-taking, and idea time) as well as described the implications of
the Creative Climate Questionnaire (CCQ).

The ten dimension factors from Ekvall’s creative climate questionnaire.

Attitude to Work dimensions

Idea Time: Amount of time people can use (and do use) for elaborating new ideas. In
the high idea-time situation, possibilities exist to discuss and test suggestions not
included in the task assignment. There are opportunities to take the time to explore
and develop new ideas. Flexible timelines permit people to explore new avenues and
alternatives. In the reverse case, every minute is booked and specified. The time
pressure makes thinking outside the instructions and planned routines impossible.

Risk-Taking: Tolerance of uncertainty and ambiguity in the workplace. In the high risk-
taking case, bold initiatives can be taken even when the outcomes are unknown.
People feel as though they can “take a gamble” on their ideas. People will often “go
out on a limb” to put an idea forward. In a risk-avoiding climate there is a cautious,
hesitant mentality. People try to be on the “safe side” and often “sleep on the matter.”
They set up committees and they cover themselves in many ways.

Challenge and Involvement: Degree to which people are involved in daily

operations, long-term goals, and visions. When there is a high degree of challenge
and involvement people feel motivated and committed to making contributions. The
climate is dynamic, electric, and inspiring. People find joy and meaningfulness in their
work. In the opposite situation, people are not engaged and feelings of alienation and
apathy are present. Individuals lack interest in their work and interpersonal interactions
are dull and listless.

Freedom: independence in behaviour exerted by the people in the organization. In a

climate with much freedom, people are given the autonomy and resources to define
much of their work. They exercise discretion in their day-to-day activities. Individuals
are provided the opportunity and take the initiative to acquire and share information
about their work. In the opposite climate people work within strict guidelines and roles.
They carry out their work in prescribed ways with little room to redefine their tasks.

Idea Time Support: ways new ideas are treated. In the supportive climate, ideas and
suggestions are received in an attentive and professional way by bosses, peers, and
subordinates. People listen to each other and encourage initiatives. Possibilities for
trying out new ideas are created. The atmosphere is constructive and positive when
considering new ideas. When idea support is low, the automatic “no” is prevailing.
Fault-finding and obstacle-raising are the usual styles of responding to ideas.

Work Atmosphere dimensions.

Conflict: Presence of personal and emotional tensions in the organization. When the
level of conflict is high, groups and individuals dislike and may even hate each other.
The climate can be characterized by “interpersonal warfare.” Plots, traps, power and
territory struggles are usual elements of organizational life. Personal differences yield
gossip and slander. In the opposite case, people behave in a more mature manner;
they have psychological insight and control of impulses. People accept and deal
effectively with diversity.
Debate: Occurrence of encounters and disagreements between viewpoints, ideas,
and differing experiences and knowledge. In the debating organization many voices
are heard and people are keen on putting forward their ideas for consideration and
review. People can often be seen discussing opposing opinions and sharing a diversity
of perspectives. Where debate is missing, people follow authoritarian patterns without
questioning them.

Playfulness/Humor: Spontaneity and ease displayed within the workplace. A

professional, yet relaxed atmosphere where good-natured jokes and laughter occur
often is indicative of this dimension. People can be seen having fun at work. The
climate is seen as easy-going and light-hearted. The opposite climate is characterized
by gravity and seriousness. The atmosphere is stiff, gloomy and cumbrous. Jokes and
laughter are regarded as improper and intolerable.

Trust/Openness: emotional safety in relationships. When there is a high degree of

trust, individuals can be genuinely open and frank with one another. People count on
each other for professional and personal support. People have a sincere respect for
one another and give credit where credit is due. Where trust is missing, people are
suspicious of each other, and therefore, they closely guard themselves, their plans,
and their ideas. In these situations people find it extremely difficult to openly
communicate with each other.

Dynamism/Liveliness: The eventfulness of life in the organization. In the highly

dynamic situation, new things are happening all the time and new ways of thinking
about and handling issues often occur. The atmosphere is lively and full of positive
energy. There is a kind of psychological turbulence that is described by people in those
organizations as “full speed”, “go,” “breakneck,” “maelstrom,” “and the like. People get
caught up in the excitement and energy. The opposite situation could be compared to
a slow jog-trot with no surprises. There are no new projects; no different plans.
Everything goes its usual way.

Creative Destruction
Creative destruction, sometimes known as Schumpeter’s gale, is a concept in
economics which since the 1950s is the most readily identified with the
Austrian-born economist Joseph Schumpeter who derived it from the work of
Karl Marx and popularized it as a theory of economic innovation and the business
cycle.

According to Schumpeter, the “gale of creative destruction” describes the

“process of industrial mutation that continuously revolutionizes the economic
structure from within, incessantly destroying the old one, incessantly creating a
new one”.

In Marxian economic theory the concept refers more broadly to the linked
processes of the accumulation and annihilation of wealth under capitalism.
The German sociologist Werner Sombart has been credited with the first use of
these terms in his work Krieg und Kapitalismus. In the earlier work of Marx,
however, the idea of creative destruction or annihilation implies not only that
capitalism destroys and reconfigures previous economic orders, but also that it
must ceaselessly devalue existing wealth (whether through war, dereliction, or
regular and periodic economic crises) in order to clear the ground for the creation
of new wealth.

In Capitalism, Socialism and Democracy, Joseph Schumpeter developed the

concept out of a careful reading of Marx’s thought (to which the whole of Part I
of the book is devoted), arguing (in Part II) that the creative-destructive forces
unleashed by capitalism would eventually lead to its demise as a system (see
below). Despite this, the term subsequently gained popularity within
mainstream economics as a description of processes such as downsizing in order
to increase the efficiency and dynamism of a company. The Marxian usage has,
however, been retained and further developed in the work of social scientists
such as David Harvey, Marshall Berman, Manuel Castells and Daniele Archibugi.

Entrepreneurs introduce new products and technologies with an eye toward

making themselves better off the profit motive. New goods and services, new
firms, and new industries compete with existing ones in the marketplace, taking
customers by offering lower prices, better performance, new features, catchier
styling, faster service, more convenient locations, higher status, more
aggressive marketing, or more attractive packaging. In another seemingly
contradictory aspect of creative destruction, the pursuit of self-interest ignites
the progress that makes others better off.

Producers survive by streamlining production with newer and better tools that
make workers more productive. Companies that no longer deliver what
consumers want at competitive prices lose customers, and eventually wither and
die. The market’s “invisible hand” a phrase owing not to Schumpeter but to
Adam Smith shifts resources from declining sectors to more valuable uses as
workers, inputs, and financial capital seek their highest returns.

Through this constant roiling of the status quo, creative destruction provides a
powerful force for making societies wealthier. It does so by making scarce
resources more productive. The telephone industry employed 421,000
switchboard operators in 1970, when Americans made 9.8 billion long-distance
calls. With advances in switching technology over the next three decades, the
telecommunications sector could reduce the number of operators to 156,000
but still ring up 106 billion calls. An average operator handled only 64 calls a day
in 1970. By 2000, that figure had increased to 1,861, a staggering gain in
productivity. If they had to handle today’s volume of calls with 1970s
technology, the telephone companies would need more than 4.5 million
operators, or 3 percent of the labor force. Without the productivity gains, a long-
distance call would cost six times as much.

The telephone industry is not an isolated example of creative destruction at

work. In 1900, nearly forty of every hundred Americans worked in farming to
feed a country of ninety million people. A century later, it takes just two out of
every hundred workers. Despite one of history’s most thorough downsizings, the
country has not gone hungry. The United States enjoys agricultural plenty,
producing more meat, grain, vegetables, and dairy products than ever, thanks
largely to huge advances in agricultural productivity.

Meaning, Definition and Concept of

Entrepreneur
Last updated on February 18th, 2020 at 04:21 pm

The word “entrepreneur” is derived from the French verb “entreprendre”,

which means ‘to undertake’. This refers to those who “undertake” the risk of
new enterprises. An enterprise is created by an entrepreneur. The process of
creation is called “entrepreneurship”.

Meaning

Entrepreneurship is a process of actions of an entrepreneur who is a person

always in search of something new and exploits such ideas into gainful
opportunities by accepting the risk and uncertainty with the enterprise. It is the
process of starting a business, a startup company or other organization.
The entrepreneur develops a business plan, acquires the human and other
required resources, and is fully responsible for its success or failure.
Entrepreneurship operates within an entrepreneurship ecosystem.

Definitions

According to A.H.Cole
Entrepreneurship is the purposeful activity of an individual or a group
of associated individual, undertaken to initiate, maintain or aggrandize
profit by production or distribution of economic goods and services.
According to J.A. Timmons
Entrepreneurship is the ability to create and build something from
practically nothing.
According to Musselman and Jackson
“Entrepreneurship is the investing and risking of time, money and
effort to start a business and make it successful.

Characteristics of Entrepreneurship

1. Economic and dynamic activity

Entrepreneurship is an economic activity because it involves the creation and

operation of an enterprise with a view to creating value or wealth by ensuring
optimum utilization of scarce resources. Since this value creation activity is
performed continuously in the midst of uncertain business environment,
therefore, entrepreneurship is regarded as a dynamic force.

2. Related to Innovation

Entrepreneurship involves a continuous search for new ideas. Entrepreneurship

compels an individual to continuously evaluate the existing modes of business
operations so that more efficient and effective systems can be evolved and
adopted. In other words, entrepreneurship is a continuous effort for synergy
(optimization of performance) in organizations.

3. Profit Potential

“Profit potential is the likely level of return or compensation to the entrepreneur

for taking on the risk of developing an idea into an actual business venture.”
Without profit potential, the efforts of entrepreneurs would remain only an
abstract and a theoretical leisure activity.

4. Risk Bearing

The essence of entrepreneurship is the ‘willingness to assume risk’ arising out of

the creation and implementation of new ideas. New ideas are always tentative
and their results may not be instantaneous and positive. An entrepreneur has to
have patience to see his efforts bear fruit. In the intervening period (time gap
between the conception and implementation of an idea and its results), an
entrepreneur has to assume risk. If an entrepreneur does not have the
willingness to assume risk, entrepreneurship would never succeed.

5. Skillful Management

Entrepreneurship involves skillful management. The basic managerial skill is the

most important characteristic feature of entrepreneurship. For effective
management of an enterprise, the role of an entrepreneur is to initiate and
supervise design of organization improvement projects in relation to
upcoming opportunities is very much important.
 6. Accepting Challenges

Entrepreneurship means accepting challenges amidst risk and uncertainty.

While accepting entrepreneurship as a career the entrepreneur accepts the
challenges of all odds and puts his efforts to convert the odds into viable business
opportunities by pooling together the resources of building and running the
enterprise.

7. Goal-Oriented Activity

The entrepreneur who creates and operates enterprises seeks to earn profits
through satisfaction of needs of consumers; hence, entrepreneurship is a goal-
oriented activity. Entrepreneurship emphasizes results, achievements and
targets achieved. It is work done not imaginary plans or paper decisions. Hence
entrepreneurship is a goal-oriented activity.

8. Value Creation

Next, we find that the process of creating value is a characteristic in describing

entrepreneurship. Through entrepreneurship, new products, services,
transactions, approaches, resources, technologies, and markets are created that
contribute some value to a community or marketplace. We can also see value
created when, through entrepreneurship; resources are transformed into
outputs such as products or services. During this transformation process, value
is created because the entrepreneur is fashioning something worthwhile and
useful. Drucker says, “Until entrepreneurial act, every plant is a seed and every
mineral just another rock.

9. Dynamic Process

Entrepreneurship is a dynamic function. Entrepreneur thrives on changes in the

environment, which bring useful opportunities for business. An entrepreneur
deals proactively with changing markets and environment. He looks at the
changes as the source of market advantages, not as a problem. Uncertainties are
market opportunities for him. He capitalizes on fleeting market anomalies.

10. Uniqueness

Other characteristic found in entrepreneurship is that of uniqueness.

Entrepreneurship involves new combinations and new approaches with which
entrepreneurs are willing to experiment. Through Entrepreneurship unique
products are created and unique approaches are tried. Entrepreneurship isn’t
merely imitating what others have done. It’s doing something new, something
untested and untried – something unique.
 11. Interest and Vision

The first factor for entrepreneurial success is interest. Since entrepreneurship

pays off according to performance rather than time spent on a particular effort,
an entrepreneur must work in an area that interests her. Otherwise, she will not
be able to maintain a high level of work ethic, and she will most likely fail. This
interest must also translate into a vision for the company’s growth. Even if the
day-to-day activities of a business are interesting to an entrepreneur, this is not
enough for success unless she can turn this interest into a vision of growth and
expansion. This vision must be strong enough that she can communicate it to
investors and employees.

12. Risk and Rewards

Entrepreneurship requires risk. The measurement of this risk equates to the

amount of time and money you invest into your business. However, this risk also
tends to relate directly to the rewards involved. An entrepreneur who invests in
a franchise pays for someone else’s business plan and receives a respectable
income, while an entrepreneur who undertakes ground breaking innovations
risks everything on an assumption that something revolutionary will work in the
market. If such a revolutionary is wrong, she can lose everything. However, if she
is right, she can suddenly become extremely wealthy.

Entrepreneurship and Entrepreneurship

Development
Last updated on February 18th, 2020 at 04:21 pm

Entrepreneurship development is the process of improving the skills and

knowledge of entrepreneurs through various training and classroom programs.
The whole point of entrepreneurship development is to increase the number of
entrepreneurs.

By doing this, the pace at which new businesses or ventures are made gets better.
On a wider level, this makes room for employment and improves the economy of
a business or country. The steps below will explain how to create an effective
entrepreneurship development program and how to go about enhancing it.

1. Outline the objectives of the program and focus on the venture development

Entrepreneurship development aims at individuals who want to start or possibly

expand a business. Entrepreneurship development also focuses a lot on
enhancing the ideas and potential of an entrepreneur.
The aims of a program have to be clearly explained otherwise the program will
never reach its full potential. The development of a venture also has to be
outlined in the program. Without these two, there will be no clear goal.

2. Select educated people who have high entrepreneurial potential

An entrepreneurship development program requires that various people be

selected. However, most programs tend to look for a specific group of educated
people rather than target everyone. Ideally, you have to look at the education
and traits that you are looking for, in an entrepreneur, and match them with the
people who have applied for the program.

Most people say that public funds should be spent on people who need the most
help. The resources of an entrepreneurship development program are usually
(and unfortunately) limited. It is hence better to choose people who will prove to
be really useful and benefit the entire community.

3. Select uneducated people who have high entrepreneurial potential

A development project on women’s entrepreneurship in Nepal was recently

conducted. It was found that women who couldn’t meet the essential needs of
their family or themselves were usually more eager to learn about different ways
to earn money as compared to women who were better off. However, such
women usually face many problems.

Even though such women are not educated, they have great entrepreneurship
potential because they have the right motivation. Such people need to be aided
by assistance packages where training can be given on entrepreneurship. This
will instill confidence and teach them the skills they need in order to provide for
their family.

4. Identify the local market and search for people who have potential in it

Entrepreneurship development programs should first identify the local market

and aid potential entrepreneurs who know a lot about it. These people need to be
able analyze and then design unique ideas based off the needs of their
surroundings.

By concentrating on select local entrepreneurs, the effects of the program can be

easily and quickly seen within the community. Later on, programs can help
improve their knowledge in their sector. In fact, it is creativity and the thirst for
innovation that truly matters rather than the market’s size. In later programs,
the introduction of new products and product features can be added. This will
add value and increase the size of the market
5. Provide support through private sector-based organizations

Support should be obtained from private organizations that are both financial
and knowledge-based. This helps reduce the cost of the entrepreneurship
development program and increases its effectiveness.

Private organizations that could support entrepreneurship development

programs include universities, consulting companies and various NGOs. Large
enterprises are also encouraged to support entrepreneurship development
programs as this their sponsorship that will help reduce unemployment.

6. Provide an easy yet detailed methodology that will help entrepreneurs improve in the short
and long-run

Entrepreneurial development programs aim at being simple to understand and

teach skills that entrepreneurs can use after the program. It also contains
courses that aim at developing their skills and ideas. These are required if
entrepreneurs wish to successfully exploit the local market.

They also need to be taught how to gather the required resources in order to
meet the goals of their venture. The program also needs to have outlined
methods through which entrepreneurs can improve the performance of their
business in the long run.

Entrepreneur development training proves to be highly effective when finance,

quality assurance, marketing and productivity are linked to the training
program. As an example, when development banks are involved earlier in the
process of training, an entrepreneur will easily understand credit processes and
the also praises the bank’s business plan.

7. Implement special measures to improve the usefulness of trainers and facilitators

The Success of an entrepreneurship development program also relies on the

commitment and quality of the many facilitators and trainers. Any trainer or
facilitator in the program needs to understand the culture and lifestyle of the
group in order to better integrate themselves and serve the group.

The selection of proper trainers is based on the amount of business experience

they have and the how much knowledge they have about their local business
environment. Training facilitators can significantly improve their usefulness in
tackling the needs of entrepreneurs.
8. The selection of areas for pilot programs must be right

Entrepreneurship development programs are usually too restricted in terms of

where it is done and what people are involved in the program. Selecting pilot
target areas will usually depend on the ease at which support institutions are
available.

It will also depend on the interest people take in entrepreneurial development

programs. These facts can never be the same for any two geographical locations
and hence must be considered carefully.

9. Launch pilot ED programs and develop as needed

Analyzing pilot feasibility is an effective way of launching a major

entrepreneurship development program. If the program shows signs of high
promise, it can be launched on a national level. By relying on the sponsors for
support rather than donor support, the program will be able to expand past local
development while maintaining high quality. This is especially important when
the support of donors starts to fade.

10. A successful entrepreneurship development program requires government policies

Entrepreneurship helps the economy of a country grow and creates new jobs.
Government policies usually have a substantial impact on the number of
entrepreneurs in a country.

While there are many governments that say they do support entrepreneurial
businesses, they usually do not have many specific policies and programs that
effectively support entrepreneurial development.

Creating an effective entrepreneurship development program may not be easy

but then again, it is not impossible either. By carefully following the ten points
above, you are well on your way to creating an entrepreneurship development
program that not only benefits your company in the short run but in the long run
as well.

Factors Affecting Entrepreneurship

Last updated on February 18th, 2020 at 04:19 pm

Entrepreneurship is a complex phenomenon influenced by the interplay of a

wide variety of factors. The entrepreneurial activity at any time is dependent
upon a complex and varying combination of economic, social, political,
psychological and other factors. These factors may have been both positive and
negative effluences on the emergence of entrepreneurship. Positive influences
constitute facilitative and conductive conclusive for the emergence of
entrepreneurship whereas negative influences create inhibiting milieu to the
emergence of entrepreneurship. Following factors contribute to the success of
entrepreneurship:

1. Personality Factors

Personality traits such as inner desire for control of their activities, tolerance for
risk, high level of tolerance to function in adverse situations and background
experiences such as the family environment, level of education, age and work
history tolerance for ambiguity are important personal characteristics that
affect entrepreneurship. Individuals who are desirous of working independently;
willing to work for long hours and assume risk; are self-confident and hard-
working are likely to be more successful as entrepreneurs than those who do not
posses these qualities

Personal factors, becoming core competencies of entrepreneurs, include:

(a) Initiative (does things before being asked for)

(b) Proactive (identification and utilization of opportunities)

(c) Perseverance (working against all odds to overcome obstacles and never
complacent with success)

(d) Problem-solver (conceives new ideas and achieves innovative solutions)

(e) Persuasion (to customers and financiers for patronization of his business and
develops & maintains relationships)

(f) Self-confidence (takes and sticks to his decisions)

(g) Self-critical (learning from his mistakes and experiences of others)

(h) A Planner (collects information, prepares a plan, and monitors performance)

(i) Risk-taker (the basic quality).

2. Environmental factors

These factors relate to the conditions in which an entrepreneur has to work. If

the environment that a individual is working in is unsatisfactory, that is, not
conducive to his growth needs, it is likely that the individual will quit his job and
start his own business as an entrepreneur. Unsatisfied personal needs for growth
and achievement in employment conditions results in successful
entrepreneurship.

3. Political

Some researchers felt that the growth of entrepreneurship cannot be explained

fully unless the political set-up of a country is taken into consideration. Political
stability in a country is absolutely essential for smooth economic activity.
Frequent political protests, strikes, etc. hinder economic activity and
entrepreneurship. Unfair trade practices, irrational monetary and fiscal policies,
etc. are a roadblock to the growth of entrepreneurship

4. Socio-Economic Factors

The entrepreneurial activity at any time and place is governed by varying

combination of socio-economic factors. The empirical studies have identified
the following socioeconomic factors:

• Cast/religion
• Family background
• Level of Education
• Level of perception
• Legitimacy of Entrepreneurship
• Migratory character
• Social Mobility
• Social Security
• Investment capacity
• Ambition/motivation

5. Economic Factor

Factors such as availability of finance, labor, land, accessibility of customers,

suppliers are the factors that stimulate entrepreneurship. Capital is one of the
most important prerequisites to establish an enterprise. Availability of
sufficient capital affects the introduction, survival and growth of a business
enterprise. Capital is regarded as lubricant to the process of production. If we
increase in capital investment, capital output ratio also tends to increases. This
results in increase in profit, which ultimately goes to capital formation. Due to
this capital supply increase, entrepreneurship also increases.

6. Other Factors

• Entrepreneurial Education

More and more people with high academic attainments started joining the ranks
of industrialists, especially the professionals holding qualifications in
engineering, law, medicine, cost and chartered accounting. The newer
entrepreneurs have a larger proportion of their floatation in the traditional
sector, but these professionals have by and large preferred to make their
investments in modern sector. The technicians in particular among both old and
new entrepreneurs have entered industries in the modern sector having a
bearing of their academic qualifications. Many universities and institutes are
nowadays offering entrepreneurship education. A number of institutes have set
up successful entrepreneurship centers, which provide help to budding
entrepreneurs by conducting formal training and structured mentoring
programs.

• Impact of Services Sector

Increase in per capita income leads to a greater share of the services sector in the
national economy. The average size of firms’ m many sections of the services
sector are relatively small. This in turn promotes entrepreneurial activity across
a number of service sector industries. Even for some developing countries such
as India, services account for over half of the total GDP. Growing importance of
services in the overall economy has paved the way for entrepreneurial activity.
New industries such as software and business process outsourcing have emerged
and these have a large number of entrepreneurial firms.

• Increasing Demand for Variety

Increased wealth has led to increase in the demand for variety (Jackson 1984).
The increasing demand for new products is of advantage to smaller firms. A
number of studies have shown the comparative advantage of smaller firms in
being innovative and coming up with new products . If the products has unmet
demand, it will create a market for itself. The success of entrepreneurship is,
therefore, dependent upon the extent to which the product is in demand.
Changes in consumer tastes are a major reason for growth of entrepreneurship.
People are, inclined to products that are specifically designed to meet their
special needs. Mass produced homogenous goods do not enjoy as wide an appeal
anymore.

• Impact of Ethical Value System

Max Weber was first to point out that the entrepreneurial growth was governed
by the ethical value system of the society concerned. He said that the spirit of
rapid industrial growth depends upon a rationalized technology, acquisition of
money and its rational use for productivity and multiplication of money. These
elements depend upon a specific value orientation of individuals.
Entrepreneurship develops rapidly in those societies where ethical values
provided independent capacity of decision-making. No doubt, this view has
some truth but it is not accepted universally.

• Internal Control System

Entrepreneurship largely depends upon the control system designed for

controlling the business activities. If the control system is effective they will
result in optimal inventory, good quality products and high profit margins. This
will have a positive effect on the success of entrepreneurship.
Characteristics and Skills of an Entrepreneur
Last updated on February 18th, 2020 at 04:18 pm

1. Leadership skills

Do you possess good leadership skills? Do people like your leadership and does
your leadership style inspire change? As a business owner, you must be able to
manage your employees and the teams involved.

Businesses that are meeting their goals and aspirations have gotten where they
are because of having leaders with the capacity to guide the businesses through
the different challenges, but still come out on the other side having achieved
what they set out to do. Being a great leader means that your employees work
with you, question your moves at other times, and basically communicate well
with you just to ensure that your business reaches its goals.

“The quality of a leader is reflected in the standards they set for

themselves.” – Ray Kroc
2. Excellent communication skills

For you to get the end product you had in mind when starting, you should be able
to clearly communicate your goals to all the teams involved in the production
and processing process. An entrepreneur needs to understand their employees,
know their strengths or weaknesses, then help them use these effectively,
making the business and the employee better. This is only possible through
communication.

Communication must be two way and you should also listen. Good written and
spoken communication skills are important out of the business establishment as
well. Communication is integral when looking for funding, when handling
complaints from customers, or when negotiating new deals.

3. Ambition

To change the world with your business, you need to have ambitious projects.
Ambitious projects are often referred to as the disruptive ventures. To get on top
of things and the industry, yours should be the project that will disrupt the
society’s status quo.

As an entrepreneur, your ‘holy grail’ is a product or a service that will shake up the
industry radically. This includes the ability to change the way people view things,
interact or label things.
4. Risk taker

An entrepreneur is the definition of a risk taker. Business growth depends on

your ability to dive into the future of uncertainty while embracing all the
challenges and the problems that will cross your path. You should be willing to
risk your money, time, and other unknown factors. To deal with these risks and
the unknown, you should set aside resources, bandwidth, and plans to deal with
the unknown.

5. Fearlessness

You cannot run a business when you are afraid of every turn you are about to
make. Being a risk taker requires a fearless spirit. There will be scary moments,
but your ability to maneuver and win over the fear is the power that will propel
you and your business to greater heights.

6. Ability to listen to your gut instincts and to trust them

There isn’t one successful entrepreneur who faults or regrets trusting their
instincts. In a normal consumer life as well as the business world, you have to
listen to that little voice and step out when your gut says so.

As a result of the impressive results reported by entrepreneurs who always trust

their instincts, gut instincts have been dubbed the sixth sense. This sixth sense
is very powerful and you should be able and willing to trust and rely on it. It
doesn’t matter what the rest of the team thinks.

7. Visionary

You cannot take on the entrepreneurship bull by the head and ride it without
falling over or getting it to trample on you if you have a solid vision in mind.
Perceptive and creative business visionaries tend to twist normal views,
distorting reality and eventually change the way people see the world. To be in
the top entrepreneurial league, you should be able to cultivate these visions in
your mind so as to make the big breakthroughs, which could never be envisioned
by an ordinary person.

“The key to realizing a dream is to focus not on success but on

significance — and then even the small steps and little victories
along your path will take on greater meaning.” – Oprah Winfrey

8. Motivation and passion

The most important trait ingrained in successful entrepreneurs is passion in

what one does and the motivation to hit the big business storms every day
without giving up. Because of passion, you will stay up late to complete
unfinished tasks, wake up earlier for your customers to get their deliveries in
time, work endlessly on the same thing without getting bored, willingness to
make the business better and stronger, and the ability to be in love with that
which you wake up to, every day. Without this and the internal motivation to
make things work, you will not succeed in business.

9. Tech savviness

You don’t have to be a pro in all matters tech and programming but in this digital
age, you should have the least possible capacity to market your products or
services online and to connect to your customers, competitors, or suppliers
through social media platforms. Digital marketing is crucial and you should do
some basic SEO. You should also use the company’s and your personal social
media platforms to build and enhance your business brand.

10. Good financial management skills

You need to manage your money. Even when you have a CFO, you still have to
control things and help in making business decisions concerning money. Besides
financial management, you must have the ability and the capacity to raise funds.
To get investors interested in your business, you should be able to show them
what you have and what their investment can do for your business.

In conclusion, the success of your business depends on these skills and traits. A
rapidly growing business is one that is not only disruptive, but also one that
leaves a positive impact in society. Your goal in business shouldn’t just be raising
a lot of money, but you should have the vision to change things around to benefit
the whole society.

Entrepreneur V/S Manager

Last updated on February 18th, 2020 at 04:18 pm

The main difference between Entrepreneur and Manager is their role in the
organization. Entrepreneur is the owner of the company whereas Manager is the
employee of the company. Entrepreneur is a risk taker, they take financial risk
for their enterprise. Entrepreneur has a vision and focuses on achievements and
profit.
The responsibility of the Manager is to run the organization, control it and make
sure everything is working smoothly. Manager works for salary and does not take
any risks.

Comparison Chart

BASIS FOR
ENTREPRENEUR M
COMPARISON

Entrepreneur refers to a person who creates an Manager is an indi

Meaning enterprise, by taking financial risk in order to get responsibility of co
profit. the organization.

Focus Business startup Ongoing operation

Primary motivation Achievement Power

Approach to task Informal Formal

Status Owner Employee

Reward Profit Salary

Decision making Intuitive Calculative

Driving force Creativity and Innovation Preserving status q

Risk orientation Risk taker Risk averse

Evolution of Entrepreneur, Entrepreneurship
Last updated on February 18th, 2020 at 04:18 pm

The majority of wealth in the hands of the ruling class, owning one’s own
business was a rare sight. The old-world entrepreneurs mostly consisted of
merchants and craftsmen. Plenty of merchants created their own business, but
a lot of the time the business and connections were handed down generation to
generation. Skilled craftsmanship was another family affair, but anyone with
the right connections that was lucky enough to land an apprenticeship and
succeed at it we’re able to climb the economic ladder a little higher.

Merchants started to take over be more prominent as the world market grew
because of exploration and sailing and shipping became easier. It wasn’t until the
industrial age when the big business was back in a central location. Inventors
were a large part of the entrepreneurial field. Using new technology,
manufacturing, transportation and ingenuity, inventors dominated the
industrial age.

The 20th century was the home of the media kings. Radio, television and film
blew up creating new industries across the globe. Finally, our current
Information Age came upon us in the 80’s. Since then moguls have been
materialized from one single good idea worth billions upon billions of dollars.

Entrepreneurs have shaped the face of business and enterprise since the dawn of
man. From the first wheel to the advent of the internet, these clever
businesspeople evolved for centuries into their most recent incarnation, the
social media entrepreneur.

We’re no longer cave-people, but we still have some things in common with our
ancestors.

Instead of using the internet as a forum for their business, today’s social media
entrepreneurs are reshaping it to fit their businesses. These social media
entrepreneurs thrive on connectivity.

The Evolution of Entrepreneurship

The need and the constant necessity for a good leader is one of the many factors
that drive the evolution of entrepreneurship. Besides this, there are a few other
factors:
 • Trading: With the improvement in communication between the
countries and the advancement in transportation, start the
process of trading.
• Advent of stable specialization and communities: When more
and more individuals start to settle in secure communities, a huge
change was noticed in their lifestyles. Each group had a leader who
was qualified and specialized in one task and that helped in
speeding the development of leadership skills and innovation.
• Need of independent career: More and more people are looking
for a career path that is totally independent. The majority started
to take risks by developing their own businesses in order to
achieve maximum benefits.

Concepts of Intrapreneurship
Last updated on February 18th, 2020 at 04:23 pm

An Intrapreneurship is the system wherein the principles of entrepreneurship

are practiced within the boundaries of the firm. An intrapreneur is a person who
takes on the responsibility to innovate new ideas, products and processes or any
new invention within the organization.

An intrapreneur is the individual who thinks out of the box and possesses the
leadership skills and does not fear from risk. Thus, an intrapreneur possesses the
same traits as that of an entrepreneur.

The concept of an Intrapreneurship can be well understood in contrast to the

entrepreneurship.

1. Intrapreneurship is restorativein nature, i.e. an organization

encourages the employees to practice the entrepreneurial
principles to counter stagnation within the firm or transform the
slow growth of the company into a high-growth. Whereas the
entrepreneurship is developmental in nature, i.e. an individual
creates something that has never existed before, such as a new
product, process or a new venture itself.
2. In intrapreneurship, the major challenge that individual faces are
from the company’s culture Sometimes, the corporate
relationships and the mindsets of employees acts as a hurdle in
the path of an intrapreneur. Whereas, in the case of
entrepreneurship, the marketis the only enemy. An entrepreneur
 has to scrutinize the market conditions thoroughly to cross the
hurdles coming in his way.
3. An intrapreneur has an access to firm’s resources such as funds,
manufacturing setups, marketing facilities, and other supporting
activities to give shape to his dreams. Whereas an entrepreneur
has to arrange his own resourcessuch as own funds or the
borrowed funds, manufacturing facilities, marketing facilities,
etc.
4. An intrapreneur does not have the ownership of a new venture
and isnot even independentto take decisions, whereas an
entrepreneur is the whole sole owner of the new venture
established by him. Also, he is independent to take any decisions
with respect to his setup.

Thus, an Intrapreneurship is a practice of creating the entrepreneurial

environment within the organization, thereby enabling the employees to apply
their entrepreneurial skills in the job roles; they are assigned to.

Entrepreneur Intrapreneur

An entrepreneur is independent in his An intraprenuer is dependent on the

operations
An entrepreneur himself raises funds
required for the enterprise.
Entrepreneur bears the risk involved in
the business.
An entrepreneur operates from outside.
An entrepreneur begins his business with
a newly set up enterprise.
As an entrepreneur establishes new
business, so he does not posses any
experience over the business.
Entrepreneurs may find it difficult to get
resources
Entrepreneurs are found anywhere their
vision takes them.
Entrepreneurs know the business on a
macro scale.
entrepreneur i.e. the owner.
The Intrapreneur does not raise funds.
An intrapreneur does not fully bear the
risk involved in the enterprise.
On the contrary,an intrapreneur operates
from within the organization itself.
An intrapreneur sets up his enterprise
after working someone else’s
organization.
An intrapreneur establishes his business
after gathering experiences through
working in the other organization.
Intrapreneurs have their resources readily
available to them.
Intrapraneurs work within the confines of
an organization.
Intrapreneurs are highly skilled and
specialized.
Types of Entrepreneurs, Functions Of
Entrepreneur
Last updated on February 18th, 2020 at 04:24 pm

An Entrepreneur is a person who has a role of an industrialist and forms an

organization for the commercial use. He is a change agent who transforms the
demand into supply by forecasting the needs of the society.

Types of Entrepreneurs

1. Innovative Entrepreneur: These are the ones who invent the new
ideas, new products, new production methods or processes,
discover potential markets and reorganize the company’s
structure. These are the industry leaders and contributes
significantly towards the economic development of the
country.The innovative entrepreneurs have an unusual foresight
to recognize the demand for goods and services. They are always
ready to take a risk because they enjoy the excitement of a
challenge, and every challenge has some risk associated with it.
Ratan Tata is said to be an innovative entrepreneur, who launched
the Tata Nano car at a considerably low cost.
2. Imitating Entrepreneurs: The imitating entrepreneurs are those
who immediately copy the new inventions made by the
innovative entrepreneurs. These do not make any innovations by
 themselves; they just imitate the technology, processes, methods
pioneered by others.These entrepreneurs are found in the places
where there is a lack of resources or industrial base due to which
no new innovations could be made. Thus, they are suitable for the
underdeveloped regions where they can imitate the combinations
of inventions already well established in the developed regions, in
order to bring a boom in their industry.
3. Fabian Entrepreneurs: These types of entrepreneurs are
skeptical about the changes to be made in the organization. They
do not initiate any inventions but follow only after they are
satisfied with its success rate.They wait for some time before the
innovation becomes well tested by others and do not result in a
huge loss due to its failure.
4. Drone Entrepreneurs: These entrepreneurs are reluctant to
change since they are very conservative and do not want to make
any changes in the organization. They are happy with their
present mode of business and do not want to change even if they
are suffering the losses.

Thus, this classification is done on the basis of the willingness of an entrepreneur

to create and accept the innovative ideas.

Functions of Entrepreneur

Entrepreneurs are broadly classified into/our categories as mentioned below:

1. Entrepreneurial Functions
2. Managerial Functions
3. Promotional Functions
4. Commercial Functions

1. Entrepreneurial Functions:

The major entrepreneurial functions include risk bearing, organizing, and

innovation. Since these are already discussed under the heading 1.2 Evolution of
the Concept of Entrepreneur, the same is, therefore, not discussed here again for
the sake of repetition.

2. Managerial Functions:

In simple words, management is getting things working with and through

others. Different experts have defined term management differently. According
to Henri Fayol (1949) who is considered the father of ‘principles of
management,’ “management is to forecast, to plan, to organize, to command,
to co-ordinate, and to control.”

In the opinion of George Terry (1953), “management is a distinct process

consisting of planning, organizing, actuating, and controlling performance to
determine and accomplish the objectives by the use of people and resources.”

The significance of management function lies in the fact that enterprises with
excellent facilities and quality resources have floundered and fizzled out due to
either no management or poor management and enterprises with good
management but with poor facilities and resources have flourished and
performed exceedingly well. In small-scale enterprises, the entrepreneur who is
the owner of the enterprise also, has to perform the management functions as
well.

The management functions performed by entrepreneur are classified into

the following five types:

1. Planning
2. Organizing
3. Staffing
4. Directing
5. Controlling

A brief description of each of these follows in seriatim:

1. Planning:

In common parlance, planning is pre-determined course of action to accomplish

the set objectives. In other words, planning is today’s projection for tomorrow’s
activity. Planning pervades in all aspects of business. An entrepreneur has to
make decisions as to what is to be done, how it is to be done, when it is to be done,
where it is to be done, by whom it is to be done and so on.

The importance of planning lies in the fact that it ensures the smooth and
effective completion and running of a business enterprise. Absence of planning
causes confusion which, in turn, affects the smooth performance of job
whatsoever it may be.

How? The following anecdote beautifully demonstrates it:

This is a story about four people named Everybody, Somebody, Anybody and
Nobody. There was an important job to be done. Everybody was sure that
somebody would do it. Anybody could have done it, but nobody did it. Somebody
got angry about that because it was Everybody’s job. Everybody thought
anybody could do it, but nobody realized that everybody would not do it. It ended
up that everybody blamed somebody when nobody did what anybody could have
done.

2. Organising:

The organizing function of an entrepreneur refers to bringing together the men,

material, machine, money, etc. to execute the plans. The entrepreneur
assembles and organizes the above mentioned different organs of an enterprise
in such a way that these combinedly start functioning as one, i.e., enterprise.
Thus, organizing function of an entrepreneur ultimately provides a mechanism
for purposive, integrated and co-operative action by many people in a joint and
organized effort to implement a business plan.

3. Staffing:

Staffing involves human resource planning and human resource management.

Thus, staffing function of an entrepreneur includes preparing inventory of
personnel available, requirement of personnel, sources of manpower
recruitment, their selection, remuneration, training and development and
periodic appraisal of personnel working in the enterprise.

Business history is replete with evidences that it is basically the staff, i.e.,
personnel working in the organization that makes all the difference. While
appreciating the role of personnel in the success of an organization, L. F. Urwick
had remarked that, “business houses are made or broken in the long-run not by
markets or capital, patents or equipments, but by men.”

Andrew Carniege’s view that “Take my people and leave my factory, soon grass
will grow on the floor. Take my factory and leave my people, soon we shall build
a better factory” also underlines the significance of people or staffing in the
making of an organization. However, staffing function is as crucial for the
success of a business enterprise is equally complex as well.

4. Directing:

The functions like planning, organizing, and staffing are merely preparations for
setting up a business enterprise. The directing function of entrepreneur actually
starts the setting up of enterprise. Under the directing function, the
entrepreneur guides, counsels, teaches, stimulates and activates his/ her
employees to work efficiently to accomplish the set objectives.

Thus, directing function of entrepreneur concerns the total manner in which an

entrepreneur influences the actions of his / her employees/ workers. It is the
final action of an entrepreneur in making his / her employees actually act after
all preparations have been completed.

5. Controlling:

Controlling is the last management function performed by the entrepreneur. In

simple words, controlling means to see whether the activities have been
performed in conformity with the plans or not. Thus, controlling is comparison
of actual performance with the target or standard performance and
identification of variation between the two, if any, and taking corrective
measures so that the target is accomplished.

3. Promotional Functions:

1. Identification and Selection of Business Idea:

Every intending entrepreneur wants to start the most profitable and rewarding
project. The selection of the most suitable business project involves a process.
The intending entrepreneur, based on his /her knowledge, experience, and
information gathered from friends and relatives, generates some possible
business ideas which can be examined and pursued as a business enterprise.

This process is also described as ‘opportunity scanning and identification’. Then,

the generated ideas are analysed in terms of costs and benefits associated with
them. Having made cost-benefit analysis of all the ideas, the most beneficial
idea is finally selected to be pursued as business enterprise.

2. Preparation of Business Plan or Project Report:

The entrepreneur prepares a statement called ‘business plan’ or ‘project report’

of what he / she proposes to take up. In other words, business plan is a well
evolved course of action devised by entrepreneur to achieve the specified
objectives within a specified period of time.

In this sense, business plan is just like an operating document. The preparation
of business plan is not must, but it is very much useful for the entrepreneur to
establish his / her enterprise in an effective and smooth manner. But, it is must
for those entrepreneurs who intend to apply for financial assistance from the
financial institutions and banks for their enterprises.

It contains information about the intending entrepreneur, location of

enterprise, requirement for land and building, plant and machinery, raw
material, utilities, transport and communication, manpower, requirement for
funds including working capital along with its sources of supply, break-even
point and implementation schedule of the project.
 3. Requirement for Finance:

The entrepreneur prepares requirement for funds with its detailed structure.
The financial requirement is also classified into short-term and long-term
separately. Then, the sources of supply to acquire the required fund are also
mentioned. How much will be the share capital in terms of equity and preference
shares and how much will be borrowed capital from different financial
institutions and banks are clearly determined.

