Professional Documents
Culture Documents
Ed Unit 2 Mba
Ed Unit 2 Mba
Ed Unit 2 Mba
development
UNIT II
1
Opportunity Identification and
Product Selection
2
Entrepreneurial opportunity search &
identification
• Opportunity identification is central to entrepreneurship
and involves:
• The creative pursuit of ideas
• The innovation process
• The first step for any entrepreneur is the identification of
a “good idea.”
• The search for good ideas is never easy.
• Opportunity recognition can lead to both personal and societal
wealth.
3
Entrepreneurial opportunity search &
identification
• How entrepreneurs do what they do:
• Creative thinking + systematic analysis = success
• Seek out unique opportunities to fill needs and wants
• Turn problems into opportunities
• Recognize that problems are to solutions what demand is to
supply
Ideas are not the same as opportunities
Ideas Opportunities
Last for ever are perishable
Are free require work 4
Entrepreneurial opportunity search &
identification
What is an opportunity??
• An idea that is timely, attractive, durable anchored in a
product or service that creates or adds value for its buyer
and user.
An opportunity is a favorable set of circumstances that
creates the need for a new product, service, or business
idea.
An idea, as we defined it, is “Something imagined or
pictured in the mind”. The difference is that an idea may
or may not represent an opportunity. 5
Entrepreneurial opportunity search &
identification
• An opportunity as four essential qualities
6
Entrepreneurial opportunity search &
identification
• Window of Opportunity
The term “window of opportunity” is a metaphor
describing the time period in which a firm can realistically
enter a new market.
Once the market for a new product is established, its
window of opportunity opens, and new entrants flow in.
At some point, the market matures, and the window of
opportunity (for new entrants) closes.
7
Entrepreneurial opportunity search &
identification
• Three Ways to Identify An Opportunity:
• 1. Observing Trends
The first approach to identifying opportunities is to
observe trends and study how they create opportunities
for entrepreneurs to pursue.
There are two ways that entrepreneurs can get a handle
on changing environmental trends:
They can carefully study and observe them.
They can purchase customized forecasts and market 8
analyses from independent research firms.
Entrepreneurial opportunity search &
identification
• Environmental Trends Suggesting Business or Product
Opportunity Gaps:
9
Entrepreneurial opportunity search &
identification
• Economic Forces
Economic forces affect consumers’ level of disposable income.
When studying how economic forces affect opportunities, it is
important to evaluate who has money to spend and who is trying to
cut costs.
An increase in the number of women in the workforce and their related
increase in disposable income is largely responsible for the number of
boutique clothing stores targeting professional women that have opened in
the past several years.
Many large firms are trying to cut costs. Entrepreneurs have taken advantage
of this trend by starting firms that help other firms control costs.
10
Entrepreneurial opportunity search &
identification
• Social Forces
Changes in social trends provide openings for new businesses on an
ongoing basis.
The continual proliferation of fast-food restaurants, for example, isn’t
happening because people love fast food. It is happening because
people are busy, and have disposable income.
Similarly, the Sony Walkman was developed not because consumers
wanted smaller radios but because people wanted to listen to music
while on the go.
11
Entrepreneurial opportunity search &
identification
• Technological Advances
Given the rapid pace of technological change, it is vital that
entrepreneurs keep on top of how new technologies affect current
and future business opportunities.
Entire industries have emerged as the result of technological
advances.
Examples include the computer industry, the Internet, biotechnology, and
digital photography.
Once a new technology is created, new businesses form to take the
technology to a higher level.
For example, RealNetworks was started to add audio capability to the
Internet.
12
Entrepreneurial opportunity search &
identification
• Political and Regulatory Changes
Political and regulatory changes provide the basis for new business
opportunities.
For example, laws that protect the environment have created opportunities
for entrepreneurs to start firms that help other firms comply with
environmental laws and regulations.
Similarly, many entrepreneurial firms have been started to help companies
comply with the Sarbanes-Oxley Act of 2002. The act requires certain
companies to keep all their records, including e-mail messages and
electronic documents, for at least five years.
13
Entrepreneurial opportunity search &
identification
2. Solving a problem
15
Criteria to select a product
17
Criteria to select a product
21
Definition of Feasibility Studies
• A feasibility study looks at the viability of an idea with an
emphasis on identifying potential problems and attempts to
answer one main question: Will the idea work and should you
proceed with it?
22
Objective of feasibility study
• The feasibility study answers the basic questions:
Is it realistic to address the problem or the opportunity under
consideration?
23
Conducting Feasibility studies
1. Market Analysis
M A is conducted to estimate the demand and market share of the
proposed product/service in future.
Demand analysis and market share is based on number of factors -
consumption pattern, availability of substitute goods/service,
competition etc.
A preliminary discussions with consumers, retailers, distributors,
competitors, suppliers is carried to understand consumer
preferences, existing and potential demands, strategy of
competitors, and practices of distributors, retailers etc., present and
prospective consumers, geographic and seasonality distribution of
the demand, marketing mix of competitors, accepted marketing mix
of consumers.
