CHAPTER 1 ENTREPRENEURSHIP

UNDERSTANDING ENTREPRENEURSHIP

Chapter Objectives
To understand the evolution of the term entrepreneur To study the reasons for the current growth in entrepreneurship To list various reasons driving a person to starting a business To explore the characteristics and skills of successful entrepreneurs To classify different types of entrepreneurs To look at the reasons for entrepreneurial failure

The Entrepreneur
entreprende, which means to undertake Webster dictionary one who organizes, manages and assumes the risks of a business or enterprise Richard Cantillion an entrepreneur is someone who takes the risk of running an enterprise by paying a certain price for securing and using resources to make a product and reselling the product for an uncertain price.

Joseph Schumpeter - an innovator playing the role of a dynamic businessman adding material growth to economic development Timmons - Entrepreneurship is the process of creating or seizing an opportunity and pursuing it regardless of the resources currently controlled

Reasons for Growth of Entrepreneurship

Industry Structure New technologies Deregulation and privatization Formation of new business communities Increasing demand for variety Government incentives and subsidies Increasing flow of information

Easier access to resources Entrepreneurial education Return on innovation Entrepreneur as a Hero Self-employment is highly valued Rising dissatisfaction at job Acceptance of ex-entrepreneurs in the job market

Gurubhai and Dhirubhai

Both start their career from the gulf Both come to Mumbai to deal in synthetic yarn Gurus battle against an anglicized scion of an established business family seems to mirror Ambanis spat with Nusli Wadia. Gurus success in getting people to invest in his IPO is similar to what happened in Ambanis case. Mithun Chakraborty plays a newspaper owner in the film and his character resembles Ramnath Goenka. The virulent attacks of the newspaper on Guru are similar to what is alleged of Indian Express and Reliance in real life.

Impact of Entrepreneurial Firms

Job Creation Economic growth New Technology Serving small markets

Why Start a Business?

Control The idea Flexibility Money

Pros

&

Cons
You are alone All decisions are yours All losses are yours Work may not be satisfying You will need to put in long hours Lack of success will effect self esteem Exiting the business is difficult Pressures will affect social and family life

You are the boss All profits are yours There will be great variety in roles and tasks Increases self confidence Work can be very satisfying Success will give you immense satisfaction

Entrepreneurial Characteristics
Timmons: 1. commitment and determination; 2. leadership; 3. opportunity obsession; 4. tolerance of risk, ambiguity and uncertainty; 5. creativity, self-reliance and ability to adapt; and 6. motivation to excel.

Bianchi 1. being an offspring of self-employed parents; 2. being fired from more than one job; 3. being an immigrant or a child of immigrants; 4. previous employment in a firm with more than 100 people; 5. being the oldest child in the family; and 6. being a college graduate.

Entrepreneurial Skills
Creativity and Opportunity Evaluation Real-time Strategy and Decision Making Comfort with Change and Chaos Teamwork Evangelism, Selling, Negotiation, and Motivation through Influence and Persuasion Oral and Written Communication Basics of Start-Up Finance, Accounting and Law

Entrepreneurial Attitudes
Comfortable with lifestyle changes Willingness to break / bend / stretch laws Patience to start small Prepared to make enemies Comfort with confrontations Dealing with failure Willingness to learn

Entrepreneurial Motivation
Environment
IDEA

Personal Goals Entrepreneurial Motivation

Personal Characteristics

Entrepreneurial Activity

Expectations

Match

Outcomes

Types of Entrepreneurs
Based on Timing of Venture Creation: Early starters Experienced Mature Based on Socio-cultural Variables: 1st generation entrepreneurs From Business families Minority entrepreneurs Women Entrepreneurs

Based on Entrepreneurial Activity: Novice Serial Portfolio

Reasons for Entrepreneurial Failure

Lack of experienced management Few trained or experienced human resource Poor financial management Rapid growth Lack of business linkages Weak marketing efforts Lack of information Incorrect pricing Improper inventory control Short term outlook

Thank you

Chapter Objectives
To understand the importance of the business idea To explain the significance of a new business idea To formulate a pre-selection process to precede the search for a business idea To list the possible source of business ideas To describe the process of researching a business idea To develop a comprehensive framework for evaluating business ideas

 Warren Buffer says, Todays successful companies live and die according to the quality of their ideas.
Peter Drucker, Innovation is the specific instrument of entrepreneurs, the means by which they exploit change as an opportunity for a different business

First Mover
Advantages Technological leadership: can also lead to
Cost advantages Economies of scale

Obtain and secure scarce resources before crowding Impose switching costs on buyers

Disadvantages Reveal underlying business concept Others can try different resource combinations Investments in resolving problems: others can benefit from learnings Inertia makes it difficult to abandon strategy no longer effective

Pre-selection
Uncover your personal traits Knowledge and Experience Goals and aspirations
Technical knowledge Domain knowledge Contacts

Sources of Business Ideas

Past work experience Hobbies and interests Strengths and abilities Friends and family Distribution channels Travel Books and magazines Current trends Research organizations The web

Brainstorming
Some of the important rules are as follows: Focus on quantity. Postpone criticism. Build on others ideas. Encourage crazy ideas. Work with a deadline.