4. Commercial Functions:

1. Production / Manufacturing:

Once the enterprise is finally established, it starts producing goods or offering

services, whichever be the case. Production function includes decisions relating
to the selection of factory site, design and layout, types of products to be
produced, research and development, and design of the product.

The ancillary activities include production planning and control, maintenance

and repair, purchasing, store-keeping, and material handling. The effective
performance of production function, to a large extent, depends on the proper
production planning and control.

2. Marketing:

All production is basically meant for marketing. Marketing is the performance of

those business activities that direct the flow of goods and services from producer
to consumer or user. Thus, marketing essentially begins and ends with the
customers. It is important to note that marketing is not just selling. In fact,
marketing includes much more than selling. Selling is the last function in
marketing activities.

The examples of marketing activities are market or consumer research, product

planning and development, standardization, packaging, pricing, storage,
promotional activities, distribution channel, etc. The success of marketing
function is linked with an appropriate ‘marketing mix’. Traditionally, marketing
mix referred to 4 Ps, namely, product, price, promotion, and physical
distribution. Of late, 3 more Ps namely, packaging, people, and process are also
added to ‘marketing mix’.

3. Accounting:

The main objective of any business enterprise is to earn profits and create
wealth. Whether the business is fulfilling its objective or not is ascertained
through accounting. What is accounting? According to the American Institute of
Certified Public Accountants, “Accounting is the art of recording, classifying and
summarizing in a significant manner and, in terms of money, transactions and
events which are, in part at least, of a financial character and interpreting the
results thereof.”

Thus, accounting involves a process consisting of the following four stages:

1. Recording the Transactions

2. Classifying the Transactions
3. Summarising the Transactions
4. Preparing the Final Accounts
5. Analysing and Interpreting the Results.

The Profit & Loss Account is prepared for ascertaining whether the business
earned profit or incurred loss during a particular period of time also called
‘accounting year’. The Balance Sheet is prepared to know the financial position
of business during the accounting period. Hence, the Balance Sheet is also called
‘Position Statement.’

Advantages of Becoming an Entrepreneur

Last updated on February 18th, 2020 at 04:23 pm

You set your principles

You have all the rights. One of the greatest issues you had with getting a
“genuine” employment was being overseen. It made you unbelievably anxious
knowing somebody was always studying your work, investigating your shoulder
and letting you know what to do and when to do it.

Can work any place

It is the reality you can work from anyplace it’s up to you. You don’t have to sit in
a boring, white painted cabin and feel like your life is over. No! You have the
capacity to move around and pick your own office. You can paint it any color and
you can even decide the décor on your own. So basically, you are the king of your
workplace as you can work from any place.

Never be exhausted

As a business person, each and every day of your life will be distinctive. Presently,
this can be either an agreeable or frightening experience, contingent upon the
person. If you like to experience, rivalry and the thrill of gambling it all, you’ll like
owning your own business.
You won’t get tired of it or won’t get a feeling of exhaustion. You won’t feel like
you are done with your life and those entire negative emotions won’t swipe in
and out too often. Yes, an entrepreneur also gets tired but they know how to
pause and refresh their mind rather than to put a halt to the journey in all.

Can pick individuals you like

Amongst all the other wonderful advantages, this one is too important.
Sometimes we hate people we are working with so being an entrepreneur, you
can simply change that. You are free to work with people you like.

Life is too short to be worried by having customers that drive you nuts and to
contract representatives that don’t get along with you. so you are free to choose
it all; isn’t that fun?

Make your own destiny

You can make your own particular open doors by doing things like attending
conventions, organizing with similarly invested individuals on the web and
substantially more by picking the people you work with and join forces with, as
your own particular manager. In doing this, you shape nearly cut out your own
destiny.

Go to bat for What You Believe In

Being a business person additionally allows you to defend what you have
confidence in, and spread the news. You have the chance to speak up and say
what you feel. You haven’t bossed around because you are the one who bosses
people around.

So whatever you believe in is what you perform at! Unlikely to those employed
people who have to do what their bosses tell them. You are the boss of your own
world.

Work Your Own Schedule

In any case, being able to manage when you work, when you’ll be ‘in the
workplace’, accessible for gatherings, and so on… is an opportunity that you
essentially never need to relinquish. If you need to take the evening off to play
with your most kids, then you can. You can’t do that working for another person.

Entrepreneurial Decision-Process, Challenges

Faced By Entrepreneurs
Last updated on February 18th, 2020 at 04:24 pm

Entrepreneurial Decision-Process

The difference between the entrepreneurial style and the managerial style
(administrative domain) involves five business dimensions.

A. Strategic Orientation

1. The entrepreneur’s strategic orientation depends on his or her

perception of the opportunity.
2. When the use of planning systems is the strategic orientation, the
administrative domain is operant.

B. Commitment to Opportunity

1. The entrepreneurial domain is pressured by the need for action

and has a short time span in terms of opportunity commitment.
2. The administrative domain is not only slow to act on an
opportunity, but the commitment is usually for a longer time
span.

C. Commitment of Resources

1. An entrepreneur is used to having resources committed at

periodic intervals, often based on certain tasks or objectives being
reached.
2. In acquiring these resources the entrepreneur is forced to
maximize resource use.
3. In the administrative domain, the commitment of resources is for
the total amount needed.
4. Administrative-oriented individuals receive personal rewards by
effectively administering the resources under their control.

D. Control of Resources

1. The administrator is rewarded by effective resource

administration and has a drive to own or accumulate as many
resources as possible.
2. The entrepreneur, under pressure of limited resources, strives to
rent resources on an as-needed basis.
E. Managerial Structure

1. In the administrative domain, the organizational structure is

formalized and hierarchical in nature.
2. The entrepreneur employs a flat organizational structure with
informal networks.

Challenges Faced By Entrepreneurs

An entrepreneur is one who plays significant role in the economic development

of a country. Basically an entrepreneur can be regarded as a person who has the
initiative, skill and motivation to set up a business or an enterprise of his own and
who always looks for high achievement. Entrepreneurs have to face numerous
challenges on the road to success, in particular with regard to access to finance.
All entrepreneurs will at some point feel overwhelmed with the many
responsibilities that fall on their shoulders. The common challenges faced by
entrepreneurs are Overestimating Success, Misplaced Purpose, Negative
Mindset, Poor Organization, Jack of All Trades, Employee Motivation, Lack of
Support.

1. Finance

Entrepreneurship means having access to capital, understanding business

finance and building successful relationship with lenders. When starting a
venture, however, an unprepared entrepreneur may encounter cash flow
problems when he doesn’t have a network of dependable lenders or investors.
Any successful entrepreneur needs a list of people in and out of the business
world to depend on. An entrepreneur must understand business finance, or risk
overpricing offered services. Overpricing your product causes insufficient sales
and cash.

2. Business Management

About one-quarter of entrepreneurs cited management problems as another

challenge with entrepreneurship, explains Researching Small Business and
Entrepreneurship. A successful entrepreneur needs passion to get a business
started and make it stable. Thus, personal problems, such as not setting goals,
measuring performance and controlling your time can prohibit your from
managing your business properly. In addition, an entrepreneur must have access
to useful business information. Starting a business venture involves learning as
much about your business and product as you can before securing capital.
Managing a business also mean finding and retaining qualified employees.

3. Marketing the Business

Whether an entrepreneur plans to sell products like computers or services like
repairing computers, she needs to market the business. Entrepreneurship
problems can arise when an effective marketing plan doesn’t exist or you don’t
have the ability to actually sell the products or services. Another problem
involves using effective advertising. In a society where placing flyers on street
poles may not gain a customer’s attention, you need an effective and thorough
marketing plan to inform people about your business.

4. Finding the Right Business

Location finding a good business location at the right place is definitely not easy.
An efficient location that has a rapidly growing population, good road network
and other amenities at a good place

5. Unforeseen Business Challenges and Expenses

Just as a sailor prepares for unexpected storm, just as a pilot is always on the
watch for unpredictable bad weather and thunderstorms, so must an
entrepreneur prepared for whatever comes in the form of:

• Unexpected lawsuits
• Inconsistent government policy
• Not being able to make payroll
• Unpaid bills and taxes
• Unexpected resignation of staff from sensitive office
• Bad debts from customers
• Loss of market share
• Dwindling working capital
• Inadequate stock or inventory.

6. Finding Good Customers

The sixth challenge an entrepreneur will face in the process of starting a small
business from scratch is finding good customers. In the process of building a
business, an entrepreneur will come to find out that there are good customers as
well as bad customers.. Good customers are really hard to find. A good customer
will be loyal to the company and will be willing to forgive if the business make a
mistake and apologize. A good customer will try to do the right thing that will
benefit both him and company mutually.

7. Keeping Up With Industrial Changes and Trends

Change in trends is a challenge an entrepreneur must be prepared for when

starting a small business. Trends have made and broken lot of businesses.
Profitable businesses that have been wiped out by slight industrial changes and
trends. A typical example is the Dot com trend, where many established
industrial based businesses were wiped out by new web based dot com
companies. Seasoned entrepreneurs know that trend is a friend and are always
willing to swiftly adjust their business to the current trend.

8. Focus

One of the biggest mistakes entrepreneurs make in their early days is trying to
be all things to all people. They attempt to sell their product or service to too wide
of a market. Entrepreneurs also face another challenge in this area. They focus
on the wrong things. They spend too much time building their product without
validating that the marketplace wants needs and will actually pay for it.

9. Finding Good Employees

Most writers and managers crank up the process of finding good employees as
an easy task. They define the process of finding an employee as simply
presenting the job description and the right employee will surface. Business
owners know how difficult it is to find a hardworking, trustworthy employee.
Most employees want to work less and get paid more. Finding a good employee
who will be passionate about delivering his or her services is quite difficult.
Finding good employees is a minor task compared to the business challenge of
forging the hired employees into a team.

10. Assembling a Business Team

The third business challenge that an entrepreneur will face in the course of
starting a small business from scratch is assembling the right business
management team. The process of building a business team starts even before
the issue of raising initial start-up capital arises. Most brilliant ideas and
products never get funded because the entrepreneur is trying to raise capital as
an individual. A business team is a vital, yet often ignored key to raising venture
capital successfully.

Common Mistakes in Entrepreneurship,

Changing Role of Entrepreneur
Last updated on February 18th, 2020 at 04:27 pm

Everyone makes mistakes, and it’s no different for entrepreneurs launching a

new business. Getting a little tripped up here and there is natural, but for a
startup, even little errors can become costly down the line.
Luckily, countless entrepreneurs have blazed the startup trail before, and many
of them have committed common mistakes the rest of us can learn from. With a
little bit of planning and the wisdom to learn from the advice of others, you can
avoid some typical stumbling blocks.

1. Don’t be afraid to fail

“The biggest mistake you can make is to be afraid of failure. Failure is key to your
success, and jumping into your fear is very positive for your future business. How
you pick up after failure and learn from your mistakes is the key to great
success.” – Audrey Darrow, president, Righteously Raw

2. Get organized

“Being organized is key. Running a small business is like being a circus

ringmaster. It’s normal to have dozens of things happening at once. So, I have a
daily task list, things that I need to do. And I list them by their priority. It sounds
simple, but it works, and makes me far more productive.” – Tara Langdale-
Schmidt, founder, VuVatech

3. Don’t misinterpret your market

“The biggest mistake a business owner can make when launching a startup is
misinterpreting the market. Whether it is underestimating [or] overestimating
costs, appealing to the wrong target demographic, or poorly gauging the
demand, misinterpreting your market can end your business before it even
starts.” – Nabeel Mushtaq, COO and co-founder, AskforTask

4. Learn how to delegate and avoid micromanaging

“As a startup, there is sometimes a lack of self-awareness. Founders in the early

stage are not great at delegating work to their team members. They try to do
everything that they possibly can to cut costs, but really, in the long run, they
should have delegated the things that they are not good at and focused on their
strengths. If you are aiming for multiple targets at once, you are very unlikely to
hit one.” – Matt Pyke, founder and CEO, Fly High Media

5. Don’t hire too soon

“By far, the biggest mistake a startup can make is hiring employees too
soon, such as hiring full-timers when a part-timer might make more sense, or
hiring an employee when a subcontractor could have done the same
job/function. It is very easy to run a small business with part-timers,
subcontractors and the services of other professionals.” – Joseph C. Kunz Jr., CEO
and president, Dickson Keanaghan
6. Don’t get tunnel vision when raising money

“[It’s a mistake] focusing on raising money instead of customers and product-

market fit. Once companies have a product, many focus on raising money. But
they should focus on customers and product-market fit, making sure their value
proposition and offering resonates with a market and will get traction.” – BJ
Lackland, CEO, Lighter Capital

7. Don’t avoid contracts

“One of the biggest mistakes a business owner/entrepreneur can make when

starting a business is the failure to implement contracts. No matter how good
relationships may be, they can come to a screeching halt when systems and
agreements are not put in place.” – Michelle Colon-Johnson, founder, 2 Dream
Productions

8. Don’t give yourself the wrong salary

“Paying yourself too little or too much [is a mistake]. It’s often easier to
determine the salary for a new hire than determining an owner or partner’s pay.
Consider paying yourself a percentage of revenue. Whatever you choose, make
figuring out your pay and that of your partners a practice and foundation to
healthy expectation of management.” – Diana Santaguida, co-founder and
creative director, SEOcial

9. Don’t move too slowly

“Having been a first-time founder who made many mistakes, I realize in

hindsight that I never made decisions fast enough. I was slow to recognize that a
relationship with a business partner wasn’t working out, that my customer
wasn’t willing to pay enough money to sustain our business, that investors
weren’t interested in funding my business no matter how much they liked me,
etc.” – Sam Rosen, CEO and founder, MakeSpace

10. Grow at the right pace.

“I have had a lot of people who want to invest in my company. One of the biggest
mistakes you can do is partner with someone just because of the money. The
investor is more important than the money. You need to pick someone that
shares your vision and morals. It is OK to be picky when it comes to an
investor.” – Tara Langdale-Schmidt, founder, VuVatech

Changing Role of Entrepreneur

Entrepreneurs occupy a central position in a market economy. For it’s the

entrepreneurs who serve as the spark plug in the economy’s engine, activating
and stimulating all economic activity. The economic success of nations
worldwide is the result of encouraging and rewarding the entrepreneurial
instinct.
A society is prosperous only to the degree to which it rewards and encourages
entrepreneurial activity because it is the entrepreneurs and their activities that
are the critical determinant of the level of success, prosperity, growth and
opportunity in any economy. The most dynamic societies in the world are the
ones that have the most entrepreneurs, plus the economic and legal structure to
encourage and motivate entrepreneurs to greater activities.
For years, economists viewed entrepreneurship as a small part of economic
activity. But in the 1800s, the Austrian School of Economics was the first to
recognize the entrepreneur as the person having the central role in all economic
activity. Why is that?
Because it’s entrepreneurial energy, creativity and motivation that trigger the
production and sale of new products and services. It is the entrepreneur who
undertakes the risk of the enterprise in search of profit and who seeks
opportunities to profit by satisfying as yet unsatisfied needs.
Entrepreneurs seek disequilibrium–a gap between the wants and needs of
customers and the products and services that are currently available. The
entrepreneur then brings together the factors of production necessary to
produce, offer and sell desired products and services. They invest and risk their
money–and other people’s money–to produce a product or service that can be
sold at a profit.
More than any other member of our society, entrepreneurs are unique because
they’re capable of bringing together the money, raw materials, manufacturing
facilities, skilled labor and land or buildings required to produce a product or
service. And they’re capable of arranging the marketing, sales and distribution
of that product or service.

Entrepreneurs are optimistic and future oriented; they believe that success is
possible and are willing to risk their resources in the pursuit of profit. They’re fast
moving, willing to try many different strategies to achieve their goals of profits.
And they’re flexible, willing to change quickly when they get new information.
Entrepreneurs are skilled at selling against the competition by creating
perceptions of difference and uniqueness in their products and services. They
continually seek out customer needs that the competition is not satisfying and
find ways to offer their products and services in such a way that what they’re
offering is more attractive than anything else available.

Entrepreneurs are a national treasure, and should be protected, nourished,

encouraged and rewarded as much as possible. They create all wealth, all jobs, all
opportunities, and all prosperity in the nation. They’re the most important
people in a market economy–and there are never enough of them.
As an entrepreneur, you are extremely important to your world. Your success is
vital to the success of the nation. To help you develop a better business, one that
contributes to the health of the economy, I’m going to suggest that you take
some time to sit down, answer the following questions, and implement the
following actions:
What opportunities exist today for you to create or bring new products or
services to your market that people want, need and are willing to pay for? What
are your three best opportunities?

• Identify the steps you could take immediately to operate your

business more efficiently, especially regarding internal operating
systems.
• Tell yourself continually “Failure is not an option.” Be willing to
move out of your comfort zone, to take risks if necessary to build
your business.
• Use your creativity rather than your money to find new, better,
cheaper ways to sell your products or reduce your costs of
operation. What could you do immediately in one or both of these
areas?
• Imagine starting over. Is there anything you’re doing today that,
knowing what you now know, you wouldn’t get into or start up
again?
• Imagine reinventing your business. If your business burned to the
ground today, and you had to start over.

Women Enterprises
Last updated on February 18th, 2020 at 04:26 pm

Women Entrepreneurs may be defined as the women or a group of women who

initiate, organize and operate a business enterprise.

Government of India has defined women entrepreneurs as an enterprise owned

and controlled by a women having a minimum financial interest of 1% of the
capital and giving at least 51% of employment generated in the enterprise to
women.

Problems of Women Entrepreneurs in India/Challenges faced by Women

Entrepreneurs

Women in India have faced many problems to get ahead their life in business.
Women entrepreneurs face a series of problems right from the beginning till the
enterprise functions. The problems of Indian women pertains to her
responsibility towards family, society and work.

The traditions, customs, socio cultural values, ethics, motherhood, physically

weak, feeling of insecurity etc. are some peculiar problems that the Indian
women are coming across while they jump into entrepreneurship.

Women in rural areas have to suffer still further. They face tough resistance from
men. They are considered as helpers. The attitude of society towards her and
constraints in which she has to live and work are not very conducive.

Besides the above basic problems the other problems faced by women
entrepreneurs are as follows:

1. Family ties

Women in India are very emotionally attached to their families. They are
supposed to attend to all the domestic work, to look after the children and other
members of the family. They are over burden with family responsibilities like
extra attention to husband, children and in laws, which take away a lots of their
time and energy. In such situation, it will be very difficult to concentrate and run
the enterprise successfully.

2. Male dominated society

Even though our constitution speaks of equality between sexes, male

chauvinism is still the order of the day. Women are not treated equal to men.
Their entry to business requires the approval of the head of the family.
Entrepreneurship has traditionally been seen as a male preserve. All these put a
break in the growth of women entrepreneurs.

3. Lack of education

Women in India are lagging far behind in the field of education. Most of the
women (around sixty per cent of total women) are illiterate. Those who are
educated are provided either less or inadequate education than their male
counterpart partly due to early marriage, partly due to son’s higher education
and partly due to poverty. Due to lack of proper education, women entrepreneurs
remain in dark about the development of new technology, new methods of
production, marketing and other governmental support which will encourage
them to flourish.

4. Social barriers
The traditions and customs prevailed in Indian societies towards women
sometimes stand as an obstacle before them to grow and prosper. Castes and
religions dominate with one another and hinders women entrepreneurs too. In
rural areas, they face more social barriers. They are always seen with suspicious
eyes.

5. Shortage of raw materials

Neither the scarcity of raw materials nor availability of proper and adequate raw
materials sounds the death-knell of the enterprises run by women
entrepreneurs. Women entrepreneurs really face a tough task in getting the
required raw material and other necessary inputs for the enterprises when the
prices are very high.

6. Problem of finance

Women entrepreneurs have to struggle a lot in raising and meeting the financial
needs of the business. Bankers, creditors and financial institutes are not coming
forward to provide financial assistance to women borrowers on the ground of
their less credit worthiness and more chances of business failure. They also face
financial problem due to blockage of funds in raw materials, work-in-progress
finished goods and non-receipt of payment from customers in time.

7. Tough competition

Usually women entrepreneurs employ low technology in the process of

production. In a market where the competition is too high, they have to fight
hard to survive in the market against the organized sector and their male
counterpart who have vast experience and capacity to adopt advanced
technology in managing enterprises

8. High cost of production

Several factors including inefficient management contribute to the high cost of

production, which stands as a stumbling block before women entrepreneurs.
Women entrepreneurs face technology obsolescence due to non-adoption or
slow adoption to changing technology, which is a major factor of high cost of
production.

9. Low risk-bearing capacity

Women in India are by nature weak, shy and mild. They cannot bear the amount
risk which is essential for running an enterprise. Lack of education, training and
financial support from outsides also reduce their ability to bear the risk involved
in an enterprises.
 10. Limited mobility

Women mobility in India is highly limited and has become a problem due to
traditional values and inability to drive vehicles. Moving alone and asking for a
room to stay out in the night for business purposes are still looked upon with
suspicious eyes. Sometimes, younger women feel uncomfortable in dealing with
men who show extra interest in them than work related aspects.

11. Lack of entrepreneurial aptitude

Lack of entrepreneurial aptitude is a matter of concern for women

entrepreneurs. They have no entrepreneurial bent of mind. Even after attending
various training programmes on entrepreneur ship women entrepreneurs fail to
tide over the risks and troubles that may come up in an organizational working.

12. Limited managerial ability

Management has become a specializedjob which only efficient managers

perform. Women entrepreneurs are not efficient in managerial functions like
planning, organizing, controlling, coordinating, staffing, directing, motivating
etc. of an enterprise. Therefore, less and limited managerial ability of women has
become a problem for them to run the enterprise successfully.

13.Legal formalities

Fulfilling the legal formalities required for running an enterprise becomes an

upheaval task on the part of an women entrepreneur because of the prevalence
of corrupt practices in government offices and procedural delays for various
licenses, electricity, water and shed allotments. In such situations women
entrepreneurs find it hard to concentrate on the smooth working of the
enterprise.

14. Exploitation by middle men

Since women cannot run around for marketing, distribution and money
collection, they have to depend on middlemen for the above activities.
Middlemen tend to exploit them in the guise of helping. They add their own
profit margin, which result in less sales and lesser profit.

15. Lack of self-confidence

Women entrepreneurs because of their inherent nature, lack of self-confidence,

which is essentially a motivating factor in running an enterprise successfully.
They have to strive hard to strike a balance between managing a family and
managing an enterprise. Sometimes she has to sacrifice her entrepreneurial
urge in order to strike a balance between the two.

How to Develop Women Entrepreneurs?

Right efforts on all areas are required in the development of women

entrepreneurs and their greater participation in the entrepreneurial
activities. Following efforts can be taken into account for effective development
of women entrepreneurs.

1. Consider women as specific target group for all developmental

programmes.
2. Better educational facilities and schemes should be extended to
women folk from government part.
3. Adequate training programmes on management skills to be
provided to women community.
4. Encourage women’s participation in decision-making.
5. Vocational training to be extended to women community that
enables them to understand the production process and
production management.
6. Skill development to be done in women’s polytechnics and
industrial training institutes. Skills are put to work in training-
cum-production workshops.
7. Training on professional competence and leadership skill to be
extended to women entrepreneurs.
8. Training and counselling on a large scale of existing women
entrepreneurs to remove psychological causes like lack of self-
confidence and fear of success.
9. Counselling through the aid of committed NGOs, psychologists,
managerial experts and technical personnel should be provided to
existing and emerging women entrepreneurs.

• Continuous monitoring and improvement of training

programmes.
• Activities in which women are trained should focus on their
marketability and profitability.
• Making provision of marketing and sales assistance from
government part.
• To encourage more passive women entrepreneurs the Women
training programmes should be organized that taught to
recognize her own psychological needs and express them.
 • State finance corporations and financing institutions should
permit by statute to extend purely trade related finance to women
entrepreneurs.
• Women’s development corporations have to gain access to open-
ended financing.
• The financial institutions should provide more working capital
assistance both for small scale venture and large scale ventures.
• Making provision of micro credit system and enterprise credit
system to the women entrepreneurs at local level.
• Repeated gender sensitization programmes should be held to
train financiers to treat women with dignity and respect as
persons in their own right.
• Infrastructure, in the form of industrial plots and sheds, to set up
industries is to be provided by state run agencies.
• Industrial estates could also provide marketing outlets for the
display and sale of products made by women.
• A Women Entrepreneur’s Guidance Cell set up to handle the
various problems of women entrepreneurs all over the state.
• District Industries Centers and Single Window Agencies should
make use of assisting women in their trade and business
guidance.
• Programmes for encouraging entrepreneurship among women
are to be extended at local level.
• Training in entrepreneurial attitudes should start at the high
school level through well-designed courses, which build
confidence through behavioural games.
• More governmental schemes to motivate women entrepreneurs
to engage in small scale and large-scale business ventures.
• Involvement of Non Governmental Organizations in women
entrepreneurial training programmes and counselling.

Social Entrepreneurship
Last updated on February 18th, 2020 at 04:26 pm

Social entrepreneurship is the attempt to draw upon business techniques to

find solutions to social problems. This concept may be applied to a variety of
organizations with different sizes, aims, and beliefs.

The social entrepreneur is a mission-driven individual who uses a set of

entrepreneurial behaviours to deliver a social value to the less privileged, all
through an entrepreneurially oriented entity that is financially independent,
self-sufficient, or sustainable.

Characteristics of Social Entrepreneur

• The usual ideologies and principals do not holdback social

Entrepreneurs. They are always looking at breaking them.
• Social Entrepreneurs are impatient. They do not go well with the
bureaucracy around them.
• Social Entrepreneurs have the patience, energy and enthusiasm to
teach others.
• Social Entrepreneurs combine Innovation, Resources and
Opportunity to derive solutions to Social problems.
• This should be first in the list, Social Entrepreneurs DO NOT loose
their FOCUS anytime.
• Social Entrepreneurs always jump in before having their resources
in place. They are not traditional.
• Social Entrepreneurs ALWAYS believe that every one can Perform
and have the capacity to do so.
• Social Entrepreneurs ALWAYS display DETERMINATION
• Social Entrepreneurs can ALWAYS measure and monitor their
results.

Types of social entrepreneurship

1. The Leveraged Non-Profit:

This business model leverages resources in order to respond to social needs.

Leveraged non-profits make innovative use of available funds, in order to
impact a need. These leveraged non-profits are more traditional ways of dealing
with issues, though are distinguished by their innovative approaches.

The entrepreneur sets up a non-profit organization to drive the adoption of an

innovation that addresses a market or government failure. In doing so, the
entrepreneur engages a cross section of society, including private and public
organizations, to drive forward the innovation through a multiplier effect.
Leveraged non-profit ventures continuously depend on outside philanthropic
funding, but their longer-term sustainability is often enhanced given that the
partners have a vested interest in the continuation of the venture.

2. The Hybrid Non-Profit:

This organizational structure can take on a variety of forms, but is distinctive
because the hybrid non-profit is willing to use profit to sustain its operations.
Hybrid non-profits are often created to deal with government or market
failures, as they generate revenue to sustain the operation outside of loans,
grants, and other forms of traditional funding.

The entrepreneur sets up a non-profit organization but the model includes some
degree of cost-recovery through the sale of goods and services to a cross section
of institutions, public and private, as well as to target population groups. Often,
the entrepreneur sets up several legal entities to accommodate the earning of an
income and the charitable expenditures in an optimal structure. To be able to
sustain the transformation activities in full and address the needs of clients, who
are often poor or marginalized from society, the entrepreneur must mobilize
other sources of funding from the public and/or philanthropic sectors. Such
funds can be in the form of grants or loans, and even quasi-equity.

3. The Social Business Venture:

These models are set up as businesses designed to create change through social
means. Social business ventures evolved through a lack of funding—social
entrepreneurs in this situation were forced to become for-profit ventures.

The entrepreneur sets up a for-profit entity or business to provide a social or

ecological product or service. While profits are ideally generated, the main aim is
not to maximize financial returns for shareholders but to grow the social venture
and reach more people in need. Wealth accumulation is not a priority and profits
are reinvested in the enterprise to fund expansion. The entrepreneur of a social
business venture seeks investors who are interested in combining financial and
social returns on their investments.

Examples of Social Enterprises

1. Aravind Eye Hospital & Aurolab

Social Entrepreneur: Dr.Govindappa Venkataswamy (Dr. V) & David Green

Type of Organization: Trust

Location: Madurai, India

Website: http://www.aravind.org

Mission: Making medical technology and health care services accessible,

affordable and financially self-sustaining
Founded in 1976 by Dr. G. Venkataswamy, Aravind Eye Care System today is the
largest and most productive eye care facility in the world. From April 2007 to
March 2008, about 2.4 million persons have received outpatient eye care and
over 285,000 have undergone eye surgeries at the Aravind Eye Hospitals at
Madurai, Theni, Tirunelveli, Coimbatore and Puducherry. Blending traditional
hospitality with state-of-the-art ophthalmic care, Aravind offers
comprehensive eye care in the most systematic way attracting patients from all
around the world.

2. SKS India

Social Entrepreneur: Vikram Akula

Type of Organization: For-profit

Website: http://www.sksindia.com

Mission: Empowering the poor to become self-reliant through affordable loans

SKS believes that access to basic financial services can significantly increase
economic opportunities for poor families and in turn help improve their lives.
Since inception, SKS has delivered a full portfolio of microfinance to the poor in
India and we are proud of our current outreach. As a leader in technological
innovation and operational excellence, SKS is excited about setting the course
for the industry over the next five years and is striving to reach our goal of 15
million members by 2012.

3. AMUL (Anand Milk Union Limited)

Social Entrepreneur: Dr. Verghese Kurien

Type of Organization: Co-operative

Website: http://www.amul.com

Amul has been a sterling example of a co-operative organization’s success in the

long term. It is one of the best examples of co-operative achievement in the
developing economy. The Amul Pattern has established itself as a uniquely
appropriate model for rural development. Amul has spurred the White
Revolution of India, which has made India the largest producer of milk and milk
products in the world.
 4. Grameen Bank

Social Entrepreneur: Muhammad Yunus

Type of Organization: Body Corporate

Website: http://www.grameen-info.org

Grameen Bank (GB) has reversed conventional banking practice by removing the
need for collateral and created a banking system based on mutual trust,
accountability, participation and creativity. GB provides credit to the poorest of
the poor in rural Bangladesh, without any collateral. At GB, credit is a cost
effective weapon to fight poverty and it serves as a catalyst in the over all
development of socio-economic conditions of the poor who have been kept
outside the banking orbit on the ground that they are poor and hence not
bankable. Professor Muhammad Yunus, the founder of “Grameen Bank” and its
Managing Director, reasoned that if financial resources can be made available to
the poor people on terms and conditions that are appropriate and reasonable,
“these millions of small people with their millions of small pursuits can add up to
create the biggest development wonder.”

As of May 2009, it has 7.86 million borrowers, 97 percent of whom are women.
With 2,556 branches, GB provides services in 84,388 villages, covering more
than 100 percent of the total villages in Bangladesh.

5. Shri Mahila Griha Udyog Lijjat Papad

Type of Organization: Society

Website: http://www.lijjat.com

Shri Mahila Griha Udyog Lijjat Papad is a Women’s organization manufacturing

various products from Papad, Khakhra, Appalam, Masala, Vadi, Gehu Atta,
Bakery Products, Chapati, SASA Detergent Powder, SASA Detergent Cake (Tikia),
SASA Nilam Detergent Powder, SASA Liquid Detergent. The organization is
wide-spread, with it’s Central Office at Mumbai and it’s 67 Branches and 35
Divisions in different states all over India.

The organization started of with a paltry sum of Rs.80 and has achieved sales of
over Rs.300 crores with exports itself exceeding Rs.12 crores. Membership has
also expanded from an initial number of 7 sisters from one building to over
40,000 sisters throughout India. The success of the organization stems from the
efforts of it’s member sisters who have withstood several hardships with
unshakable belief in ‘the strength of a woman’.
Especially since Muhammad Yunus, founder of the Grameen Bank and a
renowned example of a social enterprise, won the Nobel Peace Price in 2006
there is increasing interest in social entrepreneurship for development yet the
current academic literature does not provide is a sufficient link between social
entrepreneurship and economic development policies. How important are social
entrepreneurs for economic development? What value is created by social
entrepreneurship?

The social entrepreneur sector is increasingly important for economic (and

social) development because it creates social and economic values:

1. Employment Development

The first major economic value that social entrepreneurship creates is the most
obvious one because it is shared with entrepreneurs and businesses alike: job
and employment creation. Estimates ranges from one to seven percent of people
employed in the social entrepreneurship sector. Secondly, social enterprises
provide employment opportunities and job training to segments of society at an
employment disadvantage (long-term unemployed, disabled, homeless, at-
risk youth and gender-discriminated women). In the case of Grameen the
economic situation of six million disadvantaged women micro-entrepreneurs
were improved.

2. Innovation/ New Goods and Services

Social enterprises develop and apply innovation important to social and

economic development and develop new goods and services. Issues addressed
include some of the biggest societal problems such as HIV, mental ill-health,
illiteracy, crime and drug abuse which, importantly, are confronted in innovative
ways. An example showing that these new approaches in some cases are
transferable to the public sector is the Brazilian social entrepreneur Veronica
Khosa, who developed a home-based care model for AIDS patients which later
changed government health policy.

3. Social Capital

Next to economic capital one of the most important values created by social
entrepreneurship is social capital (usually understood as “the resources which
are linked to possession of a durable network of … relationships of mutual
acquaintance and recognition”). Examples are the success of the German and
Japanese economies, which have their roots in long-term relationships and the
ethics of cooperation, in both essential innovation and industrial development.
The World Bank also sees social capital as critical for poverty alleviation and
sustainable human and economic development. Investments in social capital
can start a virtuous cycle.
(1) Endowment

The first job of social entrepreneur is to take whatever endowment of social

capital he is given and to use these relationships to create more social capital,by
getting more people and organizations involved with the project,by building a
wider web of trust and cooperation around the project.

(2) Physical capital

The initial endowment of social capital often brings access to physical

capital,usually in the form of rather run-down buildings.Getting access to a
physical base is vital. It provides a focus, a base for new services and a tangible
sign that the project is achieving something.

(3) Financial Capital

The initial network of supporters and helpers is vital to bring access to funds,
through fundraising, donations and corporate giving. The more diverse and
richer the network, the easier it will be to raise the funds.
(4) Human Capital

The project has to recruit and pull in more key people to help it move from start-
up into growth,creating products and services.

(5) Organisational capital

As the project grows,becomes larger and more complex,its management will

need to become more organized.It will need stronger financial systems and legal
help.With more staff involved,people management may become more
complicated.So the project needs to develop organizational capital,a more
formalized management structure,financial systems and a stronger set of
relationships with partners.

(6) Paying dividends

In the first phase of project,the social entrepreneur inherits and creates social
capital.Then he starts to accumulate more capital in the form of buildings and
finance.Then the capital is invested in creating new services and products.In the
final phase,if the investment has been successful the project starts to pay
dividends in several different forms.Perhaps the most valuable dividend is yet
more social capital,in the form of stronger bonds of trust and cooperation,within
the community and outside partners and funders.

(7) Equity Promotion

Social entrepreneurship fosters a more equitable society by addressing social

issues and trying to achieve ongoing sustainable impact through their social
mission rather than purely profit-maximization. In Yunus’s example, the
Grameen Bank supports disadvantaged women. Another case is the American
social entrepreneur J.B. Schramm who has helped thousands of low-income
high-school students to get into tertiary education.

To sum up, social enterprises should be seen as a positive force, as change agents
providing leading-edge innovation to unmet social needs. Social
entrepreneurship is not a panacea because it works within the overall social and
economic framework, but as it starts at the grassroot level it is often overlooked
and deserves much more attention from academic theorists as well as policy
makers. This is especially important in developing countries and welfare states
facing increasing financial stress.

Rural Entrepreneurship
Last updated on November 17th, 2022 at 08:47 pm
Entrepreneurs are people who create and develop enterprises and likewise
“entrepreneurship” is the process through which enterprises are set up.
It also charts their growth and progress. But, the growth and development
of rural entrepreneurs are complex issues, which can be tackled by social,
political and economic institutions. The sooner they are established, the
better it would be for the commercial development in the rural sector and
the subsequent economic growth of our country.

In the micro-finance industry, we consider rural areas as places of

opportunities for new entrepreneurs. Despite all the inadequacies in rural
areas, we should assess and make good use of their strengths and
strengthen them to make rural areas as ‘places of opportunities’. In a
country like India, there is much to do with the way we see the reality of
the rural areas. Rural psychology is attuned to promoting new ideas and
innovation, more so because job opportunities are limited there. We should
encourage entrepreneurs to think positively, creatively and with an
entrepreneurship- building mindset to promote their growth. Young people
with such perspective and with the help of rightly channelized efforts would
usher in an era of thriving rural entrepreneurship.

Rural entrepreneurship will augur well for our country in a number of ways.

First, it will provide employment opportunities. Rural entrepreneurship is

labour intensive and provides a clear solution to the growing problem of
unemployment. Development of industrial units in the rural areas through
rural entrepreneurship has high potential for employment generation and
income creation.

Secondly, it can help check the migration of people from rural to urban
areas in search of jobs. Rural entrepreneurship can plug the big gap and
disparities in income between rural and urban people. It will usher in
modern infrastructural facilities.

On the other hand PM’s ‘Make in India’ project has induced major initiatives,
policy changes and a slew of reforms that put India on the global industrial
map as one of the fastest growing economies and one of the most attractive
investment destinations in the world. So we must think seriously to
promote entrepreneurship in a large scale, reaching out to the every corner
of our country. Micro Units Development and Refinance Agency (MUDRA)
was created to refinance micro business under the scheme titled Pradhan
Mantri MUDRA Yojana. It can also create a balanced regional growth, dispel
the concentration of industrial units in urban areas and promote regional
development in a balanced way.

Rural entrepreneurship has the potential to promote artistic activities. A

large section of the bearers of traditional heritage and culture lives in rural
areas. They create artistically brilliant handicraft pieces and are equally
good in the performing arts sectors. The age-old rich heritage of rural India
can be preserved by protecting and promoting art and handicrafts through
rural entrepreneurship. Recently, on the occasion of the International
Women’s Day we had felicitated 17 successful women entrepreneurs from
different areas of our country, they are mainly from rural or semi-urban
areas.

In a country like India, where people are still fighting on the issue of
unemployment with 83.3 crore out of the total 121 crore Indians living
in rural areas, rural entrepreneurship can awaken the youth there and
expose them to various avenues to adopt entrepreneurship and promote it
as a career option. It will bring in an overall change in the quality of lives
of people and address social ills like illiteracy, child marriage, migration and
women empowerment among many others.

Features
• Rural industries also help preserve the age-old rich heritage
of the country by protecting and promoting art and creativity.
• The development of rural industries by providing jobs to rural
unemployed helps in reducing disparities in income between
rural and urban areas.
• These industries promote balanced regional development by
dispersing industries to rural areas.
• Rural industries being labour intensive serve as an antidote
to the widespread problems of rural disguised unemployment
and underemployment stalking the rural areas.
• Development of rural industries serves as an effective means
to build up village republics.
• Rural industrialization fosters economic development in rural
areas. This checks migration from rural to urban areas, on the
one hand, and lessens the disproportionate growth in the
cities, reduces growth of slums, social tensions, and
atmospheric pollution, on the other.
• Rural industries also lead to development without destruction,
i.e., the most desideratum of the time.

Rural Industrialization in Retrospect:

Rural industrialization did not receive any significance before Independence

of India. The reason is not difficult to seek. The British Government
encouraged imports and discouraged development of indigenous industries.
The Indian art and culture during this period was at stake in the hands of
the British Government.

Types:
Rural industries started getting importance only after the independence.
This got expressions in the major policy pronouncements on development
in India. For example, the first Industrial Policy of Independent India, the
Industrial Policy Resolution of 1948 emphasised the utilization of local
resources and the achievement of local self-sufficiency in respect of certain
essential “consumer goods” as the most suitable characteristics of cottage
and small industries.

There was no looking back since then. While emphasising the creation of
employment, equitable distribution of incomes and an effective mobilisation
of capital and skills, the Industrial Policy Resolution, 1956 pointed out that
the characteristics of cottage, village and small-industries are favourable to
the achievement of these objectives.

Artisan Entrepreneurs

These entrepreneurs represent the skilled persons in rural society. Such

skills are either acquired through professional training in association with
their kinship group, or through inheritage as for example, blacksmithy,
carpentry, etc.

Farm Entrepreneurs

These are people whose primary occupation and main source of livelihood,
is farming. Persons not having land or other farming resources but are
willing to take up an enterprise in the village that will aid agriculture, can
be regarded as farm entrepreneurs.

Merchant and Trading Group

This includes primarily the business community of rural areas who form a
small segment of rural population. It shares the larger trades in the
community. These people are perceived as traditionally exploitative class
and play the role of middleman in business to the pursuit of any vocation
in the rural areas.

General Entrepreneurs
Some examples of this class are high school drop-outs, educated-
unemployed, landless labourers, wage earners, and persons belonging to
the scheduled castes, etc.

The rural entrepreneurs can initiate their enterprise in any of the category
classified as rural industry.

