ENTREPRNEURSHIP

DEVELOPMENT
1 UNIT 1
 ENTREPRENEURSHIP
 Entrepreneurship is the process of creating something
new with value by devoting the necessary time and
effort, assuming the accompanying financial, psychic
and social risks and receiving the resulting rewards of
monetary and personal satisfaction and independence.
 IRRUTUKADAI HALWA
 UBM HOTEL

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UBM HOTEL

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UBM HOTEL

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 KNOWLEDGE & SKILLS FOR
ENTREPRNEURSHIP
 Passion (KPN travels)
 Innovation (Sakthi masala)
 Persistence (KFC)
 The ability to hire effective people
 Create more entrepreneur friends
 The ability to identify strengths and weaknesses
 The ability to focus on your customers (Amazon)
 The ability to deal with failure (OPRAH)
 Risk taker
 The ability to relieve stress
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 Knowledge about the business
 Under stand the competitors
BENEFITS OF ENTREPRENEURSHIP
• Opportunity to create your own destiny
• Opportunity to make a difference
• Opportunity to reach your full potential
• Opportunity to reach impressive rewards
• Opportunity to contribute to the society and be
recognized for your efforts
• Opportunity to do what you enjoy and have Fun at it
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 FACTORS IMPACTING EMERGENCE OF ENTREPRENEURSHIP
 Political & Economy factors
 Capital

 Labour

 Raw material

 Family Background

 Education system

 Attitude of the society

 Type A behavior

 Market

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ENTREPRENEURIAL PROCESS

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 ROLE OF ENTREPRENEURSHIP IN
ECONOMIC DEVELOPMENT
1.Capital Formation: Mobilizes the idle savings of the
public.
2. Backward and Forward Linkages
3. Generation of employment
4. Improve standard of living.
5. Increasing GDP and per capita income
6. Promotes Country’s Export trade.

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 Unit IInd

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OPPORTUNITY IDENTIFICATION AND SELECTION
 Start from your family

 Pursue the type of work you love (KPN)

 Look for opportunity (Day & Eldercare, Car pooling,

Car rent & Bike Rent Hotel & cottage)
 Brainstorm

 Look for where demand (Event management, Yoga

center,)
 Experience (Hotel, Travels)

 Look for unfulfilled demand

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 IDEA GENERATION METHODS
 Focus Groups
8 to 20 people
Homogenous people
Few hours
o Brain storming
o Heterogeneous people
o 8 to 14 people
o Moderator control
o No criticism, No feedback

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BUSINESS DYNAMICS AND CHANGES
Political Factors: These factors determine the extent to
which a government may influence an economy or a
certain industry.
Economic factors: These factors are determinants of an
economy’s performance that directly impacts a company
and have resonating long term effects.
Social Factors: These factors scrutinize the social
environment of the market and guage determinants like
cultural trends, demographics etc.

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Technological Factors: These factors pertain to
innovations in technology that may affect the operations of
the industry and the market favourably or unfavourably.
Legal: These factors have both internal and external sides.
There are that affect the business environment of a certain
country.

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BUSINESS OPPORTUNITIES IN
EMERGING ENVIRONMENT
 Green Trend
 Clean energy trend

 Organic orientation Trend

 Social Trend

 Health Trend

 https://youtu.be/ZrUwK1QopK8

 https://youtu.be/zwIeJimFSt0

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CHALLENGES OF NEW VENTURE START-
UPS
 According to ‘Ajaero Tony Martins’, a successful
entrepreneur and investor: "Starting a business is like
building a ship and embarking on a voyage, armed with a
plan, a map and a team. You will have to sail against
storms, unpredictable weather and uncertainty. If your
ship sinks, it's either you quit or you swim back to shore,
build a new ship and sail again. " A start up is simply a
new venture, an organization or a business.

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 Below is a list of the most significant challenges with
which startups are currently grappling:
1. Startup Funding. Funding is a major concern for
startups and small businesses. When the economy
tanked, it made it harder to convince investors and
banks alike to part with the cash that’s essential for
growth in the early days of a business.
2. One of the founders isn’t delivering. Maybe he was the
only guy around who could design the product we
envisioned, but delivering a scalable, quality product is
another story

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3. The product is behind schedule. Invariably we are in crisis mode by
delivery time, and the common complaint was that “management” always
forced unrealistic schedules on developers. Kaaryah – fashion ecommerce
4. Sales aren’t meeting projections. The team buys its own propaganda, and
fully expects customers to leap tall buildings to get to your product. We
never dream that customers would be slow to accept an unproven product
from an unknown startup in the middle of an economic downturn. Cardback
5. The team is not getting along. Things go wrong. People on the team
haven’t worked together before, and they don’t fully trust any ideas except
their own. As the top executive, we have to make some tough decisions, and
spend much more time than you expected on communication and mediation.
Standout jobs- Ben Yoskoviz, Austin Hill
6. Misunderstanding the Market for Startup. Apps are flooding the
marketplace, new ecommerce sites pop up every day, and everyone, it seems,
has a new business idea these days. And despite the challenges facing new
businesses, in many ways it’s easier than ever to start one. Many new
business owners have a good idea, but greatly overestimate the size of their
potential market. Or perhaps they misunderstand what that market truly
wants. Either way, without a product for which consumers are willing to part 18
with cash to own, entrepreneurs will be going nowhere fast.
7. Requirements changed in the middle of the cycle. While everyone was busy
building the product and business model we detailed in our business plan, early
feedback from the field makes it clear that we were somewhat wrong. Or the
economy has taken a sudden turn for the worse, so our high-end product no
longer has a market. Standout jobs