25
Conducting Feasibility studies
3. Financial Analysis
Financial feasibility is done for financial assessment of the proposed
business venture. Following cost estimates have to be carried out :
i) Cost of land and building – depending upon the requirement and
availability of funds, the land and building can be hired, taken on
lease or purchased.
ii) Cost of plant & machinery-estimating cost of plants & machineries
and their running & maintenance.
iii) Preliminary cost estimation – cost required for conducting
market survey, preparing feasibility report, registration expenses,
expenses involved in raising capital from public & other misc
expanses.
27
Conducting Feasibility studies
3. Financial Analysis
iv) Provision of Contingencies : Needs to be made to cover certain
unexpected expanses which can emerge due to change in
external environment like increase in the price of the raw
material, petrol price, transportation costs.
v) Working capital estimates for running the business are also
made.
vi) Cost of Production – It include raw material cost, labour cost,
overhead expanses, utilities like power, water, fuel etc.
vii) Sales and Production estimates : Based on the plant capacity the
production and sales estimates are made which help in
estimating profitability.
28
Conducting Feasibility studies
3. Financial Analysis
viii Profitability projections are made on the following parameters
a. Cost of production
b. Sale expenses
c. Administrative expanses
d. Expected sales
e. Calculation of the above gives gross profit
29
Conducting Feasibility studies
30
Conducting Feasibility studies
31
Conducting Feasibility studies
33
34
SME: Registration
There are two stages of registration-provincial and permanent (final).
An enterprise is granted provisional registration when it is at a pre-investment
stage. After getting provisionally registered, an enterprise can apply for
permanent registration just before launching its production facilities.
Enterprises falling under the three categories (micro, small and medium) are
further categorized into two types of industries:- manufacturing industry and
service industry.
• The main purpose of Registration is to maintain statistics and maintain a roll of
such units for the purposes of providing incentives and support services.
• States have generally adopted the uniform registration procedures as per the
guidelines. It must be noted that small industries is basically a state subject.
• States use the same registration scheme for implementing their own policies. It
is possible that some states may have a Small Industry Development
Organization (SIDO) registration scheme' and a 'State registration scheme'.
35
SME: Registration
36
SME: Registration
Procedure for Registration
Features of the present procedures are as follows:
• Unit applies for PRC in prescribed application form. No field enquiry is done and PRC
is issued.
• PRC is valid for five years. If the entrepreneur is unable to set up the unit in this
period, he can apply afresh at the end of five years period.
• Once the unit commences production, it has to apply for permanent registration on
the prescribed form.
The following form basis of evaluation:
• The unit has obtained all necessary clearances whether statutory or administrative.
e.g. drug license under drug control order, NOC from Pollution Control Board, if
required etc.
• Unit does not violate any locational restrictions in force, at the time of evaluation.
• Value of plant and machinery is within prescribed limits.
• Unit is not owned, controlled or subsidiary of any other industrial undertaking as per
notification.
37
NOC from Pollution BOARD
FUNCTIONS OF THE BOARD :
• Issue of No Objection Certificates from the environmental pollution point of view
including adequacy of the site from the environmental angle.
• Issue of Consent under provisions of section 25/26 of the Water (Prevention and
Control of Pollution) Act, 1974.
• Issue of Consent under provisions of section-21 of the Air (Prevention and Control of
Pollution) Act, 1981.
• Assessment and collection of Water Cess, under provision of Water (Prevention and
Control of Pollution) Cess Act, 1977.
• Identification and assessment of industrial and municipal pollution sources and
control thereof.
• Assessment of ambient air quality.
• Assessment of quality of inland surface waters.
• Mass awareness programmes.
• Notification of effluent and emission standards.
• Development of Pollution Control technologies.
38
NOC from Pollution BOARD
39
Machinery and Equipment Selection
40
Project Report Preparation
• While preparing the project report for small scale industry, the
statistical figures are not discouraging for the promoters. The
project valuation should encourage a sense of practicality among
them.
• The other users who could require the project reports are
industrialists, Financiers, banks, Financial Analysts, merchants,
clients, certifying authorities, Management Accountants, etc
42
Specimen of Project Report
• The standard format for preparing a project report for small
scale industry is listed in broad segments as below:
Executive Summary
Existing company details (if any)
Operational details of the existing company (if existing)
Project Details
The company vis-a-vis related industry
Conclusion
References/Bibliography
Annexures
43
Project Planning and Scheduling using Networking
Techniques of PERT / CPM
49
Project Appraisal Analyses
It includes the following Analyses:
• Economic Analysis
• Financial Analysis
• Market Analysis
• Technical Analysis
• Managerial Competence
50
Economic Analysis
Employment Effect
Financial Analysis
What is the project’s commercial profitability?
Financial Projections 51
Technical Analysis
Capacity of the plant
Evaluation of technology
Inputs like water, power, transport, communication
facilities etc.
Location
Managerial Competence
52
Talent of the promoter and employees
Conclusion
Project appraisal is necessary for knowing project is viable or not?
It is vary useful for entrepreneur.
Various methods to calculate project is viable or not entrepreneur
use the suitable one.
