Social Entrepreneurship

Part 2
Faculty: Amrish Sahgal

Formulating Strategy

The key questions that need to be asked and logically follow each other in this
context are:
1. Where are we now?
2. Where do we want to be?
3. How might we get there?
4. Which way is best?
5. How can we ensure arrival?
Strategic Management Overview
C. Input
Strategic Priorities
IDEA GENERATION
Definition of a Good Idea
Meets a significant customer need a market
Return on investment
Risk managed
Competitive advantage
Cost
Performance
Leverages a strength/asset
Fits with mission/values, Social consciousness, Opportunity identification,
Demand analysis and market potential.
Creative ventures
Idea generation mechanisms

Brainstorming
Focus groups
Surveys
Why Social Enterprises Fail Ideas Opportunities

Bad ideas

Good ideas that are not opportunities

Maslows Hierarchy

The Hierarchy of Social Enterprise Opportunities

Opportunity sources

Technological change
Public policy shifts

Changes in public opinion

Changes in taste
Social and demographic change.

Evaluating Strategy & EntrepreneurialOpportunities

Recognising, assessing, and exploiting opportunities are among the keys to
entrepreneurial success
Opportunity assessment can be broken into 5 stages. Each stage focuses on analysis
and the actions that must be taken.

1: Identification

Entrepreneurs are required to identify and classify resources they currently have and
can obtain control over, in their initial efforts to create a new venture

Identification and classification to be along 6 categories described earlier:

financial, physical, human, technological, reputational, organisational.

1: Identification

Spotting trends and opportunities,

Profiling your target customer,

Learning from competition,

Marketing strategies and promotion,

Location planning.

A resource is currently controlled if the entrepreneur & top managers have

immediate & unimpeded access to it, legally & physically
An asset is controllable to the extent that it may be obtained sometime in the
future
Next determine the relative strengths and weaknesses of the resource bundle
& configuration.
The entrepreneur should then examine how to use these resources and
explore what business opportunities exist to make the most of them, keeping
in mind the four attribute criteria:
Rare?
Valuable?
Hard to copy?
Non substitutable?.
2. Capabilities
The capabilities of a firm are the skills, knowledge, and abilities needed to
manage and configure resources. Capability makes the resources productive.
Analyse in the same manner as in stage 1.
3. Competitive Advantage
Here we try to determine whether the competitive advantages identified in
stages 1 & 2 may be sustained and if the profits and rents can be protected.

Sustainable competitive advantage depends upon the firms ability to move

first and create isolating mechanisms. First mover advantage and isolating
mechanisms prevent other firms from copying and crowding the firms profit.
3. Competitive Advantage
Any rent that the firm can collect may be eroded. Physical resources can be
depleted, be depreciated, be replicated, or become obsolete. There are
chances of appropriation also
The environment will seek to get a share of the rents through taxation (govt),
increased wage demands (staff), rising input costs (suppliers), or litigation
(competitors & lawyers). Founders of the new ventures must be sensitive and
alert to such pressures
4. Strategy
The firm requires two related strategies: one to protect and manage its resources,
the other a product and market strategy.
5. Feedback
The entrepreneur now also needs to focus on feedback: evaluating and
reassessing the continuous process of new venture creation
Through the first 4 stages, resource gaps may have appeared and
requirements for resources that are neither controlled nor controllable may
become apparent
Gap reducing and gap-eliminating strategies can be focused on...
Often resource bases are depleted and depreciated. The next cycle must
account for these erosions and make plans for investments to maintain
resources and investments and to replenish stocks and assets.
POSITIONING & TARGETING

Targeting
All products / brands are targeted at some particular segment of the market.
Each element of the market mix is designed so as to appeal to and attract a
particular class, type, level, location, lifestyle, age, sex, economic status, etc.,
of consumer.
The marketer selects which segments present the greatest opportunity
which are its target markets.
For each chosen target market, the firm develops a market offering
The offering is positioned in the minds of the target buyers as delivering
some central benefit(s)
Identifying a particular specific customer segment and delivering value to that
segment is known as targeting.
Desirable Criteria for Segmentation
1. Sizable: The segment must be of sufficient size in terms of potential sales
2. Identifiable: Members should have some common characteristics enabling
identification of the segment
3. Reachable: Both by communication and by our distribution
4. Respond Differently: Preferences should differ from other segments
5. Coherent: Within-segment variation in behaviour should be smaller than
between-segment variation.
Differentiation
This is the process of adding a set of meaningful and valued differences to
distinguish the companys offering from competitors offerings.

