As per the government definition an 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 Rs 10 million, can be
categorized as small scale undertaking. 

To encourage the growth of small scale industries in India, Government has reserved certain products for
manufacture in the small scale sector in areas where there is techno-economic justification for such an approach.
Large/Medium units can, however, manufacture such reserved items provided they undertake to export 50% or more
of their production. 

As on 10 October 2008, following items are reserved for exclusive manufacture by micro and small enterprise sector:

 Food and Allied Industries: Pickles & Chutneys, Bread, Mustard Oil (except solvent extracted), Ground
nut oil (except solvent extracted).
 Wood and Wood Products: Wooden furniture and fixtures
 Paper Products: Exercise books and registers
 Injection Moulding Thermo Plastic Product: PVC Pipes, including conduits upto 110 mm dia, Fittings for
PVC pipes
 Other Chemicals & Chemical Products: Wax candles, Laundry soap, Safety matches, Fire works,
Agarbatties
 Glass & Ceramics: Glass Bangles
 Mechanical Engg. Excluding Transport Equipment: Steel almirah, Rolling shutters, Steel chairs – all
types, Steel tables – all other types, Steel furniture – all other types, Padlocks, Stainless steel utensils,
Domestic utensils - Aluminium

Sole Proprietorship  

 Formation Requirement Only Shop Act certificate is required. Shop Act fees vary as per number of
employees
 Time required 2-8 Days
 Cost Rs 1,000

Partnership Firm

 Formation Requirement Minimum two partners Partnership deed is required

 Time Required 4-12 Days
 Cost Rs 3,000

Company

 Minumum Requirements Minimum two directors, Minimum share capital of Rs 1 Lakh

 Formation Requirement  Director Identification Number (DIN) for the first directors >> Name approval from
Registrar of Companies (ROC) >> Memorandum and Articles of Association
 Time Required 8-20 Days
 Cost Rs 13,000*

* The costs have been estimated for an entity with a capital of Rs 1 lakh, which is formed in the State of Maharashtra.
Source: Baheti & Somani, Chartered Accountants
Step 1: Get The Idea Right

It all springs from the ‘eureka’ moment when the brain throws up that wonderful idea which keeps you awake at night.
An idea is identifying a need or a problem people have and providing them a better alternative than the currently
existing solution, whether it is in terms of time, money, quality or efficiency.

Here is how some of the entrepreneurs we feature got their ideas. Suren Vikash U. had worked in waste
management for a year and knew the scenario in Bangalore. He realised that there was a lot of unrecyclable plastic
waste. The difference was he saw that as raw material for daily use products. Thus was Thunk in India born.

Indrojit D. Chaudhuri and Manish Raghuvanshi worked in a recruitment firm. They saw lots of people quitting jobs
when employers turned out to be very different from what they had expected. What if employees could get a low-
down on a company before they joined? And, TalentEquity Solutions, a forum where members could anonymously
give opinions publicly, was born.

Step 2: Build A Team

If the partners come up with the idea over endless cups of coffee, Step 2 could precede Step 1. If the initial founders
realise that any core skill set is lacking, it is advisable to get a person with those skills on board.

Laura Parker, executive director of the California-based Wadh-wani Foundation that runs The National Entrepreneur-
ship Network (NEN), an organisation which works to inspire, educate and support new entrepreneurs, says, “The
founding team should consist of a group of people with complementary set of skills who are excited about the
opportunity and have agreed on some share of the company’s ownership. They should agree to work without any
salary and bring some ‘sweat equity’ into the company.” Mamtha Banerjee and Sanjay Joshi, founders of
InvestmentYogi are both techies. So they got Ariadne Horstman, an US-based financial planner, into their core team
when they started.

Parker stresses that people should not come together just because they are friends. “There should be clarity on
who’s in charge what and what role each one has.”

Step 3: Evaluate The Idea

Now you have to test the idea to see whether it is an opportunity. This step would decide whether you actually invest
time and money into the business. There are two sides to this.

Purchase side. K. Ramachandran, Thomas Schmidheiny Chair Professor of Family Business and Wealth
Management, Indian School of Business, Hyderabad, says, “One has to gauge the criticality of the need and the level
of discontent people have with the current option. Anything in the high criticality, high discontent quadrant is worth a
business.”

You must figure out who your potential customers are. “Be very specific in identifying customers,” says Parker.
Instead of saying ‘middle-class Indians’ one should say ‘people between 25-40 years of age who earn more than Rs
50,000 every month.’ Questions you should be asking are: “What is the solution they are using today?”, “What with
the existing option dissatisfies them?”, and “How much are they willing to spend?”

