Entrepreneurship: Design House

versus Manufacturing

Prof. Girish Kumar

Electrical Engineering Department
IIT Bombay
gkumar @ee.iitb.ac.in
prof.gkumar@gmail.com

Ex-Chairman, Wilcom Technologies Pvt. Ltd.

 Outline of Presentation
 Why Entrepreneur? Do you have the quality?
 When to start business
 Why Manufacture – Advantages and Disadvantages
 Team
 Funds
 Manufacturing Process
 Design House versus Manufacturing
 Conclusions
 Why Entrepreneur?
Great Idea and/or Product
Competition
Make Money
Create Jobs
Independent (your own boss)
Fame
Power
Entrepreneur – Requirement
Passion
Guts – Risk taking ability
Knowledge
Experience
Team
Funds
 When to Start Business
Immediately After Graduation
Young, dynamic, enthusiasm, will to succeed but
Lack of experience, knowledge, may not have funds.
Mentor – faculty may be a good choice. They have
knowledge, experience, contact, but may not have funds.
Most of high tech companies in USA are near Stanford,
UC Berkley, Harvard, MIT.
After Working for a Few Years
Have experience, financially stable but inertia, family
resistance
Why Manufacture - Advantages
 Generates Employment to large number of people
- 10% to 20% White collar jobs
- 80% to 90% Blue collar jobs
(4+ crore people in India are unemployed)
 Reduces Dependency on Foreign Countries
 Export (brings money to the country)
 Generates wealth for the nation
 Solution for India’s Growth
Why Manufacture - Disadvantages
Requires 100% working product
Requires Large Funds
Survival of the fittest
Labour / Union problems
Too many procedures, formalities, etc.
(Currently, India ranks in the bottom 15%
for starting a company but situation is
improving with the current Govt.)
 Comparison of Industries
% Cost Manufacturing IT / Trading
Design
Raw Material 40 - 60% 1 -10% 75 - 95%

Salary 5 - 10% 40 - 50% 1 – 5%

Other Expenses 10 – 30% 10 – 15% 3 – 10%

Profit before Tax 10 – 40% 25 – 45% 2 – 10%

 TEAM
Single Person Army
- One person can not do everything.
- Business requires diversified skills.
Large Team
- Responsibilities are shared
- Equity is to be shared
- People may have different ideas / goals
 FUNDS
A few examples of promoter’s holding in company
Name Organization Equity Held

Premji Wipro >70%

Ambani RIL >45%

Nandan Infosys <10%

Narayanmurty Infosys <10%

Rich Family - Larger Share of Pie

 FUNDS (Contd.)
Business runs on money. It comes from where?

FFF – Family, Friends and Fools

(I do not believe in third F, i.e. Fools, as it
leads to fourth F, i.e. Failure)
If you exploit someone or someone exploits
you, it does not work for a long time.
You have to create Win - Win situation.
 How to Raise Funds?
First Step : Business Plan
 Having a good idea / product is only 10 to 20% of business
activity. Development of finished product, manufacturing,
testing, packaging, marketing / selling, distribution, etc. are
80 to 90%.
 Every Entrepreneur should read books on entrepreneurship,
marketing, management, etc.
(Spend several weeks or months – remember this is for your
knowledge and not for exam).
Market Research, Product Differentiation, SWOT analysis,
Outsourcing (0 - 100%), Certification, Pricing, Marketing,
Distribution, P&L projections, Cash Flow, etc.
 How to Raise Funds (Contd.)
Second Step: Raising Initial Funds
Convince Family and Friends
Bank Loan – will ask for collateral
Angel Investor /Strategic Investor/ VC
- Valuation of Company
- Sharing the Equity
- Exit Route for Investor (M&A, IPO, etc.)
 Manufacturing Process
 Vendor Development for raw material and outsourcing
 Manual, semi-automation, automation – Quantity/day
 Machinery and place of manufacturing
 Recruitment of People
- Part time, Full time, Contract – Single or Double Shift
- Pay Package
 Accounting
 Quality Control – ISO Certification
Design House vs Manufacturing
Design House Manufacturing
No. of Employees Small Large

Fund Requirement Small Large

Turnover Small Large

% Profit Large Small
COMMON GOALS
 Compete with the best in the world
 Make yourself, employees and investors happy
 Create wealth for the country
 CONCLUSIONS
Can start as a design house – convert to manufacturing.
Manufacturing is the only solution for the overall
growth of country.
To the response of a report that India will overtake
China in next few decades, China said that the economy
of China is moving at a rabbit’s pace (rabbit will not
sleep), so how India, who is moving at Tortoise pace,
can overtake them.
INDIA MUST MOVE AT THE SPEED OF A TIGER.
Thank You!