8. Startup Cash Flow Problems. New business owners often make bad
assumptions about cash. Whether it’s assuming instant profitability, mispricing
their product or getting too purchase happy and spending money on things the
business doesn’t really need, cash flow problems are common. And new lending
regulations mean that this is an even bigger issue than it was a decade ago.
Increases in regulation have made financial institutions less willing to lend
money to small businesses—unless the business is doing well enough not to
need it. InksEdge

9. Creating the Right Culture in the Startup. A company’s culture is ultimately

what will allow that company to find and establish itself as a unique company in
a niche market. A company’s culture influences things like customer service and 19
product development. It’s a deciding factor in a startup’s ability to recruit and
keep rock star talent.
Pit falls in selecting new ventures
Lack of Objective Evaluation: Never fall in love with an idea for a
product or service. Falling in love with an idea doesn’t guarantee
success. All ideas must be subjected to rigorous study and
investigation. Dial the celeb
2. No real insight into the market: Always remember that no product is
instantaneously profitable, nor does its success endure indefinitely. It is
important to develop the right marketing plan. The major pitfall arises
due to managerial shortsightedness and inability to understand the life
cycle of the product or service. Timing of introduction is very
important, and product life cycle cannot be ignored. The action taken
too soon or too late always results in failure.
3. Inadequate understanding of technical requirements: Failure to
anticipate technical difficulties is another most commonly found pitfall
in venture selection. When a technical idea is implemented, the
unanticipated technical problems delay time and increase costs. The 20
development of a new product often involves new techniques. Failure
to anticipate technical difficulties can sink a new venture.
4. Poor financial understanding: Many entrepreneurs are
overly optimistic with regard to estimate of funds.
Sometimes they are ignorant of the costs or underestimate
them. Underestimating the project costs due to ignorance or
inadequate research and planning leads to severe problems.
It is very common pitfall among new start-ups that the cost
estimates to be less than half of what is actually required.
Turant Logistics
5. Lack of venture uniqueness: A new venture should be
unique in order to attract customers. Entrepreneurs should
adopt product differentiation strategy. Product differentiation
is the prerequisite for the success of a new venture. For
promoting a brand image in the market it is must that the
new venture should be unique and its performance towards
customers should be superior to competitive offerings. 21
CRITICAL FACTORS FOR NEW VENTURE
DEVELOPMENT.
The relative uniqueness of the venture. Ather Energy,
NinjaCart
II. The relative investment size at start-up.
III. The expected growth of sales and/or profits as the
venture moves through its start-up phase. Hotels Around
You, Taskbob
IV. The availability of customers during the pre start-up
and start-up phases.
A number of critical factors are important for new venture
assessment. One way to identify and evaluate them is with
the following checklist:
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 Basic Feasibility of the Venture ?
Can the product or service work? In 1990 Maxwell House launched
Ready to Drink Coffee.
 Competitive Advantages of the Venture

What specific competitive advantages will the product or service offer?

How are the competitors likely to respond?
How will the initial competitive advantage be maintained? Facebook
 Buyer Decisions in the Venture

Who are the customers likely to be?

How much will each customer buy, and how many customers are there?
Where are these customers located?
 Marketing of the Goods and Services

How much will be spent on advertising and selling?

What share of market will the company capture? By when?
Who will perform the selling functions?
How will prices be set? How will they compare with the competition’s prices?
The Apple Newton PDA, wrong pricing 23
What distribution channels will be used—wholesale, retail, agents, direct mail? 7.
What are the sales targets? By when should they be met?
Staffing Decisions in the Venture
How will competence in each area of the business be
ensured?
Who will have to be hired? By when? How will they be
found and recruited?
How will replacements be obtained if key people leave?
Financing the Venture 1
How much will be needed for development of the product
or service?
How much will be needed for setting up operations? How
much will be needed for working capital?
Where will the money come from? What if more is
needed? 24
VARIOUS SOURCES OF FINANCE FOR
NEW VENTURE
PERSONAL FUNDS
Few, if any, new ventures are started without the personal
funds of the entrepreneur. Not only are these the least
expensive funds in terms of cost and control, but they are
absolutely essential in attracting outside funding,
particularly from banks, private investors, and venture
capitalists.
FAMILY AND FRIENDS
After the entrepreneur, family and friends are a common
source of capital for a new venture
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 Cash Flow Financing
The other type of debt financing frequently provided by
commercial banks and other financial institutions is cash
flow financing. These conventional bank loans include
lines of credit, installment loans, straight commercial
loans, long-term loans, and character loans.
a) Installment Loans: Installment loans can also be
obtained by a venture with a track record of sales and
profits. These short-term funds are frequently used to cover
working capital needs for a period of time.

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Straight Commercial Loans: A hybrid of the installment
loan is the straight commercial loan, by which funds are
advanced to the company for 30 to 90 days.
Long-Term Loans: When a longer time period for use of
the money is required, long-term loans are used. These
loans (usually available only to strong, mature companies)
can make funds available for up to 10 years.