When Pandurang Taware wanted to get into agri-tourism, he commissioned a survey among his potential customers.
The results told him what percentage of people wanted to go for a trip to a village, how far were they willing to travel
and spend, among other things. This helped him design the product.

Industry side. One should then study the macro-side of the demand. Questions you should ask are: “Is the industry
growing or shrinking?”, “What is the industry size in your operational domain?”, “What is the competition?”, and “Are
there any government regulations?”.

When creADivity.com, which provides advertising content for SMEs was launched, the founders needed to have an
idea of the size of their market. So they found out the number of SMEs and their average ad spends. Further, they
found that about 30 per cent of the entire ad revenues were spent on creating content, something that helped them
arrive at the size of their potential market. “It involved a lot of research based on available market reports,” says
Sitashwa Srivastava, one of the founders.

Step 4: Create a Business Plan

Your idea now has to get a “business dimension”. Creating a business plan takes care of all the necessary things you
need to put in place and the problem you are going to solve. (See ABCs Matter). Sameer Guglani, entrepreneur and
founding partner, Morpheus Venture Partners, an early stage start-up consultant, says: “Zoom in to a small part of the
problem that can be solved in the least time and with the least money. This part should be something you can scale
up to a bigger version eventually.”

Financials. First you need an estimate how much money you require to start and if you have that kind of cash. (See
How Much Money Do I Need?) It pays to be organised. “One has to build a spreadsheet-based financial model that
has projections of various cash inflows and outflows depending on assumptions and inputs such as the number of
customers, customer growth rate and so on,” says Guglani.

Another purpose this could serve is developing multiple cash-flow scenarios. Before launching Mogo’s Food, the
founders created various ‘what if’ scenarios where they considered a decrease in number of customers, increase in
cost of packaging and raw materials and so on.

D.V.R. Seshadri, visiting faculty and affiliated with the N.S. Raghavan Center for Entrepreneurial Learning at IIM-
Bangalore says, “When starting it is important to define the exact criterion for failure and entrepreneurs should be
wise to change tracks or pull the plug when required.”

Step 5: Create an Entity

For a business to run, it has to be a legal entity. To set up a sole proprietorship is the quickest. If it is being set up by
a team, it has to be at least a partnership. To protect the brand, you need at least a private limited company. The last
also separates your private assets from those of the company. Incidence of tax typically rises with the complexity of
formation.

Step 6: Test the Market

This is crucial. “Once the idea is validated and the start-up has a legal avatar, I’d really suggest them to build the first
version of the product-a very minimalistic one, but something that serves as a reflection of the core
differentiation/service they offer,” says Ashish Sinha, chief editor of pluGGd.in, a Web magazine for start-ups. This is
called a prototype or the ‘alpha’ stage in tech parlance, when a closed group of people is asked to critique the product
to see how it does in a real-life situation. This stage lasts a fortnight to a few months. “Be ready to change your
strategy and business model, if you realise that things aren’t working as expected,” says Harin Chandra, COO and
managing director, Asia Pacific Region, startups.in, a platform for start-ups. Also, at this stage, make sure you can
scale up to avoid problems later.

Venkata Subramanian, one of the founders of agri-supply chain company Matchbox Solutions, says feedback from
farmers, retailers and NGOs helped him fine-tune his initial business model.

Step 7: Reach for Growth

When you are confident, throw open your business to the public. The hard work has just begun. You could call this
the ‘Beta’ stage, a learning period in a start-up’s life that could last up to a few years. Sinha stresses the need to
define clear success measurement criteria—such as number of customers or page-views—and keep improving them.

Spread the word. Try to get more customers but keep marketing spends on a leash. Use viral marketing tools, such
as word of mouth and social networks, to increase brand awareness as well as sales.

Stay lean. Starting and running a business on your own without depending on outside funds, also known as
‘bootstrapping’, is more of a mindset than anything else. The aim is to keep costs to the bare minimum and squeeze
out the last bit and more from resources. And during a slump, how good you are at this could make or break you.
(See The Tight Fist)

External funding. If you have expansion plans that require funds, you could start looking for external funding. This
could be a long and winding process and you need a strong relationship with the investor community. “It was only
after building a prototype and launching a product that we closed down on the first round of funding,” says
InvestmentYogi’s Banerjee.

“There is no single recipe to form a great start-up,” says Chandra, citing the example of Microsoft and Yahoo!, who, in
spite of having deep pockets, could not revolutionise the search engine the way Sergey Brin and Larry Page, two
bright but broke kids, did with Google. Harvard Business School defines entrepreneurship as, “The pursuit of
opportunity without regard to resources currently controlled.” So, give it a go.