Preliminary Research
Cost structure Market structure Technology HR issues Government regulations

Mind Maps

Five Questions Framework

Q1. Which is the market segment being targeted? Q2. What is the business model? Q3. How big is your market? Q4. How can you protect your business? Q5. What are you getting out of it?

Porters Five Forces

SWOT Analysis
STRENGTH WEAKNESS

OPPORTUNITY

THREAT

Thank You

INTELLECTUAL PROPERTY
CHAPTER 3 ENTREPRENEURSHIP

Chapter Objectives
To understand the importance of intellectual property in modern business To explain the laws protecting trademarks, patents, designs, copyrights and other intellectual property To describe the procedure for registration of trademarks, patents, etc. To develop a strategy for building and protecting intellectual property To comprehend the significance of trade secrets and other confidential information

IP Laws in India
IP laws in India cover the following: Trademarks Copyright Patents Geographical indication of goods Designs Others including Semiconductor layout designs, plants and farmer rights and biological diversity.

Interesting Trademarks
numbers can be trademarks like in the case of 501 tea and 555 cigarettes symbols like those of Mercedes Benz or apple computers letters like in 3M, IBM, NIIT Orange cellphone service has successfully managed to include the colour orange as its trademark. sound like MGMs roar of the lion can also be a trademark Sumitomo tyres has registered a rose like smell as its trademark

Assignment of Trademarks
Trademark search Application for registration Receipt and examination Acceptance, advertisement and opposition Cancellation

Particulars of Application
The class of goods for which the mark is sought. Classes can be textiles, food and confectionery, machine tools, etc. Definition of goods which is sought to be registered Details of the applicant including name, age, occupation, address and nationality Whether the trademark is in use or is proposed to be used. If in use, applicant must specify by whom and for what period.

Infringement of Trademarks
The allegedly infringing mark must be either identical or deceptively similar to the registered trademark; The goods / services in relation to which the allegedly infringing mark is used must be specifically covered by the registration of the registered trademark; The use of the allegedly infringing mark must be in the course of trade; and The use must be in such a manner as to render the use likely to be taken as being used as a trademark.

Copyright
Copyright confers protection to: Literary works Dramatic works Musical work Artistic works Cinematographic films and sound recordings

Dimensions of Copyrights
Idea Expression Originality Fixation Fair use

Creators can prohibit others to: reproduce the work in any form, such as print, sound .video, etc record the work in a compact discs, cassettes, etc broadcast it in any form translate it to other languages use the work for a public performance, like a stage drama or musical performance

Patents
The following are criteria for patentability: Novelty Utility Inventive step

The following are not patentable: Inventions which are frivolous or contrary to established natural laws Inventions, the primary use of which, are contrary to morality or can cause harm to humans or the environment The mere discovery of a scientific principle without manifesting it in a product Discovery of a new use of an existing substance A new method of agriculture A business method A manufacturing process

Patent Filing process

Filing application Publication of the application First examination report Grant Post-grant opposition

Assigning Use of Patent

A patent holder may assign a patent to a 3rd party. Their agreement will have the following elements: The term of the agreement The territorial exclusivity of the rights Financial terms including payments of fixed and variable amounts to the patent holder Specification of production capacities to be set up and marketing budget to be committed Commitments from the patent holder regarding performance of the invention Any other provisions which may be deemed necessary

Geographical Indication of Goods

The GI should pertain to a defined territory A given quality or reputation should be attributable to goods originating from that region Registration of a GI confers the right to use the GI in relation to goods for which GI is registered Also, right to obtain relief in case of infringement Rights under GI Act, cannot be assigned, transferred or transmitted.

Designs
Criteria for registration: The design has to be original Designs are registered only when they can be applied to an article An article, in turn, is defined as any article of manufacture and any substance, artificial or natural, and includes any part of an article capable of being made and sold separately. The elements of design must be capable of existence separate from the article on which they have been applied. The design must be of a distinctive nature and must appeal to people.