Character Loans: When the business itself does not have

the assets to support a loan, the entrepreneur may need a
character (personal) loan.

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BOOTSTRAP FINANCING
One alternative to acquiring outside capital that should be
considered is bootstrap financing. This approach is
particularly important at start-up and in the early years of
the venture when capital from debt financing (i.e., in terms
of higher interest rates) or from equity financing (i.e., in
terms of loss of ownership) is more expensive. Bootstrap
financing involves using any possible method for
conserving cash. While some entrepreneurs can take
advantage of any supplier discounts available. The
entrepreneur should always ask about discounts for
volume, frequent customer discounts, promotional
discounts for featuring the vendor's product.

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Venture Capital
This is a major source of funding for start-ups that have a
strong potential for growth. However, venture investors
insist on retaining part ownership in new businesses that
they fund.

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 COMMERCIAL BANKS
Commercial banks are by far the source of short-term
funds most frequently used by the entrepreneur when
collateral is available.
Types of Bank Loans There are several types of bank loans
available. To ensure repayment, these loans are based on
the assets or the cash flow of the venture. The asset base
for loans is usually accounts receivable, inventory,
equipment, or real estate.
a) Accounts Receivable Loans: Accounts receivable
provides a good basis for a loan, especially if the customer
base is well known and creditworthy. For those
creditworthy customers, a bank may finance up to 80 30
percent of the value of their accounts receivable
Inventory Loans:
Inventory is another of the firm's assets that is often a basis
for a loan. Usually, the finished goods inventory can be
financed for up to 50 percent of its value.
Equipment Loans: Equipment can be used to secure
longer-term financing, usually on a 3- to 10-year basis.
Equipment financing can fall into any of several
categories: financing the purchase of new equipment,
financing used equipment already owned by the company
or lease financing

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MODULE 3

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 INDUSTRY ANALYSIS
 An industry is a group of firms producing a similar
product or service, such as music, fitness drinks, or
electronic games. ƒ
 Industry analysis is business research that focuses on the
potential of an industry. ƒ Why important? ƒ Once it is
determined that a new venture is feasible in regard to the
industry and market in which it will compete, a more in‐
depth analysis is needed to earn the ins‐and‐outs of the
industry the firm plans to enter. ƒ

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 ENVIRONMENTAL SCANNING -
5 FORCE ANALYSIS (PORTER’S) / INDUSTRY
ANALYSIS

 1. Rivalry among existing firms

competitors are large in number

industry growth is slow; ƒ

product or service has low switching costs; ƒ

fixed costs are high; ƒ

the product is perishable

 2. Threat of new entrants
 3. Threats of substitutes
 4. Bargaining power of suppliers 34

 5. Bargaining power of Buyers

FEASIBILITY ANALYSIS
Feasibility analysis is the process of determining if a
business idea is viable. As a preliminary evaluation of a
business idea, a feasibility analysis is completed to
determine if an idea is worth pursuing and to screen ideas
before spending resources on them. It follows the
opportunity recognition stage but comes before the
development of a business plan.
Product /service feasibility analysis is an assessment of the
overall appeal of the product or service being proposed.
Before rushing a prospective product or service into
development, a firm should be confident that it’s what
customers want and that the product or service will have an 35
adequate market.
Two primary tests—concept testing and usability testing—
constitute product/service feasibility analysis.

A concept test involves showing a preliminary description

of the product or service idea to prospective customers to
gauge customer interest, desirability and purchase intent.

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A well-designed concept test, which is usually called a concept statement, includes the
following:

■ A Description of the Product or Service Being Offered: This section details the
features of the product or service and may include a sketch of it as well. A computer-
generated simulation of the functionality of the product or service is also helpful.

■ The Intended Target Market: This section lists the businesses or people who are
expected to buy the product or service.

■ The Benefits of the Product or Service: This section describes the benefits of the
product or service and includes an account of how the product or service adds value
and/or solves a problem.

■A Description of How the Product will be Positioned Relative to Similar Ones in the
Market: A company’s position describes how its product or service is situated relative
to competitors. (VOLVO 740 TURBO)