Differentiation
Some differentiation strategies:
Product Features
Performance
Exclusivity & Style
Packaging
Design
Ease or convenience of use
Maintenance and Repairability.
Exercise
How would you differentiate between:
Pashmina and Ruffle shawls
Silk carpets and staple fibre carpets
Positioning
To create a certain mental perception about a brand in the mind of the consumer.
This covers:

The product: the meaning that the product features have for the consumer

The manufacturer: Reputation and history of the company

The competitors: Relative merits vis--vis other alternatives

The kind of consumers: Self perception of consumer vis--vis the kind of

people who use that product.

Approaches to Positioning
By specific product attributes
By distinct benefits to users
By specific usage
By user category or application i.e. exclusivity
By product class association
By price / quality
By packaging appeal utility or convenience
By lifestyle of users
By reference groups.
Strategies for Positioning
Examples
Value for money
Economy
Social status
Exclusivity
Trendy lifestyle
Sporty
Healthy.
Positioning of Handicrafts

Rarity of skill involved

 Amount of effort / labour required

Time involved in making
Authenticity of processes used
Designs authentic, classic, new, rediscovered
Mastery of skills / craftsmanship of maker
Natural and non-synthetic nature
Eco-friendly where possible.
Financial Planning
How much money is needed?
There should be sufficient money to pay for purchasing land, plant,
equipment, raw materials, etc
There should be sufficient funds to to support operations for at least the
first three months
There should be enough cushion or provision to meet unexpected
business expenses or contingencies.
Where will the money come from?
Internal sources
External sources
When will the money be needed?
Funds Flow Forecast
Projected Sales
Projected expenses
Projected investments.
Classification of Finance
On basis of Permanence:
Fixed Capital
Working Capital
On basis of period of use:
Long Term Finance
Short Term Finance.
Definitions
Fixed Capital: Money invested in fixed assets like land, buildings, machinery
Working Capital: Money invested in current assets like raw materials,
finished goods, debtors
Long-Term Finance: Money available for a period more than 5 years: term
loans, equity, hire-purchase
Short Term Finance: Repayable within one year: short term loans, credits,
borrowings.
Sources of Finance
Internal Sources

Raised from within the enterprise. Owners capital, loans from partners,
retained profits, reserves, equity, deposits

External Sources
Borrowings from friends, relatives
Borrowings from Banks, Financial Institutions
Credit facilities from banks or suppliers
Term loans from financial institutions
Seed Money / subsidies from Government
Venture Capital.
Capital Structure

Primarily the ratio between Equity and Debt

Also known as Debt-Equity Ratio
Optimum leverage is that mix of debt and equity which will maximise the
market value of a company. Minimises cost of capital and thus increases the
firms ability to engage in future wealth creating investment opportunity.
Optimum Capital Structure: common features
Available at minimum cost and provide maximum yield
Flexible enough to fulfill future needs of capital as and when needed
Extent of debt should be within repaying capacity of enterprise
Should ensure proper control by promoters over enterprise and not dilute such
control.
Factors determining Capital Structure
Nature of Business: Seasonality of sales or raw material availability, Volume
of stocks reqd to be kept
Size of Enterprise: Big companies need more borrowed finance
Trading on Equity: If ROI is high, more debt can be employed
Cash Flows: Debt can be more in high cash flow firms
Purpose of Financing: More debt can be resorted to if money will be used
for productive purpose
Provision for Future: raise less than maximum possible debt, in case more
needed in future.
Share Capital
Owners investment
Not repayable
Low cost: No interest. Dividend to be paid only if profits made
Two types:
Preference Shares: carry preferential rights with reference to dividend. Often
entitled to fixed dividend. Sometimes rights cumulative. Can be redeemable
Equity Shares: entitled to dividend after all other debts paid off.
Debentures
A method of raising loans. Co incorporated under Indian Companies Act 1956
may issue debentures an instrument acknowledging a debt by a company to
a person
Debentures can be: redeemable / irredeemable, registered / bearer, secured /
unsecured, convertible / non-convertible.
Shares vs Debentures