• Agro based industries include processing and sale of

agricultural products such as pickles, jiggery, juice, fruit jam,
dairy products, products made out of rice, oil processing from
oil seeds.
• Forest based industries that include honey making, beedi
making, bamboo products, cane products, wood products,
coir industry, etc.
• Mineral based industries include stone crushing, cement
industries, making of idols, decorative items made from
marble and granite.
• Enterprises based on handicrafts include decorative and
household products like made out of cane, bamboo and wood
available in the area.
• Textile industry includes weaving, spinning and dying of
clothes. This industry incorporates within its ambit khaddi,
tusar silk, muga silk.
• Engineering industries include making and repairing of parts
of agricultural equipments, tools and implements, parts of
machinery etc.

Tribal Entrepreneurs

Tribal entrepreneurs are predominantly in tribal villages and could be

regarded as an entrepreneurial class by itself. Their source of origin is the
tribal community. Their entrepreneurship may however lead to the pursuit
of any vocation in the rural areas.

Significance:

The rural entrepreneurship is great importance for a country which has a

huge rural population.

• Positive check on migration of rural population to urban

areas; Rural population including the unskilled workers move
out to the urban areas in search of jobs and lead a very
miserable life in urban areas. Rural entrepreneurship has the
 capacity to reduce the gap existing between urban areas and
the rural areas. Rural entrepreneurship can generate
employment opportunities and contribute in developing the
infrastructure and other amenities in the rural areas.
• Augments employment opportunities; Rural entrepreneurship
is basically labour intensive. It provides employment
opportunities for the rural mass. Rural entrepreneurship has
the potential of abating the problem of unemployment and
underemployment prevalent in rural regions.
• Rural entrepreneurship can significantly contribute towards
promotion of balanced regional development.
• Rural entrepreneurship has the potential of protecting and
promoting traditional artistic activities, art, craft and
handicraft of the rural areas.
• The social problems like poverty, inequality, caste distinctions
can be reduced by rural entrepreneurship.
• Entrepreneurship in the rural areas can be taken up as career
by the youths. The rural youth can be encouraged and
awakened.
• Rural entrepreneurship can improve the standard of living in
rural areas. Their increasing opportunities for growth and
prosperity can uplift the rural communities.
• The local resources available in the rural areas are best known
to local rural population. Rural entrepreneurship can ensure
the most efficient and effective use of limited resources by
the entrepreneurs that can contribute to the overall economic
development of rural areas.
• Rural entrepreneurship can play a significant role in
increasing the foreign exchange earnings of the country if
their products are recognized and demanded abroad.
• Rural entrepreneurship can generate more employment,
output, and wealth from the rural areas and thus contribute
to the growth and improvement of per capita income of rural
people.

Benefits of Rural Industrialisation:

• Rural industries are labour-intensive. They provide additional

employment to men and women. Ensure decentralisation of
economic power and elimination of monopolistic exploitation.
 • Rural industries provide additional employment opportunities,
raise production and improve economic conditions in rural
areas.
• Decentralised production through network of well-knit rural
industries obviates the necessity of complicated managerial
and competitive marketing techniques, thus reducing the
costs on account of overheads.
• Rural industries will strive to build up village republics and
human resources development.
• Rural industrialisation leads to the development of rural areas
thereby lessening the disproportionate growth in large cities,
reducing the growth of slums, social tensions, exploitation
and atmospheric pollution.
• Rural industrialisation provides ample scope for the
promotion of artistic achievement and creativity that has
been suppressed in rural areas.

Estimating Financial Funds Requirement

Last updated on February 18th, 2020 at 04:28 pm

Most businesses, especially when they’re starting up or planning for expansion,

face periods when they need to rely on outside resources to stay afloat. Whether
the funds come from the owner’s pocket, accumulated business profits, or
outside funding sources, they provide the lifeline that keeps the business going
when expenses exceed revenue for a prolonged period. Use the information here
to forecast how much money you need- and for how long.

1. Create a realistic forecast of your financial situation.

Follow the steps for preparing a pro forma or estimated statement of income,
expenses, and profit, along with an estimated balance sheet and cash flow
statement.

2. Estimate your funding need.

Use your financial forecasts, and especially your cash flow projection, to
determine how long you anticipate expenses to exceed revenue and by how
much. Doing so helps you get a handle on when you expect expenses to be
incurred, when you expect revenues to roll in, and the amount of funding you
need in order to cover the gap.

3. Create a funding time frame.

After you establish how much funding you need, create a schedule for how long
you need the funding to last before your business needs to become self-
sufficient. This schedule, called your time frame, should include dates by which
you plan to meet revenue-generating milestones — for example, first customer,
first major contract, first $10,000 in sales, and so on — that you can monitor as
indicators that your business is on track to achieve profitability before funding
runs out.

As you forecast how long your funding needs to last, be aware of these terms:

• Runway: The amount of time funding needs to last before your

business becomes profitable and self-sufficient or until
additional funding will be required
• Burn rate: The speed with which you expect to spend the funding
you’ve raised in practical terms, the amount of cash required each
month to cover the costs of staying in business

As every experienced entrepreneur knows, sales are only the result of a long line
of business activities beginning with market research, manufacturing, inventory
building, marketing, fulfillment and customer service. All this costs money,
which is supposed to come from revenues earned in the previous year or from
financing. Without the money, nothing happens, so the best place to start your
financial projections is the money you have available.

1. Create a preliminary first-year budget based on your retained

earnings and credit available from your bank. If you’re projecting
startup financials and don’t have retained earnings or credit, use
the amount of investment you can reasonably expect to raise,
including investment by the founders. A conservative estimate is
best because spending too much money too early can force you to
cut back just as your business begins to pick up.
2. Estimate the cost of producing your product. You can skimp on
administrative expenses and hire sales reps on commission only,
but you must pay for any products or services you sell. You also
need to balance your product inventory with customer demand.
This takes careful study of your target market’s demographics,
psychographics and buying habits, plus a modest estimation of
what percentage of that market you’ll be able to capture. An
established company is able to assign a reasonably accurate
percentage with growth, but a startup must expect at least a
quarter of virtually no sales.
 3. Estimate your customer acquisition costs by establishing how
you’ll market your product and then pricing out your marketing
plan. A startup must develop its brand image and customer
awareness during its first year, with sales demand appearing
slowly during its second or third quarter; so, for a startup,
marketing will carry a high priority. A mature company can
estimate marketing costs with respect to its plans for market-
share expansion or development of new revenue streams.
4. Adjust your production and marketing costs to fit your budget.
The remainder is for administrative expenses. This gives you a
figure of how much revenue will be required to offset your
expenses. There may need to be some further adjustments once
you reach this point. Add money to your marketing, figuring
marketing costs at approximately 25 percent of total revenues.
Marketing will produce your customers. Keep your production
expenses efficient.

Tip

• Create a 12-month detailed projection and expand it into three to

five years by estimating a year-over-year growth percentage.
Doubling your results year-to-year isn’t realistic, so keep your
growth estimates well under the 100 percent level. A startup’s
second and third years might have higher growth than those of a
mature company, but that’s because the first year is a year of
experimentation and customer acquisition. If your growth
strategy emphasizes a particular area, adjust your costs to reflect
that. For example, if you plan to introduce more product lines, you
might include R&D costs in your production. If you intend to
expand your market share, marketing should receive more funds.

Warning

• Optimism is a quality of the entrepreneur. This is often seen in

overly optimistic financial projections. Have an accountant,
banker or experienced business owner review your projections
with a critical and realistic eye. Negative feedback about overly
optimistic projections is what you’re looking for, so pay full
attention to any skeptical comments. Those comments may save
your company from disaster.
Sources of finance: Banks
Last updated on February 18th, 2020 at 04:28 pm

(A) Internal Self-Finance:

One source, quantitatively of big importance, is the saving of the unit itself. It
may be the household, the business or the government.

Normally, the household not only invests out of its own saving but it also has
surplus which it lends to other units via, financial institutions. Like banks, capital
market etc.

The savings of the business, comprised of depreciation and the retained

earnings, are normally short of its investment. Hence it also borrows from
financial institutions. Government too finances a part of their investment from
internally generated funds.

These arise from the excess of tax and other income over consumption spending
plus transfers. For the shortfall, if and when it occurs, it also borrows from the
financial system. Altogether, roughly half of all the investment is self-financed.

An advantage of investment through internally generated funds is that it

combines the acts of saving and investment. As such certain costs are
internalized and reduced. These costs pertain to collection of information in
respect of borrowers, transactions with them, monitoring the use of funds, and
enforcement of the conditions of borrowing.

These costs would have to be met if these funds were to be lent to someone else.
Self- financing also reduces the risks of lending’s as it does not involve
preparation of documents in respect of contract, collateral or security etc.

The shortcoming of this source is that it may fall short of investment

opportunities or its use may be inefficient. That is funds may not be wholly or
partly invested in the most productive lines.

(B) Equity, Debentures and Bonds:

A large part of finance for fixed investments [building, machines, etc.] comes
from different types of equity or shares such as ordinary, cumulative and non-
cumulative preference shares. These shares bear risks of different degrees and
are tailored to suit the temperament of different investors.
The latest trend is to issue shares in small denominations of ten rupees so as to
enable the largest number of people to participate in providing long-term
finance. The credit-worthiness of promoters of industries and profitability of
industries, determinate the extent to which savers invest their money in shares.
In this way, industries are not burdened with interest, and therefore do not get
involved in complications on this account during recession or depression.

Often industrial companies also get long-term finance through the issues of
debentures and bonds. These are debt (loans), instruments. The buyers of those
debentures and bonds are the creditors of companies. They get a fixed rate of
interest on the money invested in these securities.

For this reason debentures are safer investments. Till recently, these debt-
instruments were not very popular. At present many industries are tapping this
source. Public sector undertakings too have started depending upon them. Since
recently they have raised funds through the sale of bonds bearing fixed interest.

(C) Public Deposits:

Another source is public deposits. It is also a debt-instrument, mostly for short-

term finance. Under this system, people keep their money as deposit with these
companies or managing authorities for a period of six months, a year, two years,
three years or so. Depositors receive a fixed interest.

They can ask for the refund of money at any time. This money is used by
companies to meet their needs of working capital. However, this source of
finance is unreliable because depositors can seek refund at any time.

And if the refund happens to coincide with the time when a company needs funds
most, then it complicates matters. With the growth of banking habits and
increase in dealings with other financial institutions, the importance of public
deposits, as a source of finance, will decline.

(D) Loans from Banks:

Commercial banks can do also provide funds for meeting short-term needs or
for working capital. Loans are given against the guarantee of government
securities and stocks with companies. Loans are advanced in the form of
overdraft and credit limit. Commercial banks are generally reluctant to put their
money in the purchase of shares.

The reason is that the deposits that they receive from the public are generally for
a short-term and therefore, banks can ill-afford to take any risk in investing
public money in shares. They can, however, do something by way of buying
debentures of companies.
They can earn fixed interest on such investment and at the time of need they can
sell these debentures in the market and recover their money. Still, little has been
achieved in this field because of the fear that banks may find it difficult to cash
debenture precisely at a time when they need.

(E) The Managing Agency System:

The system of industrial finance, peculiar to India, and which prevailed till the
recent times, is of little importance now days. Under this system an individual or
a group of individuals finance the initial stage of the establishment of industries,
and manage many activities of the company thus established very often, one
managing agent controls more than one concern and uses fund of one concern to
meet the needs of others under him.

In the past when there was a great shortage of industrial finance and almost
complete lack of financial institutions, and capital market in the real sense had
not even come into existence, managing agents did render a valuable service in
the promotion of industries within the country. Of course, it is true that their
funds were mostly used for the establishment of consumer goods industries.

In due course, however, the system developed certain drawbacks and came to be
plagued by serious shortcomings. The management of so many units, good and
bad, and producing a variety of products led to certain evils.

The payments which managing agents extracted for themselves, interest on

their money, commission for their services etc., were too much and were out of
proportion with the paying capacity of the companies and/or the work
performed by those agents. It is for these reasons that the government put a ban
on this system in 1970.

(F) Indigenous Bankers:

Inspite of the establishment of new financial institutions, indigenous bankers

also advance financial help to a few large-scale industries, particularly during
the time of stress, both for fixed capital and working capital. But mainly they
have provided finance to small scale industries.

In the absence of adequate institutional finance, these industries have been

forced to depend upon indigenous bankers. These banks charge a very heavy rate
of interest, thus making finance a costly affair. However, the importance of
these banks, even as a source of finance for small industries, is on the decline.
(G) Development Finance Institutions:

Established with the help of the Government to fill-in the gap in industrial
finance and to promote the objective of planning, these institutions cater to the
needs of large and small industries.

The new institutions supplying industrial finance are Industrial Development

Bank of India, Industrial Finance Corporation of India, Unit Trust of India, and
General Insurance Corporation of India, Industrial Reconstruction Bank of India,
State Financial Corporations, and State Industrial Development Corporations.

These institutions provide huge quantity of finances for setting up of new

industries, for meeting their several needs and in several forms. These also
ensure and monitor the use of finance in pre-planned directions. As such these
fit well with the modem scenario of industrial development.

(H) Foreign Capital:

As a supplement to domestic finance, external capital too has been made use of
in meeting the needs of industrial finance, mostly for long-term needs. This has
taken several forms. There is the foreign aid (i.e., loans on concessional term)
from foreign governments and foreign institutions (like the World Bank)
extended to the Government.

A part of this assistance has also gone to the private sector. A part of foreign
funds has come through foreign companies which have Indian subsidiaries in our
country or through Multinational Corporations which have branches in India.

Some foreign companies have given funds as part of direct investment or as part
of collaborations with Indian companies. There are also non-resident Indians
who have invested in collaboration with Indians. Indian companies have also
raised loans from foreign markets.

The sources of industrial finance are thus of various types. And so are the
instruments of finance. A number of them are modem Such as shares,
debentures, and loans from the financial institutions. The old ones like, deposits
from public, the finances of managing agents as also of indigenous bankers are
on the decline. This is as it should be for these are neither enough, nor suitable
for meeting the needs of the modern industrial growth.

Capital Markets: Organizations

Last updated on December 5th, 2019 at 12:29 pm
Government Securities Market: This is also known as the Gilt-edged market.
This refers to the market for government and semi-government securities
backed by the Reserve Bank of India (RBI).

Industrial Securities Market: This is a market for industrial securities i.e. market
for shares and debentures of the existing and new corporate firms. Buying and
selling of such instruments take place in this market.

This market is further classified into two types such as the New Issues Market
(Primary) and the Old (Existing) Issues Market (secondary). In primary market
fresh capital is raised by companies by issuing new shares, bonds, units of
mutual funds and debentures.

However in the secondary market already existing i.e old shares and debentures
are traded. This trading takes place through the registered stock exchanges. In
India we have three prominent stock exchanges. They are the Bombay Stock
Exchange (BSE), the National Stock Exchange (NSE) and Over The Counter
Exchange of India (OTCEI).

Development Financial Institutions (DFIs): This is yet another important

segment of Indian capital market. This comprises various financial institutions.
These can be special purpose institutions like IFCI, ICICI, SFCs, IDBI, IIBI, UTI, etc.
These financial institutions provide long term finance for those purposes for
which they are set up.

Financial Intermediaries: The fourth important segment of the Indian capital

market is the financial intermediaries. This comprises various merchant banking
institutions, mutual funds, leasing finance companies, venture capital
companies and other financial institutions.
Financing of Small Scale Industries in
Developing Countries
Last updated on February 18th, 2020 at 04:29 pm

If we look at investor perspective, research suggests that small businesses fail at

a higher rate than big businesses, thus default risk is also high. This is the reason
that small businesses have less access to credit than larger companies because
lending to a small business is riskier and more expensive than lending to larger
companies. Additionally, evaluating small companies is difficult and not very
cost effective as its data is not as easily accessible as large companies.

SOURCES OF FINANCE FOR A SMALL BUSINESSES

Following are some of the financing methods that small businesses can use:

OWN CAPITAL / SAVINGS

Number one & the easiest source of finance for a small business is one’s own
savings. At any stage of business, when a business is in need of capital, an
entrepreneur can tap into his personal assets such as – stocks, mutual funds, real
estate or jewelry – to raise money. He can either sell the assets to raise money or
take a loan on any of the assets. Entrepreneurs can invest such personal capital
in their business as equity capital, or they can give loans to their own company.

FAMILY & FRIENDS

Parents, sibling, extended relatives & friends who have excess cash to lend may
be willing to finance your business. They may lend the money to the business in
the form of a loan or may be willing to take an equity stake in the company.

BANKS

Banks have a special department dedicated to providing loans to small

companies. To get a loan from a bank, companies have to qualify for bank’s
minimum criteria. Every bank has its own criteria with regards to earning
potential, annual turnover, credit scores, etc. There are many types of loans that
banks offer such as working capital loans, term loans, loan against property, etc.
Companies can choose the type of loans as per their requirement.

SMALL BUSINESS LOANS

Each country has certain banks or institutions dedicated to providing loans only
to small businesses, an example of such institute in India is SIDBI, in the USA
there is SBA. The main target of these institutions is to lend money to small
businesses who have not been able to obtain financing on reasonable terms
through normal lending channels. These entities usually give money as loans
only.

PERSONAL LOANS

If a company is unable to get a business loan, the entrepreneur might consider

getting a personal loan & using it in their business. The entrepreneur must have
a good credit history for raising a personal loan. We can get a personal loan by
mortgaging home, jewelry, etc.

TRADE CREDIT

Some small businesses might have suppliers willing to sell on credit. Such credit
may range anywhere from one month to three months. This is a very good
method for small companies to fulfill short-term funding needs. This is an
inexpensive method of finance for any small business.

PRIVATE EQUITY FIRMS

Private equity is a type of equity capital that is not listed on any stock exchange.
These firms raise funds from investors. It then invests these funds to buy capital
of promising startups & small businesses. The drawback of such finance is that
the private equity firms will acquire a controlling position or substantial minority
position in a company and then look to maximize the value of their investment.
Thus, the entrepreneur might not have sole control over the business decisions,
which may lead to conflict.

VENTURE CAPITAL FIRMS

Venture capital firms are a type of private equity firms, but venture capitalist
provides funds to only those companies who are in the early stages of their
business cycles. These are emerging small companies with high growth
potential. Venture capital firms invest in emerging companies in exchange for
equity, or an ownership stake. Small start-up firms may receive series of rounds
of financing from venture capital firms.

CROWDFUNDING

Crowdfunding is a relatively new method when we consider sources of finance. It

is a method of raising funds by borrowing a small amount of money from a large
group of people. A typical example of crowdfunding is proposing people to invest
US$ 10, and even if 1000 people invest, the company can raise US$ 10,000. Such
financing is usually done for a particular project. The benefit of crowdfunding is
that small company can make flexible proposals as per their requirement. They
can offer equity against the money or take the money on loan; they can offer
simple interest payments as against compound interest like most regular loans.

Crowdfunding gained popularity after the rise of social media because it became
easier to reach a number of people by putting minimum effort.

Role of Central Government and State

Government in Promoting Entrepreneurship
with Various incentives, Subsidies, Grants
Last updated on February 18th, 2020 at 04:31 pm

The Government of India has undertaken several initiatives and instituted policy
measures to foster a culture of innovation and entrepreneurship in the country.
Job creation is a foremost challenge facing India. With a significant and unique
demographic advantage, India, however, has immense potential to innovate,
raise entrepreneurs and create jobs for the benefit of the nation and the world.

In the recent years, a wide spectrum of new programmes and opportunities to

nurture innovation have been created by the Government of India across a
number of sectors. From engaging with academia, industry, investors, small and
big entrepreneurs, non-governmental organizations to the most underserved
sections of society.

Recognising the importance of women entrepreneurship and economic

participation in enabling the country’s growth and prosperity, Government of
India has ensured that all policy initiatives are geared towards enabling equal
opportunity for women. The government seeks to bring women to the forefront
of India’s entrepreneurial ecosystem by providing access to loans, networks,
markets and trainings.

A few of India’s efforts at promoting entrepreneurship and innovation are:

Startup India: Through the Startup India initiative, Government of India

promotes entrepreneurship by mentoring, nurturing and facilitating startups
throughout their life cycle. Since its launch in January 2016, the initiative has
successfully given a head start to numerous aspiring entrepreneurs. With a 360
degree approach to enable startups, the initiative provides a comprehensive
four-week free online learning program, has set up research parks, incubators
and startup centres across the country by creating a strong network of academia
and industry bodies. More importantly, a ‘Fund of Funds’ has been created to
help startups gain access to funding. At the core of the initiative is the effort to
build an ecosystem in which startups can innovate and excel without any
barriers, through such mechanisms as online recognition of startups, Startup
India Learning Programme, Facilitated Patent filing, Easy Compliance Norms,
Relaxed Procurement Norms, incubator support, innovation focused
programmes for students, funding support, tax benefits and addressing of
regulatory issues.

Make in India: Designed to transform India into a global design and

manufacturing hub, the Make in India initiative was launched in September
2014. It came as a powerful call to India’s citizens and business leaders, and an
invitation to potential partners and investors around the world to overhaul out-
dated processes and policies, and centralize information about opportunities in
India’s manufacturing sector. This has led to renewed confidence in India’s
capabilities among potential partners abroad, business community within the
country and citizens at large. The plan behind Make in India was one of the
largest undertaken in recent history. Among several other measures, the
initiative has ensured the replacement of obsolete and obstructive frameworks
with transparent and user-friendly systems. This has in turn helped procure
investments, foster innovation, develop skills, protect intellectual property and
build best-in-class manufacturing infrastructure.

Atal Innovation Mission (AIM): AIM is the Government of India’s endeavour to

promote a culture of innovation and entrepreneurship, and it serves as a
platform for promotion of world-class Innovation Hubs, Grand Challenges,
start-up businesses and other self-employment activities, particularly in
technology driven areas. In order to foster curiosity, creativity and imagination
right at the school, AIM recently launched Atal Tinkering Labs (ATL) across
India. ATLs are workspaces where students can work with tools and equipment
to gain hands-on training in the concepts of STEM (Science, Technology,
Engineering and Math). Atal Incubation Centres (AICs) are another programme
of AIM created to build innovative start-up businesses as scalable and
sustainable enterprises. AICs provide world class incubation facilities with
appropriate physical infrastructure in terms of capital equipment and operating
facilities. These incubation centres, with a presence across India, provide access
to sectoral experts, business planning support, seed capital, industry partners
and trainings to encourage innovative start-ups.

Support to Training and Employment Programme for Women (STEP): STEP

was launched by the Government of India’s Ministry of Women and Child
Development to train women with no access to formal skill training facilities,
especially in rural India. The Ministry of Skill Development & Entrepreneurship
and NITI Aayog recently redrafted the Guidelines of the 30-year-old initiative to
adapt to present-day needs. The initiative reaches out to all Indian women
above 16 years of age. The programme imparts skills in several sectors such as
agriculture, horticulture, food processing, handlooms, traditional crafts like
embroidery, travel and tourism, hospitality, computer and IT services.

Jan Dhan- Aadhaar- Mobile (JAM): JAM, for the first time, is a technological
intervention that enables direct transfer of subsidies to intended beneficiaries
and, therefore, eliminates all intermediaries and leakages in the system, which
has a protential impact on the lives of millions of Indian citizens. Besides serving
as a vital check on corruption, JAM provides for accounts to all underserved
regions, in order to make banking services accessible down to the last mile.

Digital India: The Digital India initiative was launched to modernize the Indian
economy to makes all government services available electronically. The
initiative aims to transform India into a digitally-empowered society and
knowledge economy with universal access to goods and services. Given
historically poor internet penetration, this initiative aims to make available
high-speed internet down to the grassroots. This program aims to improve
citizen participation in the digital and financial space, make India’s cyberspace
safer and more secure,abd improve ease of doing business. Digital India hopes to
achieve equity and efficiency in a country with immense diversity by making
digital resources and services available in all Indian languages.

Biotechnology Industry Research Assistance Council (BIRAC): BIRAC is a not-

for-profit Public-Sector Enterprise, set up by Department of Biotechnology to
strengthen and empower emerging biotechnology enterprises. It aims to embed
strategic research and innovation in all biotech enterprises, and bridge the
existing gaps between industry and academia. The ultimate goal is to develop
high-quality, yet affordable, products with the use of cutting edge technologies.
BIRAC has initiated partnerships with several national and global partners for
building capacities of the Indian biotech industry, particularly start-ups and
SME’s, and has facilitated several rapid developments in medical technology.

Department of Science and Technology (DST): The DST comprises several arms
that work across the spectrum on all major projects that require scientific and
technological intervention. The Technology Interventions for Disabled and
Elderly, for instance, provides technological solutions to address challenges and
improve quality of life of the elderly in India through the application of science
and technology. On the other hand, the ASEAN-India Science, Technology and
Innovation Cooperation works to narrow the development gap and enhance
connectivity between the ASEAN countries. It encourages cooperation in
science, technology and innovation through joint research across sectors and
provides fellowships to scientists and researchers from ASEAN member states
with Indian R&D/ academic institutions to upgrade their research skills and
expertise.
Stand-Up India: Launched in 2015, Stand-Up India seeks to leverage
institutional credit for the benefit of India’s underprivileged. It aims to enable
economic participation of, and share the benefits of India’s growth, among
women entrepreneurs, Scheduled Castes and Scheduled Tribes. Towards this
end, at least one women and one individual from the SC or ST communities are
granted loans between Rs.1 million to Rs.10 million to set up greenfield
enterprises in manufacturing, services or the trading sector. The Stand-Up India
portal also acts as a digital platform for small entrepreneurs and provides
information on financing and credit guarantee.

Trade related Entrepreneurship Assistance and Development (TREAD): To

address the critical issues of access to credit among India’s underprivileged
women, the TREAD programme enables credit availability to interested women
through non-governmental organizations (NGOs). As such, women can receive
support of registered NGOs in both accessing loan facilities, and receiving
counselling and training opportunities to kick-start proposed enterprises, in
order to provide pathways for women to take up non-farm activities.

Pradhan Mantri Kaushal Vikas Yojana (PMKVY): A flagship initiative of the

Ministry of Skill Development & Entrepreneurship (MSDE), this is a Skill
Certification initiative that aims to train youth in industry-relevant skills to
enhance opportunities for livelihood creation and employability. Individuals
with prior learning experience or skills are also assessed and certified as a
Recognition of Prior Learning. Training and Assessment fees are entirely borne
by the Government under this program.

National Skill Development Mission: Launched in July 2015, the mission aims to
build synergies across sectors and States in skilled industries and initiatives.
With a vision to build a ‘Skilled India’ it is designed to expedite decision-making
across sectors to provide skills at scale, without compromising on quality or
speed. The seven sub-missions proposed in the initial phase to guide the
mission’s skilling efforts across India are: (i) Institutional Training (ii)
Infrastructure (iii) Convergence (iv) Trainers (v) Overseas Employment (vi)
Sustainable Livelihoods (vii) Leveraging Public Infrastructure.

Science for Equity Empowerment and Development (SEED): SEED aims to

provide opportunities to motivated scientists and field level workers to
undertake action-oriented, location specific projects for socio-economic gain,
particularly in rural areas. Efforts have been made to associate national labs and
other specialist S&T institutions with innovations at the grassroots to enable
access to inputs from experts, quality infrastructure. SEED emphasizes equity in
development, so that the benefits of technological accrue to a vast section of the
population, particularly the disadvantaged.
Export Oriented units: Fiscal & Tax
Concessions
Last updated on February 18th, 2020 at 04:30 pm

Some incentives given to EOUs

• No import licences are required by the EOU units and import of all
industrial inputs exempt from customs duty.
• Supplies from the DTA to EOUs are regarded as deemed exports
and are hence exempt from payment of excise duty which means
that high quality inputs are available at lower costs.
• On fulfillment of certain conditions, EOUs are exempted from
payment of corporate income tax for a block of 5 years in the first
8 years of operation. Export earnings continue to be exempt from
tax even after the tax holiday is over.
• Industrial plots and standard design factories are available to
EOUs at concessional rates.
• Single window clearance for EOU. For example, the State
Government of Kerala as well of Karnataka has constituted single
window clearance mechanisms such as District Single Window
Clearance Board (in Kerala) and Karnataka Udyog Mitra (in
Karnataka) for the purpose of speedy issue of various licences,
clearances.
• Private bonded warehouses in the 7 EPZs can be set up for
• Import and sale of goods including in the DTA, subject to
payment of applicable duties at the time of sale.
• Trading including re-export after repacking/labeling.
• Re-export after repair, reconditioning or re-engineering
• EOUs and EPZs are permitted to sub-contract part of their
production processes for job work to units in the DTA on a case by
case basis.
• Supplies to the DTA under international competitive bidding
against payment in foreign exchange to other EOUs and EPZ units
and against import licenses are considered towards fulfilment at
the export obligation.
• The FOB value of exports of EOUs and EPZ units can be clubbed
with that of parent companies located in the DTA for the purpose
of obtaining a Trading or Export House status.
 • EOUs and EPZ units may export goods through Trading and Export
Houses or other EOU and EPZ Units.

Attractive Policy Provisions for EOUs:

• EOU can also import second hand capital goods without any age
limit.
• 50% of physical exports can be sold in domestic market on
payment of concessional duty.
• EOUs can process and export rice (Basmati & Non-Basmati).
• EOUs including Gem & Jewellery units are permitted to sub-
contract upto 50% of their production (or) production process in
DTA / other EOUs.
• EOUs are allowed to utilize plant and machinery for job work DTA
units provided the goods are exported directly from the EOU
premises.
• EOUs in Agriculture and allied sectors and in granite sector may
transfer the capital goods and the inputs to the
Farms/field/quarries for usage relating to the production in the
EOU.
• In case of new EOUs, Advance DTA sale will be allowed not
exceeding 50% of its estimated exports for the first year except
the pharmaceutical units where this will be based on its estimated
exports for the first two years.
• Simultaneous Advance DTA sale permission is given on quarterly
basis for perishable goods like mushrooms, cut flowers etc.
• Exports through third party is permitted
• Exports from the job workers premises is allowed
• 100% FDI investment permitted through Automatic Route similar
to SEZ units
• EOUs can obtain Foreign currency loans from OBUs situated in the
SEZs
• EOUs have to achieve only positive Net Foreign Exchange (NFE)
within 5 years i.e., A – B > 0 where (A) is the FOB value of Exports
and (B) is CIF value of imports.

Fiscal Incentives available to 100% EOUs:

• Exemption from Customs and Central Exciuse duties on

import/local procurement of Capital goods, raw materials,
consumables, spares, packing material etc.
 • Reiumbursement of Central Sales Tax (CST) on purchases made
from Domestic Tariff Area (DTA)
• Corporate Tax Holiday upto 2010
• CENVAT credit on Service Tax paid
• Re-iumbursement of duty paid on fuels procured from domestic
oil companies as per the rate of Drawback notified by the DGFT
from time to time.

Special Package of Incentives for Star Export House EOUs (Fast Track Clearance):

• Permissions and Customs clearances for both Imports and

Exports on self declaration basis.
• Fixation of Input-Output norms on priority within 60 days.
• Exemption from compulsory negotiation of documents through
Banks.
• 100% retention of foreign exchange in EEFC account.
• Enhancement of normal repatriation period from 180 days to 360
days.
• Exemption from furnishing of Bank Guarantee in Schemes under
this policy.
• Exemption from examination of Import Cargo
• Install one Fax machine & Two computers in their
Administrative/Registered Office on prior intiation only.
• Procurement of DG set intimation to the Development
Commissioner/Jurisdictional Customs/Central Excise authority
• Remove their Capital goods (or) part thereof for repairs under
prior intimation to the jurisdictional Asst./Deputy Commissioner
of Customs & Central Excise authority
• DTA clearance of rejects on priority basis
• Personal carriage of samples of Gems & Jewellery without a need
for prior permission
• DTA sale of finished products on prior intimation only
• Participation in exhibition for export promotion on prior
intimation only

Overview of MSME Policy of Government in

India
Last updated on April 27th, 2020 at 12:35 pm
Note: Policy changes time to time, You need to update your data by Yourself.

Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 which
was notified on October 2, 2006, deals with the definition of MSMEs. The
MSMED Act, 2006 defines the Micro, Small and Medium Enterprises based on

1. The investment in plant and machinery for those engaged in

manufacturing or production, processing or preservation
of goods and
2. The investment in equipment for enterprises engaged in
providing or rendering of services.

The guidelines with regard to investment in plant and machinery or equipment

as defined in the MSMED Act, 2006 are:

Investment in plant and machinery excluding land Investment in equip

Nature of
and building for enterprises engaged in building for enterpr
activity of the
manufacturing or production, processing or or rendering of serv
Enterprise
preservation of goods crore)

Micro Not exceeding Rs.25.00 Lakhs Not exceeding Rs.10

More than Rs.25.00 lakhs but does not exceed Rs.500.00 More than Rs.10.00 l
Small
lakhs Rs.200.00 lakhs

More than Rs.500.00 lakhs but does not exceed More than Rs.200.00
Medium
Rs.1000.00 lakhs Rs.500.00 lakhs

Note: The investment in plant and machinery is the original cost excluding land
and building and other items specified by the Ministry of Small Scale Industries
vide its notification no. S.O. 1722 (E) dated 05.10.2006.

Update: In 2018, the Cabinet approved a draft which proposes to change the
definition of MSMEs. As per the new proposal, MSMEs should be defined based
on annual sales turnover instead of the investment criterion. Also, there will be
no distinction between manufacturing and service unit.

The proposed thresholds are Micro – up to Rs 5 crore; Small – up to Rs 75 crore

and Medium – up to Rs 250 crore.

However, this proposal is yet to be implemented. To be effective, the proposal

will need amendment in the MSMED Act and passed through the Parliament.
List of enterprises that are engaged in providing or rendering services

The illustrative lists of enterprises that are engaged in providing or rendering

services are:

• Small road and water transport operators (original investment in

vehicles up to Rs.200.00 lacs under Priority sector)
• Retail trade (with credit limits not exceeding Rs.20.00 lakhs)
• Small business (whose original cost price of the equipment used
for the purpose of business does not exceed Rs.20.00 lakhs
• Professional and self-employed persons (whose borrowing limits
do not exceed Rs.10.00 lakhs of which not more than Rs.2.00
lakhs should be for working capital requirements except in case of
professionally qualified medical practitioners setting up of
practice in semi-urban and rural areas, the borrowing limits
should not exceed Rs.15.00 lakhs with a sub-ceiling of Rs.3 lakhs
for working capital requirements)

Significance of MSMED Act 2006

With the enactment of MSMED Act 2006, the paradigm shift that has taken
place is the inclusion of services sector in the definition of Micro, Small and
Medium Enterprises, apart from extending the scope to Medium Enterprises.

Share of MSMEs in India

The Micro, Small and Medium Enterprises occupies strategic importance in

terms of output (about 45% of manufacturing output), exports (about 40% of
the total exports) and employment (about 69 million persons in over 29 million
units throughout the country) based on the Planning Commission, 2012. It is
observed worldwide that as income increases the share of the informal sector
decreases and that of the formal SME sector increases.

Worldwide Trends in the SME Sector

• Japan: SMEs employ 70% of the wage earners and contribute 55%
of the value-added.
• Thailand: SMEs employ 60.7% of the population while
contributing 38% to the GDP.
• China: SMEs contribute to over 68% of the exports – in the last 20
years created more SMEs than the total number of SMEs in Europe
and the US combined.
Note: In China, an industrial SME is defined as having up to 2,000 employees,
while a small business has less than 300 employees and a medium-sized
business has employees between 301 and 2,000.

What is the Importance and role of MSMEs in the Indian Economy?

To generate large scale employment

In India, capital is scarce and labour abundant. MSMEs are thought to have lower
capital-output and capital-labour ratios than large-scale industries, and
therefore, better serve growth and employment objectives. The MSME sector in
India has grown significantly since 1960 – with an average annual growth rate of
4.4% in the number of units and 4.62% in employment (currently employing 30
million). Not only do MSMEs generate the highest employment per capita
investment, but they also go a long way in checking rural-urban migration by
providing people living in isolated areas with a sustainable source of
employment.

To sustain economic growth and increase exports

Non-traditional products account for more than 95% of the MSME exports
(dominating in the export of sports goods, readymade garments, plastic
products etc.). Since these products are mostly handcrafted and hence eco-
friendly, there exists a tremendous potential to expand the quantum of MSME
led exports. Also, MSMEs act as ancillary industries for Large Scale Industries
providing them with raw materials, vital components and backward linkages e.g.
large scale cycle manufacturers of Ludhiana rely heavily on the MSMEs of
Malerkotla which produce cycle parts.

Making Growth Inclusive

MSMEs are instruments of inclusive growth which touch upon the lives of the
most vulnerable and marginalized. For many families, it is the only source of
livelihood. Thus, instead of taking a welfare approach, this sector seeks to
empower people to break the cycle of poverty and deprivation. It focuses on
people’s skills and agency. However, different segments of the MSME sector are
dominated by different social groups.

The Twelfth Plan has listed the following as the objectives for the MSME
sector

• Promoting competitiveness and productivity in the MSME space.

• Making the MSME sector innovative, improving technology and
depth.
 • Enabling environment for promotion and development of
MSMEs.
• Strong presence in exports.
• Improved managerial processes in MSMEs.

Evolution and Performance of the MSME Sector in India

Pre-Liberalization

• During the post-Independence period, small firms were expected

to play an important role in the development process, especially
in absorbing surplus labour and achieving an equitable income
distribution. This is the traditional stylized role assigned to small
industries.
• At the beginning of the industrialization process, flexibility in
production and the ability to offer differentiated products allow
smaller firms to grow rapidly.
• Later, large-scale firms come to dominate the size distribution,
making up a greater share of output, employment, and value-
added because of scale economies, managerial efficiency, better
access to finance and infrastructure, and a favourable tariff
structure.

Post-Liberalization

• The growth rate of MSME, on an average, has declined

considerably in terms of units and even employment but has
improved marginally in terms of output and exports, in the post-
liberalization period compared to the pre-liberalization period.
• This could be probably due to – (a) With the threat of competition,
new MSME units would not have come up as significantly in the
liberalization period as compared to the pre-liberalization period
(b) The new MSME units that came up after liberalization may
have been much more capital intensive than those that have
come up in the past – with some proportions of the existing MSME
units having modernized themselves to rely less on labour and
also to take advantage of developments in the global market (c)
Unable to face the competition some MSMEs exited the market,
thereby affecting MSME employment and output initially.
• However, though it appears that the MSME growth performance
(in terms of employment, output, and exports) might have
 suffered initially it has been able to recover impressively
subsequently in the decade of 2000s.
• The share of the registered MSMEs in India’s GDP more than
doubled during this period and its share in total organized sector
employment increased to 34% during the same period. Although
the share of registered MSME exports declined sharply initially, it
bounced back to 12% in 2006-07.
• The improved economic health of registered MSME sector is
reflected in another parameter i.e. industrial sickness. Sickness in
the registered MSME sector has declined both absolutely and
relatively. This may be the outcome of improvements in
management deficiencies, insufficient financial control, research
and development, obsolete technology, inadequate demand,
shortage of raw materials, infrastructure bottlenecks, etc.
• There are two more issues concerning MSME performance:

1. Ancillarisation: The promotion of inter-firm linkages between

large firms and MSME through subcontracting and ancillarisation
in both public and private sectors has been an important
dimension of India’s MSME policy. Any growth of ancillarisation
and sub-contracting would be advantageous to the MSME sector
by way of assured marketing, covered technical assistance,
finance, and supply of raw materials and training. During this
period the percentage of ancillary units increased from 5 percent.
Note that however a significant proportion of MSME
subcontracting and ancillarisation are informal in nature. The
growing inter-firm linkages, formal as well as informal, would
have benefited the economic performance of the MSME sector.
2. The degree of internationalization: The world over, an export
strategy has been the primary foreign market entry mode
adopted by MSMEs in their internationalization efforts this has
been observed in the Indian context as well. At the national level,
several factors contributed to the increasing trend of MSME
internationalization like – structural shift in the composition of
MSME exports from traditional to non-traditional items, modes
of entry such as MNCs and e-Commerce etc.

Policy Towards Small-Scale Industries

• Though MSMEs were recognised as important for employment

generation and equitable distribution of income from the earliest
 days of Indian Independence, it appears that the objectives of
policies stressing the role of MSMEs are not being realised.
• Since independence in 1947, especially since the late 1950s,
development has been wide-ranging, both in terms of programs
and regions. Policy measures included inter-alia fiscal
concessions, subsidized and directed bank credit, and technical
and marketing support, along with reservations of products for
exclusive production by the MSME sector.
• These policy measures were in tune with the other policies such as
the domestic investment and foreign trade policies that became
more restrictive over the years.
• Since the mid-1980s there has been a gradual turnaround in
policy, including reforms in the tax system and liberalization of
import policy.
• The shift in MSME policy emphasis from protection to the
promotion of competitiveness began with the introduction of an
exclusive policy for MSME in 1991. Since then, the policy support
in the 1990s and early 2000s has been large to enable the MSMEs
to overcome key challenges to their performance and growth,
namely, finance, technology, and marketing, among others.
• To operate these programs and to monitor their progress, new
agencies and institutions have been set up, and the existing ones
strengthened at the national, regional, state, and lower levels.
There is also a special bank for MSMEs – SIDBI. The SSIs have their
own associations and are also represented in the national and
state-level associations of large-scale industries.