■ A Description of How the Product or Service will be Sold and Distributed: This 37
section specifies whether the product will be sold directly by the manufacturer or
through distributors or franchisees.
Market feasibility analysis :is an assessment of the overall
appeal of the market for the product or service being proposed.
For feasibility analysis, there are three primary issues that a
proposed business should consider: industry attractiveness,
market timeliness, and the identification of a niche market.
Industry Attractiveness. Industries vary considerably in terms
of their growth rate. Typically, an industry that is growing is
more attractive because it is more receptive to new entrants
and new product introductions.
In general, the most attractive industries are characterized by
the following:
■ Being large and growing
■ Being important to the customer.
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Not being crowded. A crowded market, with lots of
competitors, is typically characterized by fierce price
competition and low operating margins.
To fully understand the dynamics of the industry a firm
plans to enter, an entrepreneur should conduct both
primary and secondary research.
Primary research is original research and is collected by
the entrepreneur. In assessing the attractiveness of a
market, this typically involves talking to potential
customers and key industry participants.
Secondary research probes data that are already collected.
The sources of secondary research include industry related
publications, government statistics, competitors’ Web sites,
and industry reports from respected research firms 39
 Market Timeliness. A second consideration in regard to the
industry/market feasibility of a business idea is the
timeliness of the introduction of a particular product or
service. The factors to consider vary, depending on whether
a prospective business is planning to introduce a
breakthrough new product or service or one that is an
improvement on those currently available.
 Identifying a Niche Market. The final step in
industry/market feasibility analysis is identifying a niche
market in which the firm can participate. A niche market is
a place within a larger market segment that represents a
narrower group of customers with similar interests. Most
successful entrepreneurial firms do not start by selling to
broad markets. Instead, most start by identifying an 40
emerging or underserved niche within a larger market.
 Financial feasibility analysis: is the final stage of a
comprehensive feasibility analysis. For feasibility
analysis, a quick financial assessment is usually
sufficient. The most important issues to consider at this
stage are total start-up cash needed, financial
performance of similar businesses, and the overall
financial attractiveness of the proposed venture.
 Total Start-Up Cash Needed. This first issue refers to the
total cash needed to prepare the business to make its first
sale. An actual budget should be prepared that lists all
the anticipated capital purchases and operating expenses
needed to generate the first $1 in revenues

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 Financial Performance of Similar Businesses. The second
component of financial feasibility analysis is estimating a proposed
start-up’s potential financial performance by comparing it to
similar, already established businesses.
 Overall Financial Attractiveness of the Proposed Venture:

A number of other factors are associated with evaluating the financial

attractiveness of a proposed venture. Typically, these evaluations are
based primarily on a new venture’s projected financial rate of return
(i.e., return on assets, return on equity, and return on sales). At the
feasibility analysis stage, the projected return is a judgment call and is
based primarily on comparing a proposed venture to similar
businesses, as just discussed. A more precise estimation can be
computed by preparing pro forma (or projected) financial statements,
including 1- to 3-year pro forma statements of cash flow, income
statements, and balance sheets (along with accompanying financial
ratios). This work can be done if time and circumstances allow, but is
typically done at the business plan stage rather than the feasibility 42
analysis stage of a new venture’s development.
 BUSINESS PLAN:
A business plan is a written summary of an entrepreneur’s
proposed business venture, its operational and financial
details, its marketing opportunities and strategy, and its
managers’ skills and abilities. The plan serves as an
entrepreneur’s road map on the journey toward building a
successful business. As a small company’s guidebook, a
business plan describes the direction the company is
taking, what its goals are, where it wants to be, and how
it’s going to get there. The plan is written proof that an
entrepreneur has performed the necessary research, has
studied the business opportunity adequately, and is
prepared to capitalize on it with a sound business model
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CONTENTS OF A COMPREHENSIVE BUSINESS PLAN.

 A. Company name, address, and phone number B.

Name(s), addresses, and phone number(s) of all key
people
 C. Brief description of the business, its products and
services, the customer problems they solve, and the
company’s competitive advantage
 D. Brief overview of the market for your products and
services
 E. Brief overview of the strategies that will make your
company successful
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 Brief description of the managerial and technical experience
of key people.
Vision and Mission Statement
 A. Entrepreneur’s vision for the company B. “What
business are we in?” C. What is the source of its
competitive advantage?
 . Industry Profile and Overview

 A. Industry analysis

 1. Industry background and overview

 2. Growth rate

 3. Barriers to entry and exit

 4. Key success factors in the industry

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 V. Business Strategy
 A. Company goals and objectives

 1. Operational 2. Financial 3.

 B. SWOT analysis

 1. Strengths 2. Weaknesses 3. Opportunities 4. Threats

 C. Competitive strategy

 1. Cost leadership 2. Differentiation

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 . Company Products and Services
 A. Description 1. Product or service features
 Description: Our most popular bottle, available in a variety of colors
to help brighten up anybody’s gear. The large opening on our wide-
mouth bottles easily accommodates ice cubes, fits most water purifiers
and filters, and makes hand washing a breeze. The attached loop-top
never gets lost and screws on and off easily. Printed graduations let
keep track of your hydration. Dishwasher safe (Please make sure the
top does not touch the heating element, or it will melt).
 Description: They’ll be thrilled when they receive this handsome
basket chock-full of all the good things the holidays have to offer.
Incredible Navel Oranges, along with plump Ruby Red Grapefruit,
fine Belgian Chocolates, Holiday Candies, Shortbread and Orange
Blossom Honey. The larger Happy Holidays basket also includes a
generous selection of mammoth Mixed Nuts, a jar of HoneyBell
Marmalade and more mouth-watering fruit. All are guaranteed to
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arrive juicy sweet and delivering your warmest “Happy Holidays”
wishes.
 2. Customer benefits 3. Warranties and guarantees 4.
Unique selling proposition (USP)
 B. Patent or trademark protection

 C. Description of production process (if applicable) 1.

Raw materials 2. Costs 3. Key suppliers 4. Lead times
 VII. Marketing Strategy

 A. Target market 1. Problem to be solved or benefit to be

offered 2. Demographic profile
 B. Customers’ motivation to buy

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 C. Market size and trends 1. How large is the market? 2. Is it
growing or shrinking? How fast?
 D. Personal selling efforts 1. Sales force size, recruitment,
and training 2. Sales force compensation 3. Number of calls
per sale
 Advertising and promotion 1. Media used 2. Media costs 3.
Frequency of usage 4. Plans for generating publicity
 Pricing