Shares:
A portion of the capital of the company
Shareholder is a member of the company
Earns dividend: share of profits if made
Shareholders have rights to control the company
Shares are not repaid. (exception: redeemable preference shares)
In case of liquidation shares get last priority.
Shares vs Debentures
Debentures:
A portion of the debt of the company
Debenture holder is a creditor of the company
Earns interest even if no profit made
No rights to control the company or vote
Debentures are usually repaid or converted to shares
In case of liquidation debentures get priority over shares. If secured, first lien
on asset.
Major Lending Institutions

 Industrial Development Bank of India (IDBI)

Industrial Finance Corporation of India Ltd (IFCI)
Industrial Credit & Investment Corp of India (ICICI)
Industrial Reconstruction Bank of India (IRBI)
Life Insurance Corp of India (LIC)
State Financial Corporations (SFCs)
Small Industries Development Bank of India (SIDBI)
Commercial Banks.
FEASIBILITY ANALYSIS
Enterprise risk assessment
Financial risk
Legal risk
Talent risk
Environmental risk
Political and governmental
Economic
Demographic.
Social Return on Investment

Quantified social impact of the venture

Impactthe portion of the total outcome that happened as a result of the
activity of the venture, above and beyond what would have happened anyway.
How does this enterprise serve a social purpose?

HealthDoes the venture improve the health of your target population? Does
it address a serious disease resulting from lack of nutrition, medical care, a
low standard of living? Is your venture making the community safer?
EducationalIs your venture helping improve the standard of living for
children? Will participation in your venture open doors of opportunity and
what are these doors? By participating in your venture how will someones life
change?
EnvironmentAs a result of your actions, will a vital natural resource be
saved? Why is this natural resource important to our community? How will
your venture improve the environment?...
Employment & Income Generation Is your venture likely to provide
economically gainful employment for the target group? Will this employment
be sustainable?
Outcomesultimate changes one is trying to make in the world, cognitive,
behavioural, gain in skills, knowledge, etc.
Rule of thumba social purpose makes an unhappy person happier, a poor
person secure a better financial standard of living, an unhealthy person
healthier, etc.
Are socially responsible core values expressed throughout the venture?
Consistency:

If your venture is saving the environment, are your operational practices

environmentally friendly?
Are you sure your venture will not endanger the health of workers?
Will your venture impart skills that can be used to earn a livelihood?
What is the ventures potential to meet its social goals?

Feasibility!

EnvironmentDo you have enough suppliers or resources to develop your

environmentally friendly product or service? Will the community value your
service enough to support it through donations?
EducationDo you have buy-in from critical partners?
HealthDepth of appeal to the community?
Does the community value the product or service as much as you do?

cost-benefit analysis
Costs and social impacts of an investment are expressed in monetary terms and
then assessed according to one or more of three measures:

Net present valuethe aggregate value of all costs, revenues, and social
impacts discounted to reflect the same accounting period

Benefit-cost ratiothe discounted value of revenues and positive impacts

divided by discounted value of costs and negative impacts

Internal rate of returnthe net value of revenues plus impacts expressed

as an annual percentage return on the total costs of investment

Cannot be conducted until social impacts have been measured be based on

informed assumptions about the expected social impacts.

Financial return on investment

Where will the investment capital come from?

What is the proposed ownership structure of the venture?
Will this venture become financially self-supporting?
If applicable, what is your investment exit strategy?
What is your plan for the long-term financial sustainability of the venture?
How are the social and financial returns on investment aligned?
Small Scale Industry in India
Govt Policy for Small Scale Enterprises
Salient features of the Govt policy for SS units are:

Investment limit in Plant & Machinery for SS units Rs 60 lakhs and for ancillary
units Rs 75 lakhs
836 items exclusively reserved for SS sector
Central Investment Subsidy in rural / backward areas
Small Industries Development Bank of India (SIDBI) established
Delicensing new units with investment of 25 crores in fixed assets in nonbackward and 75 crores in backward areas.
Govt Policy for Small Scale Enterprises
Ancillary unit is one that sells not less than 50% of its manufacture to one or
more industrial units
Export units are those that export at least 30% of their annual production. The
ceiling for investment is 75 lakhs.

LEGAL ASPECTS

Various Important Laws

Indian Partnership Act 1932

The Companies Act 2013
Indian Contract Act 1872
Sale of Goods Act
Factories Act 1948
Minimum Wages Act 1948
Bombay Shops & Establishments Act 1948.