Evaluation of the Reservation Policy

• The policy of reserving products for exclusive manufacture in the

small-scale sector was started in 1967 with forty-seven items;
the list of reserved items rose to 873 in 1984.
• The number of items on the reserved list for the SSI sector was
brought down to 836 by 1989.
• The pace of reforms accelerated after 1991: average tariff rates
have been steadily lowered, quantitative restrictions have been
removed, and domestic investment policies have been
liberalized.
• Over time, the number of items on the reserved list has also been
reduced and stands at 605 in 2005.
 • With liberalization, since all the items on the reserved list can now
be imported, MSMEs face competition from foreign enterprises
even though large scale industries in India cannot produce these
products.
• The Censuses of the SSIs also suggest that the policy of reserving
goods for production by SSIs has not been very effective. The
number of units making reserved products was small compared to
the overall size of the MSME sector, and the reserved products
account for a small share of the total value of output in the MSME
sector.
• Also, it appears that the export performance of India may have
suffered because of the reservation policy. Most growing
economies witness a changing structure of exports, with high
growth of exports of labour-intensive and resource-based
industries. The export structure of India has not changed much in
the last two decades, and this may be because many commodities
in the potential high-growth category come under the reserved
list.

What are the challenges of MSME?

• Most of the unregistered MSMEs would predominantly comprise

micro-enterprises, particularly confined to rural India, operating
with obsolete technology, limited access to institutional finance
etc. And there is a need to transform the huge unregistered MSME
into registered MSME.
• Need to improve the competitiveness of the overall MSME sector.
• Access to technology.
• IPR related issues.
• Design as a market driver.
• Wasteful usage of resources/manpower.
• Energy inefficiency and associated high cost.
• Low ICT usage.
• Low market penetration.
• Quality assurance/certification.
• Standardization of products and proper marketing channels to
penetrate new markets.
• The definition for MSMEs must be updated – considering
inflation and availability of better technologies since the last
change in 2006.
Recent Initiatives

• As part of the National Manufacturing Competitiveness

Programme (NMCP) 10 specific initiatives were taken to enhance
the competitiveness of the entire value chain of the MSME sector.
• Limited Liability Partnership (LLP) Act, 2008 was introduced to
enable early corporatization of MSMEs and tap the capital market
for fund raising. Accordingly, MSME platforms are created in BSE
and NSE in 2012.
• To develop a roadmap for the development and promotion of
MSMEs, a task force was created by the Prime Minister of India in
2009. The Task Force, which comprised, among others, six
specific theme-based sub-groups (on credit, marketing,
infrastructure, technology, skill development, exit policy, labor,
and taxation) submitted its report in 2010 suggesting: (1)
Immediate policy measures (2) Medium-term institutional
measures (3) Legal and regulatory structures to create a
conducive environment for entrepreneurship and growth of
MSMEs.

• The Inter-Ministerial Committee for Accelerating Manufacturing

in Micro, Small and Medium Enterprises made recommendations
on (a) the promotion of start-ups (b) facilitating operation and
growth (covering credit, technology, and marketing) (c) closure
and exit (d) labour laws and regulations.
• These policy initiatives are clear and consistent, aimed at
transforming the ecosystem for the MSMEs sector by influencing:
(1) Birth (encouraging Start-Ups) (2) Operations and growth (by
simplifying laws and regulations, and facilitating their access to
credit. Better technology and dynamic markets, apart from
skilled labour and reliable infrastructure) (3) Orderly and easy exit

• Thus, the emerging focus of India’s MSME policy aims at covering

the entire lifecycle of MSMEs to ensure a healthy, vibrant and
competitive MSME sector.

Summary

The guidelines with regard to investment in plant and machinery or equipment

as defined in the MSMED Act, 2006 are:
 Investment in plant and machinery excluding land and Investment in plant and
Nature of activity
building for enterprises engaged in manufacturing or and building for enterp
of the Enterprise
production, processing or preservation of goods or rendering of service

Micro Not exceeding Rs. 25 Lakhs Not exceeding Rs. 10 L

small More than 25 Lakhs but less than 500 Lakhs More than 10 Lakhs bu

Medium More than 500 Lakhs but less than 1000 Lakhs More than 200 Lakhs b

Recent initiative

Access to Credit

The biggest achievement for the government here was the launch of the 59-
minute loan portal to enable easy access to credit for MSMEs. During the launch
Modi said loans upto Rs 1 crore can now be granted in-principle approval through
a dedicated portal launched for this purpose.

Bringing relief to GST compliant MSMEs, Modi had further announced a two-
percent interest subvention for all GST registered MSMEs, on fresh or
incremental loans. To help ease working capital woes of exporting fraternity,
Modi also announced an increase in interest rebate from three percent to five
percent for exporters who receive loans in the pre-shipment and post-shipment
period.

Access to Markets

According to the government another significant measure aimed at enhancing

access to markets for entrepreneurs, Modi said that Public Sector Companies
have now been asked to compulsorily procure 25 percent, instead of 20 percent
of their total purchases, from MSMEs.

Additionally, to support women entrepreneurs, the government has maintained

that, out of the 25 percent procurement mandated from MSMEs, three percent
must now be reserved for women entrepreneurs.

Technology Upgradation

On technological upgradation front, keeping into account the importance of tool

rooms as a vital part of product design, Modi announced that 20 hubs, and 100
spokes in the form of tool rooms will soon be introduced across the country.
Ease of Doing Business

For facilitating a more conducive business environment for MSMEs, a number of

measures have been introduced by the government last year. Noteworthy is, as
part of the changed norm, the return under eight labour laws and 10 Union
regulations must now be filed only once a year.

Social Security for MSME Sector Employees

During last year, the government highlighted the need for introducing social
security for the MSME sector employees. The finance ministry note says that a
mission will be launched to ensure that they have Jan Dhan Accounts, Provident
Fund and Insurance. Modi added that the implementation of such an ‘Outreach
Programme’ for monitoring Social Security for MSME Sector Employees will be
intensively monitored over the next 100 days

Role of Agencies Assisting Entrepreneurship:

DICs, SSIs
Last updated on February 18th, 2020 at 04:30 pm

The ‘District Industries Centre’ (DICs) programme was started by the central
government in 1978 with the objective of providing a focal point for promoting
small, tiny, cottage and village industries in a particular area and to make
available to them all necessary services and facilities at one place. The finances
for setting up DICs in a state are contributed equally by the particular state
government and the central government. To facilitate the process of small
enterprise development, DICs have been entrusted with most of the
administrative and financial powers. For purpose of allotment of land, work
sheds, raw materials etc., DICs functions under the ‘Directorate of Industries’.
Each DIC is headed by a General Manager who is assisted by four functional
managers and three project managers to look after the following activities :

Activities of District Industries Centre (DIC):

1. Economic Investigation
2. Plant and Machinery
3. Research, education and training
4. Raw materials
5. Credit facilities
6. Marketing assistance
7. Cottage industries
Objectives of District Industries Centre (DIC):

The important objectives of DICs are as follow :

1. Accelerate the overall efforts for industrialisation of the district.

2. Rural industrialisation and development of rural industries and
handicrafts.
3. Attainment of economic equality in various regions of the district.
4. Providing the benefit of the government schemes to the new
entrepreneurs.
5. Centralisation of procedures required to start a new industrial unit
and minimisation- of the efforts and time required to obtain
various permissions, licenses, registrations, subsidies etc.

Functions of District Industries Centre (DIC):

1. Acts as the focal point of the industrialisation of the district.

2. Prepares the industrial profile of the district with respect to :
3. Statistics and information about existing industrial units in the
district in the large, Medium, small as well as co-operative
sectors.
4. Opportunity guidance to entrepreneurs.
5. Compilation of information about local sources of raw materials
and their availability.
6. Manpower assessment with respect to skilled, semi-skilled
workers.
7. Assessment of availability of infrastructure facilities like quality
testing, research and development, transport, prototype
development, warehouse etc.
8. Organises entrepreneurship development training programs.
9. Provides information about various government schemes,
subsidies, grants and assistance available from the other
corporations set up for promotion of industries.
10. Gives SSI registration.
11. Prepares techno-economic feasibility report.
12. Advices the entrepreneurs on investments.
13.Acts as a link between the entrepreneurs and the lead bank of the
district.
14. Implements government sponsored schemes for educated
unemployed people like PMRY scheme, Jawahar Rojgar Yojana,
etc.
 15. Helps entrepreneurs in obtaining licenses from the
Electricity Board, Water Supply Board, No Objection Certificates
etc.
16. Assist the entrepreneur to procure imported machinery and
raw materials.
17. Organises marketing outlets in liaison with other
government agencies.

Small – Scale Industries of India (SSIs)

An industrial undertaking is graded as small-scale industrial undertaking in

which the investment in fixed assets in plant and machinery, whether held on
ownership terms, on lease or on hire purchase, does not exceed R.s 10 million.

As the economy improved, the Government of India raised the investment limit
and thus redefined the SSI sector. For example, in the year 1970, the investment
limit in SSI was only 7.5 lakh which was raised to 10 lakh in 1975, 20 lakh in 1980,
35 lakh in 1885, 60 lakh in 1991 and 300 lakh in 1997. It was brought down to 100
lakh in 1999, which continues till date. Likewise, investment limit in ‘tiny
industrial unit’ in the year 1977 was 1 lakh which has risen to 25 lakh.

A small-scale industrial unit/industry-related service or business enterprise,

managed by one or more women entrepreneurs in proprietary concerns, or in
which she/they individually or jointly have a share capital of not less than 51 per
cent has been treated by the government as a women’s enterprise. Women
entrepreneurship enjoys special benefits from the government.

The small-scale industry sector has been India’s engine of growth and continues
to be so in the new millennium. By the end of March 2000, the SSI sector
accounted for nearly 40 per cent of gross value of output in the manufacturing
sector and 35 per cent of total exports from the country. Through over 32 lakh
units that exist, the sector provided employment to about 18 million people.

The office of the Development Commissioner (SSI) has till date conducted three
censuses of registered SSI units. The first census was conducted in 1973-74 and
found 2.58 lakh units registered up to 30 November, 1973.

The reference year for this census was the calendar year 1972. During this
census, only 1.4 lakh units were found working. The second census was
conducted during 1989-91and was found that 9.87 lakh units were registered up
to 31 March, 1988.

The reference year for this census was 1987-88. During this census, only 5.82
lakh units were found working. The Third All-India Census was conducted during
2002-03 and it was found that 22.62 units were registered up to 31 March, 2001.
The reference year for this census was 2001-02. During this census, only 13.75
lakh units were found working.

It is significant to note that the entrepreneurial supply to India, as is apparent

from the above statistics, has been sluggish. In a period of forty years since
independence, the country could produce only six lakh successful entrepreneurs.
It is only after India adopted the New Economic Reforms in 1991 that the supply
of entrepreneurs gathered momentum.

Thus the speedy growth of entrepreneurship in the country may be attributed

to mainly two conditions:

1. Economic Reforms Policy, 1990, which liberalized the industrial

policy by doing away with the compulsory cumbersome licensing
system and making trade practices easier.
2. Cumulative impact of urbanization and modernization processes
in the country.

Role of Agencies Assisting Entrepreneurship:

NSICs, EDII
Last updated on February 18th, 2020 at 04:33 pm

The NSIC was established in 1995 by the Central Government with the objective
of assisting the small industries in the Government purchase programmes. The
corporation provides a vast-market for the products of small industries through
its marketing network. It also assists the small units in exporting their products
in foreign countries.

NSIC provides a wide range of services, predominantly promotional in character,

to small-scale industries.

Its main functions are to:

1. Provide machinery on hire-purchase scheme to small-scale

industries.
2. Provide equipment leasing facility.
3. Help in export marketing of the products of small-scale
industries.
4. Participate in bulk purchase programme of the Government.
 5. Develop prototype of machines and equipments to pass on to
small-scale industries for commercial production.
6. Distribute basic raw material among small-scale industries
through raw material depots.
7. Help in development and up-gradation of technology and
implementation of modernization programmes of small-scale
industries.
8. Impart training in various industrial trades.
9. Set up small-scale industries in other developing countries on
turn-key basis.
10. Undertake the construction of industrial estates.

Entrepreneurship Development Institute of India (EDI), an autonomous and

not-for-profit institute, set up in 1983, is sponsored by apex financial
institutions – the IDBI Bank Ltd., IFCI Ltd., ICICI Bank Ltd. and the State Bank of
India (SBI). EDI has helped set up twelve state-level exclusive entrepreneurship
development centres and institutes. One of the satisfying achievements,
however, was taking entrepreneurship to a large number of schools, colleges,
science and technology institutions and management schools in several states
by including entrepreneurship inputs in their curricula. In the international
arena, efforts to develop entrepreneurship by way of sharing resources and
organizing training programmes, have helped EDI earn accolades and support
from the World Bank, Commonwealth Secretariat, UNIDO, ILO, British Council,
Ford Foundation, European Union, ASEAN Secretariat and several other
renowned agencies. EDI has also set up Entrepreneurship Development Centre
at Cambodia, Lao PDR, Myanmar and Vietnam and is in the process of setting up
such centres at Uzbekistan and five African countries.

EDII has emerged from the Centre for Entrepreneurship Development (CED) of
the Gujarat Industrial and Technical Consultancy Organisation. It is a national
organisation sponsored by All-India finance institutions and Government of
Gujarat, set up in the year 1983.

It is the Principal agency with special responsibility for entrepreneurship

development. It has been focusing attention on developing programmes for
entrepreneurship development and innovative training techniques for trainees.
It has developed an experimental EDP for women keeping in view their special
needs. It also conducts research, training and institution building activities for
encouraging the participation of backward regions and special target groups in
entrepreneurship. EDII has continued to offer its services to Sri Lanka, Nepal,
Kenya, Ghana and other African Common wealth nations.

The principal activities of EDII are conducting and organising EDPs for potential
entrepreneurs throughout the country, generation and dissemination of new
knowledge, conducting seminars and workshops on various themes, extension
of motivation programmes for officers, performance improvement
programmes for existing entrepreneurs, competent management programmes
for unemployed non-technical graduates etc. The various programmes run by
EDII is said to be the oldest, largest, most comprehensive, organised and
successful EDPs in the country.

Role of Agencies Assisting Entrepreneurship:

NIESBUD, NEDB
Last updated on February 18th, 2020 at 04:32 pm

It was established in 1983 by the Government of India. It is an apex body to

supervise the activities of various agencies in the entrepreneurial development
programmes. It is a society under Government of India Society Act of 1860.The
major activities of institute are:

i) To make effective strategies and methods

ii) To standardize model syllabus for training

iii) To develop training aids, tools and manuals

iv) To conduct workshops, seminars and conferences.

v) To evaluate the benefits of EDPs and promote the process of Entrepreneurial

Development.

vi) To help support government and other agencies in executing entrepreneur

development programmes.

vii) To undertake research and development in the field of EDPs.

The main objective of the National Entrepreneurship Development Board

(NEDB) is promotion of entrepreneurship for encouraging self-employment in
small scale industries and small business.

Salient Features:

(i) To identify and remove entry barriers for potential

entrepreneurs (first generation and new entrepreneurs) including study on
entrepreneurship development.
(ii) To focus on existing entrepreneurs in micro, tiny and small sector
and identify and remove constraints to survivals, growth and continuously
improve performance.

(iii) To facilitate the consolidation, growth and diversification of existing

entrepreneurial venture in all possible ways.

(iv) To support skill up gradation and renewal of learning processes

among practicing entrepreneurs and managers of micro, tiny, small and
medium enterprises.

(v) To support agencies in the area of entrepreneurship about the

current requirement of growth.

(vi) To act as catalyst to institutionalize entrepreneurship development by

supporting and strengthening state level institutions for entrepreneurship
development as most entrepreneurship related activities take place at the grass
root level and removing various constraints to their effective functioning.

(vii) Setting up of incubators by entrepreneurship development institutions and

other organizations devoted to the promotion of entrepreneurship
development.

Entrepreneurship Development Institute (EDI)

Last updated on February 18th, 2020 at 04:32 pm

Entrepreneurship Development Institute of India (EDI), an autonomous and

not-for-profit institute, set up in 1983, is sponsored by apex financial
institutions – the IDBI Bank Ltd., IFCI Ltd., ICICI Bank Ltd. and the State Bank of
India (SBI). EDI has helped set up twelve state-level exclusive entrepreneurship
development centres and institutes. One of the satisfying achievements,
however, was taking entrepreneurship to a large number of schools, colleges,
science and technology institutions and management schools in several states
by including entrepreneurship inputs in their curricula. In the international
arena, efforts to develop entrepreneurship by way of sharing resources and
organizing training programmes, have helped EDI earn accolades and support
from the World Bank, Commonwealth Secretariat, UNIDO, ILO, British Council,
Ford Foundation, European Union, ASEAN Secretariat and several other
renowned agencies. EDI has also set up Entrepreneurship Development Centre
at Cambodia, Lao PDR, Myanmar and Vietnam and is in the process of setting up
such centres at Uzbekistan and five African countries.

Currently focusing on:

(1) Entrepreneurship education and research;

(2) Micro-enterprises, micro-finance and sustainable livelihood;

(3) SMEs and business development services;

(4) Cluster competitiveness, growth and technology;

(5) Social entrepreneurship and CSR and

(6) Women entrepreneurship and gender studies.

In the near future, EDII will focus on creating and assisting more start-ups with
emphasis on innovation, technology and global competitiveness. EDII has set up
its own Technology Business Incubator named as the Centre for Advancing and
Launching Enterprises (CrAdLE).

Role of Central Government and State

Government in Promoting Entrepreneurship
with Various incentives, Subsidies, Grants
Last updated on February 18th, 2020 at 04:31 pm

The Government of India has undertaken several initiatives and instituted policy
measures to foster a culture of innovation and entrepreneurship in the country.
Job creation is a foremost challenge facing India. With a significant and unique
demographic advantage, India, however, has immense potential to innovate,
raise entrepreneurs and create jobs for the benefit of the nation and the world.

In the recent years, a wide spectrum of new programmes and opportunities to

nurture innovation have been created by the Government of India across a
number of sectors. From engaging with academia, industry, investors, small and
big entrepreneurs, non-governmental organizations to the most underserved
sections of society.

Recognising the importance of women entrepreneurship and economic

participation in enabling the country’s growth and prosperity, Government of
India has ensured that all policy initiatives are geared towards enabling equal
opportunity for women. The government seeks to bring women to the forefront
of India’s entrepreneurial ecosystem by providing access to loans, networks,
markets and trainings.
A few of India’s efforts at promoting entrepreneurship and innovation are:

Startup India: Through the Startup India initiative, Government of India

promotes entrepreneurship by mentoring, nurturing and facilitating startups
throughout their life cycle. Since its launch in January 2016, the initiative has
successfully given a head start to numerous aspiring entrepreneurs. With a 360
degree approach to enable startups, the initiative provides a comprehensive
four-week free online learning program, has set up research parks, incubators
and startup centres across the country by creating a strong network of academia
and industry bodies. More importantly, a ‘Fund of Funds’ has been created to
help startups gain access to funding. At the core of the initiative is the effort to
build an ecosystem in which startups can innovate and excel without any
barriers, through such mechanisms as online recognition of startups, Startup
India Learning Programme, Facilitated Patent filing, Easy Compliance Norms,
Relaxed Procurement Norms, incubator support, innovation focused
programmes for students, funding support, tax benefits and addressing of
regulatory issues.

Make in India: Designed to transform India into a global design and

manufacturing hub, the Make in India initiative was launched in September
2014. It came as a powerful call to India’s citizens and business leaders, and an
invitation to potential partners and investors around the world to overhaul out-
dated processes and policies, and centralize information about opportunities in
India’s manufacturing sector. This has led to renewed confidence in India’s
capabilities among potential partners abroad, business community within the
country and citizens at large. The plan behind Make in India was one of the
largest undertaken in recent history. Among several other measures, the
initiative has ensured the replacement of obsolete and obstructive frameworks
with transparent and user-friendly systems. This has in turn helped procure
investments, foster innovation, develop skills, protect intellectual property and
build best-in-class manufacturing infrastructure.

Atal Innovation Mission (AIM): AIM is the Government of India’s endeavour to

promote a culture of innovation and entrepreneurship, and it serves as a
platform for promotion of world-class Innovation Hubs, Grand Challenges,
start-up businesses and other self-employment activities, particularly in
technology driven areas. In order to foster curiosity, creativity and imagination
right at the school, AIM recently launched Atal Tinkering Labs (ATL) across
India. ATLs are workspaces where students can work with tools and equipment
to gain hands-on training in the concepts of STEM (Science, Technology,
Engineering and Math). Atal Incubation Centres (AICs) are another programme
of AIM created to build innovative start-up businesses as scalable and
sustainable enterprises. AICs provide world class incubation facilities with
appropriate physical infrastructure in terms of capital equipment and operating
facilities. These incubation centres, with a presence across India, provide access
to sectoral experts, business planning support, seed capital, industry partners
and trainings to encourage innovative start-ups.

Support to Training and Employment Programme for Women (STEP): STEP

was launched by the Government of India’s Ministry of Women and Child
Development to train women with no access to formal skill training facilities,
especially in rural India. The Ministry of Skill Development & Entrepreneurship
and NITI Aayog recently redrafted the Guidelines of the 30-year-old initiative to
adapt to present-day needs. The initiative reaches out to all Indian women
above 16 years of age. The programme imparts skills in several sectors such as
agriculture, horticulture, food processing, handlooms, traditional crafts like
embroidery, travel and tourism, hospitality, computer and IT services.

Jan Dhan- Aadhaar- Mobile (JAM): JAM, for the first time, is a technological
intervention that enables direct transfer of subsidies to intended beneficiaries
and, therefore, eliminates all intermediaries and leakages in the system, which
has a protential impact on the lives of millions of Indian citizens. Besides serving
as a vital check on corruption, JAM provides for accounts to all underserved
regions, in order to make banking services accessible down to the last mile.

Digital India: The Digital India initiative was launched to modernize the Indian
economy to makes all government services available electronically. The
initiative aims to transform India into a digitally-empowered society and
knowledge economy with universal access to goods and services. Given
historically poor internet penetration, this initiative aims to make available
high-speed internet down to the grassroots. This program aims to improve
citizen participation in the digital and financial space, make India’s cyberspace
safer and more secure,abd improve ease of doing business. Digital India hopes to
achieve equity and efficiency in a country with immense diversity by making
digital resources and services available in all Indian languages.

Biotechnology Industry Research Assistance Council (BIRAC): BIRAC is a not-

for-profit Public-Sector Enterprise, set up by Department of Biotechnology to
strengthen and empower emerging biotechnology enterprises. It aims to embed
strategic research and innovation in all biotech enterprises, and bridge the
existing gaps between industry and academia. The ultimate goal is to develop
high-quality, yet affordable, products with the use of cutting edge technologies.
BIRAC has initiated partnerships with several national and global partners for
building capacities of the Indian biotech industry, particularly start-ups and
SME’s, and has facilitated several rapid developments in medical technology.

Department of Science and Technology (DST): The DST comprises several arms
that work across the spectrum on all major projects that require scientific and
technological intervention. The Technology Interventions for Disabled and
Elderly, for instance, provides technological solutions to address challenges and
improve quality of life of the elderly in India through the application of science
and technology. On the other hand, the ASEAN-India Science, Technology and
Innovation Cooperation works to narrow the development gap and enhance
connectivity between the ASEAN countries. It encourages cooperation in
science, technology and innovation through joint research across sectors and
provides fellowships to scientists and researchers from ASEAN member states
with Indian R&D/ academic institutions to upgrade their research skills and
expertise.

Stand-Up India: Launched in 2015, Stand-Up India seeks to leverage

institutional credit for the benefit of India’s underprivileged. It aims to enable
economic participation of, and share the benefits of India’s growth, among
women entrepreneurs, Scheduled Castes and Scheduled Tribes. Towards this
end, at least one women and one individual from the SC or ST communities are
granted loans between Rs.1 million to Rs.10 million to set up greenfield
enterprises in manufacturing, services or the trading sector. The Stand-Up India
portal also acts as a digital platform for small entrepreneurs and provides
information on financing and credit guarantee.

Trade related Entrepreneurship Assistance and Development (TREAD): To

address the critical issues of access to credit among India’s underprivileged
women, the TREAD programme enables credit availability to interested women
through non-governmental organizations (NGOs). As such, women can receive
support of registered NGOs in both accessing loan facilities, and receiving
counselling and training opportunities to kick-start proposed enterprises, in
order to provide pathways for women to take up non-farm activities.

Pradhan Mantri Kaushal Vikas Yojana (PMKVY): A flagship initiative of the

Ministry of Skill Development & Entrepreneurship (MSDE), this is a Skill
Certification initiative that aims to train youth in industry-relevant skills to
enhance opportunities for livelihood creation and employability. Individuals
with prior learning experience or skills are also assessed and certified as a
Recognition of Prior Learning. Training and Assessment fees are entirely borne
by the Government under this program.

National Skill Development Mission: Launched in July 2015, the mission aims to
build synergies across sectors and States in skilled industries and initiatives.
With a vision to build a ‘Skilled India’ it is designed to expedite decision-making
across sectors to provide skills at scale, without compromising on quality or
speed. The seven sub-missions proposed in the initial phase to guide the
mission’s skilling efforts across India are: (i) Institutional Training (ii)
Infrastructure (iii) Convergence (iv) Trainers (v) Overseas Employment (vi)
Sustainable Livelihoods (vii) Leveraging Public Infrastructure.
Science for Equity Empowerment and Development (SEED): SEED aims to
provide opportunities to motivated scientists and field level workers to
undertake action-oriented, location specific projects for socio-economic gain,
particularly in rural areas. Efforts have been made to associate national labs and
other specialist S&T institutions with innovations at the grassroots to enable
access to inputs from experts, quality infrastructure. SEED emphasizes equity in
development, so that the benefits of technological accrue to a vast section of the
population, particularly the disadvantaged.

Idea Generation: Sources and Methods

Last updated on February 18th, 2020 at 04:36 pm

Stage #1: Generation

For a lot of companies, making use of ideation to address a specific problem or

requirement is frequently a good starting point. The majority of companies can
easily identify these kinds of needs – the main decision is whether they
contribute to an ideation approach. After problem-solving, come two other key
chances for utilizing ideation: core competencies and consumer insights.

Core competencies, in reference to ideation, have to do with leveraging ideation

to develop upon a company’s abilities. In this kind of ideation, the organization
is looking for fresh applications or new markets for existing services/products.

Consumer insights, with reference to ideation, have to do with utilizing

principles of conventional market research (for example: focus groups and
surveys) and implementing them in the context of a joint idea-sharing milieu.
Surveys are effective though there are a few drawbacks: respondents would not
be able to view other replies (to vote up/down or comment) and the response
rates are usually pretty low. Even focus groups are effective though they fail to
reach the heights of online ideation owing to factors such as price constraints
that hinder them from accessing a bigger participant pool.

Stage #2: Selection

Picking the best ideas starts much before the beginning of the ideation process.
It is essential that you fix the criteria by which the ideas are to be assessed, who
would be responsible for evaluating the ideas, and how the top ideas would be
given to the concerned internal teams for further assessment or execution. A
proper selection process begins with the use of tags or labels to arrange the ideas
into meaningful clusters. An example would be labels being arranged along
product lines (such as phone, laptop, tablet) and tags being a level lower,
concentrating on attributes (easy navigation, portable, long battery life,
lightweight) and/or on features (display, operating system, interface). Labeling
and tagging should be followed by prioritization to be certain that the most
essential ideas reach the stage of application/execution.

Stage #3: Implementation

The success of implementation is dependent on an organization’s ability to

choose the top ideas and take action based on them. It also depends on the
organization having appropriate workflows in place so that the right groups take
part at the appropriate time in the three steps of the ideation process. The
makeup of these workflows (that call out particular roles and aspects of
responsibility) is very essential for organizations if they are to start any ideation
endeavor. The people in the roles called out should be ready to take in new ideas
that don’t come from within the company and possibly can be incentivized or
otherwise acknowledged for their readiness to implement the new approach.

18 KILLER IDEA GENERATION TECHNIQUES

1. SCAMPER

SCAMPER is an idea generation technique that utilizes action verbs as stimuli. It

is a well-known kind of checklist developed by Bob Eberie that assists the person
in coming up with ideas either for modifications that can be made on an existing
product or for making a new product. SCAMPER is an acronym with each letter
standing for an action verb which in turn stands for a prompt for creative ideas.

S – Substitute

C – Combine

A – Adapt

M – Modify

P – Put to another use

E – Eliminate

R – Reverse

2. Brainstorming

This process involves engendering a huge number of solutions for a specific

problem (idea) with emphasis being on the number of ideas. In the course of
brainstorming, there is no assessment of ideas. So, people can speak out their
ideas freely without fear of criticism. Even bizarre/strange ideas are accepted
with open hands. In fact, the crazier the idea, the better. Taming down is easier
than thinking up.

Frequently, ideas are blended to create one good idea as indicated by the slogan
“1+1=3.” Brainstorming can be done both individually and in groups. The typical
brainstorming group comprises six to ten people.

3. Mindmapping

Mindmapping is a graphical technique for imagining connections between

various pieces of information or ideas. Each fact or idea is written down and then
connected by curves or lines to its minor or major (previous or following) fact or
idea, thus building a web of relationships. It was Tony Buzan, a UK researcher,
who developed the technique “mind mapping” discussed in his book ‘Use your
Head’ (1972). Mind mapping is utilized in brainstorming, project planning,
problem solving and note taking. As is the case with other mapping methods, the
intention behind brain mapping too is to capture attention and to gain and frame
information to enable sharing of concepts and ideas.

To get started with mindmapping, the participant just has to write a key phrase
or word in the middle of the page. Then, he must write anything else that comes
to his mind on the very same page. After that, he must try to make connections
as mentioned in the previous paragraph.

4. Synectics

Synectics is a creative idea generation and problem solving technique that

arouses thought processes that the subject may not be aware of. It is a manner of
approaching problem-solving and creativity in a rational manner. The credit for
coming up with the technique which had its beginning in the Arthur D. Little
Invention Design Unit, goes to William J.J. Gordon and George M. Prince.

The Synectics study endeavored to investigate the creative process while it is in

progress. According to J.J Gordon, three key assumptions are associated with
Synectics research.

It is possible to describe and teach the creative process

Invention processes in sciences and the arts are analogous and triggered by the
very same “psychic” processes

Group and individual creativity are analogous

 5. Storyboarding

Storyboarding has to do with developing a visual story to explain or explore.

Storyboards can help creative people represent information they gained during
research. Pictures, quotes from the user, and other pertinent information are
fixed on cork board, or any comparable surface, to stand for a scenario and to
assist with comprehending the relationships between various ideas.

6. Roleplaying

In the role playing technique, each participant can take on a personality or role
different from his own. As the technique is fun, it can help people reduce their
inhibitions and come out with unexpected ideas.

7. Attribute listing

Attribute listing is an analytical approach to recognize new forms of a system or

product by identifying/recognizing areas of improvement. To figure out how to
enhance a particular product, it is broken into parts, physical features of each
component are noted, and all functions of each component are explained and
studied to see whether any change or recombination would damage or improve
the product.

8. Visualization and visual prompts

Visualization is about thinking of challenges visually so as to better comprehend

the issue. It is a process of incubation and illumination where the participant
takes a break from the problem at hand and concentrates on something wholly
different while his mind subconsciously continues to work on the idea. This
grows into a phase of illumination where the participant suddenly gets a
diversity of solutions and he rapidly writes them down, thereby creating fresh
parallel lines of thought.

Picture prompts help a lot when it comes to enabling one’s brain to establish
connections. These prompts can help to surface emotions, feelings and
intuitions. This makes them particularly useful for brainstorming solutions to
innovative challenges involving people, and issues with a deep psychological or
emotional root cause.

To get started with using picture prompts, the facilitator distributes a set of pre-
selected images – each participant gets one. He also asks the participants to
write down whatever ideas come to their mind when they look at the image in
their possession. According to Bryan Mattimore (presently co-founder of The
Growth Engine Company), the images should be visually interesting, portraying
a multiplicity of subject matter and must depict people in lots of varied kinds of
relationships and interactions with other people.

After this, participants pair off and use additional time, sharing and talking
about the ideas they have come up with and brainstorming more solutions to the
existing problem/challenge. Lastly, the various pairs present their ideas to the
rest of the group.

Mattimore suggests tailoring the visuals to the character of the challenge the
participants have to solve. So, if the challenge pertains to the manufacturing
industry, you could consider having images of an industrial nature. However, you
should definitely include some irrelevant or random images as well because it
may be these kinds of images that trigger the most innovative solutions.

9. Morphological analysis

Morphological analysis has to do with recognizing the structural aspects of a

problem and studying the relationships among them. For example: Imagine the
problem is transporting an object from one place to another by way of a powered
vehicle. The significant dimensions are: the kind of vehicle (cart, sling, bed,
chair); the power source (internal-combustion engine, pressed air, electric
motor); and the medium (air, hard surface, rails, rollers, oil, water). Thus, a cart-
kind of vehicle moving over rough services with an internal-combustion engine
to power it is the automobile. The expectation is that it would be possible to
determine some novel combinations.

10. Forced relationships

It is an easy technique involving the joining of totally different ideas to come up

with a fresh idea. Though the solution may not be strictly unique, it frequently
results in an assortment of combinations that are often useful. A lot of products
we see today are the output of forced relationships (such as a digital watch that
also has a calculator, musical birthday cards and Swiss army knife). Most of these
ideas may not be revolutionary discoveries but they are still advantageous
products and usually have a prospective market in society. Robert Olson
provided an example for forced analogy in his book ‘The Art of Creative
Thinking.’ He compares different aspects of a corporate organization structure
to the structure of a matchbox.

11. Daydreaming

Though mostly not met with approval, daydreaming is truly one of the most
fundamental ways to trigger great ideas. The word “daydream” itself
involuntarily triggers an uninhibited and playful thought process, incorporating
the participant’s creativity and resourcefulness to play around with the present
problem. It enables a person to establish an emotional connection with the
problem, which is beneficial in terms of coming up with a wonderful idea. The
focus of productive daydreaming is a particular goal irrespective of whether it
seems to be an impractical task. Plenty of famous inventors have engaged in
daydreaming in the past, thereby setting off ideas that contributed to life
altering inventions. The airplane is the most notable example for this. If the
Wright brothers had not let their imagination run wild thinking about flight, we
would probably still be traveling by ferry.

12. Reverse thinking

As the term ‘reverse thinking’ itself suggests, instead of adopting the logical,
normal manner of looking at a challenge, you reverse it and think about opposite
ideas. For example: ‘how can I double my fan base?’ can change into ‘how do I
make sure I have no fans at all?’ You may notice that the majority of participants
would find it easier to produce ideas for the ‘negative challenge’ simply because
it is much more fun. However, don’t spend too much time on the reverse idea-
generation – about 10 to 15 wrong ideas is fine. After one session is over, you can
either continue in the reverse idea atmosphere with a new challenge or else do
the reversal once more to make it stronger. An example for the latter is “I am
never going to update any of my social networks” changing into “I am going to
always update all of my social networks.”

13.Questioning assumptions

The majority of industries have an orthodoxy – unspoken but deeply-held

beliefs that everyone stands by for getting things done. Sadly, they fail to realize
that by questioning assumptions at every step of service or product
development, they can actually enable the birth of fresh possibilities and ideas.

Here’s how Mattimore suggests one go about questioning assumptions: The

participants should start by settling on the framework for the creative challenge.
After this, they should produce 20 to 30 assumptions (irrespective of whether
they are true or false). The next step is to select several assumptions from the
many generated, and utilize them as idea triggers and thought starters to
engender fresh ideas.

14. Accidental genius

Accidental genius is a relatively new technique that utilizes writing to trigger the
best ideas, content and insight.

15. Brainwriting
Brainwriting is easy. Instead of asking the participants to shout out ideas, they
are told to pen down their ideas pertaining to a specific problem or question on
sheets of paper, for a small number of minutes. After that, each participant can
pass their ideas over to someone else. This someone else reads the ideas on the
paper and adds some new ones. Following another few minutes, the individual
participants are again made to pass their papers to someone else and so the
process continues. After about 15 minutes, you or someone else can collect the
sheets from them and post them for instant discussion.

16. Wishing

This technique can be begun by asking for the unattainable and then
brainstorming ideas to make it or at least an approximation of it, a reality. Start
by making the wishes tangible. There should be collaboration among the
members of the team to produce 20 to 30 wishes pertaining to your business.
Everyone’s imagination should be encouraged to run wild – the more bizarre the
idea, the better. There should be no restrictions on thinking.

The next step is concentrating on a number of these unattainable wishes and

utilizing them as creative stimuli to trigger ideas that are new but more practical.
Mattimore suggests getting the team to challenge the problem from diverse
perspectives (imagine how a person from another planet or from another
industry or profession would view it) or reflect on it. This type of role playing
assists with moving away from conventional thinking patterns to see fresh
possibilities.

17. Socializing

If employees only hang around with colleagues and friends, they could find
themselves in a thinking rut. Let them utilize all those LinkedIn connections to
begin some fantastic conversations. Refreshing perspectives will assist with
bringing out new thinking and probably, one or two lightning bolts. Socializing
in the context of ideation can also be about talking to others on topics that have
nothing whatsoever to do with the present problem.

18. Collaboration

As the term indicates, collaboration is about two or more people joining hands in
working for a common goal. Designers frequently work in groups and engage in
collaborative creation in the course of the whole creative process.

Identification and Classification of ideas

Last updated on February 18th, 2020 at 04:36 pm
In general sense, the term opportunity implies a good chance or a favourable
situation to do something offered by circumstances. In the same vein, business
opportunity means a good or favourable change available to run a specific
business in a given environment at a given point of time.

The term ‘opportunity’ also covers a product or project. Hence, the identification
of an opportunity or a product or project is identical and, therefore, all these
three terms are used as synonyms. The Government of India’s “Look East Policy”
through North East is an example of ‘opportunity’ to do business in items like tea,
handicrafts, herbals, turmeric, etc.

Opportunity identification and selection are like comer stones of business

enterprise. Better the former, better is the latter. In a sense, identification and
selection of a suitable business opportunity serves as the trite saying ‘well begun
is half done.’ But, it is like better said than done. Why? Because if we ask any
intending entrepreneur what project or product he/she will select and start as an
enterprise, the obvious answer he/she would give is one that having a good
market and is profitable. But the question is how without knowing the product
could one know its market?

Whose market will one find out without actually having the product? Whose
profitability will one find out without actually selling the product? There are
other problems, besides. While trying to identify the suitable product or project,
the intending entrepreneur passes through certain processes.

The processes at times create a situation, or say, dilemma resembling ‘Hen or

Egg’ controversy. That is, at one point, the intending entrepreneur may find one
product or project as an opportunity and may enchant and like it, but at the other
moment may dislike and turn down it and may think for and find other product
or project as an opportunity for him/her. This process of dilemma goes on for
some intending entrepreneurs rendering them into the problem of what product
or project to start. Then, how to overcome this problem of product identification
and selection?

One way to overcome this dilemmatic situation is to know how the existing
entrepreneurs identified the opportunity and set up their enterprises. An
investigation into the historical experiences of Indian small enterprises in this
regard reveals some interesting factors.

To mention the important ones, the entrepreneurs selected their products or

projects based on:

1. Their own or partners’ past experience in that business line;

 2. The Government’s promotional schemes and facilities offered to
run some specific business enterprises;
3. The high profitability of products;
4. Which indicate increasing demand for them in the market?
5. The availability of inputs like raw materials, labour, etc. at cheaper
rates;
6. The expansion or diversification plans of their own or any other
ongoing business known to them;
7. The products reserved for small-scale units or certain locations.

Now, having gained some idea on how the existing entrepreneurs selected
products/projects, the intending entrepreneur can find a way out of the tangle
of which opportunity/product/project to select to finally pursue as one’s
business enterprise.

One of the ways employed by most of the intending entrepreneurs to select a

suitable product/project is to firstly generate ideas about a few products/
projects. Accordingly, what follows next is a discussion idea generation about
products.

Idea Generation:

Sources of Ideas:

In a sense, opportunity identification and selection are akin to, what is termed in
marketing terminology, ‘new product development.’ Thus, product or
opportunity identification and selection process starts with the generation of
ideas, or say, ideas about some opportunities or products are generated in the
first instance.

The ideas about opportunities or products that the entrepreneur can consider for
selecting the most promising one to be pursued by him/her as an enterprise, can
be generated or discovered from various sources- both internal and external.

These may include:

(i) Knowledge of potential customer needs,

(ii) Watching emerging trends in demands for certain products,

(iii) Scope for producing substitute product,

(iv) Going through certain professional magazines catering to specific interests
like electronics, computers, etc.,

(v) Success stories of known entrepreneurs or friends or relatives,

(vi) Making visits to trade fairs and exhibitions displaying new products and
services,

(vii) Meeting with the Government agencies,

(viii) Ideas given by the knowledgeable persons,

(ix) Knowledge about the Government policy, concessions and incentives, list of
items reserved for exclusive manufacture in small-scale sector,

(x) A new product introduced by the competitor, and

(xi) One’s market insights through observation.

In nutshell, a prospective entrepreneur can get ideas for establishing his/ her
enterprise from various sources. These may include consumers, existing
products and services presently on offer, distribution channels, the government
officials, and research and development.