 1. Cost structure

 a. Fixed

 b. Variable

 2. Comparison against competitors’ prices

 3. Discounts 49
 G. Distribution strategy 1. Channels of distribution used
2. incentives for intermediaries
 H. Test market results 1. Surveys 2. Customer feedback
on prototypes 3. Focus groups
Competitor Analysis
A. Existing competitors 1. Who are they? 2. Strengths 3.
Weaknesses

Description of Management Team

A. Key managers and employees 1. Their backgrounds 2.
Experience, skills, and know-how they bring to the
company

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B. Resumes of key managers and employees (suitable for
an appendix).
XII. Financial Forecasts (suitable for an appendix)
A. Key assumptions
B. Financial statements (year 1 by month, years 2 and 3 by
quarter)
1. Income statement

2. 2. Balance sheet

3. 3. Cash flow statement

C. Break-even analysis

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 Formulation of a business plan
I. Title Page and Table of Contents
II. The Executive Summary

III. Mission and Vision Statement

IV. Business and Industry Profile

V. Business Strategy
VI. Description of Firm’s Product or Service

VII. Marketing Strategy

VIII. Target Market

IX. Advertising and Promotion

X. Location

XI. Pricing
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 Distribution
 Competitor Analysis
 Plan of Operation
 Pro Forma (Projected) Financial Statements

 Common errors made by entrepreneurs while formulating their business

plans:
 Unplanned cover page. Realize that first impressions are crucial. Make
sure the plan has an attractive cover.
 Spelling and grammatical errors. Make sure the plan is free of spelling
and grammatical errors and “typos.” It is a professional document and
should look like one.
 Unimpressive visual presentation. Make it visually appealing. Use color
charts, figures, and diagrams to illustrate key points.
 Inconvenient Table of Contents. Include a table of contents with page
numbers to allow readers to navigate the plan easily. Reviewers should be
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able to look through a plan and quickly locate the sections they want to
see.
 Inability to prove the earning capacity of the business. A
plan must prove that the business will make money. In
one survey of lenders, investors, and financial advisors,
81 percent said that, first and foremost, a plan should
prove that a venture will earn a profit. Start-ups do not
necessarily have to be profitable immediately, but sooner
or later, they must make money.
 Less emphasis on financial forecasts. Use computer
spreadsheets to generate a set of realistic financial
forecasts.
 Extending the length with irrelevant facts. The ideal plan
is long enough to say what it should but not so long that
it is a chore to read
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 Misconception that the business plans should be as
detailed as possible. The plan must be concise, well-
written and should focus on the lender’s or investor’s
principal areas of concern, and not be cluttered with lots
of exhibits or irrelevant market studies. Investors only
look at relevant details.
 Making too expensive or lavish presentation. Although a
Business Plan ought to be presented professionally, a
very expensive binder or overly lavish presentation will
often demonstrate inefficient resource management.
 Unrealistic financial projections. The Business Plan
should be credible and accurate. Investors will want to
know all of the company’s strengths and its weaknesses.
Unrealistic or unsubstantiated financial projections and
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budgets will reveal inexperience or lack of attention to
detail
MODULE 4

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LEGAL FORMS OF ENTREPRENEURIAL
ORGANIZATIONS
Entrepreneurs have a number of legal forms of business to choose
from, such as sole proprietorships, partnership, co-operative, C-
corporations, or Limited Liability Companies (LLCs).
Entrepreneurs should determine which business form is best for
them based on their short and long-term needs.
Sole Trading/Sole Proprietorship
Sole proprietorship is a one-man business. It is the simplest, the
oldest, and in some respects the most natural form of business in
the private sector. In this form of business, a single individual is
solely responsible for providing the capital, for bearing the risks,
and for the control of the enterprise. It is a one-man show. Sole
proprietorship means a business owned, financed, and controlled
by a single person. The owner, called the proprietor, alone is 57
responsible for the profits and losses of the business.
 The distinguishing characteristics of sole proprietorship are as
follows:
 1. Single Ownership: A sole proprietorship is wholly-owned by one
individual. The individual supplies the total capital from his own
wealth or from borrowed funds.
 2. One-Man Control: The proprietor alone takes all the decisions
pertaining to the business. He is not required to consult anybody.
Ownership and management are vested in the same person. Some
persons may be employed to help the owner but ultimate control
lies with him.
 3. No Separate Legal Entity: A sole proprietorship has no legal
identity separate from that of its owner. The law makes no
distinction between the proprietor and his business. The business
and the owner exist together. If the owner dies or becomes
insolvent the business is dissolved. The proprietor and his business
are one and the same.
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 4. Unlimited Liability: The proprietor is personally liable for all the
debts of the business.
 No-Profit Sharing: The sole proprietor alone is entitled
to all the profits and losses of business. He bears the
complete risk and there is nobody to share the profits or
losses.
 Small Size: The scale of operations carried-on by a sole
proprietorship is generally small. A sole trader. can
arrange limited funds and managerial ability. Therefore,
the area of operations is generally local and limited.
 No Legal Formalities: No legal formalities are required
to start, manage, and dissolve sole trader business