The following designs will not qualify for protection under the Design Act: Methods or principles of construction Features dictated by function A mechanical device A trademark Designs which can be construed as immoral

Other IP Laws

The Protection of Plant and Varieties and Farmer Rights Act, 2001 The Biological Diversity Act, 2002 Semiconductor Integrated Circuits Layout Act, 2000

Non Disclosure Agreement

NDA should have the following elements: An NDA should define what information is confidential. Agreements should have clauses on restrictions on disclosure, copy and use of information Restrictions on use of information when in employment and upon termination of employment. Requirements relating to return of confidential documents and paperwork upon termination of association Specification of penal clauses like withholding salary, imposing fines, etc Addition of non-compete clause in an NDA prevents employees and vendors from setting up competing businesses or helping competitors. Care should be also taken to ensure that employees do not violate the rights of third parties.

Protecting Trade Secrets

Employees should be made to realize their responsibility to protect confidential material. Employees should be educated to identify confidential material Data and information which is confidential should be marked as such. Access to sensitive material or sensitive areas of the workplace should be restricted on a need to know basis Interactions and disclosure to third parties should be channeled through specified responsible employees When leaving an organization, an employee should be reminded of his obligations with respect to confidential information through an exit interview.

FAMILY BUSINESS
CHAPTER 4 ENTREPRENEURSHIP

Chapter Objectives
Define a family business Discuss the history of family business in India Discuss the roles and responsibilities of the founder List the characteristics of able successors Describe the roles, rights and responsibilities of family members in a family business Explain the role of non-family managers Describe the issues in succession in a family business List the best practices in managing family business, from across the world.
Entrepreneurship

What is a Family Business

High percentage of share capital owned by a family either jointly or individually. Family members employed in the highest decision making posts Expression of intention to maintain family involvement in the future. A number of generations of the same family involved in management or ownership Direct descendants of the founders have management or ownership control

Advantages of a Family Biz

There is a long term orientation as the continuity of the firm is of great concern to the older generations. The family culture is a source of great pride for family and non-family employees alike. The family firm functions in a less bureaucratic manner and it is not impersonal in dealing with employees and customers. Family firms have shown greater willingness to weather the bad times by ploughing back profits. It is structured to impart training to younger members of the family.

Disadvantages
They may have a confusing structure where the role of many family members is not clearly defined. The style of functioning may be autocratic or patriarchal. Many of the younger generation may not be worthy of their position and role in the organization There can be very strenuous succession battles Sometimes family members can selfishly drain the finances from the company.

Roles of the Founder

Starting the business Building the organization Providing guidance and direction to employees and family members Constructively involving family members in business Planning for succession

The Next Generation

They know the business well. Ideally, they like or even love the nature of the business They know themselves and their strengths and weaknesses They have had the necessary outside experience and education They want to lead and serve They are guided responsibly by the previous generation, advisors and the board They have good interpersonal relationships particularly with other family members in business

The Next Generation

They can count on competent non-family managers to complement their own skills They have controlling ownership either directly or through allies They have earned the respect of employees, suppliers, customers and other family members Their skills and abilities fit the strategic needs of the company They respect the past and focus their energies and resources on the future of the business and the family

Stepping Up
A new entrant should have a track record that gives legitimacy to his ideas and his claims. It pays to consult the older generation while making the plan. Suggest a step by step approach. If the plan is still not acceptable, accept that there may be something wrong with the plan.

Retaining Non-family Managers

Discuss career paths in the company and clearly state if top positions are not open for them. Offer compensation and benefits that are at par with the others in the industry. Involve non-family managers in top level decision making by getting them to be part of decision making teams with other ownermanagers. Set targets and use performance measures to build motivation. Achievement of targets provides significant motivation.

Retaining Non-family Managers

Emphasise the contribution of non-family managers in company meetings. Treat family members like employees at work. It helps build a healthy atmosphere. Involve non-family managers in succession planning. Some senior non-family managers can be used as bridge heads to smoothen the succession from one generation to another. Periodically assess the motivation level of non-family managers and the working relationship between family members and non-family managers.

Succession Planning
Choose a successor Grooming the successor Planning Early entry Late entry

Advantages of Early Entry

The successor becomes familiar with the nature of the business Gets a chance to develop relationships with other employees Gets to know other business associates Skills specifically required for the business can be acquired and developed Good performance during employment will lead to credibility with employees and other stakeholders

Advantages of Late Entry

Success outside the firm establishes credibility Best practices from other firms are brought into the family business Business perspective of the successor is broad The successors competence is judged with greater objectivity.