A brief mention about each of these follows in turn:

Consumers:

No business enterprise can be thought of without consumers. Consumers

demand for products and services to satisfy their wants. Also, consumers’ wants
in terms of preferences, tastes and liking keep on changing. Hence, an
entrepreneur needs to know what the consumers actually want so that he/she
can offer the product or service accordingly. Consumers’ wants can be known
through their feedback about the products and services they have been using
and would want to use in future.

Existing Products and Services:

One way to have an enterprise idea may be to monitor the existing products and
services already available in the market and make a competitive analysis of them
to identify their shortcomings and then, based on it, decide what and how a
better product and service can be offered to the consumers. Many enterprises
are established mainly to offer better products and services over the existing
ones.

Distribution Channels:

Distribution channels called, market intermediaries, also serves as a very

effective source for new ideas for entrepreneurs. The reason is that they
ultimately deal with the ultimate consumers and, hence, better know the
consumers’ wants.

As such, the channel members such as wholesalers and retailers can provide
ideas for new product development and modification in the existing product. For
example, an entrepreneur came to know from a salesman in a departmental
store that the reason his hosiery was not selling was its dark shade while most of
the young customers want hosiery with light shade. The entrepreneur paid heed
to this feedback and accordingly changed the shade of his hosiery to light shade.
Entrepreneur found his hosiery enjoying increasing demand just within a month.

Government:

At times, the Government can also be a source of new product ideas in various
ways. For example, government from time to time issues regulations on product
production and consumption. Many a times, these regulations become excellent
sources for new ideas for enterprise formation.

For example, government’s regulations on ban on polythene bags have given

new idea to manufacture jute bags for marketing convenience of the sellers and
buyers. A prospective entrepreneur can also get enterprise idea from the
publications of patents available for license or sale.

Besides, there are some governmental agencies that assist entrepreneurs in

obtaining specific product information. Such information can also become basis
for enterprise formation.

Research and Development:

The last but no means the least source of new ideas is research and development
(R&D) activity. 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.

Available evidences indicate that many new product development, or say, new
enterprise establishments have been the outcome of R&D activity. For example,
one research scientist in a Fortune 500 company developed a new plastic resin
that became the basis of a new product, a plastic molded modular cup pallet.
Most of the product diversifications have stemmed from the organization’s R&D
activity.

Methods of Generating Ideas:

As seen above, there could be variety of sources available to generate ideas for
enterprise formation. But, even after generating ideas to convert these into
enterprise is still a problem for the prospective entrepreneur. The reason is not
difficult to seek.

This involves a process including first generating the ideas and then scrutinizing
of the ideas generated to come up with an idea to serve as the basis for a new
enterprise formation. The entrepreneur can use several methods to generate
new ideas. However, the most commonly used methods of generating ideas are:
focus groups, brainstorming, and problem inventory analysis.

These are discussed as follows:

Focus Groups:

A group called ‘focus group’ consisting of 6-12 members belonging to various

socio-economic backgrounds are formed to focus on some particular matter like
new product idea. The focus group is facilitated by a moderator to have an open
in-depth discussion. The mode of the discussion of the group can be in either a
directive or a non-directive manner.

The comment from other members is supplied with an objective to stimulate

group discussion and conceptualize and develop new product idea to meet the
market requirement. While focusing on particular matter, the focus group not
only generates new ideas, but screens the ideas also to come up with the most
excellent idea to be pursued as a venture.

Brainstorming:

Brainstorming technique was originally adopted by Alex Osborn in 1938 in an

American Company for encouraging creative thinking in groups of six to eight
people. According to Osborn, brainstorming means using the brain to storm the
issue/problem. Brainstorming ultimately boils down to generate a number of
ideas to be considered for the dealing with the issue/problem.

However, brainstorming exercise to be effective needs to follow a modus

operandi involving four basic guidelines:
 1. Generate as many ideas as possible.
2. Be creative, freewheeling, and imaginative.
3. Build upon piggyback, extend, or combine earlier ideas.
4. Withhold criticism of others’ ideas.

There are two principles that underlie brainstorming. One is differed judgment,
by which all ideas are encouraged without criticism and evaluation. The second
principle is that quantity breeds quality. The brainstorming session to be
effective needs to work like a fun, free from any type of compulsions and
pressures.

Each member needs to have willingness and capacity to listen to others’

thoughts, to use these thoughts as a stimulus to spark new ideas of their own,
and then feel free to express them. As such, efforts are made to keep the
brainstorming session free from any sort of dominance and obstruction
derailing and inhibiting discussion to proceed in a desired manner to serve its
purpose. A normal brainstorming session lasts for from ten minutes to one hour
and does not require much preparation.

Here is an example of brainstorming used to generate ideas to make the

organizations presence noticed.

A national level institute of the Government of India took its faculty to a resort in
Himachal Pradesh for a brainstorming session for two days to generate ideas on
what it can do to be known, noticed and recognized at the national and
international arena.

The seven major ideas generated were to:

(i) Open courses like PGDM for the general public,

(ii) Introduce new courses to meet the emerging market requirements,

(iii) Introduce research activity in terms of research projects and fellow

programme,

(iv) Sign Memorandum of Understanding (MOUs) with reputed national and

international academic institutions,

(v) Start courses in collaboration with the Government and industry,

(vi) Nominate especially young faculty members to join the Faculty
Development Programmes conducted by the Indian Institute of Management,
Ahmedabad (IIMA), and

(vii) Publish the Institute’s research journal.

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, suffer 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.

However, experiences available suggest that problem inventory analysis

method should better be used for generating and identifying new ideas for
screening and evaluation. The results derived from product inventory analysis
need to be carefully screened and evaluated as they may not actually reflect a
genuine business opportunity.

For example, General Foods’ introduction of a compact cereal box in response to

the problem that the available boxes did not fit well on the shelf was not
successful, as the problem of package size had little effect on actual purchasing
behaviour. Therefore, to ensure the better if not the best results, problem
inventory analysis should be used primarily to generate product ideas for
evaluation.

All of above sources and methods may give a few ideas about the possible
projects to be examined as the final project or product.

Following are some illustrative sources of generation of business ideas:

1. Realizing that especially service class people find it inconvenient

to take milk pot with them to office that they need to buy milk
while coming back from the office in the evening, to provide milk
in sachets or tetra packs could be a new business idea.
2. Having faced difficulty in finding out accommodation and
transport facility while on visits to a new/tourist place may give
 one an idea to start a travel agency providing complete package of
facilities to the visitors to a new / tourist place.
3. Knowing that many people have hobby or even develop passion
for gardening may give rise to an idea of setting up one’s own
nursery.
4. Seeing that most of the people coming from outside to a particular
place buy its unique items as souvenir like tea from Assam, the
Model of Taj from Agra, etc. may give idea to produce the local
item as souvenir.
5. Recognizing the increasing application of computers in offices as
well as business organizations, irrespective of its size, may give an
idea to set-up a computer-training centre.

Once ideas have being generated following the above process, the next step
comes is identification of above generated ideas as opportunities.

Opportunity/Product Identification:

After going through above process, one might have been able to generate some
ideas that can be considered to be pursued as ones business enterprise.

Imagine that someone have generated the five ideas as opportunities as a

result of above analysis:

1. Nut and bolt manufacturing (industry)

2. Lakhani Shoes (industry)
3. Photocopying unit (service-based industry)
4. Electro-type writer servicing (service-based industry).
5. Polythene bags for textile industry (ancillary industry)

An entrepreneur cannot start all above five types of enterprises due to small in
size in terms of capital, capability, and other resources. Hence, he/she needs to
finally select one idea which he/she thinks the most suitable to be pursued as an
enterprise. How does the entrepreneur select the most suitable project out of the
alternatives available? This is done through a selection process discussed
subsequently.

Having gone through idea generation, also expressed as ‘opportunity scanning’

and opportunity identification, we can distinguish between an idea and
opportunity. We are giving below the two situations that will help you
understand and draw the line of difference between an ‘idea’ and an
‘opportunity’.
 Situation I Situation

On completion of his engine

Having completed their Master of Business
got a job in Assam State Tran
Administration (MBA), Mrinmoy and Chandan
He was the in-charge of the
met after about six months. The two were
department. Having worked
conversing with each other about who is doing
department for over ten yea
what. Mrinmoy is running his business of travel
good idea about which comp
agency and Chandan is still searching for a job.
demand and who are the bu
Mrinmoy suggests Chandan to start some
bulk. He, therefore, thought
business. Observe and read the market scenario
manufacturing of some of th
and produce what the consumers actually want.
having good demand in bulk

Now, it is clear that, in the above mentioned two satiations, situation I is at the
‘idea stage’ and situation II at the ‘opportunity stage’. At the idea stage, there is
simply an idea about what to do. But at the opportunity stage, idea has actually
been germinated about what to start/do. The understanding of such a difference
between an ‘idea’ and ‘opportunity’ is very important for the intending
entrepreneurs who are seriously trying to identify an ‘opportunity’ to be pursued
as an enterprise.

Individual Creativity: Roles and Process

Last updated on February 18th, 2020 at 04:35 pm

Creativity fills one gaping hole: our need to communicate and to create new ideas
and new knowledge. The term knowledge is used here in its broadest sense, to
encompass what we call knowledge, expertise, skills and information (Faulkner,
1994: 426).

However, my main concern in this article is narrowly focused, on the cognitive

features of knowledge generated by creative processes. This knowledge is
intimately related to questions of who has particular knowledge and how easily
it is to make use of this knowledge in an organization laden with instantaneous
demand and response times. Are individuals defined by their knowledge rather
than how they apply it? Are we finding a new pace, time, space and depth to how
we innovate?

Individual Creativity

As old products are replaced by new, creativity is the identifying factor changing
the way we do things? Creativity drives entrepreneurship at all levels
anticipating profits through early product innovation. Whether radical or
incremental innovation, creative dynamism at the individual level has a
cumulative effect on the innovation process.

A pervasive image of innovation casts a scenario centering on the individual

innovator.

Indeed, as authors Cameron Ford and Dennis Gioia, emphasize in their book of
collected essays, Creative Action in Organizations (1995) those searching for the
fountain of creativity have traditionally focused on the solitary inventor. A single
person-centered view has outlived its usefulness. Even the most legendary
inventor, such as Thomas

Edison, is often a team in disguise (Kelley, 2001). The idea of a lone genius
distracts us from the more useful focus on the higher potential source of
creativity: the organization as a collective of creative people working as a team.
To promote organizational creativity among individuals attempt to remove
barriers and obstacles that hinder creativity and denote the lone inventor as a
myth.

Creativity does not just happen. It is a cognitive process that produces new ideas
or transforms old ideas into updated concepts, according to Brussels Free
University psychology professor Liane Gabora. Scientists such as Jacques
Hadamard and Henri Poincaré studied the creative process and contributed to
the Creative Process Model, which explains how an individual can form
seemingly random thoughts into an ideal combination or solution, according to
the website The Information Philosopher.

The Preparation Step of the Creative Process Model

During the preparation step of the creative process model, an individual

becomes curious after encountering a problem. Examples of problems can
include an artistic challenge or an assignment to write a paper. During this stage,
she may perform research, creates goals, organize thoughts and brainstorm as
different ideas formulate. For example, a marketing professional may prepare
for a marketing campaign by conducting market research and formulating
different advertisement ideas.

The Incubation Step of the Creative Process Model

While the individual begins to process her ideas, he begins to synthesize them
using his imagination and begins to construct a creation. Gabora states that
during this step, the individual does not actively try a find a solution, but
continues to mull over the idea in the back of his head.
The Illumination Step of the Creative Process Model

As ideas begin to mature, the individual has an epiphany regarding how to piece
her thoughts together in a manner that makes sense. The moment of
illumination can happen unexpectedly. For example, an individual with the task
of putting together an office party may have an idea for a theme while driving
home from work.

The Evaluation Step of the Creative Process Model

After a solution reveals itself in an epiphany, the individual then evaluates

whether the insight is worth the pursuit. He may make changes to his solution so
it is clearer. He may consult with peers or supervisors regarding his insights
during this step before pursuing it further. If he works with clients, he may seek
a client’s input and approval before moving on to the next step.

The Implementation Step of the Creative Process Model

The implementation of an idea or solution in the creative process model is when

an individual begins the process of transforming her thoughts into a final
product. For example, during this step, a painter may begin outlining shapes on
a canvas with charcoal before applying oil paints to the medium. According to
Gabora, an individual may begin this step more than once in order to reach the
desired outcome.

idea to Business opportunity

Last updated on February 18th, 2020 at 04:35 pm

An idea is someone’s thoughts as to what might be successful if converted into a

business. So a business idea might be to sell coffee makers for your car to save
time from having to stop in all the lines at the coffee shop. It’s an idea only.

A business opportunity is a system that someone should have developed from

testing and experience and proven can work. (There are plenty of scam ‘biz ops
out there, so your research is important). It should have products or services that
you sell. While there is no guarantee it will work for you, it has been proven to
work. Because you may not put in the work, do the research, or do the training,
any bizop is a risk. None of them are ‘sit at home and the money comes rolling in
every day without you doing a thing!’

MultiLevel Marketing, or MLMs are an example of a business opportunity.

Unfortunately, many times they are sold as if no work is required and everyone
wants the products. Ugh, no. It takes work- hard work. And selling. And treating
it like a business. You can make money, but it takes work, experience, marketing,
and sales ability.

Franchises are another form of business opportunity. These are much more
formal, meaning there is a lot more support. There should be training, marketing
support, possibly a loan to get started, and other features that work toward
success. You pay a fee for the support, usually a percentage of sales, but it’s
better than being out on your own with little or no guidance.

Very Simple differentiation:

Business Opportunity: Any idea which is proven and already exists. YES, there is
the further scope of enhancing the opportunity. Working out with the PEST
analysis and find the room for growth, maybe in a different geography, may be
locally or globally. Maybe with different pricepoint.

Business Idea: Product or services which are not existing, do a “ PURE GAP
ANALYSIS” or “ PAIN POINT ANALYSIS” work with your skills, identify your core
competence to fulfil the gaps or pain points, and develop a new service or a new
product. Market it globally or locally. Take feedback, and tune your product or
services accordingly. OR come up with product or services which will make life
easier where a bit of Creativity and Innovation is required.

Opportunity Assessment
Last updated on February 18th, 2020 at 04:39 pm

Today’s brands are under relentless pressure to stay relevant in an increasingly

crowded and competitive market place. In order to be successful, brands need to
understand how to connect new products or services with the life of the
consumer. By understanding the market and maintaining a consistent
awareness of challenges or barriers to entry or growth, businesses have the data
they need to build accurate go-to-market strategies and business plans.

Typical outputs from a market and opportunity assessment include:

• Market sizing and growth projections

• Industry and segment attractiveness assessments
• Competitive Landscape
• Market sizing and growth projections
• SWOT assessment
• Market requirements and barriers to entry
• Go-to-market strategy
Market and opportunity Assessment Methods

Market and opportunity research oftentimes uses a combination of qualitative

and quantitative methods—depending on the type and complexity of offering,
the market being evaluated, and the stage in the assessment process:

• In-depth interviews are utilized typically in the early stages and

are most useful for very complex products and for gathering
feedback from executives or subject matter experts.
• Qualitative techniques such as focus groups and in-depth
interviews are used at when there is a need for a broad exploration
of potential opportunities.
• Quantitative surveys are used further along the evaluation
process when there is a need for concrete numbers for market
sizing analyses, business case presentations, or testing market
hypothesis.

Reasons for failure of New Venture

Last updated on November 17th, 2022 at 08:31 pm

Entrepreneurial success is not the result of a single person’s efforts.

There is always a team involved. The team is made up of other investors,
working partners, employees, vendors, and clients. All play an important
part in the success of the enterprise. Although other people are involved,
there is a tendency to believe that they play far less important roles and
are easily replaced. At the end of the day, success or failure of the
enterprise will be largely attributed to the entrepreneur.

Because of limited resources, high levels of uncertainty and inexperienced

management and employees, new ventures suffer from a very high rate of
mortality- much higher than that of larger, well-established firms. There
are a number of reasons for failure of a new venture, which are discussed
below. Usually, there is a combination of reasons rather than one single
reason.

Lack of Experienced Management:

One of the main problems faced by new enterprises is that the management
team is usually very new to this role. The entrepreneur and his/her top
management usually have no prior record of being in charge of the fortunes
of a whole company.
Even in some rare cases, when the management has some individuals who
have led a company in the past, they are now faced with a new situation
where the company itself has no previous track record. It is a very different
kind of situation.

Few Trained or Experienced Manpower:

Shortage of skilled and experienced manpower is faced by new ventures,

which represent a riskier job opportunity. Most people prefer to work with
a well-established organization employing hundreds of employees and
having a stable track record.

New ventures are also reluctant to use manpower for and to invest in
training. Lack of experienced and skilled manpower can lead to a general
drop in productivity and quality of output. The absence of quality manpower
is particularly felt during a crisis.

Poor Financial Management:

Operational issues keep an entrepreneur busy and as a result, financial

management is likely to get neglected. Often, the entrepreneur may find
the technicalities of accounting and finance intimidating and avoid looking
deep into it. Common errors in financial management can be bad
receivables management, unproductive investments, and poor budgeting
decisions.

Rapid Growth:

Sudden unplanned growth is not always a desirable situation. Higher

growth will mean greater stress on production facilities, manpower, and
marketing channels. Sometimes, these will not be designed to cater to the
rise in volumes and might need further capital investments. It will lead to
a stage of continuous fire-fighting and ultimately, many things may not
keep pace with the growth. Most commonly, the organization may run out
of money.

Lack of Business Linkages:

Existing working relationships with vendors, customers, and others is a

huge advantage to established businesses. A new venture will have to forge
new relationships and work hard at strengthening them before coming to
an equal footing with the entrenched players. Such business linkages help
in smooth conduct of business and are invaluable at times of distress.

Weak Marketing Efforts:

Entrepreneurial firms are very reluctant to spend on marketing efforts.
Investing in a marketing campaign is not going to give you assured returns
and the link between the marketing expenditure and the sales is not very
easy to establish. An investment of Rs. X in raw material will give you a
very tangible Y kg of output but a similar investment of Rs. X in a
newspaper insert will not give you a sale of Y units, which you can
demonstratively tie into the newspaper insert.

Lack of Information:

Even in this era of free-flowing information, the quality of information

available to large corporations is far superior to that available to new small
entrepreneurial ventures. There is a cost to information and small ventures
may not be able to invest so much in getting the high-quality information.

For example, before entering a new market, the new venture may send
some salespersons to interview some customers, shopkeepers, and
wholesalers. On the other hand, the large corporation may engage the
services of a market-research firm and carry out a thorough investigation
of the potential and the problems of the new market.

Incorrect Pricing:

An entrepreneur does not pull the pricing out of thin air, but it may not be
very rigorously thought-out either. The price is most likely close to that of
the competition and takes care of costs leaving a modest or seemingly
generous margin.

There are many sophisticated pricing policies a new venture can adopt,
taking into account its cost structure, nature of demand, and extent of
competition. The entrepreneur can introduce new innovative pricing
systems too. For example, Deccan Airways revolutionized airline pricing in
India by introducing low-priced seats and yield management techniques are
being used by low-cost earners in Europe and the USA.

Improper Inventory Control:

Improper inventory control can lead to myriad problems. Production can be

halted due to insufficient inventory, whereas excess inventory can lead to
wastages and damages. In case of perishable goods, high inventory can
lead to expiration of stock. In high-tech industries or industries influenced
by fads, goods become obsolete very soon. Inflated valuation of inventory
can give a very wrong picture of the financial position of the firm.

Short-term Outlook:
A number of small new ventures face huge problems on a regular basis. In
the early days of a firm, these problems can threaten the very existence of
the venture. In such circumstances, the management and employees of the
venture focus on surviving the immediate crisis and the long-term vision
and strategy of the firm are soon forgotten. If this continues for long, the
danger is that long-term plans are discarded as impractical or irrelevant.
Ultimately, the firm acquires a shape very different from what was originally
envisaged by the entrepreneur.

Building a new Venture Team and Challenges

Last updated on November 17th, 2022 at 08:29 pm

Building a new Venture Team

A new-venture team is the group of founders, key employees, and advisers

that move a new venture from an idea to a fully functioning firm. Usually,
the team doesn’t come all at once. Instead, it is built as the new firm can
afford to hire additional personnel. The team also involves more than paid
employees. Many firms have a board of directors, a board of advisors,
investors and other professionals on whom they rely for direction and
advice.

A recent idea for facilitating corporate innovations is called a new venture

team. A new venture team is a unit separated from the rest of the
organization and is responsible for developing and initiating a major
innovation. New venture teams give free reign to members’ creativity
because their separate facilities and location free them from the
organizational rules and procedures. These teams typically are small,
loosely structured, and organic, reflecting the characteristics of creative
organizations described in the table regarding the characteristics of creative
people and organizations.

Liability of Newness as a Challenge

The high failure rate is due in part to what is known as the liability of
newness, which refers to the fact that companies often falter because the
people who start them aren’t able to adjust quickly enough to their new
roles and because the firm lacks a “track record” with outside buyers and
suppliers. Indeed, experienced management teams that get up to the speed
quickly are much less likely to make a novice’s mistakes. In addition, firms
are able to persuade high-quality individuals to join them as directors or
advisers quickly gain legitimacy with a variety of people, such as some of
those working inside the venture as well as some outside the venture (e.g.,
suppliers, customers, and investors). In turn, legitimacy opens doors that
otherwise would be closed.

Another way entrepreneurs overcome the liability of newness is by

attending entrepreneurship-focused workshops and events, such as
Startup Weekend, hackathons, boot camps, and so on. Another route to
overcoming the liabilities of newness is joining one of the growing number
of start-up accelerators that are popping up across the country.

Entrepreneurs should remember that, at the end of the day, the faster they
can overcome the liabilities associated with launching a new venture, the
greater the likelihood they will achieve success with their firm.

Creating a New-Venture Team

Those who launch or found an entrepreneurial venture have an important

role to play in shaping the firm’s business model. The key to success is not
the idea but rather the ability of the initial founder or founders to assemble
a team that can execute the idea better than anyone else.

The way a founder builds a new-venture team sends an important signal to

potential investors, partners and employees. In general, the way to impress
them is to put together as strong a team as possible. Investors and others
know that experienced personnel and access in good-quality advice
contribute greatly to a new venture’s success.

An entrepreneur is one who plays significant role in the economic

development of a country. Basically,, an entrepreneur can be regarded as
a person who has the initiative, skill and motivation to set up a business or
an enterprise of his own and who always looks for high achievement.
Entrepreneurs have to face numerous challenges on the road to success, in
particular with regard to access to finance. All entrepreneurs will at some
point feel overwhelmed with the many responsibilities that fall on their
shoulders. The common challenges faced by entrepreneurs are
Overestimating Success, Misplaced Purpose, Negative Mindset, Poor
Organization, Jack of All Trades, Employee Motivation, Lack of Support.

1. Finance

Entrepreneurship means having access to capital, understanding business

finance and building successful relationship with lenders. When starting a
venture, however, an unprepared entrepreneur may encounter cash flow
problems when he doesn’t have a network of dependable lenders or
investors. Any successful entrepreneur needs a list of people in and out of
the business world to depend on. An entrepreneur must understand
business finance, or risk overpricing offered services. Overpricing your
product causes insufficient sales and cash.

2. Business Management

About one-quarter of entrepreneurs cited management problems as

another challenge with entrepreneurship, explains Researching Small
Business and Entrepreneurship. A successful entrepreneur needs passion
to get a business started and make it stable. Thus, personal problems, such
as not setting goals, measuring performance and controlling your time can
prohibit your from managing your business properly. In addition, an
entrepreneur must have access to useful business information. Starting a
business venture involves learning as much about your business and
product as you can before securing capital. Managing a business also mean
finding and retaining qualified employees.

3. Marketing the Business

Whether an entrepreneur plans to sell products like computers or services

like repairing computers, she needs to market the business.
Entrepreneurship problems can arise when an effective marketing plan
doesn’t exist, or you don’t have the ability to actually sell the products or
services. Another problem involves using effective advertising. In a society
where placing flyers on street poles may not gain a customer’s attention,
you need an effective and thorough marketing plan to inform people about
your business.

4. Finding the Right Business

Location finding a good business location at the right place is definitely not
easy. An efficient location that has a rapidly growing population, good road
network and other amenities at a good place

5. Unforeseen Business Challenges and Expenses

Just as a sailor prepares for unexpected storm, just as a pilot is always on

the watch for unpredictable bad weather and thunderstorms, so must an
entrepreneur prepared for whatever comes in the form of:

• Unexpected lawsuits
• Inconsistent government policy
• Not being able to make payroll
• Unpaid bills and taxes
• Unexpected resignation of staff from sensitive office
• Bad debts from customers
 • Loss of market share
• Dwindling working capital
• Inadequate stock or inventory.

6. Finding Good Customers

The sixth challenge an entrepreneur will face in the process of starting a

small business from scratch is finding good customers. In the process of
building a business, an entrepreneur will come to find out that there are
good customers as well as bad customers.. Good customers are really hard
to find. A good customer will be loyal to the company and will be willing to
forgive if the business make a mistake and apologize. A good customer will
try to do the right thing that will benefit both him and company mutually.

7. Keeping Up With Industrial Changes and Trends

Change in trends is a challenge an entrepreneur must be prepared for

when starting a small business. Trends have made and broken lot of
businesses. Profitable businesses that have been wiped out by slight
industrial changes and trends. A typical example is the Dot com trend,
where many established industrial based businesses were wiped out by new
web based dot com companies. Seasoned entrepreneurs know that trend
is a friend and are always willing to swiftly adjust their business to the
current trend.

8. Focus

One of the biggest mistakes entrepreneurs make in their early days is

trying to be all things to all people. They attempt to sell their product or
service to too wide of a market. Entrepreneurs also face another challenge
in this area. They focus on the wrong things. They spend too much time
building their product without validating that the marketplace wants needs
and will actually pay for it.

9. Finding Good Employees

Most writers and managers crank up the process of finding good employees
as an easy task. They define the process of finding an employee as simply
presenting the job description and the right employee will surface. Business
owners know how difficult it is to find a hardworking, trustworthy employee.
Most employees want to work less and get paid more. Finding a good
employee who will be passionate about delivering his or her services is quite
difficult. Finding good employees is a minor task compared to the business
challenge of forging the hired employees into a team.

10. Assembling a Business Team

 The third business challenge that an entrepreneur will face in the course
of starting a small business from scratch is assembling the right business
management team. The process of building a business team starts even
before the issue of raising initial start-up capital arises. Most brilliant ideas
and products never get funded because the entrepreneur is trying to raise
capital as an individual. A business team is a vital, yet often ignored key to
raising venture capital successfully.

Venture capital Sources and Documentation

required
Last updated on December 2nd, 2019 at 11:36 pm

The term venture capital was originally coined in U.S.A. and has been developing
world wide. The move spread in India in 1973 when R.S. Bhatt Committee
recommended the formation of venture capital fund in the country. The concept
of venture capital was evolved to help those persons who have good product
ideas, but lack the necessary funds to convert these ideas into production. It is a
source of finance for the new and untried enterprises having new ideas and new
technologies with high risk, but with a potential for rapid growth. Venture
capital is usually structured in the form of equity and debt capital. It is provided
by the wealthy investors, firms, institutions and companies for all stages of
financing the new venture. Some think that venture capital is the early-stage
financing of new start-up ventures. Others think that venture capital is
the financing of high and new technology-based enterprises. More accurately,
venture capital is an alternative form of equity and debt financing made
available to new ventures who have technically qualified entrepreneurs with
inadequate funds, having high risk but good growth prospects. A few definitions
of Venture Capital are as follows :

International Finance Corporation, Washington (IFCW) defines venture capital

as “equity or equity featured capital seaking investment in new ideas, new
companies, new products, new processes or new services that offer the potential
of high returns on invest. ment. It may also include, investment in turn around
situations, ” According to the Bank of England, “Venture capital is an activity by
which investors support entrepreneurial talent with finance and•business skills
to exploit capital gain.” According to Pratt, Venture capital is thought of as, “the
early stage financing of new and young enterprises seeking to grow rapid Thus,
venture capital is an alternative form o/ equity financing made available to new
ventures and technically qualified entrepreneurs with inadequate funds, high
risk and good growth prospects.
Entrepreneurial firms which are high risk units, high return ventures and which
face the difficulty of funds get their finances from venture capitalists, This type
of capital is provided only for new ventures.

CHARACTERISTICS OR ESSENTIALS OF VENTURE CAPITAL

The venture capital financing is different from traditional or conventional

financing in that the traditional financiers invest in proven technologies and low
risk ventures, whereas venture capitalists invest in new technologies and high
risk ventures. Some of the main distinguishing features of venture capital may
be summarised as follows :

(1) High Risk : Venture capitalists provide finance to high risk ‘high-reward
ventures. These risks involve technology risk, market risk, liquidity risk or any
other type of risk.

(2) Equity-Debt Financing : Venture capitalists manage for both equity and
debt finances. They invest in shares to get high returns. They earn capital gains
by selling the shares once the enterprise prove profitable. They provide debt
financing in the form of debentures.

(3) Long-Term Investment : Venture financing is a long-term investment of

funds. Funds are provided för 5 to 10 years. Venture capi!al is not repayable on
demand. The investor has to wait for a long time to earn profit.

(4) Participation in Management : As already explained venture capitalist not

only invests in the equity shareholding of the entrepreneurs company but also
participates in the management affairs and gives his advice from time to time.
Venture Capitalist has an active involvement in the business of the entrepreneur
after making an investment. Thus we can say that venture capitalists don’t just
invest, rather they build companies.

(5) Creative Capital : Venture Capital is termed as a creative capital as it

propelled new ideas to major commercial successes. It helps entrepreneurs to
launch enterprise with a specific promise.

(6) Professional Entrepreneurs : Usually, the venture capital is provided to

those entrepreneurs who are professionally or technically qualified but lack
adequate funds to start a new venture. The entrepreneur should have the
capability to make an intense effort to do the business. He should also have
proper knowledge of his markets, along with risk management quality.
(7) New Technology : Venture capitalists provide finance usually to those
entrepreneur who try or employ new technology which may produce uncertain
results.

SOURCES OF VENTURE CAPITAL

The concept of venture capital was originated in the U.S.A. Now it has become a
worldwide concept in the field of risk financing of industrial projects. The
development of venture capital in India is still in infancy, being about a decade
old. It is a growing capital market. In fact in India, ‘risk financing is still in an
evolutionary state. The funds available to Indian venture capital industry
are small. What is the need or relevance of venture capital in India when there
are commercial banks and financial institutions to provide funds to industrial
enterprises, small or large ? In developed countries, where there is highly
progressive industrial environment as well as advanced entrepreneurial culture,
it is common for entrepreneurs to set up companies to produce new products
by Obtaining funds from venture capitalists. On the other hand, in India and also
in other developing countries, ‘risk’ financing of this type is yet in its infant
stage. Of course, there are a large number of commercial banks and financial
institutions in India, which provide ‘traditional’ (non-risk) financing mainly to
those enterprises that use proven or established technologies with minimum
level of risk. Such financing is collateral-security oriented and asset-based.
It involves uniform repayment of fixed instalment. It is security oriented rather
than risk-oriented. Traditional finance has a preference for foreign technology
firms, and do not trust the entrepreneurs who adopt new products or new
technology involving greater risk. In this background of weaknesses or
drawbacks of traditional finance the venture capital assumes an important role
to play in providing risk finance to small and medium
size entrepreneurs. Sources of Venture Capital in India may be divided into
three categories :

(I) All India Level Venture Capital Funds.

(Il) State-Level Venture Capital Funds.

(Ill) Specific Venture Capital Funds.

(1) ALL INDIA LEVEL VENTURE CAPITAL FUNDS :– Many Venture Capital Funds
are established at All India level to provide venture capital in India. Some of the
important venture capital funds are as follows :

(1) IFCI Venture Capital Fund Limited : IFCI provided venture capital assistance
for the first time in 1975 after the establishment of risk capital foundation
(RCF). The financial capital assistance under IFCI’s risk foundation scheme has
been mainly for the traditional industries like textile, iron and steel and
chemical. It provides assistance basically for technologists and professionals.
General limit of contribution is up to 50% of promoter’s contribution, subject to
a ceilling of Rs. million. Only public limited companies were eligible for this
finance. IFCI charge no interest on such loans but a nominal service charge
is levied. Mode of repayment was that, repayment will be out of dividends and
the period of repayment is fixed according to the facts of each case.

(2) IDBI Venture Capital Fund : IDBI Venture Capital Fund (VCF) was started in
1986 with an initial capital ofRs. 10 crore. This fund provide venture capitåLto
low and medium grade ventures. IDBI has started seed capital scheme for
venture capital finance Main points of seed capital scheme of IDBI are :

(i) Project cost upto ‘Rs.Æ0 ‘millions’and project should be in small or medium
firms.

(ii) Assistance will not exceed Rs. 1.5 per project.

(iii) Debt-equity norm of 2 : 1 is stipulated.

(iv) Free of interest loans and nominal service charge.

(v) Assistance is provided through SIDCs/SFCs.

(vi) Policy of being lender of last resort for financial requirements.

(3) ICICI Venture Management Company Ltd : The Government of India issued
Venture Capital Guidelines in Novem- ber, 1988. These guidelines authorised all
India Financial Institutions, Commercial Banks and their subsidiaries to launch
venture capital companies. ICICI in 1988 formed Technology Development and
Investment Corporation of India. (TDICI). This corporation managed various
schemes •of venture capital financing on commerciallines. This is also the
largest venture capital firm in India. It provides assistance to industries directly
or through venture funds which are managed by it for other institutions and
venture funds out of its own resources. TDICI accepts and evaluates the
promotor’s business plan by knowing his management team, nature of his
product, market conditions for his product, competition, his investment
requirement etc. TDICI goes through the entrepreneur’s business plan, if it
finds the plan to be good, and the promotor is clear about his business he gets,
his work is almost done, otherwise his project is dropped.

(4) Canbank Venture Capital Fund Limited (CVCFL) : Canbank Venture Capital
Fund Limited was established in 1989. At present Canbank has three subsidiary
units which possess Rs. 164 crore, Rs. 10•5 crore and Rs. 30 crore respectively. Up
to 30th March 2003 Canbank has provided financial aid of Rs. 3424 crore to
51 institutions. Influenced by the success of these venture funds, Canbank is
going to establish a fourth venture fund subsidiary, which will be able to provide
assistance of venture capital of Rs. 100 crore.

(11) STATE LEVEL VENTURE CAPITAL FUNDS :- In India various state level
venture capital funds have been established by the State Governments after
realising the significance and role of venture capital in industrial
development. These venture capital funds have been promoted by
state government. A few among them are :

(1) Gujarat venture Finance Limited (GVFL) : Under venture capital funds
sponsored by state level financial institutions is

(iii) Debt-equity norm of 2 : 1 is stipulated.

(iv) Free of interest loans and nominal service charge.

(v) Assistance is provided through SIDCs/SFCs.

(vi) Policy of being lender of last resort for financial requirements.

(3) ICICI Venture Management Company Ltd : The Government of India issued
Venture Capital Guidelines in November, 1988. These guidelines authorised all
India Financial Institutions, Commercial Banks and their subsidiaries to launch
venture capital companies. ICICI in 1988 formed Technology Development and
Investment Corporation of India. (TDICI). This corporation managed various
schemes •of venture capital financing on commerciallines. This is also the
largest venture capital firm in India. It provides assistance to industries directly
or through venture funds which are managed by it for other institutions and
venture funds out of its own resources. TDICI accepts and evaluates the
promotor’s business plan by knowing his management team, nature of his
product, market conditions for his product, competition, his investment
requirement etc. TDICI goes through the entrepreneur’s business plan, if it
finds the plan to be good, and the promotor is clear about his business he gets,
his work is almost done, otherwise his project is dropped.

(4) Canbank Venture Capital Fund Limited (CVCFL): Canbank Venture Capital
Fund Limited was established in 1989. At present Canbank has three subsidiary
units which possess Rs. 164 crore, Rs. 10.5 crore and Rs. 30 crore respectively. Up
to 30th March 2003 Canbank has provided financial aid of Rs. 3424 crore to
51 institutions. Influenced by the success of these venture funds, Canbank is
going to establish a fourth venture fund subsi diary, which will be able to provide
assistance of venture capital of Rs. 100 crore.
(11) srrATE LEVEL VENTURE CAPITAL FUNDS

In India various state level venture capital funds have been established by the
State Governments after realising the significance and role of venture capital in
industrial development. These venture capital funds have been promoted by
state government. A few among them are :

(1) Gujrat venture Finance Limited (GVFL) : Under venture capital funds
sponsored by state level financial institutions is GVFL promoted in July, 1990 to
provide venture capital for the commercialisation of new technological
developments and innovative products. It shares risk of entrepreneurs by
providing financial as. sistance in the form of equity and quasi equity.

(2) Punjab Infotech Venture Fund (PIVF) : PIVF i dedicated to investing in

companies in the Information Technology Sector within the State of Punjab. The
Fund’s investments in companies will be through the route of equity and quasi
equity instruments. The Fund will seek to achieve its returns through dividends
and capital gains at the time of divestment through an initial public offering or a
negotiated sale ofits holding. The Fund is being managed by Punjab Venture
Capital Limited, an asset management company, promoted by the PSIDC acting
as the nodal agency ofthe Government of Punjab.

(111) SPECIFIC VENTURE CAPITAL FUNDS Despite of Commercial Banks, Private

Sector Banks and Financial institutions are also providing venture capital funds
to entrepreneurs. Some ofthese VCFs are :

(i) India Investment Fund which is established by Grindly Bank and afterwards it
was taken over by Standard Chartered Bank.

(ii) Credit Capital Venture Fund established by Credit Capital Corporation.

(iii) Technology Development and Information Co. Ltd. At present around 16

private sector funds are registered with SEBI and this number is expected to grow
faster.

DIFFERENCE BETWEEN TRADITIONAL AND VENTURE CAPITAL

Traditional Financing
 Traditional Financing
Technology Provides funds to new or
untried technology.

It involves low risk.

Risk

The lender adopts a

policy of ‘playing safe’

and insists on some

Security
valuable collateral

security for repayment

of loan amount.

Investor does not take

any responsibility for

Participation in Management
management of the

borrower’s enterprise.
 It is provided in the

Finance Stage
developmental stage.

Period it is generally a

medium-term finance

Traditional lenders
Amount of Funds

provide small funds.

They maintain
conditional commercial
Relations

relations.
Explain the Venture Capital Fund.

According to SEBI or Securities and Exchange Board of India, Venture Capital

Fund is a Fund registered in the form of a company or corporation or trust
according to the guidelines of SEBI and :

(i) Have a sufficient fund of capital;

(ii) Collect the fund according to the prescribed rules of SEBI;

(iii) Invest Funds according to the rules laid down by SEBI.

A venture capital fund can be constituted in the form of a trust or a company.

Venture capital fund appoints on asset Management Company to manage the
portfolio of the fund. A venture capital fund should have Rs. 5 crore (Rs. 50
million) before it can start venture capital activities. As per guidelines issued by
the Central Board of Direct Taxes, a venture capital fund could invest upto 40%
of the Paid up capital of investor company or upto 20% of the corpus of the fund
in one venture.

Describe in brief the various documents required for venture capital.

Venture capital process is different from normal project financing. Tyebjee and
Bruno (1984) have given a model of venture capital investment activity which,
with some variations, is conmonthly used at present. According to them the
venture capital investment process is a sequential process that involve five
steps. Documents required at each stage are as follows :

(1) Deal Orientation : At this stage, a letter of introduction is necessary from the
referring party sent to the Venture Capital Company. It should present details
about the potential venture, its technical viability and good image of the
entrepreneur.

(2) Screening : Screening of proposals is necessary to save the time and money
cost. Only proposals which clear screening test are considered for evaluation. At
this stage the Venture Capital Company may ask for technology and product
profiles as well as venture or investment profile depending on the criteria used in
the screening process.
(3) Evaluation or Due Diligence : Evaluation or due diligence means careful and
proper detailed analysis, The proposals that have successfully passed through
the screening process are then subjected to a detailed evaluation process called
due diligence. Most of the venture coming to a venture capitalist are new
ventures being set up by first-time promoter, neither the ventures have
any track record nor the entrepreneur are have any operating experience. In
such cases, the venture capital company uses a subjective but comprehensive
evaluation. At this stage the Business Plan is an important document
upon which the evaluation is based. Most venture capitalists ask for a business
plan to make an assessment of the possible risk and return on the venture. Well
prepared plan is the best introduction of the entrepreneur who is going to set up
a new venture. A detailed and well-organized business plan is the only way to
gain the attention Of the venture capitalist and to obtain the needed funds.

(4) Deal Structuring : If the proposed venture and its business plan are found as
viable, then venture capitalist and the entrepreneur negotiate the terms of the
deal, such as : the amount Of money to be invested, the form of investment
(equity or debt), the price of Investment, exit period, etc. This process is termed
as deal structuring. At this stage, a written agreement is prepared between
the entrepreneur and the venture capitalist. This contains all the terms and
conditions agreed between them. This agreement is written on a stamp paper,
signed by both and is registered with the government agency. It is treated as a
valid evidence before a court of law in case of a dispute.