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 Advantages of Sole Proprietorship
 The system of Sole Proprietorship has the following advantages:
 1) Low Cost of Production: Since the business is exclusively his
own, the single entrepreneur works day and night for the success
of his enterprise. He allows no wastage of materials and keeps a
strict, vigil on the 'activities of his workers. All this results in very
low cost of production.
 2) Promptness in Decisions: A single entrepreneur does and holds
any consultations with anyone on important issues facing him. He,
therefore, takes decisions promptly on the spur of the moment.
 3) Personal Contact: As the sole proprietorship is a very small
form of business organization, its owner, entrepreneur, maintain
close contact with his customers and attempts to provide
maximum satisfaction to them. Since he comes in contact with his
workers daily, there is little possibility of any misunderstanding
arising among them, with the result that the labor management 60
relations remain quite happy and cordial.
 4) Easy to Start and Wind-up: The individual
proprietorship is the easiest form of business
organization. For starting it, there are no legal
formalities or government sections to be required. If one
wants to start a hotel or a dairy farm, the only formality
he as to undergo is to take a license from the Health
Department of the Municipal Board or Corporation.
 5) Incentive for Hard Work: As the individual proprietor
is the whole sole owner of his business, he works very
hard and with full interest in order to get the best
possible results of his endeavor. He does not care for the
hours of leisure or rest. This kind of hard and sincere
work enables him to earn good results. A shopkeeper or
a hotel owner, for example, works very hard to increase 61
his profit.
6) Flexibility in Business: This type of occupation can be
promptly adjusted to the new circumstances.
7) Independence: Since the sole proprietor is the whole sole
owner of his business, he enjoys full independence in his
business affairs.
Disadvantages of Sole Proprietorship
The sole proprietorship business is also subject to certain
disadvantages. Some of these are as follows:
1) Limited Means of Production

2) Limited Skills
3) No Economies of Large-scale Production
4) No Division of Labor
62
5. Small Income
6. Unlimited Liability
Partnership
Partnership is a business relation between two or more
persons who have agreed to share the profits of a
business carried-out by all or any one of them acting for
all.
A partnership venture can be set-up with minimum 2
and maximum 10 members in banking business and 20
in other cases.
This restriction on upper limit is due to the provision
contained under Section 11 of the Indian Companies
Act 1956.
63
 Features of Partnership.
 Two or More Persons: There must be at least two persons
to form a partnership.
 Contract or Agreement: A partnership firm is an agreement
between two or more persons for running a business and
earning profits.
 Sharing of Profits: In the partnership organization, the
partners share the profits according to the proportion
written in the Agreement. In case the business faces a loss,
even then they will share it proportionately.
 Control is shared by All the Partners: In a partnership, the
decisions are taken unanimously. Some partners may be
dormant or sleeping partners and may not take active part
in the management, but they have the right to control the
64
functioning of the business. The business is carried on by
all or any of them acting for all.
 Unlimited Liability: In the partnership business, the
liability of every partner is unlimited. This means that
every partner is responsible for the acts of all the
partners.

Types of Partnership
 Fixed Partnership
 Partnership at Will

 Particular Partnership

Types of Partners
1. Active Partners

2. Sleeping partners

3. Secret Partners 65
 Nominal Partners
 Partners by Estoppels

 Minor Partners

The partnership has the following important advantages:

1) Easy to Form

2) Commands Larger Resources

3) Prompt and Correct Decisions

4) Use of Diverse Skills and Talents

5) Highly Adaptable to Changes

6) Scope of Large-Scale Production

7) Personal Interest and Initiative
8) Sharing of the Risks
66
 Disadvantages of Partnership
Uncertain Existence
Disharmony among Partners
Not Suitable for very Large-Scale Business
Weak Management
Non-Transferability of Partners
Unlimited Liability
Joint Stock Company
The Joint Stock Company is legal business owned by the
shareholders having limited, liability, and managed by an
elected "Board of Directors". The most important type
of business organization today is the joint stock company.
In fact, a business on respectable scale can be organized 67

only in this manner

 Features of Joint Stock Company
1) Artificial Person with a Separate Legal Entity
2) Voluntary Association
3) Perpetual Character
4) Shares are Freely Transferable
5) Common Seal
6) Limited Liability
7) Management by Elected Representatives
8) Ownership

68
TYPES OF JOINT STOCK COMPANY
 On the Basis of Mode of Incorporation
 i) Chartered Companies: A chartered company is established by
the Royal Charter or special sanction panted by the head of the
state. It is granted certain exclusive privileges and powers. For
example, the British East India Company was created by a
Charter of the Queen of England. The Bank of England, the
Hudson's Bay Company, and the Dutch East India Company
are other examples of chartered companies. This type of
company is rare now due to the decline of monarchies
 ii) Statutory Companies: A statutory company is established by
a special Act of the Central or State legislature. Its objectives,
powers, and activities are defined by the special law under
which it is created. The Reserve Bank of India and State Bank 69
of India are some examples of statutory companies in India.
 iii) Registered Companies: Company is established by
registering (incorporating) it with the Registrar of
Companies under the Companies Act. The formation,
working and winding-up of such a company are
governed by the provisions of the Act.
 2) On the Basis of Liability

 i) Company Limited by Shares: It is a company which is

registered with a specific amount of share capital divided
into a specified number of shares.