Contents of a Project Report
Executive Summary
- Introduction
- Financial Performance
- Balance sheet analysis
- Proposed Project
- Project profitability & analysis
- SWOT Analysis
Existing company details (if any)
- History
- Manufacturing Facilities
- Promoters
- Shareholding Pattern
- Board of Directors
- Key Executives
- Major Products
- Major Customers 54
- Details of divisions, Group Units
Operational details of the existing company (if existing)
- Capacity and utilisation
- P & L account
- Balance sheet
- Term loans and advances
- Working capital loans
- SDM
- Marketing Strategy
- Export Sales
- Trends in selling process
Project Details
- Proposed project
- Orders and Enquiries
- Location
- Manufacturing Process
- Techincal Feasibilty
- Inputs for production
- Manpower
- Power
- Water
- Auxilary Services
55
Project Cost
- Land
- Building and civil work
- Plant & Machinery
- Operating Expenses
Means of Finance
Equity share capital
Internal accruals
Deposits
Debt
Other Sources
Project Status
- Implementation Schedule
- PERT/CPM analysis
- Current Status
- Government Approvals 56
Profitability and Risk Analysis
- Financials of the project
- Financials of the company
- Break even point analysis, ROI, Payback period etc
- Major Risk Factor
- SWOT
The company vis-a-vis related industry
- General Analysis
- Competing Industries
- Competitive Advantage to the company
Employment Generation- Direct/Indirect
Conclusion
References/Bibliography
Annexures
57
Annexures
- Promoters Bio-data
- Organisation chart
- Details of group units
- Statutory Sanctions/approvals
- Process chart
- Any other details
58
Feasibility Analysis
59
The Business Plan:
Creating and starting the
Venture
Source: NIESBUD
SELECTION
CONCEPTION/
IDENTIFICATION PLANNING
FORMULATION
EVALUATION PROJECT
CYCLE
OPERATION
APPRAISAL
IMPLEMENTATION
FORMULATION OF A
PROJECT REPORT
SIZE OF BANKS
TCOs
PROJECT REPORT
DICs
KVIB
CONTENTS KVIC
EDCs
NGOs
Pvt Consultants
factors to considered
while formulating
project report
Decision Making
Market Surveys
MARKET SURVEY
IN SIMPLE WAY WE CAN SAY MARKET SURVEY IS A TOOL OR
ENTRPREPRENEUR.
CONTENTS
3.MARKET POTENTIAL
2.
2.PROJECT DESCRIPTION
1.GENERAL INFORMATION
7. ECONOMIC & SOCIAL
VARIABLE
6. OTHER FINANCIAL
ASPECTS
5. ASSESSMENT OF
WORKING CAPITAL
REQUIREMENTS
4. CAPITAL COST OF
PROJECT & SOURCES OF
FINANCE
GENERAL INFORMATION
Promoter/s Qualifications, experience, family
Bio-data background/connections,
achievements
Industry Profile Origin, Past Performance, Present
Status, Future Potential
Constitution Proprietorship/Partnership etc.,
registration
DI Regn. & No. ----
MARKET SURVEYS
MARKET/
BUYER
SUPPLIER
MARKET/ BUYERS
HIGH CLASS
SOCIETY
MEDIUM CLASS
LOWER CLASS
TARGET CUSTOMER
COST OF PROJECT
LOCATION
FACILITIES
STEPS IN PREPARING
PROJECT REPORT
1. NAME OF THE PROJECT
2. A GLANCE OF PROJECT
3. INTRODUCTION OF PROJECT
• MARKET POTENTIAL
• IMPLEMENTATION SCHEDULE
TECHNICAL ASPECTS
• PROCESS OF MANUFACTURING
• SEQUENCE OF OPERATION
• POWER REQUIREMENT
• POLLUTION CONTROL
FINANCIAL ASPECTS
BUSINESS.
1. FIXED CAPITAL
2. WORKING CAPITAL
FIXED CAPITAL
RAW MATERIAL
SALARY &WAGES
UTILITY
Bank (90%)
ITEM/YEAR 01 02 03 04 05
OPENING
BALANCE 1,00,000.00 80,000.00 64,000.00 51,200.00 40,960.00
CLOSING
BALANCE
80,000.00 64,000.00 51,200.00 40,960.00 32,768.00
ANNEXURE:-
REPAYMENT SHEDULE @ 10% PER ANNUM
ITEM/YEAR 01 02 03 04 05
OPENING
BALANCE 1,00,000.00 80,000.00 60,000.00 40,000.00 20,000.00
CLOSING
BALANCE 80,000.00 60,000.00 40,000.00 20,000.00 -
BREAK EVEN POINT
(BASED ON FIRST YEAR OF OPERATION)
FIXED COST:
1. Interest on loan : 38,077.50
2. Depreciation : 14,050.00
3. Man power expenses (40%) : 67,200.00
4. Operating expenses (40%) : 4,70,880.00
TOTAL : 5,90,207.50
Fixed cost x 100
BEP = -------------------------------------
Fixed cost + Net profit
5,90,207.50 x 100
= -------------------------------------
5,90,207.50 + 1,22,675.50
= 82.79%
PERCENTAGE OF PROFIT
= 24.16%
RETURN ON SALES (1ST YEAR)
= 7.66%
Thank you