Seed Capital

Seed Capital is relatively small amount of capital provided to an entrepreneur,

generally to prove a concept or an idea. According to The European Venture
Capital Association “Seed Finance is the fianncing of the initial product
development or the capital provided to an entrepreneur to prove the feasibility
of profitability; seed capital in other words is a start up capital. ” According to
Mumford and Dotzler, “seed capital is used to finance initial research and
development on the concept, build a prototype, to market research analysis the
business plan. ” Seed Finance stage is the most difficult stage to finance
because (i) the entrepreneur’s idea is yet to take a definite and
commercial shape, (ii) he has no business plan, (iii) his product has
recently passed through research and development stage (iv) there is yet
no complete management team. When an entrepreneur who does not have
adequate funds of his own, approaches the suppliers of seed capital with his
proposal. It is the riskiest stage of venture capital because returns from seed
capital investments typically don’t start to come through for seven to ten years.

Venture Capital
Last updated on February 10th, 2020 at 04:56 pm
Venture Capital is financing that investors provide to startup companies and
small businesses that are believed to have long-term growth potential. Venture
capital generally comes from well-off investors, investment banks and any
other financial institutions. However, it does not always take just a monetary
form; it can be provided in the form of technical or managerial expertise.

Though it can be risky for the investors who put up the funds, the potential for
above-average returns is an attractive payoff. For new companies or ventures
that have a limited operating history (under two years), venture capital funding
is increasingly becoming a popular – even essential – source for raising capital,
especially if they lack access to capital markets, bank loans or other debt
instruments. The main downside is that the investors usually get equity in the
company, and thus a say in company decisions.

In a venture capital deal, large ownership chunks of a company are created and
sold to a few investors through independent limited partnerships that are
established by venture capital firms. Sometimes these partnerships consist of a
pool of several similar enterprises. One important difference between venture
capital and other private equity deals, however, is that venture capital tends to
focus on emerging companies seeking substantial funds for the first time , while
private equity tends to fund larger, more established companies that are seeking
an equity infusion or a chance for company founders to transfer some of their
ownership stake.
Features of Venture Capital Investments

• High Risk
• Lack of Liquidity
• Long term horizon
• Equity participation and capital gains
• Venture capital investments are made in innovative projects
• Suppliers of venture capital participate in the management of the
company

Methods of Venture Capital Financing

• Equity
• Participating debentures
• Conditional loan

Advantages of Venture Capital

• They bring wealth and expertise to the company.

• Large sum of equity finance can be provided.
• The business does not stand the obligation to repay the money.
• In addition to capital, it provides valuable information, resources,
technical assistance to make a business successful.

Disadvantages of Venture Capital

• As the investors become part owners, the autonomy and control

of the founder is lost.
• It is a lengthy and complex process.
• It is an uncertain form of financing.
• Benefit from such financing can be realized in long run only.

Angel Investors

For small businesses, or for up-and-coming businesses in emerging industries,

venture capital is generally provided by high net worth individuals (HNWIs) –
also often known as ‘angel investors’ – and venture capital firms. The National
Venture Capital Association (NVCA) is an organization composed of hundreds of
venture capital firms that offer funding to innovative enterprises.

Angel investors are typically a diverse group of individuals who have amassed
their wealth through a variety of sources. However, they tend to be
entrepreneurs themselves, or executives recently retired from the business
empires they’ve built.
Self-made investors providing venture capital typically share several key
characteristics. The majority look to invest in companies that are well-managed,
have a fully-developed business plan and are poised for substantial growth.
These investors are also likely to offer funding to ventures that are involved in
the same or similar industries or business sectors with which they are familiar. If
they haven’t actually worked in that field, they might have had academic
training in it. Another common occurrence among angel investors is co-
investing, where one angel investor funds a venture alongside a trusted friend or
associate, often another angel investor.

Angel Investing
Last updated on February 18th, 2020 at 04:40 pm

Angel investors, also called private investors, are wealthy individuals who infuse
a startup company or an entrepreneur with cash or capital in exchange for
ownership or convertible debt because they believe in the company and think it
will succeed. Angels are different than venture capitalist because they fund the
endeavors personally and usually want to entrepreneur and business to succeed
for more reasons than just profits.

These investors participate in the funding of a startup company because they

believe in the business idea or in the person who invented it and they offer a one-
time investment to get the business moving. Alternatively, they may fund a
business on an ongoing basis, especially if there are hardships at the early stages.

Besides funding the business in significantly better terms than a bank or other
lender, an angel investor offers expertise and a valuable network of contacts,
seeking to see the business propel.

Understanding Angel Investors

Angel investors are individuals who seek to invest at the early stages of startups.
These types of investments are risky and usually do not represent more than
10% of the angel investor’s portfolio. Most angel investors have excess funds
available and are looking for a higher rate of return than those provided by
traditional investment opportunities.

Angel investors provide more favorable terms compared to other lenders, since
they usually invest in the entrepreneur starting the business rather than the
viability of the business. Angel investors are focused on helping startups take
their first steps, rather than the possible profit they may get from the business.
Essentially, angel investors are the opposite of venture capitalists.
Angel investors are also called informal investors, angel funders, private
investors, seed investors or business angels. These are individuals, normally
affluent, who inject capital for startups in exchange for ownership equity or
convertible debt. Some angel investors invest through crowdfunding platforms
online or build angel investor networks to pool capital together.

Sources of Funding

Angel investors typically use their own money, unlike venture capitalists who
take care of pooled money from many other investors and place them in a
strategically managed fund.

Though angel investors usually represent individuals, the entity that actually
provides the funds may be a limited liability company (LLC), a business, a trust or
an investment fund, among many other kinds of vehicles.

Crowdfunding
Last updated on February 18th, 2020 at 04:41 pm

Crowdfunding refers to the practice of funding a project by raising money from a

large group of people. It is relevant for a particular cause.

• It is a way of raising capital using the internet or social networking

like Facebook or Twitter or by using some crowdfunding-
dedicated websites.
• It helps to improve the presence of small businesses
and startups in social media, increases their investment base, and
funding prospects.
• There are different types of crowdfunding like debt based, equity-
based, cause-based, rewards based, software value token,
donation based, litigation, etc.
• Public-Private Partnership based on the equity-based model is
practised in crowdfunding in India.

Crowdfunding Platforms

• Wishberry, Milaap, Miracle Foundation, RangDe CrowdCube and

Seedrs are some of the leading crowdfunding platforms in India.
• Wishberry funds for creative artists. Milaap is a platform for
Charities and Miracle Foundation works for orphans. RangDe is an
internet-based peer-to-peer micro-lending platform that
 facilitates low-cost loans to rural entrepreneurs across India.
CrowdCube and Seedrs are Internet platforms which enable small
companies to issue shares over the Internet and receive small
investments from registered users in return.
• A number of other platforms have also emerged recently which
are specialized in the funding of scientific projects, such as
experiment.com, and The Open Source Science Project.

Benefits

• With crowdfunding, there is no formal banking system and hence

no tedious procedure required.
• It is efficient and consumes less time.
• It enhances the productivity of innovation and entrepreneurship.
• It helps in elevation and progress of small and medium scale
industries.
• It helps in improving the ease of doing business policy.
• It has various applications like it is being explored as a potential
funding mechanism for creative work such as blogging and
journalism, music, independent film, for funding startup
companies etc.
• It is a way to give back to society.
• It allows creators to attain low-cost capital.
• A greater publicity, stronger customer base, and an easier time
finding employees is the result of crowdfunding.
• Allow people to donate or invest in food- and agriculture-related
opportunities. AgFunder is one of such global platforms.
• It bypasses caste or gender prejudice to community network and
hence inclusiveness is enhanced.
• It reduces costs. The platforms reduce search and transaction
costs, which allow a higher participation in the market.
• It opens up some of the neglected markets to individual investors.
• Investors add value to companies and hence the value of
companies is increased with crowdfunding.

Concerns

• It is risky for the new small-scale investors and entrepreneurs and

hence they often fail in their novice ventures.
• Reputation is damaged if there is a failure to meet goals and
targets or to generate interest which results in a public failure.
 • Intellectual Property (IP) protection can be an issue as creators
who engage in crowdfunding are required to release their product
to the public in early stages of funding which exposes them to the
risk of copy by competitors.
• There is a risk that if the same network of supporters is reached
out to multiple times, that network will eventually cease to supply
necessary support and hence all the effort would go in vain in the
end.
• Since it is without a regulatory framework there is a fear of public
misuse.
• Since it is not formal banking system, chances of fraud and money
laundering are high here.
• There is a problem of creditworthiness and enforceability.
• There is lack of expertise as the ratio of a novice is high here.
• There is immaturity in startup sector in India and hence the
chances of failure are very high

Entrepreneurial Motivation, Meaning of

Entrepreneurial Competencies
Last updated on February 18th, 2020 at 04:35 pm

Entrepreneurial Motivation

The entrepreneurial motivation is the process that activates and motivates the
entrepreneur to exert higher level of efforts for the achievement of his/her
entrepreneurial goals. In other words, the entrepreneurial motivation refers to
the forces or drive within an entrepreneur that affect the direction, intensity,
and persistence of his / her voluntary behaviour as entrepreneur. So to say, a
motivational entrepreneur will be willing to exert a particular level of effort
(intensity), for a certain period of time (persistence) toward a particular goal
(direction).

Motivation is regarded as “the inner state that energizes activities and directs or
channels behavior towards the goal”.

Motivation is the process that arouses action, sustains the activity in progress
and that regulates the pattern of activity.
Nature of Motivation

The nature of motivation emerging out of above definitions can be expressed as

follows:

1. Motivation is internal to man

Motivation cannot be seen because it is internal to man. It is externalized via

behaviour. It activates the man to move toward his / her goal.

2. A Single motive can cause different behaviours

A person with a single desire or motive to earn prestige in the society may move
towards to join politics, attain additional education and training, join identical
groups, and change his outward appearance.

3. Different motives may result in single behaviour

It is also possible that the same or single behaviour may be caused by many
motives. For example, if a person buys a car, his such behaviour may be caused by
different motives such as to look attractive, be respectable, gain acceptance
from similar group of persons, differentiate the status, and so on.

4. Motives come and go

Like tides, motives can emerge and then disappear. Motives emerged at a point
of time may not remain with the same intensity at other point of time. For
instance, an entrepreneur overly concerned about maximization of profit
earning during his initial age as entrepreneur may turn his concern towards other
higher things like contributing towards philanthropic activities in social health
and education once he starts earning sufficient profits.

5. Motives interact with the environment

The environment in which we live at a point of time may either trigger or

suppress our motives. You probably have experienced environment or situation
when the intensity of your hunger picked up just you smelled the odour of
palatable food.

You may desire an excellent performance bagging the first position in your
examination but at the same time may also be quite sensitive to being shunned
and disliked by your class mates if you really perform too well and get too much
of praise and appreciation from your teachers. Thus, what all this indicates is
that human behaviour is the result of several forces differing in both direction
and intent.
Entrepreneurial Motivating Factors

Most of the researchers have classified all the factors motivating entrepreneurs
into internal and external factors as follows:

Internal Factors

These include the following factors:

1. Desire to do something new.

2. Become independent.
3. Achieve what one wants to have in life.
4. Be recognized for one’s contribution.
5. One’s educational background.
6. One’s occupational background and experience in the relevant
field.

External Factors

1. Government assistance and support.

2. Availability of labour and raw material.
3. Encouragement from big business houses.
4. Promising demand for the product.

Meaning of Entrepreneurial Competencies

The business operation is considered to be very complex in a competitive

business environment, which is constantly changing with fast technological
advancements. An entrepreneur is expected to interact with these
environmental forces which require him to be highly competent in different
dimensions like intellectual, attitudinal, behavioral, technical, and managerial
aspects. Entrepreneurs are therefore permanently challenged to deploy a set of
competencies to succeed in their entrepreneurial endeavors. Entrepreneurial
competencies are defined as underlying characteristics possessed by a person,
which result in new venture creation. These characteristics include generic and
specific knowledge, motives, traits, self-images, social roles, and skills that may
or may not be known to the person. That is, these characteristics may be even
unconscious attributes of an individual. Some of these competencies are innate
while others are acquired in the process of learning and training and
development.

Entrepreneurial competencies can be defined as underlying

characteristics such as generic and specific knowledge, motives, traits,
self-images, social roles, and skills that result in venture birth, survival,
and/or growth.
– Bird (1995)
“Total ability the entrepreneur to perform this role successfully.
Several studies have found positive relationship between existences of
competencies and venture performance”.
– Man, Lau& Chan
Major Entrepreneurial Competencies
Last updated on February 18th, 2020 at 04:39 pm

Types of Competencies

The competencies may be classified into following categories:

1.Personal entrepreneurial competencies

2.Venture initiation and success competencies

a) Enterprise launching competencies

b) Enterprise management competencies

1.Personal Entrepreneurial competencies

It is the personal characteristics of an individual who possess to perform the task

effectively and efficiently.Personal entrepreneurial competencies include the
following:

a) Initiative

The entrepreneur should be able to take actions that go beyond his job
requirements and to act faster. He is always ahead of others and able to become
a leader in the field of business.He Does things before being asked or compelled
by the situation and acts to extend the business into new areas, products or
services.

b) Sees and acts on opportunities

An entrepreneur always looks for and takes action on opportunities. He Sees and
acts on new business opportunities and Seizes unusual opportunities to obtain
financing, equipment, land, work space or assistance.

c) Persistence

An entrepreneur is able to make repeated efforts or to take different actions to

overcome an obstacle that get in the way of reaching goals. An entrepreneur
takes repeated or different actions to overcome an obstacle and Takes action in
the face of a significant obstacle.

d) Information Seeking

An entrepreneur is able to take action on how to seek information to help achieve

business objectives or clarify business problems.They do personal research on
how to provide a product or service.They seek information or ask questions to
clarify what is wanted or needed.They personally undertake research and use
contacts or information networks to obtain useful information.

e) Concern for High Quality of Work

An entrepreneur acts to do things that meet certain standards of excellence that

gives him greater satisfaction. An entrepreneur states a desire to produce or sell
a top or better quality product or service. They compare own work or own
company’s work favourably to that of others.
f) Commitment to Work Contract

An entrepreneur places the highest priority on getting a job completed.They

make a personal sacrifice or take extraordinary effort to complete a job.They
accept full responsibility for problems in completing a job for others and express
concern for satisfying the customer.

g) Efficiency Orientation

A successful entrepreneur always finds ways to do things faster or with fewer

resources or at a lower cost.They look for or finds ways to do things faster or at
less cost.An entrepreneur uses information or business tools to improve
efficiency. He expresses concern about costs vs. benefits of some improvement,
change, or course of action.

h) Systematic Planning

An entrepreneur develops and uses logical, step-by-step plans to reach

goals.They plan by breaking a large task into subtask and develop plans,then
anticipate obstacles and evaluate alternatives.They take a logical and
systematic approach to activities.

i) Problem Solving

Entrepreneurs identify new and potentially unique ideas to achieve his

goals.They generate new ideas or innovative solutions to solve problems and
they take alternative strategies to solve the problems.

j) Self-Confidence

Entrepreneur with this competency will have a strong belief in self and own
abilities.They express confidence in their own ability to complete a task or meet
a challenge.They stick to their own judgment while taking decision.

k) Assertiveness

An entrepreneur confronts problems and issues with others

directly.Entrepreneur with this competency vindicate the claim to asset their
own rights on others.They demand recognition and disciplines those failing to
perform as expected.They asset own competence,reliability or other personal or
company’s qualities.They also assert strong confidence in own company’s or
organization’s products or service.
l) Persuasion

Entrepreneurs with this competency successfully pursue others to perform the

activities effectively and efficiently.An entrepreneur can persuade or influence
others for mobilizing resources, obtaining inputs, organizing productions and
selling his products or services.

m) Use of Influence Strategies

An entrepreneur is able to make use of influential people to reach his business

goals.Entrepreneurs with this competency influence the environment
(Individuals/Institution) for mobilizing resources organizing production and
selling goods and services to develop business contacts.

n) Monitoring

Entrepreneurs with this competency normally monitor or surprise all the

activities of the concern to ensure that the work is completed by maintaining
good quality.

o) Concern for Employee Welfare

Entrepreneurs with this competency take action to improve the welfare of

employees and take positive action in response of employee’s personal
concerns.

2. Venture Initiation and success Competencies

In addition to personal competencies Entrepreneur must also possess the

competencies required to launch the enterprise and for its growth and survival.

It is further divided into two categories of competencies:

1. Enterprise launching competencies

2. Enterprise management competencies

1) Enterprise launching competencies

• Competency to understand the nature of business

-To analyse the personal advantage of owning a small business.

-To analyse the personal risks of owning a small business.

-To analyse how to maximize the opportunities and minimize the risks of
owning a business.

• Competency to determine the potential as an entrepreneur

-To consider the personal qualification and abilities needed to manage own
business.

-To evaluate the own potentials for decision-making,problem solving and

creativity.

-To determine own potential for management,planning,operations,personnel

and public relations.

• Competency to develop a business plan

-To identify how a business plan helps the entrepreneur.

-To recognize how a business plan should be organized.

-To identify and use the mechanisms for developing a business plan.

• Competency to obtain technical assistance

-To prepare for using technical assistance.

-To select professional consultants.

-To work effectively with consultants.

• Competency to a choose the type of ownership

-To analyse the type of ownership of business.

-To follow the steps necessary to file for ownership of the business.

-To define politics and procedures for a successful multi-owner.

• Competency to plan the market strategy

-To use goods classification and life cycle analysis as planning tools for
marketing.
-To develop and modify marketing mixes for a business.

-To use decision making tools and aid in evaluating marketing activities.

-To evaluate operations to improve decision making about marketing.

• Competency to locate the business

-To analyse customer transportation,access,parking and so forth. i.e. relative to

alternative site locations.

-To complete a location feasibility study for the business.

-To determine the cost of renovating or improving a site for the business.

-To prepare an occupancy contrast for the business.

• Competency to finance the business

-To describe the source of information available to help in estimating the

financing necessary to start a new business.

-To determine the finance necessary to start a new business.

-To prepare a project profit and loss statement and a projected cash flow
statement for the new business.

-To prepare a loan application package.

• Competency to deal with the business

-To determine the need for legal assistance.

-To select the provisions that is desired in the lease.

-To prepare sales contract(such a s credit sales or long term sales) that may be
utilized in the contracts

-To evaluate contracts.

-To determine the need for protection of ideas and intentions.

 • Competency to comply with government regulations

-To appraise the effects of various regulations on the business operations.

-To acquire the information necessary to comply with the various rules and
regulations affecting the business.

-To develop policies for the business to comply with the Government rules and
regulations.

2) Enterprise Management Competencies

• Competency to manage the business

-To plan goals and objectives for the business.

-To develop a diagram showing the organizational structure for the business.

-To establish control practices and procedures for the business

• Competency to manage human resources

-To plan goals and objectives for the business.

-To develop a diagram showing the organizational structure for the business.

-To establish control practices and procedures for the business.

• Competency to manage human resources

-To write a job description for a position in the business.

-To develop a training programme online for employees.

-To develop a list of personnel for employees in the business.

-To develop an outline for an employee evaluation system.

-To plan a corrective interview with an employee concerning a selected problem.

• Competency to promote the business

-To create a long-term promotional plan.

-To describe the techniques used to prepare advertising and promotion

-To analyse competitive promotional activities.

-To evaluate promotional effectiveness.

-To plan a community relations programme.

• Competency to manage sales efforts.

-To develop a sales plan for the business.

-To develop policies and procedures for serving the customers.

-To develop a plan for training and motivating sales people.

• Competency to keep business records

-To determine who will keep the books for the business and how they will be
maintained.

-To describe double-entry bookkeeping.

-Select the types of journals and ledges that you will use in the business.

-To identify the types of records that will be used in the business to record
sales,cash receipts,cash disbursements,accounts receivable,accounts
payable,payroll,petty cash,inventory,budgets and other items.

-To evaluate the business records.

-To identify how a micro-computer may be used to keep he business records.

• Competency to manage the finances

-To explain the importance of cash flow management.

-To identify financial control procedures.

-To describe how to find cash flow patterns.

-To analyse trouble spots in financial management.

-To describe how to prepare an owner’s equity financial statement.

-To analyse financial management ratios applicable to a small business.

-To identify the components of break even point problem.

-To review microcomputer application for financial management.

• Competency to manage customer credit and collection

-To analyse the legal rights and resource of credit guarantors.

-To develop a series of credit collection reminders and the follow up activities.

-To develop various credit and collection policies.

-To prepare a credit promotion plan.

-To discuss information resources and systems that apply to credit and
collection procedures.

• Competency to protect the business

-To prepare policies for the firm that will help minimize losses due to employee
theft, vendor theft, bad cheques, shoplifting, robbery, injury or product liability.

Developing Entrepreneurial Competencies

Last updated on February 18th, 2020 at 04:39 pm

The competency results in superior performance. This is exhibited by one’s

distinct behaviour in different situations. The popular Kakinada experience
conducted by McClelland and winter (1969) has proved beyond doubt that the
entrepreneurial competency can be injected and developed in human minds
through proper education and training. Competency finds expression in human
behaviour.

How to develop and sharpen the entrepreneurial competency is suggested in

the following method or procedure consisting of four steps:

1. Competency Identification and Recognition

2. Competency Assessment
 3. Competency Mapping
4. Development Intervention

A brief description about each of these follows in turn:

1. Competency Identification and Recognition:

Acquisition of a new behaviour like entrepreneurial behaviour begins with

understanding, identifying and recognizing of what entrepreneurial behaviour
means. In other words, the first step involved in developing the entrepreneurial
competency is first to identify and recognize the set of competencies required to
effectively behave like an entrepreneur.

2. Competency Assessment:

Once the set of competencies is identified and recognized to behave like an

entrepreneur, the next step is now to see what entrepreneurial competencies the
person actually possesses. In other words, the actual competencies possessed by
an entrepreneur are examined against the required set of competencies to
effectively behave or act like an entrepreneur.

Where one stands with respect to a set of required competencies to act like an
entrepreneur or what is the level of one’s competence can be ascertained by
asking the relevant questions to a competence.

3. Competency Mapping:

Now, the actual competencies possessed by an entrepreneur are compared with

the competencies required to become a successful entrepreneur to ascertain the
gap in the entrepreneurial competencies of an entrepreneur (Cooper 2000). This
is called in the human resource training and development lexicon as
‘Competency Mapping.’ In other words, this is just like ‘training needs
identification’ in case of HR training.

This is presented as follows:

A popular performance tool used to map the (entrepreneurial) competency is
based on “Skill to Do / Will to Do’ chart.”Skill to Do’ refers to the entrepreneur’s /
individual’s ability to do the job and to Do’ refers to the entrepreneur’s
individual’s desire or motivation to do the job.

In other words, the ‘Ability to Do / No Ability to Do’ dimension of this comes

within the purview of the “Entrepreneurial Competence’ and the “Will to Do /No
Will to Do’ dimension comes within the purview of the ‘Entrepreneurial
Commitment.’

This may result in four possible situations as shown in the following Figure
11.2:

These four situations mean the following:

(A) Ability to Do / Will to Do:

Among all four situations, this is the ideal one. The entrepreneur is fully able, i.e.
qualified and is performing his job as designed and desired. He is supposed to be
star or ideal performer as an entrepreneur.

(B) No Ability to Do / Will to Do:

In this situation, the entrepreneur is putting out his efforts to perform the job,
but is not getting the desired results out of his efforts. It means he is lacking
ability or skill to perform the job. Thus, it implies that the entrepreneur needs
training, or say, ‘competency building.

(C) Ability to Do / No Will to Do:

Here, the entrepreneur is qualified or possesses the ability to do his job but is not
willing to perform the same. This implies the lack of desire or motivation. Thus,
the entrepreneur needs to be motivated to perform his job.

(D) No Ability to Do / No Will to Do:

The entrepreneur has deficiency in both ability and will (motivation). In a sense,
he is just like deadwood and his entrepreneurial job is in jeopardy. Thus, the
entrepreneur either needs to continue like this or disappear from the
entrepreneurial role.

4. Development Intervention:

After understanding, internalising and practicing a particular behaviour or

competence, one needs to make an introspection of the same in order to sharpen
and strengthen one’s competency. This is called ‘feedback’.

In simple terms, feedback means to know the strengths and weaknesses of one’s
new behaviour. This helps one know how the new behaviour has been rewarding.
This enables one to sustain or give up the exhibition of a particular behaviour or
competence in his future life.

Business opportunities in Various Sectors

Last updated on February 18th, 2020 at 04:38 pm

The various business opportunities, for example, available in the

environment include but are not confined to the following only:

1. Tourism:

By now, tourism has emerged as number one largest smokeless and fast growing
industry in the world due to its ample promises and prospects. Presently, it
accounts for 8% of the world trade and around 20 % of service sector in the
world.

Evidences indicate that many countries have progressed from backward to

developing to developed, mainly due to tourism development. For example,
tourism industry contributes to more than 70% of the national income of some
of the countries like Malaysia and Singapore. However, its share to the national
income of India is still dismally low at 2.5%.

Though India shelters around 15 % of the world population with its 2.5% of the
world territory, it accounts for only 0.40 % in the world tourism market.
However, the prognostic picture of the Indian tourism is not because of lack of
tourism potential, but because of unleashing of the ample tourism potential she
is endowed with.

In fact, India too is a treasure trove for tourism development. She possesses long,
unspoiled beaches of golden sands and swaying coconut trees; from winding
trails that take you gently up the snowy slopes of a great mountain range like the
Himalayas unfurling images of quaint, timeless communities; from sprawling
forts and breathtaking palaces that hide in their bosoms so many tales of
intrigue and ambitions, love and betrayal; from wildlife sanctuaries and sea
worlds, Disney lands and shopping festivals.

There hardly appears to be a thing that is not worthy of some showering of

tourist’s attention and attraction. Recognizing the India’s vast tourism
potential, the World Travel and Tourism Council (WTTC) has predicted: “India
has potential to become number one tourist destination in the world with the
demand growing at 10.1% per annum.”

2. Automobile:

India has made much headway in automobile industry and by now has emerges
as a hot spot for automobiles and auto-components. A cost- effective hub for
auto components sourcing for global auto makers, the automobile sector is by all
indications a potential sector for entrepreneurs in India.

This is confirmed by a record increase registered by automobile industry in India.

The automobile industry recorded a 26 per cent growth in domestic sales in the
year 2009-10. It is India’s strong sales that have made her the second fastest
growing automobile market after China in the world.

India being one of the world’s largest manufacturers of small cars with a strong
engineering base and expertise, there are still many segments untapped and un-
served those entrepreneurs can focus on in India’s automobile and auto
components sector in future.

3. Textiles:

India is famous for its textiles since long time. What is worth mentioning that the
style of apparel is unique from region to state, thus, offering a diversified market
for apparel / textile products in the country? In view of this, India holds good
potential to grow as a preferred location for manufacturing textiles taking into
account the huge demand for garments.

Places like Tripura and Ludhiana are, for example, now export hubs for textiles in
the country. A better understanding of the textiles markets and the varied
customer needs can greatly help unleash the potential this sector holds in our
country.

4. Social Ventures:

Like many other developmental activities, entrepreneurship development is

also context-specific. The recent social issues providing a different
entrepreneurial context has given emergence to yet another breed of
entrepreneurship called’ social entrepreneurship. With a view to ameliorate the
social fabric of the society, increasing number of entrepreneurs has started their
social ventures.

SEWA and Lizzat Pappad, for example, are such two social ventures hardly get
missed while mentioning about social entrepreneurship. Muhammad Yunus’s
‘Gramin Bank’ in Bangladesh is the worldwide known social venture of the recent
times.

There is myriad of social issues or problems in the countryside in India, thus,

offering opportunity to young entrepreneurs to plunge into this sector.
However, plunging into social ventures is as much useful is so much challenging
also.

5. Software:

India is known for its largest pool of world class software engineer’s world over.
IT sector has contributed substantially to the Indian economy. With one of the
largest pool of software engineers, Indian entrepreneurs can set higher targets
in hardware and software development.

With more overseas companies outsourcing contracts to India, business to

business solutions and services emerge as potential activities for the
knowledge-based entrepreneurs in future. Entrepreneurs can cash in on the rise
in demand for IT services with innovative and cost effective solutions.

6. Engineering Goods:

India continues to be one of the fastest growing exporters of engineering goods,

growing at a rate of 30.1 per cent. The government has set a target of $110 billion
by 2014 for total engineering exports. Entrepreneurs must capitalise on the
booming demand for products from the engineering industry.

7. Franchising:

As a boon of New Economic Policy 1991 of the Government of India, India is now
well connected with the world economies. Hence, franchising with leading
brands to spread across the country could also offer ample opportunities for
young entrepreneurs especially in services sector like education and health. With
many small towns developing at a fast pace in India, there is vast scope for
spreading franchising business in the countryside in future.

8. Education and Training:

Knowledge being power, on the one hand, and Government’s increasing

emphasis on spreading education, on the other, there is a good demand for
education and online tutorial services in the country. With good facilities at
competitive rates, India can attract more students from abroad in coming years
signs of which have already started. Need-based educational programmes with
innovative teaching methods can help in a big way make education develop and
flourish as an industry in the country.

9. Food Processing:

Broadly, food processing industries include cannery, meat packing plant,

slaughterhouse, sugar industry, vegetable packing plants, industrial rendering,
etc. India’s mainstay is agriculture. Entrepreneurs can explore many options in
the food-grain cultivation and marketing segments. Inefficient management,
lack of infrastructure, proper storage facilities leads to huge losses of food grains
and fresh produce in India.

Unfortunately, very small portion of our food production is processed for

manufacturing purposes as is evident from the following figures:

Likewise, the level of processing in perishable foods like fruits and vegetables
(2.2%), milk and milk products (35%), meat (21%), poultry (6%) and marine
products (8%) is also at a quite low level of total production. Thus, it is evident
from above figures that there remains a lot of scope for agri-business or agri-
preneurship development in the country. As such, entrepreneurs can add value
to these produce with proper management and marketing initiatives. The
processed food market opens a great potential for entrepreneurs be it fast food,
packaged food or organic food.

That there will be more and more demand for readymade or processed food in
coming days is already indicated by the meteoritic growth of Mumbai’s
Dabbawala. Thus, food processing industry offers yet more opportunities for
entrepreneurship development to establish and run food-based industries.

10. Corporate Demands:

There will be a good demand for formal attire with more companies opening
their offices in India. People who can meet this demand in a cost-effective way
can make a good business. With corporate gifting getting very popular, this is
also a unique business to explore in growing urban culture in India.

11. Ayurveda and Traditional Medicine:

India is well known for its herbal and Ayurvedic products. With increasing
awareness about the ill-effects of allopathic medicines, there will be a huge
demand for cosmetics, natural medicines and remedies in coming time.

12. Organic Farming:

Organic farming has been in practice in India for long time. That the importance
of organic farming will assume increasing importance in the country is evident
by the fact that increasing number of consumers especially foreigners have been
preferring to only organic products.

Therefore, the prospective entrepreneurs can focus on business opportunities in

this promising sector of the country. Yes, many small-time farmers have already
adopted organic farming but the huge demand is still unmet which offers good
opportunities for those agri-preneurs who can promote organic farming on a
large-scale in the country.

13. Media:

The media industry has also huge opportunities to offer to young entrepreneurs.
With the huge growth of this segment, any business in this field will help
entrepreneurs reap huge benefits. Television, advertising, print and digital
media have seen a boom in business in the recent times and is likely to grow more
in coming times.

According to a report prepared by the Federation of Indian Chamber of

Commerce and Industry (FICCI), digitisation, regionalisation, competition,
innovation, process, marketing and distribution will drive the growth of India’s
media and entertainment sector furthermore in coming times.

14. Packaging:

With China invading the markets with cheap plastic goods and packaging
materials, there is a good opportunity to develop good packaging materials to
meet domestic and foreign demand. There is a huge demand from various
sectors like agriculture, automotive, consumer goods, healthcare infrastructure
and packaging sectors for plastics.

15. Floriculture:
India’s floriculture segment is small and unorganized. There is a lot to be done in
this lucrative sector. The global trade in floriculture products is worth $9.4
billion. With a 8 per cent growth, it is expected to grow to $16 billion by 2010.
India’s share in world trade is just 0.18 per cent. This is a huge market to be
tapped considering the rising demand for fresh flowers. More awareness and
better farming and infrastructure can boost exports of flowers in coming times.

16. Toys:

Another evergreen industry is toy manufacturing. India has potential to

manufacture cost-effective and safe toys for the world. With Chinese toys being
pulled up for toxins, the market for safe and good quality, toys beckons Indian
entrepreneurs.

17. Healthcare Sector:

India’s healthcare sector dismal till the other day has now good prospects to
develop in future. The private sector, that is, individual entrepreneurs can play a
vital role in developing this sector. With medical tourism also gaining
momentum, the sector can attract foreigners who are looking for cost- effective
treatment in countries like India.

18. Biotechnology:

After the software sector, biotechnology opens a huge potential for

entrepreneurs in India. Global evidences confirm that agricultural biotechnology
has a major impact on agricultural productivity. That is why increasing emphasis
has been given to research and development in the agro-biotech sector with an
aim to produce crops with high level of tolerance against cold, heat and salinity.

A number of improved food products have also been developed. It is expected

that with increase in investment in research and development in India, agro-bio
technology will further develop and, in turn, Indian agriculture will develop. The
future entrepreneurs can, therefore, look at a plethora of options available with
the application of biotechnology in agriculture, horticulture, sericulture,
poultry, dairy and production of fruits and vegetables.

19. Energy Solutions:

In a power starved nation like ours, the need to develop cost-effective and
power-saving devices is gaining ever increasing significance. There is a huge
demand for low-cost sustainable energy saving devices as well. The government
has already unveiled the National Solar Mission which has set a target of 20,000
MW of solar generating capacity by the end of the 13th Five Year Plan.
Prime Minister Manmohan Singh had urged the industry to see the huge
business opportunity and set up ‘Solar Valleys’ on the lines of the Silicon Valleys.
These solar valleys can become hubs for solar science, solar engineering and
solar research, fabrication and manufacturing. So there is a big opportunity for
entrepreneurs in this sector as well in our country.

20. Recycling Business:

E-waste will rise to alarming proportions in the developing world within a

decade, with computer waste in India alone to grow by 500 per cent from 2007
levels by 2020, according to a UN study. Therefore, this sector also opens new
vistas of viable business opportunity for entrepreneurs in terms of e-waste
management and disposal activities in large size.

Recently, a national level conference on entrepreneurship called Entrepreneur

India 2011 was held on July 15th and 16th at Hotel Claridges, New Delhi. The
conference was built across the seven I’s of entrepreneurship:

(i) Inspire,

(ii) Ideate,

(iii) Individual,

(iv) Incubate,

(v) Innovate,

(vi) Invest, and

(vii) Internationalize to discuss and deliberate on Innovation and

Entrepreneurship for unleashing business opportunities available in the
country.

Building a new Venture Team and Challenges

Last updated on November 17th, 2022 at 08:29 pm

Building a new Venture Team

A new-venture team is the group of founders, key employees, and advisers

that move a new venture from an idea to a fully functioning firm. Usually,
the team doesn’t come all at once. Instead, it is built as the new firm can
afford to hire additional personnel. The team also involves more than paid
employees. Many firms have a board of directors, a board of advisors,
investors and other professionals on whom they rely for direction and
advice.

A recent idea for facilitating corporate innovations is called a new venture

team. A new venture team is a unit separated from the rest of the
organization and is responsible for developing and initiating a major
innovation. New venture teams give free reign to members’ creativity
because their separate facilities and location free them from the
organizational rules and procedures. These teams typically are small,
loosely structured, and organic, reflecting the characteristics of creative
organizations described in the table regarding the characteristics of creative
people and organizations.

Liability of Newness as a Challenge

The high failure rate is due in part to what is known as the liability of
newness, which refers to the fact that companies often falter because the
people who start them aren’t able to adjust quickly enough to their new
roles and because the firm lacks a “track record” with outside buyers and
suppliers. Indeed, experienced management teams that get up to the speed
quickly are much less likely to make a novice’s mistakes. In addition, firms
are able to persuade high-quality individuals to join them as directors or
advisers quickly gain legitimacy with a variety of people, such as some of
those working inside the venture as well as some outside the venture (e.g.,
suppliers, customers, and investors). In turn, legitimacy opens doors that
otherwise would be closed.

Another way entrepreneurs overcome the liability of newness is by

attending entrepreneurship-focused workshops and events, such as
Startup Weekend, hackathons, boot camps, and so on. Another route to
overcoming the liabilities of newness is joining one of the growing number
of start-up accelerators that are popping up across the country.

Entrepreneurs should remember that, at the end of the day, the faster they
can overcome the liabilities associated with launching a new venture, the
greater the likelihood they will achieve success with their firm.

Creating a New-Venture Team

Those who launch or found an entrepreneurial venture have an important

role to play in shaping the firm’s business model. The key to success is not
the idea but rather the ability of the initial founder or founders to assemble
a team that can execute the idea better than anyone else.
The way a founder builds a new-venture team sends an important signal to
potential investors, partners and employees. In general, the way to impress
them is to put together as strong a team as possible. Investors and others
know that experienced personnel and access in good-quality advice
contribute greatly to a new venture’s success.

An entrepreneur is one who plays significant role in the economic

development of a country. Basically,, an entrepreneur can be regarded as
a person who has the initiative, skill and motivation to set up a business or
an enterprise of his own and who always looks for high achievement.
Entrepreneurs have to face numerous challenges on the road to success, in
particular with regard to access to finance. All entrepreneurs will at some
point feel overwhelmed with the many responsibilities that fall on their
shoulders. The common challenges faced by entrepreneurs are
Overestimating Success, Misplaced Purpose, Negative Mindset, Poor
Organization, Jack of All Trades, Employee Motivation, Lack of Support.

1. Finance

Entrepreneurship means having access to capital, understanding business

finance and building successful relationship with lenders. When starting a
venture, however, an unprepared entrepreneur may encounter cash flow
problems when he doesn’t have a network of dependable lenders or
investors. Any successful entrepreneur needs a list of people in and out of
the business world to depend on. An entrepreneur must understand
business finance, or risk overpricing offered services. Overpricing your
product causes insufficient sales and cash.

2. Business Management

About one-quarter of entrepreneurs cited management problems as

another challenge with entrepreneurship, explains Researching Small
Business and Entrepreneurship. A successful entrepreneur needs passion
to get a business started and make it stable. Thus, personal problems, such
as not setting goals, measuring performance and controlling your time can
prohibit your from managing your business properly. In addition, an
entrepreneur must have access to useful business information. Starting a
business venture involves learning as much about your business and
product as you can before securing capital. Managing a business also mean
finding and retaining qualified employees.

3. Marketing the Business

Whether an entrepreneur plans to sell products like computers or services

like repairing computers, she needs to market the business.
Entrepreneurship problems can arise when an effective marketing plan
doesn’t exist, or you don’t have the ability to actually sell the products or
services. Another problem involves using effective advertising. In a society
where placing flyers on street poles may not gain a customer’s attention,
you need an effective and thorough marketing plan to inform people about
your business.

4. Finding the Right Business

Location finding a good business location at the right place is definitely not
easy. An efficient location that has a rapidly growing population, good road
network and other amenities at a good place

5. Unforeseen Business Challenges and Expenses

Just as a sailor prepares for unexpected storm, just as a pilot is always on

the watch for unpredictable bad weather and thunderstorms, so must an
entrepreneur prepared for whatever comes in the form of:

• Unexpected lawsuits
• Inconsistent government policy
• Not being able to make payroll
• Unpaid bills and taxes
• Unexpected resignation of staff from sensitive office
• Bad debts from customers
• Loss of market share
• Dwindling working capital
• Inadequate stock or inventory.

6. Finding Good Customers

The sixth challenge an entrepreneur will face in the process of starting a

small business from scratch is finding good customers. In the process of
building a business, an entrepreneur will come to find out that there are
good customers as well as bad customers.. Good customers are really hard
to find. A good customer will be loyal to the company and will be willing to
forgive if the business make a mistake and apologize. A good customer will
try to do the right thing that will benefit both him and company mutually.

7. Keeping Up With Industrial Changes and Trends

Change in trends is a challenge an entrepreneur must be prepared for

when starting a small business. Trends have made and broken lot of
businesses. Profitable businesses that have been wiped out by slight
industrial changes and trends. A typical example is the Dot com trend,
where many established industrial based businesses were wiped out by new
web based dot com companies. Seasoned entrepreneurs know that trend
is a friend and are always willing to swiftly adjust their business to the
current trend.

8. Focus

One of the biggest mistakes entrepreneurs make in their early days is

trying to be all things to all people. They attempt to sell their product or
service to too wide of a market. Entrepreneurs also face another challenge
in this area. They focus on the wrong things. They spend too much time
building their product without validating that the marketplace wants needs
and will actually pay for it.

9. Finding Good Employees

Most writers and managers crank up the process of finding good employees
as an easy task. They define the process of finding an employee as simply
presenting the job description and the right employee will surface. Business
owners know how difficult it is to find a hardworking, trustworthy employee.
Most employees want to work less and get paid more. Finding a good
employee who will be passionate about delivering his or her services is quite
difficult. Finding good employees is a minor task compared to the business
challenge of forging the hired employees into a team.

10. Assembling a Business Team

The third business challenge that an entrepreneur will face in the course
of starting a small business from scratch is assembling the right business
management team. The process of building a business team starts even
before the issue of raising initial start-up capital arises. Most brilliant ideas
and products never get funded because the entrepreneur is trying to raise
capital as an individual. A business team is a vital, yet often ignored key to
raising venture capital successfully.