70
 Company Limited by Guarantee: In this type of
company, the liability of every member is limited to the
amount which he had undertaken to contribute, if
necessary, to the assets of the company at the time of
winding-up.

 Unlimited Company: It is a company in which the

liability of members is unlimited like that of partners in a
partnership firm. If the company's assets are insufficient
for satisfying the claims of its creditors the personal
property of members can be attached to meet the
obligations

71
 On the Basis of Nationality
 i) Indian Company: A company incorporated in India
under the Companies Act, 1956 is known as an Indian
company. However, it may have foreign shareholders
 ii) Foreign Company: Foreign Company is any company
incorporated outside India which: a) Had a business in
India prior to the commencement of the Companies Act
1956 and continues to have the same place, or b)
Establishes a place of business in India after the
commencement of the Companies Act 1956.

72
 4) On the Basis of Membership
 i) Government Company: A government company is a
company in which not less than 5 the paid-up share capital is
held by the Central Government, by any, State Government(s)
the Central and State Governments.
 Public Company: According to the Companies (Amendment)
Act, .200, a public company means a company which:
 a) Has a minimum of seven members and puts no limit on the
number of members;
 b) Does not restrict the right of its members to transfer its
shares;
 c) Is not prohibited from inviting the general public to
subscribe to its debentures;
 e) Has a minimum paid-up capital of five lac rupees, higher 73

capital as may be prescribed

 iii) Private Company: According to the Companies
(Amendment) Act, 2000; a private company means who
 a) Restricts the right of its members to transfer shares, if
any;
 b) Limits the number of its members to fifty, excluding
members who are or were employed by the company;
 c) Prohibits any invitation to the public to subscribe for
any shares in, or debentures of the company; and d)
Prohibits any invitation or acceptance of deposits from
the public (persons other than its members, directors or
their relations
74
 Advantages of Joint Stock Company
 In modem times, the company form of business
organization has become very popular. It is because it
commands many advantages. Its main advantages are as
follows:
 Perpetual Existence:

 Large Funds

 Transferability of Shares

 Limited Liability

 Spreading Out of Risk

 Democratic Organization

 Efficient and Economical Management

75
Disadvantages of Joint Stock Company.
Complication in Formation
Democratic only in Theory
Limited Liability
Delay in Decision
No Personal Touch with Employees
Concentration of Wealth and Power in Few Hands

76
COMPANIES UNDER SECTION 25
 Companies which are formed for a non‐profit cause are called
Section 25 Companies. These are so called as they are formed
under section 25 of the Companies Act, 1956. These Companies
are generally those companies which are formed for the sole
purpose of promoting commerce, art, science, religion, charity or
any other useful object and have been granted a license by the
central government recognizing them as such. These types of
companies can be either public company or private company
having a limited liability.
 Thus the license is granted on the basis of fulfillment of the
following things:
 Its objects should be only to promote commerce, religion, charity
or any other useful object.
77
 It should intend to apply its profits or other incomes only in
promoting its objects.
 Central government should have granted a license to
such a company recognizing them as such..
 The Company may not alter its object clause without the
permission of the Central Government.
 The Company may not alter its Article without the
permission of the Central Government.
 That the company shall not pay remuneration or other
benefit to any of its members.

78
PRIVILEGES AND ADVANTAGES AVAILABLE TO A
SECTION 25 COMPANY.

1. Exempted from using the word ‘limited’

2. Minimum Share Capital
3. Increase in Number of Directors
4. Maintaining of Books of Accounts
5. Quorum for Meetings
6. Payment of Registration Fees
7. Stamping of Memorandum and Articles

79
‘FRANCHISING’
 Franchising is an start-up strategy that minimizes this uncertainty
from business venture. Franchising is a special form of licensing
which allows the franchisee to sell a highly publicized product or
service using the franchiser’s brand name or trademark, carefully
developed procedures and marketing strategies
 Four Characteristics of Franchising –
 (a) A contractual relationship in which franchise licenses the
franchisee to carry out business under the name owned by or
associated with franchiser
 (b) Controlled by the franchiser over the way in which franchisee
carries out the business
 (c) Assistance to the franchisee by the franchiser in running the
business prior to commitment and throughout the contract period
80
 (d) Franchisee’s business is a separate entity from that of the
franchiser. The franchisee provides and seeks capital in the venture.
 Main types of Franchising:
1. Product Franchising
2. Process Franchising
3. Business format franchising
Advantages to the Entrepreneur
1. Product Acceptance
2. Management Expertise
3. Capital Requirement
4. Operating and Structural Control
Problems in Franchising
1. The problem in franchising usually centres on the inability
of the franchiser to provide service and advertising. When
promises made in the franchise agreement are not kept, the
81
franchisee may be left without any support in important areas.
2. The franchisee may also face a problem when a
franchiser fails or is brought out by another company. In
some case, the franchiser finds it difficult to find quality
franchisee. Poor management can cause individual
franchise failure.
Legal issues that entrepreneurs face
Intellectual Property Rights
Registration of the Unit in DIC
Statutory License or Clearance
No Objection Certificate (NOC)