Reasons for failure of New Venture

Last updated on November 17th, 2022 at 08:31 pm

Entrepreneurial success is not the result of a single person’s efforts.

There is always a team involved. The team is made up of other investors,
working partners, employees, vendors, and clients. All play an important
part in the success of the enterprise. Although other people are involved,
there is a tendency to believe that they play far less important roles and
are easily replaced. At the end of the day, success or failure of the
enterprise will be largely attributed to the entrepreneur.
Because of limited resources, high levels of uncertainty and inexperienced
management and employees, new ventures suffer from a very high rate of
mortality- much higher than that of larger, well-established firms. There
are a number of reasons for failure of a new venture, which are discussed
below. Usually, there is a combination of reasons rather than one single
reason.

Lack of Experienced Management:

One of the main problems faced by new enterprises is that the management
team is usually very new to this role. The entrepreneur and his/her top
management usually have no prior record of being in charge of the fortunes
of a whole company.

Even in some rare cases, when the management has some individuals who
have led a company in the past, they are now faced with a new situation
where the company itself has no previous track record. It is a very different
kind of situation.

Few Trained or Experienced Manpower:

Shortage of skilled and experienced manpower is faced by new ventures,

which represent a riskier job opportunity. Most people prefer to work with
a well-established organization employing hundreds of employees and
having a stable track record.

New ventures are also reluctant to use manpower for and to invest in
training. Lack of experienced and skilled manpower can lead to a general
drop in productivity and quality of output. The absence of quality manpower
is particularly felt during a crisis.

Poor Financial Management:

Operational issues keep an entrepreneur busy and as a result, financial

management is likely to get neglected. Often, the entrepreneur may find
the technicalities of accounting and finance intimidating and avoid looking
deep into it. Common errors in financial management can be bad
receivables management, unproductive investments, and poor budgeting
decisions.

Rapid Growth:

Sudden unplanned growth is not always a desirable situation. Higher

growth will mean greater stress on production facilities, manpower, and
marketing channels. Sometimes, these will not be designed to cater to the
rise in volumes and might need further capital investments. It will lead to
a stage of continuous fire-fighting and ultimately, many things may not
keep pace with the growth. Most commonly, the organization may run out
of money.

Lack of Business Linkages:

Existing working relationships with vendors, customers, and others is a

huge advantage to established businesses. A new venture will have to forge
new relationships and work hard at strengthening them before coming to
an equal footing with the entrenched players. Such business linkages help
in smooth conduct of business and are invaluable at times of distress.

Weak Marketing Efforts:

Entrepreneurial firms are very reluctant to spend on marketing efforts.

Investing in a marketing campaign is not going to give you assured returns
and the link between the marketing expenditure and the sales is not very
easy to establish. An investment of Rs. X in raw material will give you a
very tangible Y kg of output but a similar investment of Rs. X in a
newspaper insert will not give you a sale of Y units, which you can
demonstratively tie into the newspaper insert.

Lack of Information:

Even in this era of free-flowing information, the quality of information

available to large corporations is far superior to that available to new small
entrepreneurial ventures. There is a cost to information and small ventures
may not be able to invest so much in getting the high-quality information.

For example, before entering a new market, the new venture may send
some salespersons to interview some customers, shopkeepers, and
wholesalers. On the other hand, the large corporation may engage the
services of a market-research firm and carry out a thorough investigation
of the potential and the problems of the new market.

Incorrect Pricing:

An entrepreneur does not pull the pricing out of thin air, but it may not be
very rigorously thought-out either. The price is most likely close to that of
the competition and takes care of costs leaving a modest or seemingly
generous margin.

There are many sophisticated pricing policies a new venture can adopt,
taking into account its cost structure, nature of demand, and extent of
competition. The entrepreneur can introduce new innovative pricing
systems too. For example, Deccan Airways revolutionized airline pricing in
India by introducing low-priced seats and yield management techniques are
being used by low-cost earners in Europe and the USA.

Improper Inventory Control:

Improper inventory control can lead to myriad problems. Production can be

halted due to insufficient inventory, whereas excess inventory can lead to
wastages and damages. In case of perishable goods, high inventory can
lead to expiration of stock. In high-tech industries or industries influenced
by fads, goods become obsolete very soon. Inflated valuation of inventory
can give a very wrong picture of the financial position of the firm.

Short-term Outlook:

A number of small new ventures face huge problems on a regular basis. In

the early days of a firm, these problems can threaten the very existence of
the venture. In such circumstances, the management and employees of the
venture focus on surviving the immediate crisis and the long-term vision
and strategy of the firm are soon forgotten. If this continues for long, the
danger is that long-term plans are discarded as impractical or irrelevant.
Ultimately, the firm acquires a shape very different from what was originally
envisaged by the entrepreneur.

How to begin with Low investment

Last updated on February 18th, 2020 at 04:40 pm

Indian small towns are struggling with job opportunities. There is a high influx
towards big cities for jobs in multinational companies or better business
opportunities. But with urban landscapes failing to provide relief in terms of
living standards, a lot of young working people are considering going back to the
good old small town. But how do you deal with the lack of job opportunities? You
create them.

Though India features among the top three start up hubs of the world, Indian
small towns are still reluctant towards new avenues in business. Unlike big
urban settlements, small towns react to start-ups in a very different way. Each
city has a certain character to it and hence different requirements.

Here are 10 low-investment business ideas that will help you grow in a small
town:
Food Trucks

Food trucks are not an entirely alien concept to small towns. Reminiscent of old-
world ‘thellas’, food trucks are mobile eating joints that can offer unique cuisines
at a fairly reasonable price. The mobility of a food truck allows it to place itself at
different locations at an ideal time. For instance, a food truck can park outside a
school in the afternoon and later in the evening, outside an office.

Food trucks are a perfect small budget business as you need not to invest in real-
estate.

Ice Cream Parlours

Ice cream never goes out of demand. A tiny little ice-cream parlour is an ideal
low-investment venture. They need minimal space, basic equipment and low-
staffing, making it a perfect small investment option. Owners can chose specific
themes and types of ice-creams that are not easily available in the city. Ice-
cream parlours work great around cinema-theaters or a popular food joints.

Pre-Schools

Pre schools can be opened in small domestic spaces with a onetime investment
on safety and educative material. A good pre-school which is innovative in its
ways of teaching will surely attract working parents. One strong disclaimer
though, owning a pre-school is a huge responsibility and required undivided
attention on the children.

Laundry Services

Laundry services require a relatively higher onetime investment but the costs
can be recovered quickly. Initially, you can lure customers with cheaper yet
quality services. A pick and drop service will be essential to spread the reach of
your customer base. To attract the eye of customers you might want to offer
complementary services like a small cafe or reading room for people who’d like
to wait while the washing happens.

Bookshops+Cafe

Combination of bookshops and cafes has been a big hit in a few metro cities but
most Indian small towns are yet to experiment with this idea. With a growing
culture of dating, these bookshop-cafes can prove to be an ideal meeting point
to meet a person for the first time.
House cleaning services

Applications like UrbanClap and Haptik have opened a whole new dimension of
how we work around cooking and cleaning services. But these services are
severely limited to big cities and even restricted to only certain parts of the metro
cities. Opening a new cleaning services via a website or a telephone service
shouldn’t demand for huge sums of investment.

Tourism

Though this option is highly dependent on the location of the small town, most
Indian towns have enough character to attract tourists, especially old cities.
Venturing out for detailed city-tours, heritage walks etc. can be prove to be a
profitable low investment, but involves high stakes in terms of time and
knowledge. Opening themed stay options is another good way to cash-in the
tourist influx.

Fitness Centers

Social network is as big in small cities as in metro cities like Delhi and Mumbai
and fitness is one of the trends that have percolated to small towns. Though
fitness centers will demand a one-time heavy investment and pretty low
maintenance charges.

Internet Services

Big or small, no town can survive without this commodity. The internet has made
it big in all towns in our country with smartphones granting reach to the
narrowest of avenues. Despite service providers like Airtel, Vodafone and now
Jio, there is a serious dearth of good internet service providers for home
appliances and PCs. This can be turned into a serious business opportunity.
Though this particular business might involve a slightly higher investment, the
returns are assured, given the service is good.

Trash Management

Where this might seem too unglamorous for many, it is definitely a need of the
hour. Most cities are plagued with bad trash management. Segregation at the
base level is crucial to better waste management and surprisingly it also provides
a good margin. People interested in such a venture can even collaborate with
local authorities to maximise profit and minimise effort.

Environmental Scanning and SWOT Analysis

Last updated on May 20th, 2020 at 04:14 pm
Environmental Analysis is described as the process which examines all the
components, internal or external that has an influence on the performance of
the organization. The internal components indicate the strengths and weakness
of the business entity whereas the external components represent the
opportunities and threats outside the organization.

To perform environmental analysis, a constant stream of relevant information

is required to find out the best course of action. Strategic Planners use the
information gathered from the environmental analysis for forecasting trends
for future in advance. The information can also be used to assess operating
environment and set up organizational goals.

It ascertains whether the goals defined by the organization are achievable or not,
with the present strategies. If is not possible to reach those goals with the
existing strategies, then new strategies are devised or old ones are modified
accordingly.

Advantages of Environmental Analysis

The internal insights provided by the environmental analysis are used to assess
employee’s performance, customer satisfaction, maintenance cost, etc. to take
corrective action wherever required. Further, the external metrics help in
responding to the environment in a positive manner and also aligning the
strategies according to the objectives of the organization.

Environmental analysis helps in the detection of threats at an early stage, that

assist the organization in developing strategies for its survival. Add to that, it
identifies opportunities, such as prospective customers, new product, segment
and technology, to occupy a maximum share of the market than its competitors.

Steps Involved in Environmental Analysis

1. Identifying

First of all, the factors which influence the business entity are to be identified, to
improve its position in the market. The identification is performed at various
levels, i.e. company level, market level, national level and global level.

2. Scanning

Scanning implies the process of critically examining the factors that highly
influence the business, as all the factors identified in the previous step effects
the entity with the same intensity. Once the important factors are identified,
strategies can be made for its improvement.
3. Analysing

In this step, a careful analysis of all the environmental factors is made to

determine their effect on different business levels and on the business as a
whole. Different tools available for the analysis include benchmarking, Delphi
technique and scenario building.

4. Forecasting

After identification, examination and analysis, lastly the impact of the variables
is to be forecasted.

Environmental analysis is an ongoing process and follows a holistic approach,

that continuously scans the forces effecting the business environment and
covers 360 degrees of the horizon, rather than a specific segment.

Environmental analysis is the study of the organizational environment to

pinpoint environmental factors that can significantly influence organizational
operations. It is a process of gathering, analysing and dispensing information for
effective purpose.
Scanning means detection. Environmental scanning means having a detailed
investigation of the environment. Environmental scanning can also be termed
as SWOT analyses. In order to survive and grow in a competitive business
environment, it is essential for every business firm to undertake SWOT analyses.

This is the process in which the enterprise monitors environmental factors to

identify opportunities and threats of the business. Environmental scanning is
essential to understand current and probable changes in the business
environment comprising economic, political, technological, cultural etc.

SWOT Analysis stand for:

S – Analysing Strength of the firm

W – Analysing weakness of the firm

O – Analysing opportunities of the firm

T – Analysing threats of the firm

It is rightly said that, the firm should maximise the strength, minimise the
weakness, grab the opportunities and diffuse off the threat for survival and
growth of the business firm.

SWOT Analysis:

The internal analysis of the firm identifies strength and weakness, and the
external analyses helps to observe opportunities and threats coming the way of
business.

Positive Negative

Strength (Internal) Weakness (Internal)

1. Technological skills 1. Absence of employee skill

2. Leading brands 2. Unreliable product

3. Distribution channels 3. Poor access to distribution

4. Customer relationship and Loyalty 4. Low customer retention

 5. Management 5. Poor management

Opportunities (External) Threats (External)

1. Changing & unfulfilled customer need 1. Changing customer taste & emergence of su

2. Technological advances 2. Arrival of new technologies

3. Favorable change in government policies 3. Unfavorable change in government policies

4. Liberalization of market 4. Closing of market

The Business Plan as an Entrepreneurial Tool

Last updated on February 18th, 2020 at 04:42 pm

An entrepreneur trying to start their own business needs to have a business plan.
The business plan is a guide helps business owners stay focused on their goals
and serves as a tool to lure investors and lending institutions to finance the
business. To write an effective business plan, you need to complete several steps
to ensure that the final plan includes the necessary elements.

1. Use the outline format of any word processing program to create

a business plan. An outline format makes the plan easier to read
and easier to fill in any details you need to add later.
2. Describe your business in the first section. Explain the kinds of
products or services your business will offer, how you plan to
manufacture the product or administer the service and what
materials you will need. Include details about the kind of facility
you will need and the types of equipment required.

Create a business budget and break it down into three parts: start-
up costs, ongoing operating costs and a breakdown of the overhead
into sections such as manpower and materials. Provide as many
Elements of Business
details as possible in thc

Planning Process
Last updated on February 18th, 2020 at 04:43 pm
Your well-thought-out business plan lets others know you’re serious, and that
you can handle all that running a business entails. It can also give you a solid
roadmap to help you navigate the tricky waters. The seven components you
must have in your business plan include:

1. Executive Summary
2. Business Description
3. Market Analysis
4. Organization Management
5. Sales Strategies
6. Funding Requirements
7. Financial Projections

All of these elements can help you as you build your business, in addition to
showing lenders and potential backers that you have a clear idea of what you are
doing.

1. Executive Summary

The executive summary is basically the elevator pitch for your business. It distills
all the important information about your business plan into a relatively short
space. It’s a high-level look at everything and should include information that
summarizes the other sections of your plan.

One of the best ways to approach writing the executive summary is to finish it
last so you can include the important ideas from other sections.

Coffee House, Inc.’s executive summary focuses on the value proposition of the
business. Here’s what they’ve written into their plan:

“Market research indicates that an increasing number of consumers in our city are
interested in the experience of coffee. However, there isn’t a viable place for them to
meet and learn locally. Instead, they only have access to fast coffee. Coffee House, Inc.,
provides a place for people to enjoy fresh-ground beans and truly enjoy their cup.

“Coffee House, Inc., provides a hub for a subculture of coffee, offering customers a
place to purchase their own coffee-grinding supplies in addition to enjoying the
modern atmosphere of a coffee house.

“The founders of Coffee House, Inc., are coffee aficionados with experience in the
coffee industry and connections to sustainable growing operations. With the
experience and expertise of the Coffee House team, a missing niche in town can be
fulfilled.”
2. Business Description

This is your chance to describe your company and what it does. Include a look at
when the business was formed, and your mission statement. These are the
things that tell your story and allow others to connect to you. It can also serve as
your own reminder of why you got started in the first place. Turn to this section
for motivation if you find yourself losing steam.

Some of the other questions you can answer in the business description section
of your plan include:

• What is the business model? (What are your customer base,

revenue sources and products?)
• Do you have special business relationships that offer you an
advantage?
• Where are you located?
• Who are the principals?
• What is the legal structure?
• What are some of the market opportunities?
• What is your projected growth?

Answering these questions narrows your focus and shows potential lenders and
backers how you’re viewing your venture.

3. Market Analysis

This is your chance to look at your competition and the state of the market as a
whole. Your market analysis is an exercise in seeing where you fit in the market
— and how you are superior to the competition.

As you create your market analysis, you need to make sure to include
information on your core target market, profiles of your ideal customers and
other market research. You can also include testimonials if you have them.

Part of your market analysis should come from looking at the trends in your area
and industry. Coffee House, Inc., recognizes that there is a wide trend toward
“slow” food and the idea of experiencing life. On top of that, Coffee House
surveyed its city and found no local coffee houses that offered fresh-ground
beans or high-end accessories for do-it-yourselfers.

Coffee House can create an ideal customer identity. The ideal customer is a
millennial or younger member of Gen X. He or she is a professional and interested
in experiencing life and enjoying pleasures. The ideal customer probably isn’t
wealthy, but is middle class, and has enough disposable income to have a hobby
like coffee. Coffee House appeals to professionals who work (and maybe live) in
a downtown area. They meet their friends for a good cup of coffee, but also want
the ability to make good coffee at home.

4. Organization and Management

Use this section of your business plan to show off your team superstars. In fact,
there are plenty of indications that your management team matters more than
your product idea or pitch.

Venture capitalists want to know you have a competent team that has the grit to
stick it out. You are more likely to be successful and pivot if needed when you
have the right management and organization for your company.

Make sure you highlight the expertise and qualifications of each member of the
team in your business plan. You want to impress.

In the case of Coffee House, Inc., the founders emphasize their connections in
the world of coffee, particularly growers that use sustainable practices. They can
get good prices for bulk beans that they can brand with their own label. The
founders also have experience in making and understanding coffee and the
business. One of them has an MBA, and can leverage the executive ability. Both
have worked in marketing departments in the past, and have social media
experience, so they can highlight their expertise.

5. Sales Strategies

How will you raise money with your business and make profits a reality? You
answer this question with your sales strategy. This section is all about explaining
your price strategy and describing the relationship between your price point and
everything else at the company.

You should also detail the promotional strategies you’re using now, along with
strategies you hope to implement later. This includes your social media efforts
and how you use press releases and other appearances to help raise your brand
awareness and encourage people to buy or sign up for your products or services.

Your sales strategy section should include information on your web

development efforts and your search engine optimization plan. You want to
show that you’ve thought about this, and you’re ready to implement a plan to
ramp up sales.

Coffee House needs to make sure they utilize word of mouth and geolocation
strategies for their marketing. Social media is a good start, including making
Facebook Live videos of them demonstrating products and how to grind beans.
They can encourage customers to check in when visiting, as well as offer special
coupons and promotions that activate when they come to the house to
encourage sales.

6. Funding Requirements

Here’s where you ask for the amount of money you need. Make sure you are being
as realistic as possible. You can create a range of numbers if you don’t want to try
to pinpoint an exact number. Include information for a best-case scenario and a
worst-case scenario. You should also put together a timeline so your potential
funders have an idea of what to expect.

It can cost between $200,000 and $500,000 to open a coffee house, and profit
margins can be between 7 and 25 percent, depending on costs. A well-run coffee
house can see revenues of as much as $1 million a year by the third
year, according to the Chronicle. Some of the things Coffee House, Inc., would
include in its timeline are getting premises, food handlers’ permits and the
proper licenses, arrange for regular supply and get the right insurance. How long
these items take depend on state and local regulations. No matter your business,
get an idea of what steps you need to take to make it happen and how long they
typically take. Add it all into your timeline.

7. Financial Projections

Finally, the last section of your business plan should include financial
projections. Make sure you summarize any successes up to this point. This is
especially important if you hope to secure funds for expansion of your existing
business.

Your forward-looking projections should be based on information about your

revenue growth and market trends. You want to be able to use information about
what’s happening, combined with your sales strategies, to create realistic
projections that let others know when they can expect to see returns.

Even though it can be time-consuming to create a business plan, your efforts will
be rewarded. The process is valuable for helping you identify potential problems,
as well as help you plan ahead. You’ll be more organized and better prepared for
success.

3. e budget section. Forecast your budget needs for ongoing

operating costs for at least three years. Break the budget down by
department, including sales, marketing, production and support.
 4. Develop a profit projection that shows the percentage growth you
expect for the next three years. Cite reasons for your forecast and
give examples of how you intend to grow your company.
5. Present a sales and marketing plan that includes detailed analysis
of your competition, how you intend to address the competition
and a detailed explanation of how you will bring your product or
service to the marketplace.
6. Create a biographical section that features information about all
executives and partners who will be involved in the company.
Include compensation plans, detailed job descriptions for each
person and resumes that outline past experience within the
industry.

Things Needed

• Computer
• Word processing software
• Printer
• A business plan is a road map that helps navigate a company to
success. It describes all aspects of your business, including
history, products, services, marketing and finance. The plan
indicates that a qualified management team exists. It
communicates information to those interested in your business,
such as an investor who reviews your plan to determine the
likelihood of receiving a good return on an investment. Without a
plan, a business will likely fail.
• Create a mission statement about why your business exists. For
example: “Develop Internet-based software that provides easy
project management.”
• Define a vision of what your business wants to become. For
example: “To become a respected software vendor that possesses
60 percent of the market for project management software.”
• Define the market that your business will serve. Include the
business outlook for your industry, what customer needs are
addressed and a profile of targeted customers. For example:
“Customers are project managers who manage multiple projects
at construction businesses.”
• Describe products and services, including their pricing. Include
what makes the products and services competitive.
• Describe the company’s legal and management structures.
Explain how business activities are accomplished. Indicate what
 permits and licenses your business maintains. Include
biographies of key managers.
• Define marketing strategy, including pricing and promotion.
Include customer groups whose needs are met by your products
and services.
• Provide a balance sheet, which is a snapshot of the company’s
value. For an existing business, this should cover the past three
years.
• Provide an income statement, which indicates the profit or loss
over a period. For an existing business, cover the past three years.
• Provide a cash flow statement, which indicates revenue, expenses
and available cash. These are projected amounts if the plan is for
a startup business. For an existing business, provide amounts for
the past 12 months. Actual and projected amounts are used to
project working capital.
• Provide each principal’s personal financial statement and prior
year’s federal tax return if your business is applying for financing.
• Append miscellaneous information that helps define your
company. Include marketing materials, contracts and key
employee resumes, for instance.

Write an executive summary that defines what your business does

and why. This becomes the first section in the plan.
Preparation of Project Plan
Last updated on February 18th, 2020 at 04:43 pm

Step 1: Explain the project plan to key stakeholders and discuss its key
components

One of the most misunderstood terms in project management, the project plan
is a set of living documents that can be expected to change over the life of the
project. Like a roadmap, it provides the direction for the project. And like the
traveler, the project manager needs to set the course for the project, which in
project management terms means creating the project plan. Just as a driver may
encounter road construction or new routes to the final destination, the project
manager may need to correct the project course as well.

A common misconception is that the plan equates to the project timeline, which
is only one of the many components of the plan. The project plan is the major
work product from the entire planning process, so it contains all the planning
documents for the project.
Typically many of the project’s key stakeholders, that is those affected by both
the project and the project’s end result, do not fully understand the nature of the
project plan. Since one of the most important and difficult aspects of project
management is getting commitment and buying, the first step is to explain the
planning process and the project plan to all key stakeholders. It is essential for
them to understand the importance of this set of documents and to be familiar
with its content, since they will be asked to review and approve the documents
that pertain to them.

Components of the Project Plan Include:

Baselines. Baselines are sometimes called performance measures, because the

performance of the entire project is measured against them. They are the
project’s three approved starting points and include the scope, schedule, and
cost baselines. These provide the ‘stakes in the ground.’ That is, they are used to
determine whether or not the project is on track, during the execution of the
project.

Baseline management plans. These plans include documentation on how

variances to the baselines will be handled throughout the project. Each project
baseline will need to be reviewed and managed. A result of this process may
include the need to do additional planning, with the possibility that the
baseline(s) will change. Project management plans document what the project
team will do when variances to the baselines occur, including what process will
be followed, who will be notified, how the changes will be funded, etc.

Other work products from the planning process. These include a risk
management plan, a quality plan, a procurement plan, a staffing plan, and a
communications plan.

Step 2: Define roles and responsibilities

Not all key stakeholders will review all documents, so it is necessary to determine
who on the project needs to approve which parts of the plan. Some of the key
players are:

• Project sponsor, who owns and funds the entire project. Sponsors
need to review and approve all aspects of the plan.
• Designated business experts, who will define their requirements
for the end product. They need to help develop the scope baseline
and approve the documents relating to scope. They will be quite
interested in the timeline as well.
 • Project manager, who creates, executes, and controls the project
plan. Since project managers build the plan, they do not need to
approve it.
• Project team, who build the end product. The team needs to
participate in the development of many aspects of the plan, such
as identifying risks, quality, and design issues, but the team does
not usually approve it.
• End users, who use the end product. They too, need to participate
in the development of the plan, and review the plan, but rarely do
they actually need to sign off.
• Others, such as auditors, quality and risk analysts, procurement
specialists, and so on may also participate on the project. They
may need to approve the parts that pertain to them, such as the
Quality or Procurement plan.

Step 3: Hold a kickoff meeting

The kickoff meeting is an effective way to bring stakeholders together to discuss

the project. It is an effective way to initiate the planning process. It can be used
to start building trust among the team members and ensure that everyone’s idea
are taken into account. Kickoff meetings also demonstrate commitment from
the sponsor for the project. Here are some of the topics that might be included in
a kickoff meeting:

• Business vision and strategy (from sponsor)

• Project vision (from sponsor)
• Roles and responsibilities
• Team building
• Team commitments
• How team makes decisions
• Ground rules
• How large the group should be and whether sub-groups are
necessary

Step 4: Develop a Scope Statement

The Scope Statement is arguably the most important document in the project
plan. It’s the foundation for the rest of the project. It describes the project and is
used to get common agreement among the stakeholders about the scope. The
Scope Statement clearly describes what the outcome of the project will be. It is
the basis for getting the buy-in and agreement from the sponsor and other
stakeholders and decreases the chances of miscommunication. This document
will most likely grow and change with the life of the project. The Scope
Statement should include:

• Business need and business problem

• Project objectives, stating what will occur within the project to
solve the business problem
• Benefits of completing the project, as well as the project
justification
• Project scope, stated as which deliverables will be included and
excluded from the project.
• Key milestones, the approach, and other components as dictated
by the size and nature of the project.

It can be treated like a contract between the project manager and sponsor, one
that can only be changed with sponsor approval.

Step 5: Develop scope baseline

Once the deliverables are confirmed in the Scope Statement, they need to be
developed into a work breakdown structure (WBS), which is a decomposition of
all the deliverables in the project. This deliverable WBS forms the scope baseline
and has these elements:

• Identifies all the deliverables produced on the project, and

therefore, identifies all the work to be done.
• Takes large deliverables and breaks them into a hierarchy of
smaller deliverables. That is, each deliverable starts at a high level
and is broken into subsequently lower and lower levels of detail.
• The lowest level is called a “work package” and can be numbered
to correspond to activities and tasks.

The WBS is often thought of as a task breakdown, but activities and tasks are a
separate breakdown, identified in the next step.

Step 6: Develop the schedule and cost baselines

Here are the steps involved in developing the schedule and cost baselines.

1. Identify activities and tasks needed to produce each of the work

packages, creating a WBS of tasks.
2. Identify resources for each task, if known.
3. Estimate how long it will take to complete each task.
 4. Estimate cost of each task, using an average hourly rate for each
resource.
5. Consider resource constraints, or how much time each resource
can realistically devoted to this project.
6. Determine which tasks are dependent on other tasks, and develop
critical path.
7. Develop schedule, which is a calendarization of all the tasks and
estimates. It shows by chosen time period (week, month, quarter,
or year) which resource is doing which tasks, how much time they
are expected to spend on each task, and when each task is
scheduled to begin and end.
8. Develop the cost baseline, which is a time-phased budget, or cost
by time period.

This process is not a one-time effort. Throughout the project you will most likely
be adding to repeating some or all of these steps.

Step 7: Create baseline management plans

Once the scope, schedule, and cost baselines have been established, you can
create the steps the team will take to manage variances to these plans. All these
management plans usually include a review and approval process for modifying
the baselines. Different approval levels are usually needed for different types of
changes. In addition, not all new requests will result in changes to the scope,
schedule, or budget, but a process is needed to study all new requests to
determine their impact to the project.

Step 8: Develop the staffing plan

The staffing plan is a chart that shows the time periods, usually month, quarter,
year, that each resource will come onto and leave the project. It is similar to other
project management charts, like a Gantt chart, but does not show tasks,
estimates, begin and end dates, or the critical path. It shows only the time period
and resource and the length of time that resource is expected to remain on the
project.

Step 9: Analyze project quality and risks.

Project Quality: Project quality consists of ensuring that the end product not only
meets the customer specifications, but is one that the sponsor and key business
experts actually want to use. The emphasis on project quality is on preventing
errors, rather than inspecting the product at the end of the project and then
eliminating errors. Project quality also recognizes that quality is a management
responsibility and needs to be performed throughout the project.

Creating the Quality Plan involves setting the standards, acceptance criteria,
and metrics that will be used throughout the project. The plan, then, becomes
the foundation for all the quality reviews and inspections performed during the
project and is used throughout project execution.

Project Risks: A risk is an event that may or may not happen, but could have a
significant effect on the outcome of a project, if it were to occur. For example,
there may be a 50% chance of a significant change in sponsorship in the next few
months. Analyzing risks includes making a determination of both the
probability that a specific event may occur and if it does, assessing its impact.
The quantification of both the probability and impact will lead to determining
which are the highest risks that need attention. Risk management includes not
just assessing the risk, but developing risk management plans to understand
and communicate how the team will respond to the high-risk events.

Step 10: Communicate!

One important aspect of the project plan is the Communications Plan. This
document states such things as:

• Who on the project wants which reports, how often, in what

format, and using what media.
• How issues will be escalated and when.
• Where project information will be stored and who can access it.

For complex projects, a formal communications matrix is a tool that can help
determine some of the above criteria. It helps document the project team’s
agreed-on method for communicating various aspects of the project, such as
routine status, problem resolution, decisions, etc.

Once the project plan is complete, it is important not just to communicate the
importance of the project plan to the sponsor, but also to communicate its
contents once it’s created. This communication should include such things as:

• Review and approval of the project plan.

• Process for changing the contents of the plan.

Next steps—executing and controlling the project plan and key

stakeholder roles/responsibilities in the upcoming phases.
Components of an ideal Business Plan-Market
Plan, Financial Plan
Last updated on February 18th, 2020 at 04:43 pm

1. Overall Summary of the Business Model

Without prior knowledge regarding what the business is supposed to do, an

entrepreneur can’t achieve his or her goals.

The executive summary should define the overall details of what the business is
all about and the goals and objectives.

It should be clear with the core values and the positioning in the market. It must
clearly explain how the brand will enter the local market followed by the
international market – if ultimate ambitions stretch that far. This can be done
by maintaining its equipment base, input/output process and the good quality
of items. It further focuses on the generation of financial resources.

2. A Strategy That Must Be Followed

You should be clear with your product strategy, which must be based on
consumer needs. He/she should survey the situation using various details of
their customers.

A few of the elements that must be included are:

• Company or product mission

• Marketing and Financial objectives
• Resource availability
• Cashflow analysis
• Competitive analysis

3. Availability of Products and Services

Entrepreneurs should have a full understanding of how their products or services

will reach their target audience.

Designing good products and services to customers is just one part of the whole
plan, however. The aim must be making it available that too in a cost-effective
manner. And it should be the ultimate goal of an entrepreneur. It can be achieved
by making the best use of the team, promotional activities used for sales,
advertising methods and other tools that are being used for communication.
4. Pricing Strategy

The most important stage of any business model is its pricing. Price can be the
maker or breaker of a product. It is the one element of the marketing mix that
produces revenue. All other elements fall on the opposite side of the ledger.
People should design their product or brand so that it commands a premium
price and reaps big profits. It should also reflect a value that the consumers are
willing to pay and a benefit that outweighs the cost.

5. Awareness of the Product

Always plan how you intend to make your product or service known to your
intended customer base. You could have the best offering in your industry or
niche, but if nobody has heard of it or you, you’re as good as sunk.

The time to plan your social media, content marketing and advertising
campaigns is not when you are ready to go to market!

6. Who Will Benefit From Your Offering?

Segmentation, targeting and positioning are the essences of Marketing. Your

target customer base will go some way to determining the price you can
ultimately charge. It will also determine how you can best communicate your
offering to them and where you will find them.

7. Short Term and Long Term Objectives

Entrepreneurs must have a clear vision of their mission, marketing and financial
objectives. They need to be specific about how their brand will satisfy the target
market. Nobody can expect immediate profit. But planning must include short,
medium and long-term goals. You need to be clear regarding how your business
will proceed as per the life cycle of whatever you are selling. And you need input
from other areas of marketing. Nobody can think of or execute everything
entailed in pushing an offering to market.

8. SWOT Analysis

Before designing a complete project, a pilot project needs to be designed and

implemented. An entrepreneur should know everything – including any flaws
that may become apparent. Also, the project strength, shortcomings,
appropriate options for progressing and warnings can be tested in the pilot
project itself for the successful completion or execution of the main project. For
this, you need to do a thorough SWOT (Strengths, Weaknesses, Opportunities,
Threats) analysis.
9. PEST Analysis

SWOT Analysis will give you the inner view of the business model. However, it is
very important to determine how a business will run in the changing economic
scenario. Hence, a detailed PEST analysis needs to be done to know how your
model will run in the changing Political, Economic, Social and Technological
Environment.

Financial Plan

The financial section of your business plan determines whether or not your
business idea is viable and will be the focus of any investors who may be
attracted to your business idea. The financial section is composed of three
financial statements: the income statement, the cash flow projection and
the balance sheet and a brief explanation/analysis of these three statements.

This article will guide you in the preparation of each of these three financial
statements. Before you begin, however, you must gather the financial data you
will need including all of your expenses.

Taking Stock of Expenses

Think of your business expenses as two cost categories; your start-up expenses
and your operating expenses. All the costs of getting your business up and
running should be considered start-up expenses. These expenses may include:

• Business registration fees

• Business licensing and permits
• Starting inventory
• Rent deposits
• Down payments on property
• Down payments on equipment
• Utility setup fees

This is just a sample of startup expenses; your own list will expand as soon as you
start to itemize them.

Operating expenses are the costs of keeping your business running. Think of
these as your monthly expenses. Your list of operating expenses may include:

• Salaries (including your own)

• Rent or mortgage payments
• Telecommunication expenses
 • Utilities
• Raw materials
• Storage
• Distribution
• Promotion
• Loan payments
• Office supplies
• Maintenance

Once again, this is just a partial list. Once you have listed all of your operating
expenses, the total will reflect the monthly cost of operating your business.
Multiply this number by 6, and you have a six-month estimate of your operating
expenses. Adding this amount to your total startup expenses list, and you have a
ballpark figure for your complete start-up costs.

Now you can begin to put together your financial statements for your business
plan starting with the income statement.

Components of an ideal Business Plan-Market

Plan, Financial Plan
Last updated on February 18th, 2020 at 04:43 pm

1. Overall Summary of the Business Model

Without prior knowledge regarding what the business is supposed to do, an

entrepreneur can’t achieve his or her goals.

The executive summary should define the overall details of what the business is
all about and the goals and objectives.

It should be clear with the core values and the positioning in the market. It must
clearly explain how the brand will enter the local market followed by the
international market – if ultimate ambitions stretch that far. This can be done
by maintaining its equipment base, input/output process and the good quality
of items. It further focuses on the generation of financial resources.

2. A Strategy That Must Be Followed

You should be clear with your product strategy, which must be based on
consumer needs. He/she should survey the situation using various details of
their customers.
A few of the elements that must be included are:

• Company or product mission

• Marketing and Financial objectives
• Resource availability
• Cashflow analysis
• Competitive analysis

3. Availability of Products and Services

Entrepreneurs should have a full understanding of how their products or services

will reach their target audience.

Designing good products and services to customers is just one part of the whole
plan, however. The aim must be making it available that too in a cost-effective
manner. And it should be the ultimate goal of an entrepreneur. It can be achieved
by making the best use of the team, promotional activities used for sales,
advertising methods and other tools that are being used for communication.

4. Pricing Strategy

The most important stage of any business model is its pricing. Price can be the
maker or breaker of a product. It is the one element of the marketing mix that
produces revenue. All other elements fall on the opposite side of the ledger.
People should design their product or brand so that it commands a premium
price and reaps big profits. It should also reflect a value that the consumers are
willing to pay and a benefit that outweighs the cost.

5. Awareness of the Product

Always plan how you intend to make your product or service known to your
intended customer base. You could have the best offering in your industry or
niche, but if nobody has heard of it or you, you’re as good as sunk.

The time to plan your social media, content marketing and advertising
campaigns is not when you are ready to go to market!

6. Who Will Benefit From Your Offering?

Segmentation, targeting and positioning are the essences of Marketing. Your

target customer base will go some way to determining the price you can
ultimately charge. It will also determine how you can best communicate your
offering to them and where you will find them.
7. Short Term and Long Term Objectives

Entrepreneurs must have a clear vision of their mission, marketing and financial
objectives. They need to be specific about how their brand will satisfy the target
market. Nobody can expect immediate profit. But planning must include short,
medium and long-term goals. You need to be clear regarding how your business
will proceed as per the life cycle of whatever you are selling. And you need input
from other areas of marketing. Nobody can think of or execute everything
entailed in pushing an offering to market.

8. SWOT Analysis

Before designing a complete project, a pilot project needs to be designed and

implemented. An entrepreneur should know everything – including any flaws
that may become apparent. Also, the project strength, shortcomings,
appropriate options for progressing and warnings can be tested in the pilot
project itself for the successful completion or execution of the main project. For
this, you need to do a thorough SWOT (Strengths, Weaknesses, Opportunities,
Threats) analysis.

9. PEST Analysis

SWOT Analysis will give you the inner view of the business model. However, it is
very important to determine how a business will run in the changing economic
scenario. Hence, a detailed PEST analysis needs to be done to know how your
model will run in the changing Political, Economic, Social and Technological
Environment.

Financial Plan

The financial section of your business plan determines whether or not your
business idea is viable and will be the focus of any investors who may be
attracted to your business idea. The financial section is composed of three
financial statements: the income statement, the cash flow projection and
the balance sheet and a brief explanation/analysis of these three statements.

This article will guide you in the preparation of each of these three financial
statements. Before you begin, however, you must gather the financial data you
will need including all of your expenses.

Taking Stock of Expenses

Think of your business expenses as two cost categories; your start-up expenses
and your operating expenses. All the costs of getting your business up and
running should be considered start-up expenses. These expenses may include:
 • Business registration fees
• Business licensing and permits
• Starting inventory
• Rent deposits
• Down payments on property
• Down payments on equipment
• Utility setup fees

This is just a sample of startup expenses; your own list will expand as soon as you
start to itemize them.

Operating expenses are the costs of keeping your business running. Think of
these as your monthly expenses. Your list of operating expenses may include:

• Salaries (including your own)

• Rent or mortgage payments
• Telecommunication expenses
• Utilities
• Raw materials
• Storage
• Distribution
• Promotion
• Loan payments
• Office supplies
• Maintenance

Once again, this is just a partial list. Once you have listed all of your operating
expenses, the total will reflect the monthly cost of operating your business.
Multiply this number by 6, and you have a six-month estimate of your operating
expenses. Adding this amount to your total startup expenses list, and you have a
ballpark figure for your complete start-up costs.

Now you can begin to put together your financial statements for your business
plan starting with the income statement.

Components of an ideal Business Plan:

Operation Plan
Last updated on February 18th, 2020 at 04:46 pm
The operations section of your business plan is where you explain – in detail –
you company’s objectives, goals, procedures, and timeline. An operations plan is
helpful for investors, but it’s also helpful for you and employees because it
pushes you to think about tactics and deadlines.

In the previous course, you outlined your company’s strategic plan, which
answers questions about your business mission. An operational plan outlines the
steps you’ll take to complete your business mission.

Your operations plan should be able to answer the following:

• Who: The personnel or departments who are in charge of

completing specific tasks.
• What: A description of what each department is responsible for.
• Where: The information on where daily operations will be taking
place.
• When:The deadlines for when the tasks and goals are to be
completed.
• How much: The cost amount each department needs to complete
their tasks.

In this session, we explain each item to include in your operations plan.

Goals and Objectives

The key to an operations plan is having a clear objective and goal everyone is
focused on completing. In this section of your plan, you’ll clearly state what your
company’s operational objective is.

Your operational objective explains how you intend to complete your strategic
objective.

In order to create an efficient operational objective, think SMART:

• Specific– Be clear on what you want employees to achieve.

• Measurable– Be able to quantify the goal in order to track
progress.
• Attainable & Realistic– It’s great to be ambitious but make sure
you aren’t setting your team up for failure. Create a goal that
everyone is motivated to complete with the resources available.
• Timely– Provide a deadline so everyone has a date they are
working towards.
Different departments will have different operational objectives. However, each
department objective should help the company reach the main objective. In
addition, operational objectives change; the objectives aren’t intended to be
permanents or long term. The timeline should be scheduled with your
company’s long-term goals in mind.

Let’s look at the following example for a local pizza business objective:

• Strategic objective: To deliver pizza all over Eastern

Massachusetts.
• Technology department operational objective: To create a
mobile app by January 2017 to offer a better user experience.
• Marketing department operational objective: To increase
website visitors by 50% by January 2017 by advertising on radio,
top local food websites, and print ads.
• Sales department operational objective: To increase delivery
sales by 30%, by targeting 3 of Massachusetts’s largest counties.

Sales department operational objective: To increase delivery sales by 30%, by

targeting 3 of Massachusetts’s largest counties.

Production Process

After you create your objectives, you have to think strategically on how you’re
going to meet them. In order to do this, each department (or team) needs to have
all the necessary resources for the production process.

Resources you should think about include the following:

• Suppliers– do you have a supplier (or more) to help you produce

your product?
• Equipment & Technology– does each department have the
necessary equipment, technology and software to meet
objectives? For instance, in keeping with the pizza business
objective above, necessary tools might include:
• Technology team: app developing software
• Marketing team: software licenses for website analytical
tools
• Sales team: headsets, phone systems or virtual phone
system technology
• Cost– what is the budget for each department?
In addition to the production process, you’ll also need to describe in detail your
operating process. This will demonstrate to investors that you know exactly how
you want your business to run on a day-to-day basis.

Items to address include:

• Location– where are employees working? Will you need

additional facilities?
• Work hours– will employees have a set schedule or flexible work
schedule?
• Personnel– who is in charge of making sure department tasks are
completed?

Timeline

Creating a timeline with milestones is important for your new business. It keeps
everyone focused and is a good tracking method for efficiency. For instance, if
milestones aren’t being met, you’ll know that it’s time to re-evaluate your
production process or consider new hires.

Below are common milestones new businesses should plan for.

Hiring

When you completed your Management Plan Worksheet in the previous course,
you jotted down which key hires you needed right away and which could wait.
Make sure you have a good idea on when you would like those key hires to
happen; whether it’s after your company hits a certain revenue amount or once
a certain project takes off.

Production Milestones

Production milestones keep business on track. These milestones act as

“checkpoints” for your overall department objectives. For instance, if you want
to create a new app by the end of the year, product milestones you outline might
include a beta roll out, testing, and various version releases.

Other product milestones to keep in mind:

• Design phase
• Product prototype phase
• Testing
• Product launch
 • Version release

Market Milestones

Market milestones are important for tracking efficiency and understanding

whether your operations plan is working. For instance, a possible market
milestone could be reaching a certain amount of clients or customers after a new
product or service is released.

A few other market milestones to consider:

• Gain a certain amount of users/clients by a certain time

• Signing partnerships
• Running a competitive analysis
• Performing a price change evaluation

Financial Milestones

Financial milestones are important for tracking business performance. It’s likely
that a board of directors or investors will work with you on creating financial
milestones. In addition, in startups, it’s common that financial milestones are
calculated for 12 months.

Typical financial milestones include:

• Funding events
• Revenue and profit goals
• Transaction goals

Feasibility Analysis Aspects

Last updated on February 18th, 2020 at 04:45 pm

A well-designed study should offer a historical background of the business or

project, such as a description of the product or service, accounting statements,
details of operations and management, marketing research and policies,
financial data, legal requirements, and tax obligations. Generally, such studies
precede technical development and project implementation.

Five Areas of Project Feasibility

A feasibility study evaluates the project’s potential for success; therefore,

perceived objectivity is an important factor in the credibility of the study for
potential investors and lending institutions. There are five types of feasibility
study—separate areas that a feasibility study examines, described below.

1. Technical Feasibility – this assessment focuses on the technical

resources available to the organization. It helps organizations
determine whether the technical resources meet capacity and
whether the technical team is capable of converting the ideas into
working systems. Technical feasibility also involves evaluation of
the hardware, software, and other technology requirements of
the proposed system. As an exaggerated example, an
organization wouldn’t want to try to put Star Trek’s transporters
in their building—currently, this project is not technically
feasible.
2. Economic Feasibility – this assessment typically involves a cost/
benefits analysis of the project, helping organizations determine
the viability, cost, and benefits associated with a project before
financial resources are allocated. It also serves as an independent
project assessment and enhances project credibility—helping
decision makers determine the positive economic benefits to the
organization that the proposed project will provide.
3. Legal Feasibility – this assessment investigates whether any
aspect of the proposed project conflicts with legal requirements
like zoning laws, data protection acts, or social media laws. Let’s
say an organization wants to construct a new office building in a
specific location. A feasibility study might reveal the
organization’s ideal location isn’t zoned for that type of business.
That organization has just saved considerable time and effort by
learning that their project was not feasible right from the
beginning.
4. Operational Feasibility – this assessment involves undertaking a
study to analyze and determine whether—and how well—the
organization’s needs can be met by completing the project.
Operational feasibility studies also analyze how a project plan
satisfies the requirements identified in the requirements analysis
phase of system development.
5. Scheduling Feasibility – this assessment is the most important
for project success; after all, a project will fail if not completed on
time. In scheduling feasibility, an organization estimates how
much time the project will take to complete.
When these areas have all been examined, the feasibility study helps identify any
constraints the proposed project may face, including:

• Internal Project Constraints: Technical, Technology, Budget,

Resource, etc.
• Internal Corporate Constraints: Financial, Marketing, Export, etc.
• External Constraints: Logistics, Environment, Laws and
Regulations, etc.

Benefits of Conducting a Feasibility Study

The importance of a feasibility study is based on organizational desire to “get it

right” before committing resources, time, or budget. A feasibility study might
uncover new ideas that could completely change a project’s scope. It’s best to
make these determinations in advance, rather than to jump in and learning that
the project just won’t work. Conducting a feasibility study is always beneficial to
the project as it gives you and other stakeholders a clear picture of the proposed
project.

Below are some key benefits of conducting a feasibility study:

• Improves project teams’ focus

• Identifies new opportunities
• Provides valuable information for a “go/no-go” decision
• Narrows the business alternatives
• Identifies a valid reason to undertake the project
• Enhances the success rate by evaluating multiple parameters
• Aids decision-making on the project
• Identifies reasons not to proceed

Apart from the approaches to feasibility study listed above, some projects also
require for other constraints to be analyzed –

Internal Project Constraints: Technical, Technology, Budget, Resource, etc.

Internal Corporate Constraints: Financial, Marketing, Export, etc.
External Constraints: Logistics, Environment, Laws and Regulations, etc.

Economic Analysis
Last updated on February 18th, 2020 at 04:45 pm

An economic analysis is a process in which business owners gain a clear picture

of the existing economic climate, as it relates to their company’s ability to thrive.
Economists, statisticians, and mathematicians often carry out this analysis on
behalf of for-profit and nonprofit businesses. These types of economic
evaluation consist of an in-depth appraisal of the strengths and weaknesses of
the market. An economic analysis isn’t limited to medium or large-sized
businesses, it’s valuable for small companies as well. In fact, small businesses
probably need to perform economic analysis more often than businesses that
have enough built-in capital and resources to sustain an economic downturn.
There are several types of economic evaluation methods business owners can
use to gain a comprehensive view of how their companies will fare in the future.

Cost-Benefit Analysis

One of the most effective types of economic evaluation is the cost-benefit

analysis, also referred to as a benefit-cost analysis. This is a technique used to
determine whether a project or activity is feasible by weighing the monetary cost
of doing the project or activity versus the benefits. A cost-benefit analysis will
always compare the cost of the effort against the benefits that result from that
effort. Because it deals solely in monetary terms, a cost-benefit analysis is one
of the most bottom-line types of economic evaluation. It can provide valuable
insight in comparing and contrasting work projects, help determine whether an
investment opportunity is ideal, and help assess the consequences of
implementing changes to your business. However, there is a drawback to this
analysis as it is difficult to place a monetary value on some activities such as the
benefits of increased public safety versus the cost to increase law enforcement
presence in major cities. After performing the cost-benefit analysis, a small
business owner can make an educated business decision.

Cost-Effective Analysis

In a cost-effective analysis, you weigh the effectiveness of a project against its

price. Unlike with cost-benefit analysis, however, a low cost doesn’t mean high
effectiveness, and the reverse is also true. For example, let’s say you’ve
determined that installing an automated system that can handle customer
orders 24-hours a day, seven days a week, is the cheapest way to boost your
incoming orders. After research, however, you determine that many calls that
come into the automated system are not complete, because callers hang up
when they hear the automated voice on the system. Your market research also
indicates that your customers want to speak to a live representative. A cost-
effective analysis would tell you that the cheaper route of installing an
automated system is not effective in processing more orders. Depending on the
type of business you own, you may find that saving money doesn’t result in
creating a desirable effect on your business.
Cost-Minimization Analysis

As the term suggests, cost-minimization analysis focuses on finding the

cheapest cost to complete a project. This is one of the economic evaluation
methods that business owners use when cost savings are at a premium and
outweigh all other considerations. It is also used when there are two or more
ways to accomplish the same task. Cost-minimization analysis is most often
used in healthcare. For example, drug manufacturers may compare two drugs
that have been shown to produce the same effect in patients, or a
pharmaceutical company may implement cost-minimization analysis, to
determine which of two medications that treat the same illness will cost the least
amount of money to produce. In many instances, the generic equivalent of a
name-brand drug is the least expensive drug to manufacture, especially if it
produces the same therapeutic effect in patients.

Financial Analysis
Last updated on December 3rd, 2019 at 11:08 am

Financial analysis is the process of evaluating businesses, projects, budgets and

other finance-related entities to determine their performance and suitability.
Typically, financial analysis is used to analyze whether an entity is stable,
solvent, liquid or profitable enough to warrant a monetary investment. When
looking at a specific company, a financial analyst conducts analysis by focusing
on the income statement, balance sheet, and cash flow statement.

Financial analysis is used to evaluate economic trends, set financial policy, build
long-term plans for business activity, and identify projects or companies for
investment. This is done through the synthesis of financial numbers and data.

One of the most common ways to analyze financial data is to calculate ratios
from the data to compare against those of other companies or against the
company’s own historical performance. For example, return on assets (ROA) is a
common ratio used to determine how efficient a company is at using its assets
and as a measure of profitability. This ratio could be calculated for several similar
companies and compared as part of a larger analysis.

Financial analysis can be conducted in both corporate finance and investment

finance settings. In corporate finance, the analysis is conducted internally, using
such ratios as net present value (NPV) and internal rate of return (IRR) to find
projects worth executing. A key area of corporate financial analysis involves
extrapolating a company’s past performance, such as gross revenue or profit
margin, into an estimate of the company’s future performance. This allows the
business to forecast budgets and make decisions based on past trends, such as
inventory levels.
In investment finance, an outside financial analyst conducts a financial analysis
for investment purposes. Analysts can either conduct a top-down or bottom-up
investment approach. A top-down approach first looks for macroeconomic
opportunities, such as high-performing sectors, and then drills down to find the
best companies within that sector. A bottom-up approach, on the other hand,
looks at a specific company and conducts similar ratio analysis to corporate
financial analysis, looking at past performance and expected future
performance as investment indicators.

Technical and Fundamental Analysis

There are two types of financial analysis: technical analysis and fundamental
analysis. Technical analysis looks at quantitative charts, such as moving
averages (MA), while fundamental analysis uses ratios, such as a
company’s earnings per share (EPS).

For example, technical analysis was conducted on the GBP/USD exchange rate
after the results of the Brexit vote in June 2016. Looking at the exchange rate
chart, it was determined that the rate dropped significantly after the vote on
June 23, 2016, and then it recovered over a 48-hour period by 375 basis points
(bps).

As an example of fundamental analysis, Discover Financial Services reported

first-quarter 2016 results on July 19, 2016. The company had an EPS of $1.40, up
from an EPS of $1.33 for the same quarter in 2015, which was a good sign.

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Market and Technological feasibility

Last updated on February 18th, 2020 at 04:45 pm

1. Detailed interviews with stakeholders: The market feasibility

study begins with an in-depth interview with the stakeholders.
This is a perfect starting point. The market research team will be
able to familiarize themselves with the projects and its objectives
by using an open-discussion format. This first step is beneficial to
both the parties. A stakeholder can be a key personnel in the
enterprise or outside the company. It could also be a person
involved in the local economy or any other key person who plays
an in important role in the enterprise’s business plan and who can
provide the market research team with valuable feedback.
2. Meticulous demographic assessment and trend
analysis: Demographics assessments are used to conduct
secondary research, analyse the market and perform demand
modelling and estimates. Information like consumer
expenditures, population trends, education, age and other such
relevant demographic statistics are collated about the market
that you wish to enter into. A detailed trend analysis is then
conducted to search for current industry trends. Important
ancillary data is made a note of. Both these processes can be
conducted seamlessly over the internet with the use of search
engines.
3. In-depth quantitative survey: A quantitative survey is used to
collect primary data from among the end-users. The questions
that are asked are focussed on the current usage, the predicted
usage and a clear understanding of the impact of the new business
idea on the market. This is a very important step in a market
feasibility study, as the questions asked during the quantitative
surveys serves as a foundation for the future demand model and
estimate.
4. Careful assessment of competitors: A competitive assessment is
created to analyse the enterprise’s competitors in the proposed
market area. Detailed profiles of each competitor is created by the
research team. Mystery shopping calls will be made. Personal
visits will also be conducted to collect non-publically available
information, which at times, will not be available online. By
performing an in-depth analysis on competitors, it will help the
client spot service/product gaps, in which they can successfully
market themselves in.
5. Demand model with estimates and recommendations: The final
step in a market feasibility study is to compile the first four
components and use the findings from each step to develop a
demand model. This model will be used to predict the likelihood
and habits of end-customers for the new business
service/product that you wish to market. Predictive modelling will
be used to offer you a figure based on a combination of known
factors and assumptions. Based on the estimate, you can either
decide to go ahead or end ties with the proposed business venture.
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bSteps involved in Launching a Business

(Process Charts)
Last updated on February 18th, 2020 at 04:47 pm

Here are 10 steps that are required to start a business successfully. Take one step
at a time, and you’ll be on your way to successful small business ownership.

Step 1: Do Your Research

Most likely you have already identified a business idea, so now it’s time to
balance it with a little reality. Does your idea have the potential to succeed? You
will need to run your business idea through a validation process before you go
any further.

In order for a small business to be successful, it must solve a problem, fulfill a

need or offer something the market wants.
There are a number of ways you can identify this need, including research, focus
groups, and even trial and error. As you explore the market, some of the
questions you should answer include:

• Is there a need for your anticipated products/services?

• Who needs it?
• Are there other companies offering similar products/services
now?
• What is the competition like?
• How will your business fit into the market?

Don’t forget to ask yourself some questions, too, about starting a business
before you take the plunge.

Step 2: Make a Plan

You need a plan in order to make your business idea a reality. A business plan is a
blueprint that will guide your business from the start-up phase through
establishment and eventually business growth, and it is a must-have for all new
businesses.

The good news is that there are different types of business plans for different
types of businesses.

If you intend to seek financial support from an investor or financial institution, a

traditional business plan is a must. This type of business plan is generally long
and thorough and has a common set of sections that investors and banks look for
when they are validating your idea.

If you don’t anticipate seeking financial support, a simple one-page business

plan can give you clarity about what you hope to achieve and how you plan to do
it. In fact, you can even create a working business plan on the back of a napkin,
and improve it over time. Some kind of plan in writing is always better than
nothing.

Step 3: Plan Your Finances

Starting a small business doesn’t have to require a lot of money, but it will involve
some initial investment as well as the ability to cover ongoing expenses before
you are turning a profit. Put together a spreadsheet that estimates the one-time
startup costs for your business (licenses and permits, equipment, legal fees,
insurance, branding, market research, inventory, trademarking, grand opening
events, property leases, etc.), as well as what you anticipate you will need to keep
your business running for at least 12 months (rent, utilities, marketing and
advertising, production, supplies, travel expenses, employee salaries, your own
salary, etc.).

Those numbers combined is the initial investment you will need.

Now that you have a rough number in mind, there are a number of ways you can
fund your small business, including:

• Financing
• Small business loans
• Small business grants
• Angel investors
• Crowdfunding

You can also attempt to get your business off the ground by bootstrapping, using
as little capital as necessary to start your business. You may find that a
combination of the paths listed above work best. The goal here, though, is to
work through the options and create a plan for setting up the capital you need to
get your business off the ground.

Step 4: Choose a Business Structure

Your small business can be a sole proprietorship, a partnership, a limited liability

company (LLC) or a corporation. The business entity you choose will impact
many factors from your business name, to your liability, to how you file your
taxes.

You may choose an initial business structure, and then reevaluate and change
your structure as your business grows and needs change.

Depending on the complexity of your business, it may be worth investing in a

consultation from an attorney or CPA to ensure you are making the right
structure choice for your business.

Step 5: Pick and Register Your Business Name

Your business name plays a role in almost every aspect of your business, so you
want it to be a good one. Make sure you think through all of the potential
implications as you explore your options and choose your business name.

Once you have chosen a name for your business, you will need to check if it’s
trademarked or currently in use. Then, you will need to register it. A sole
proprietor must register their business name with either their state or county
clerk. Corporations, LLCs, or limited partnerships typically register their
business name when the formation paperwork is filed.

Don’t forget to register your domain name once you have selected your business
name. Try these options if your ideal domain name is taken.

Step 6: Get Licenses and Permits

Paperwork is a part of the process when you start your own business.

There are a variety of small business licenses and permits that may apply to your
situation, depending on the type of business you are starting and where you are
located. You will need to research what licenses and permits apply to your
business during the start-up process.

Step 7: Choose Your Accounting System

Small businesses run most effectively when there are systems in place. One of
the most important systems for a small business is an accounting system.

Your accounting system is necessary in order to create and manage your budget,
set your rates and prices, conduct business with others, and file your taxes. You
can set up your accounting system yourself, or hire an accountant to take away
some of the guesswork. If you decide to get started on your own, make sure you
consider these questions that are vital when choosing accounting software.

Step 8: Set Up Your Business Location

Setting up your place of business is important for the operation of your business,
whether you will have a home office, a shared or private office space, or a retail
location.

You will need to think about your location, equipment, and overall setup, and
make sure your business location works for the type of business you will be
doing. You will also need to consider if it makes more sense to buy or lease your
commercial space.

Step 9: Get Your Team Ready

If you will be hiring employees, now is the time to start the process. Make sure
you take the time to outline the positions you need to fill, and the job
responsibilities that are part of each position. The Small Business
Administration has an excellent guide to hiring your first employee that is useful
for new small business owners.
If you are not hiring employees, but instead outsourcing work to independent
contractors, now is the time to work with an attorney to get your independent
contractor agreement in place and start your search.

Lastly, if you are a true solopreneur hitting the small business road alone, you
may not need employees or contractors, but you will still need your own support
team. This team can be comprised of a mentor, small business coach, or even
your family, and serves as your go-to resource for advice, motivation and
reassurance when the road gets bumpy.

Step 10: Promote Your Small Business

Once your business is up and running, you need to start attracting clients and
customers. You’ll want to start with the basics by writing a unique selling
proposition (USP) and creating a marketing plan. Then, explore as many small
business marketing ideas as possible so you can decide how to promote your
business most effectively.

Once you have completed these business start-up activities, you will have all of
the most important bases covered. Keep in mind that success doesn’t happen
overnight. But use the plan you’ve created to consistently work on your business,
and you will increase your chances of success.

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Various Forms of Business Ownership

Last updated on December 5th, 2019 at 02:58 pm

1. Single Ownership:

Ownership when applied to an industrial enterprise means title to and

possession of the assets of the enterprise, the power to determine the policies of
operation, and the right to receive and dispose of the proceeds.

It is called a single ownership when an individual exercises and enjoys these

rights in his own interest. A business owned by one man is called single
ownership. Single ownership does well for those enterprises which require little
capital and lend themselves readily to control by one person.

Examples of enterprises run by single owner are printing press, auto repair shop,
wood working plant, a small fabrication shop, etc., Le., retail trades, service
industries and small engineering firms. In single ownership, one person
contributes the original assets to start the business, maintains and controls
business operations, reaps full benefit in terms of profit and is fully liable for all
debts associated with the business.

Advantages of Single Ownership:

1. Easy to establish as it does not require to complete any legal

formality.
2. Simplicity of organization.
3. The expenses in starting the business are minimal.
4. Owner is free to make all decisions.
5. This type of ownership is simple, easy to operate and extremely
flexible.
6. The owner enjoys all the profits, thus,
7. There is a great deal of personal motivation and incentive to
succeed.
8. Minimum legal restrictions are associated with this form of
ownership.
9. Owner can keep secrecy as regards the raw materials used,
method of manufacture, etc.
10. Single ownership associates with it the great ease with
which the business can be discontinued.

Disadvantages of Single Ownership:

1. The owner is liable for all obligations and debts of the business.
2. The business may not be successful if the owner has limited
money, lacks ability and necessary experience to run the business.
3. Because of relatively unstable nature of the business, it is difficult
to raise capital for expanding the business.
4. If the business fails, creditors can take the personal property as
well as the business property of the (single) owner to settle their
claims. This means single ownership involves unlimited liability
for debts and losses.
5. There is limited opportunity for employees as regards monetary
rewards (e.g., profit sharing, bonuses, etc.) and promotions.
6. Generally, single ownership firm has limited life, i.e., the firm may
cease to exist with the death of the proprietor. This is the cause of
unstable nature of the firm (refer 3 above).

Applications of Single Ownership:

Single ownership is suitable:

1. For retail trades, service concerns and small engineering firms

which require relatively small capital to start with and to run.
2. For those businesses which do not involve high risks of failure.
3. When the business can be taken care by one person.

2. Partnership:

A single owner becomes inadequate as the size of the business enterprise grows.
He may not be in a position to do away with all the duties and responsibilities of
the grown business. At this stage, the individual owner may wish to associate
with him more persons who have either capital to invest, or possess special skill
and knowledge to make the existing business still more profitable.

Such a combination of individual traders is called Partnership. Partnership may

be defined as the relation between persons who have agreed to share the profits
of a business carried on by all or any of them acting for all.

Individuals with common purposes join as partners and they put together their
property, ability, skill, knowledge, etc., for the purpose of making profits. In
brief, partnership is an association of two or more (up to 20) persons to carry on
as co-owners of a business for profit.

Partnerships are based upon a partnership agreement which is generally reduced

to writing. It should cover all areas of disagreement among the partners. It
should define the authority, rights and duties of each partner. It should specify-
how profits and losses will be divided among the partners, etc.

Kinds of Partners:

(i) Active Partners who take active part in the management of the business
enterprise.

(ii) Sleeping Partners who do not take any active part in the conduct of the
business. Both Active and Sleeping partners are responsible for the debts of the
Partnership.

General Duties of Partners:

Partners should:

(i) Be just and faithful to one another.

(ii) Render true accounts and full information about everything that affects any
partner.

(iii) Cooperate and accommodate each other.

(iv) Have confidence in each other and better mutual understanding.

(v) Respect the views of one-another.

Types of Partnership:

(i) General Partnership:

Whatever has been discussed above so far pertains to General Partnership;

besides that in a general partnership, each partner has full agency powers and
may bind the partnership by any act, i.e., each partner may act as though he were
an individual proprietor.

General partnership differs from single ownership in that the actions of any
partner not only affect himself but they affect other partners also. As the
partnership grows or personnel changes occur, additional partners can be had
with the consent of all old partners.

Advantages of General Partnership:

(i) Large capital is available to the firm.

(a) The firm possesses much better talents, judgment and skills.

(iii) General partnership is easy to form and is relatively inexpensive in terms of

organization cost.

(iv) Incentive for success is high.

(v) There is a definite legal status of the firm.

(vi) Partners have full control of the business and possess full rights to all profits.

(vii) Partnership associates tax advantages with it.

(viii) Partnership firms can borrow money quite easily from the banks.
(ix) For all losses, there are more than one person to share them.

Applications of General Partnership:

General Partnership does very well in

Law firms,

Retail trade organisation,

Medical clinics,

Small engineering firms, etc.

Disadvantages of General Partnership:

(i) Each partner has unlimited liability for the debts of the firm,

(ii) Danger of disagreement and distrust among the partners,

(iii) Authority being divided among the partners,

(iv) Partnership lacks permanence and stability; it has limited life. Partnership
may dissolve if a partner dies,

(v) Investors and lenders hesitate to provide money because of the lack of
stability of a partnership firm, and

(vi) All partners suffer because of the wrong steps taken by one partner.

(ii) Limited Partnership:

Limited partnership type of ownership overcomes the two main disadvantages

[e.g. number (i) and (v) mentioned above] of general partnership. Limited
partnership is an association of one or more general partners who manage the
business and one or more limited partners whose liability is limited to the capital
they have invested in the business.

Limited partners share the profit but they do not participate or interfere with the
control or management of the firm. Moreover limited partners have their
liabilities limited to the amount of their investment.
Thus, those investors and lenders who used to hesitate investing in the venture
can do so without much risk. Limited partnership type of ownership is easy and
less costly to form, and personal incentive to succeed is retained. A disadvantage
associated with limited partnership is that the limited partner, though he
invests in the business, has no voice in the management.

3. Joint Stock Company:

Joint Stock Company overcomes many of the disadvantages associated with

Partnership types of industrial ownership, such as:

(i) Difficulties in raising capital,

(ii) Easy disruption,

(iii) Lack of facility for centralised management, and

(iv) Unlimited liability, etc.

A joint stock company is an Association of individuals, called shareholders, who

join together for profit and agree to supply capital divided into shares that are
transferable for carrying on a specific business. Death, insolvency, disablement
or lunacy of the shareholders does not affect the joint stock company. A joint
stock company consists of more than twenty persons for carrying any business
other than the banking business.

These persons give a name to the company, mention the purpose for which it is
formed, and state the nature and the amount of capital (shares) to be issued,
etc., and submit the proposal to the Registrar of Companies. As the registrar
issues a certificate in this connection, the company starts operating. The
managing body of a joint stock company is Board of Directors elected by the
shareholders.

The Board of Directors:

(i) Makes policies;

(ii) Takes decisions; and

(iii) Runs the company efficiently.

The liability of the members (or shareholders) of a joint stock company is limited
to that capital only of which they hold the shares. Finance is raised by issuing
shares, debentures, bank loans, loans from industrial and finance corporations.
Types of Joint Stock Company:

There are two types of joint stock companies:

(a) Private Limited Company:

(i) The capital is collected from the private partners; some of them may be active
while others being sleeping.

(ii) Private limited company restricts the right to transfer shares, avoids public
to take up shares or debentures.

(iii) The number of members is between 2 and 50, excluding employee and ex-
employee shareholders.

(iv) The company need not file documents such as consent of directors, list of
directors, etc., with the Registrar of Joint Stock Companies.

(v) The company need not obtain from the Registrar, a certificate of
commencement of business.

(vi) The company need not circulate the Balance Sheet, Profit and Loss Account,
etc., among its members; but it should hold its annual general meeting and place
such financial statements in the meeting.

(vii) A private company must get its accounts audited.

(viii) A private company has to send a certificate along with the annual return to
the Registrar of Joint Stock Companies stating that it does not have shareholders
more than fifty excluding the employee and ex-employee shareholders.

Actually, a private joint stock company resembles much with partnership and
has the advantage that big capital can be collected, than could be done so in
partnership.

(b) Public Limited Company:

(i) In Public limited company, the capital is collected from the public by issuing
shares having small face value (Rs. 50,20,10).

(ii) The number of shareholders should not be less than seven, but there is no
limit to their maximum number.
(iii) A public limited company has to file with the Registrar of Joint Stock
Companies, documents such as consent of the directors, list of directors,
director’s contract, etc., along with the memorandum of association and articles
of association.

(iv) A public company has to issue a prospectus to the public.

(v) It has to allot shares within 180 days from the date of prospectus.

(vi) It can start only after receiving the certificate to commence business.

(vii) It has to hold a Statutory Meeting and to issue a Statutory Report to all
members and also to the Registrar within a certain period.

(viii) There is no restriction on the transfer of shares. (be) Directors of the

company are subject to rotation.

(x) The public company must get its account audited every year by registered
auditors.

(xi) It has to send financial statements to all members and to the Registrar.

(xii) It has to hold a general meeting every year.

(xiii) The Managing Agent gets a fixed percentage of net profit as remuneration.

Advantages of Joint Stock Companies:

(i) A huge sum of money can be raised.

(ii) It associates limited liability with it.

(iii) Shares are transferable.

(iv) Company’s life is not affected by the life (death) of shareholders.

(v) Services of specialists can be obtained.

(vi) Risk of loss is divided among many shareholders.

(vii) The company associates with it stability, efficiency and flexibility of

management.
Disadvantages of Joint Stock Companies:

(i) A good deal of legal formalities is required for the formation of a joint stock
company.

(ii) Company is managed by big shareholders only.

(iii) High paid officials manage the whole shows; they cannot have as high
interests in the company as the proprietors can have.

(iv) People can commit frauds with the company.

(v) Board of directors and managers who remain familiar with the financial
position of the company may sell or purchase shares for their personal profits.

(vi) It is difficult to maintain secrecy as in partnership.

(vii) The team spirit with which partnership works, is lacking in a joint stock
company.

(viii) Divided responsibility.

Applications of Joint Stock Companies:

(i) Steel mills,

(ii) Fertiliser factories, and

(iii) Engineering concerns, etc.

4. Cooperative Organisation (Or Societies):

It is a form of private ownership which contains features of large partnership as

well as some features of the corporation. The main aim of the cooperative is to
eliminate profit and provide goods and services to the members of the
cooperative at cost.

Members pay fees or buy shares of the cooperative, and profits are periodically
redistributed to them. Since each member has only one vote (unlike in joint stock
companies), this avoids the concentration of control in a few hands.
In a cooperative, there are shareholders, a board of directors and the elected
officers similar to the corporation. There are periodic meetings of shareholders,
also. Special laws deal with the formation and taxation of cooperatives.

Cooperative organisation is a kind of voluntary, democratic ownership formed

by some motivated individuals for obtaining necessities of everyday life at rates
less than those of the market. The principle behind the cooperative is that of
cooperation and self-help.

Forms of Cooperative Enterprises:

(i) Consumer’s Cooperatives, in retail trade and services.

(ii) Producer Cooperatives, for group buying and selling such items as dairy
products, grain, fruit, etc.

(iii) Cooperative farming for more and good quality yield from the farms.

(iv) Cooperative housing for constructing and providing houses to the members
of the association at relatively lesser rates.

(v) Cooperative credit society, to provide loans to the needy individuals.

Advantages of Cooperative Enterprises:

(i) Daily necessities of life can be made available at lower rates.

(ii) It is the democratic form of ownership.

(iii) Overheads are reduced as members of the cooperative may render honorary
services.

(iv) It promotes cooperation, mutual assistance and the idea of self-help.

(v) The chances of large stock-holding (hoarding) and black marketing are
eliminated.

(vi) No one person can make huge profits.

(vii) Common man is benefited by cooperatives.

(viii) Monetary help can be secured from government.

(ix) Goods required can be purchased directly from the manufacturers and
therefore can be sold at less rates.

Disadvantages of Cooperative Enterprises:

(i) Since the members of the cooperative manage the whole show, they may not
be competent enough to make it a good success.

(ii) Finance being limited, specialist’s services cannot be taken.

(iii) Conflict may arise among the members on the issue of sharing responsibility
and enjoying authorities.

(iv) Members who are in position may try to take personal advantages.

(v) Members being in services may not be able to devote necessary attention and
adequate time for supervising the works of the cooperative enterprise.

5. Public Sector:

Concept of Public Sector:

A public enterprise is one that is:

(1) Owned by the state,

(2) Managed by the state, or

(3) Owned and managed by the state.

The sector of public enterprises is popularly known as the Public Sector. Public
enterprises are controlled and operated by the Government either solely or in
association with private enterprises. Public enterprises are controlled and
operated by the Government to produce and supply goods and services required
by the society. Ultimate control of public enterprises remains with the state and
the stale runs it with a service motto.

Its sphere embraces all units, irrespective of risks involved and profit expected.
There is no dearth of capital in public sector and business expansion is not
difficult. Public sector prevents concentration and unbalanced growth of
industries.
Public sectors are accountable in terms of their results to Parliament and State
Legislature. A public enterprise is seldom as efficient as a private enterprise;
wastage and inefficiency can seldom be reduced to a minimum.

Evolution of Public Sector:

The Industrial Revolution gave rise to many bitter social evils. It also gave birth
to private capitalism. Consumers and workers were exploited and, therefore,
there arose the need of State Intervention in industrial field. The intervention led
to evolution of public sector/enterprises. The evolution of public sector in India
is recent.

Prior to 1947, there was virtually no public sector barring the field of transport
and communication, i.e., Railways, Posts and Telegraphs etc., are being
managed by the Central Government since pre-independence period. Since
independence, a large number of public enterprises have been established both
by Central and State Governments.

The Hindustan Shipyard, The Hindustan Steels, the Hindustan Machine Tools,
The Bharat Heavy Electricals, Indian Telephone Industries, Indian Airlines, Life
Insurance Corporation are a few examples of public sector.

Objectives of Public Sector:

(1) To provide basic infrastructure facilities for the growth of economy.

(2) To promote rapid economic development.

(3) To undertake economic activity strategically important for the growth of the
country, which if left to private initiative would distort the national objective.

(4) To have balanced regional development and even dispersal of economic

activity throughout the country.

(5) To avoid concentration of economic power in a few hands.

(6) To create employment opportunities on an increasing scale.

(7) To earn foreign exchange in order to export commodities not available in the
country e.g., petroleum oil, sophisticated weapon systems etc.

(8) To look after well-being and welfare of public.

(9) To minimize exploitation of workers and consumers.

Merits of Public Sector:

(1) Public sector helps in the growth of those industries which require huge
amount of capital and which cannot flourish under the private sector.

(2) Public sector helps in the implementation of the economic plans and enables
them to reach the target of achievement within a prescribed period by taking
initiative in- the establishment of industries of its own accord.

(3) Due to the absence of project motive in the public sector, the consumers are
benefitted by greater, better and cheaper products.

(4) Public enterprise prevents the concentration of wealth in the hands of a few
and paves the way for equitable distribution of wealth among different sections
of community.

(5) Public enterprise encourages industrial growth of under-developed regions

in the country.

(6) Profits earned by public sector may be used for the general welfare of the
community.

(7) Public sector offers equitable employment opportunities to all; there is no

discrimination, as may be in a private sector.

(8) Capital, raw material, fuel, power and transport are easily made available to
them.

Demerits of Public Sector:

(1) Public sector can rarely attain the efficiency of a private enterprise; wastage
and inefficiency can seldom be reduced to a minimum.

(2) Due to heavy administrative expenses, state enterprises are mostly run at a
loss leading to additional burden of taxation on the people.

(3) There is too much interference by the Government and Politicians in the
internal affairs of the public enterprises. As a result inefficiency increases.

(4) Delay in decisions is a very common phenomena in public enterprises.

(5) Incompetent persons may occupy high levels.

(6) Workers (unlike in private concerns) shirk work.

6. Private Sector:

Private sector serves personal interests and is a non-government sector. Profit

(rather than service) is the main objective. Private sector constitutes mainly
consumer’s goods industries where profit possibilities are high. Private sector
does not undertake risky ventures or those having low-profit margin. Private
enterprises are run by businessmen, capital is collected from the private
partners.

Merits of Private Sector:

(i) The magnitude of profits incurred is high.

(ii) The efficiency of the private enterprise is high,

(iii) Wastage of material and labour is minimum.

(iv) Decision-making is very prompt.

(v) There is no interference in its internal affairs by politicians or Government.

(vi) Competent persons occupy high levels.

Demerits of Private Sector:

(i) There is exploitation motive, the workers and the consumers may not receive
fair deal.

(ii) There is dearth of capital to expand the business.

(iii) Private enterprise leads to concentration of wealth in the hands of a few.

(iv) Private enterprises lead to unbalanced growth of industries.

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Registration of business units

Last updated on February 18th, 2020 at 04:47 pm
To begin is to succeed. Starting a business in India is not a fairy tale story, but the
Nation has made tremendous progress in the recent days and made starting a
business, very easy for Entrepreneurs. Today, we will look at the most commonly
referred to licenses and registrations required for a business in India.

The process of obtaining license changes from one type of business to the
other, based on various determining factors like the number of employees,
sector, the type of business, the place of business etc. In this little article, we look
at some of the most commonly obtained licenses or registrations for a business.
To determine the exact requirement for your business, get in touch with an
IndiaFilings Business Advisor.

Company or LLP Registration

Most businesses in India are started as proprietorships or partnership firms,

without any registration from the Central Government. The Ministry of
Corporate Affairs regulates the registration of a company and LLP. It is advisable
for Entrepreneurs who have plans for operating a business with an annual
turnover of more than Rs.20 lakhs to obtain a LLP or Company registration.
Once, a company or LLP is registered, the entity would have a separate legal
identity and the promoters would enjoy limited liability protection. Further, the
business would also become easily transferable and the entity would have
perpetual existence. Hence, before starting a business, its best to consult and
expert and register a company or LLP.

GST Registration

All types of entities and individuals who have an aggregate annual turnover of
more than Rs.20 lakhs in most State and Rs.10 lakhs in Special Category States
are required to obtain GST Registration. Further, any person supplying goods
involved in intra-state supply is required to obtain GST Registration, irrespective
of turnover. In addition to the above criteria, various other criteria has been
provided under the GST Act, establishing the criteria’s for GST registration. It is
important for all Entrepreneurs to understand the criteria’s and obtain GST
registration within 30 days of starting a business.

Udyog Aadhar Registration

This is a registration available for entrepreneurs who want to start and operate
a small business – micro, small and medium enterprises. The eligibility criteria
for obtaining Udyog Aadhaar registration is based on the investment in plant &
machinery made by a manufacturing concern or investment in equipment made
by a service provider. Once, Udyog Aadhaar registration is obtained for a
business, it can enjoy various subsidies and schemes specially provided by the
Government for helping small businesses in India.
FSSAI License or Registration

“Food safety and standard authority of India”(FSSAI), is responsible to verify the

safety and standardization of food products nationwide. Retail stores,
restaurants, modern trade outlets, kiosks and consumers alike look for this five
letter word in their food packets or containers.

Under FSSAI, the license or registration is divided into three categories namely:

FSSAI Central License

FSSAI State License

FSSAI State Registration

Import Export Code

Any person involved in import or export of goods/services from India must

obtain Import Export Code from the DGFT Department. To obtain Import Export
Code, it is mandatory for the business to have a PAN and a Current Account in a
bank.

Shop and Establishment Act License

“The Shop and Establishments Act”, was created for regulating the conduct of
business like the hours of work, child labor, payment of wages, safety and
general health of the employees. Shop and Establishment Act license or
registration is issued by the State Governments and varies from States. Hence,
based on the State in which the business is situated, the concerned State
Government authority must be approached for obtaining Shop and
Establishment Act License.

Other Licenses and RegistrationsRevival, exit

and end to a Venture
Last updated on October 3rd, 2021 at 06:41 pm
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Certain types of business that involve aspects of dealing or providing insurance,

financial services, broadcasting services, defence related services, etc., would
require approval from regulatory bodies like Reserve Bank of India, IRDAI, etc.,

Further, a business may also have ot obtain permits from the fire department, or
the pollution control board, or maybe the local healthcare system. It all depends
on the type of business you are willing to operate. Hence, prior to starting a
business, make sure you discuss your business with a Professional to determine
and understand the legal and regulatory requirements.

Start-up to going IPO

Last updated on February 18th, 2020 at 04:46 pm

1. “Net tangible assets” of at-least ₹3 crores in each of the last 3

years, of which not more than 50% is held in monetary assets. The
only exemption available to the 50% monetary assets is that a
 company must have firm commitments to utilize the excessive
amount for the business in the future. (Indian laws favor asset
heavy businesses).
2. The total paid up capital shall not be less than ₹10 Cr. and the
market capitalization shall not be less than ₹25 crores.
3. The company must have delivered profits in at-least 3 out of the
last 5 years subject to the exclusion of extraordinary items like
sale of land or key parts of the business.
4. It has to have a minimum net worth of at-least ₹1 crore in each of
the last 3 years (12 preceding months).
5. The total issue size should not exceed more than 5 times it’s latest
net worth.
6. If the company’s name has been changed in the last 1 year, at-
least 50% of its revenues of the last 1 year should be earned after
the name was changed. There are many other rules & regulations
to comply with. I suggest you read them directly on NSE
website& BSE website

Entrepreneurs are usually focused on growing their business and when they’re
ready to launch an IPO, such rules generally hamper and delay progress. Keep in
mind, that these rules are age-old so the effect of inflation has reduced the entry
barriers. Since, money has lost it’s value due to inflation, the entry barriers seem
small as on today. This is one of the main reasons why the number of listed
companies has increased substantially over time. Please note that these rules
are subject to change from time to time and I might not be able to update them
in real-time.

Qualifications for listing Initial Public Offerings (IPO) are as below:

1. Paid up Capital
The paid up equity capital of the applicant shall not be less than 10
crores and the capitalisation of the applicant’s equity shall not be
less than 25 crore.
2. Conditions Precedent to Listing:
The Issuer shall have adhered to conditions precedent to listing as
emerging from inter-alia from Securities Contracts (Regulations)
Act 1956, Companies Act 1956, Securities and Exchange Board of
India Act 1992, any rules and/or regulations framed under
foregoing statutes, as also any circular, clarifications, guidelines
issued by the appropriate authority under foregoing statutes.
3. Atleast three years track record of either:
 • the applicant seeking listing; or
• the promoters/promoting company, incorporated in or outside
India or
• Partnership firm and subsequently converted into a Company
(not in existence as a Company for three years) and approaches
the Exchange for listing. The Company subsequently formed
would be considered for listing only on fulfillment of conditions
stipulated by SEBI in this regard.

For this purpose, the applicant or the promoting company shall submit annual
reports of three preceding financial years to NSE and also provide a certificate to
the Exchange in respect of the following:

• The company has not been referred to the Board for Industrial and
Financial Reconstruction (BIFR).
• The networth of the company has not been wiped out by the
accumulated losses resulting in a negative networth
• The company has not received any winding up petition admitted
by a court.

1. The applicant desirous of listing its securities should satisfy the

exchange on the following:

• No disciplinary action by other stock exchanges and regulatory

authorities in past three years
• Redressal Mechanism of Investor grievance
• Track Record of Director(s) of the Company
• Distribution of shareholding
• Details of Litigation