82
INTELLECTUAL PROPERTY RIGHTS
Intellectual property rights are a bundle of exclusive rights
over creations of the mind, both artistic and commercial.
The former is covered by copyright laws, which protect
creative works, such as books, movies, music, paintings,
photographs, and software, and give the copyright holder
exclusive right to control re-production or adaptation of
such works for a certain period of time
Types of Intellectual Property Rights Intellectual property
rights are of following types:
 1) Patents,

83
2) Trademarks
3) Copyright
4) Trade Secrets.
Patent: is a government license that gives the holder
exclusive rights to a process, design or new invention for a
designated period of time. Patents are legal instruments
intended to encourage innovation by providing a limited
"monopoly" to the inventor (or their assignee) in return for
the publication of the details of the invention protected by
the patent.
What can be Patented
What cannot be Patented
84
 Aims of Patent
The main aims of patents are as follows:
1) To encourage technology innovation. 2) To protect
inventors and investments made to get the invention by
rewarding for the intellectual activity. 3) Patents protect
inventions in all technological fields as long as they have
industrial applicability.
Applying for a Patent Right In India
1) Filing Application
2) Publication of the Application
3) First Examination Report
4) Grant
5) Post-Grant Opposition 85
 Patent Infringement
It is important for the entrepreneur to be sensitive about
whether he or she is infringing on someone else's patent.
The fact that someone else already has a patent does not
mean the end of any illusions of starting a business. Many
businesses, inventions, or innovations are the result of
improvements on, or modifications of, existing products.
Trademarks
Trademark is a sign that distinguishes someone's goods or
services from others (usually competitors) goods or
services in the market place. Trademark is a property of a
single person, company or even institute that registers it.
86
Registration
1. Trademark Search

2. Application for Registration

3. Receipt and Examination

4. Acceptance, Advertisement and Opposition

Copyrights
Copyright is a form of protection provided to the
authors of "original works of authorship" including
literary, dramatic, musical, artistic, and certain other
intellectual works, both published and unpublished.

87
 Aims of Copyright
 The aims of the copyright are as follows:

 1) To protect works of human intellect and thoughts'

expressions. drawings, diagrams, sculptures, music,
songs and even computer software.
 2) Copyright laws protect the expressions of literary and
artistic works. This covers any written material,
 3) Copyright laws prevent anyone from using
copyrighted work without the permission of its owner.

88
 Works Protected by Copyrights
The following are some types of works that are protected
by copyright laws:
1) Literary works
2) Musical works.
3) Sound recordings and songs.
4) Movies-, plays and TV programs.
5) Architectural works.
6) Paintings
Rights of Copyright Holder
1) Reproduction of the copyright holder
2) Performance Right
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3) Translation and Adoption Rights
MODULE V

90
SOCIAL ENTREPRENEURSHIP
Social Entrepreneurship
Social entrepreneurship involves the promotion and building of
enterprises or organizations that create wealth, with the
intention of benefiting not just a person or family, but a defined
constituency, sector or community, usually involving the public
at large or the marginalized sectors of society.
Private Versus Social Enterprise
The research defined at least three key elements that
differentiated a social from a private or traditional business
enterprise
(1) their primary stakeholders or beneficiaries;
(2) their primary objectives; and 91
(3) their enterprise philosophy.
Perspectives of social entrepreneurship
Social enterprise consists of obligations a business has to
society. These obligations extend to many different areas:
1. Environment
 Restoration or protection of environment Conservation
of natural resources . (Alasdair Harris, founder, Blue
Ventures, London)
 Recycling efforts (Wecyclers, Jyoti)

2. Energy
Conservation of energy in production
Efforts to increase the energy efficiency of products Other
energy-saving programs 92
Fair Business Practices
Employment and advancement of women and minorities
Employment and advancement of disadvantaged individuals.
Human Resources
 Employee training and development

 Remedial education programs for disadvantaged

employees
 Alcohol and drug counseling programs

 Career counseling

 Child day-care facilities for working parents

 Employee physical fitness and stress management

programs 93
Community Involvement
 Donations of cash, products, services, or employee time

 Sponsorship of public health projects

 Support of education and the arts

Boundaries of Social Entrepreneurship

Social entrepreneurs operate within the boundaries of
two business strategies:
1. Non-profit with earned income strategies

94
2. For-profit with mission-driven strategies

There are two primary forms of socially valuable activity

that we believe need to be distinguished from social
entrepreneurship.
1. The first type of social venture is social service
provision.
2. A second class of social venture is social activism

95
SOCIAL ENTREPRENEURSHIP IN PRACTICE AND
MENTION A FEW POPULAR EXPERIMENTS
 Social entrepreneurship in Practice and mention a few
popular experiments.
Typical sectors of investment of social enterprises
1. Affordable Healthcare – Bempu, Embrace
Innovations, Operation Asha.
2. Water and Sanitation .

3. Agriculture- Agrostar, Kisan Raja, Skymet.

4. Energy-Onergy, Greenway Grameen Infra

5. Education-iDiscoveri , The Kahani Project , Bharat

Calling .
6. Financial inclusion- 96