Best Practices in Family Biz

Communication Independence Shared Vision Documentation Conflict resolution

DOING BUSINESS IN INDIA

CHAPTER 5 ENTREPRENEURSHIP

Problems
Bureaucracy Corruption Labour Local Sentiments Gray Market Social Capital

Chapter Objectives
To understand the ground realities of doing business in India To identify the socio-cultural issues facing an Indian entrepreneur To list the various forms of business ownership available in India To understand some of the major laws and regulations governing conduct of business in India

Bureaucracy
Characteristics of ideal bureaucracy: Official business is conducted on a continuous basis Official business is conducted according to written rules Roles and responsibilities are defined within a hierarchy, with rights of supervision and appeal Official and private business and income is strictly separate

Factors Working Against Corruption

There is greater transparency in procedures to be seen across government departments. The right to information act (RTI) has significantly changed the situation Lately the media too has played an active and visible role

Measures Against Gray Markets

Manufacturers may drastically reduced prices to narrow the gap in prices in local and overseas markets. Warranties may not be extended to products not purchased through the regular channels. Some high tech solutions have also been devised like the use of DVD regional codes to protect movies and other digital content.

Social Capital
Negative consequences of Pehchaan: Exclusion of meritorious outsiders Excessive claims on group members Restrictions on individual freedom Norms aimed at downward leveling

Types of Ownership
Sole Proprietorship Partnership Company Limited Liability Partnership Small Company One Person Company

Taxes, etc
Income tax Sales tax Excise Service tax Profession tax

Features of VAT
Input tax credit even on capital goods Credit is carried forward for 2 yrs and then it is refunded in case it cannot be offset Uniform rates throughout the country Self assessment of possible tax liability is allowed Audit In case of excess payment, refund is made within 60/90 days Interest can be claimed on delayed payments

Paying VAT
Sell after stock transfer Be careful of bogus stock transfer Collect Forms C D F & H on time Advise your dealer to be registered Use input tax credit on capital goods Encourage dealers to get registered Ensure that purchase and sales registers and stock- books are maintained Claim interest for delayed payment

Central Excise
Find out if the product is excisable Find out its classification Find out its rate of duty Pay the tax File returns

Paying Excise
Bill directly to the buyer Advice all distributors and dealers of your products to be registered Avail of SSI concession if your unit is eligible Know your product properly. There may be an opportunity for reclassifying your product in a lower rate slab. Avail of all concessions under CENVAT Let the customer pay separately for add-ons like transport and warehousing expenses so it does not get included in calculating the total excise liability

Other Regulations
Company law Labour law Import Export Pollution control

ENTREPRENEURIAL SUPPORT
CHAPTER 6 ENTREPRENEURSHIP

Entrepreneurship

Chapter Objectives
Discuss various sources of support for the entrepreneur List policies from all over, that help entrepreneurs Discuss how to evaluate these policies Describe the benefits of a business incubator Explain the intricacies of incubator management Define a business cluster Discuss identification and development of clusters
Entrepreneurship

Entrepreneurial Support
Support in the form of progressive policies which help entrepreneurial ventures. Incubators which are set up to provide support to new firms in the early stages. Business clusters which are made up of firms in the same industry in close proximity to one another.

Aims of Policies
Entrepreneurship education: Entrepreneurial skills: Access to debt: Stimulating Innovation: Access to equity: Simplifying administrative burden: Access to markets: Encourage weaker sections:

Evaluating Policies
Take up of policy Opinion of beneficiaries Comparing performance

Incubators
Benefits from an incubator Access to shared flexible spaces Shared offices services Providing a business consulting network Networking Facilitating access to capital

Incubator Management
There should be an incubator manager and a team of professionals The incubator should set clear guidelines for eligibility. An incubator should have clear cut guidelines for an admission process. A contract should be signed by the incubator and the entrepreneur laying down all the terms and conditions. Clear guidelines for the entrepreneurs exit should also be laid out The long term financial viability of the incubator will depend on its business model.

Revenue Streams for Incubators

A fixed rental to cover the cost of basic infrastructure A usage based charge for services like conference room, copier, etc. A success fee which can be in the form of an equity stake in the new venture.

Exiting an Incubator
The entrepreneur should exit: After a fixed period When the start up receives substantial funding When it achieves a certain level of profitability In case of irresolvable disputes

Some of the successfully incubated companies from SINE, the incubator at IIT, Bombay Herald Logic Pvt. Ltd. Voyager2 Infotech Myzus Technologies eInfinitus Powai Labs Pvt. Ltd. Seclore Technology Pvt. Ltd Eisodus Networks Pvt. Ltd. Quantum Phynance Pvt. Ltd.

Business Clusters
A geographical concentration of industries that gain performance advantages through colocation Well developed and intense links with suppliers Formal and informal business networks Shared supporting infrastructure like buildings and road connections A certain level of cooperation in spite of a high degree of rivalry and competition

International Clusters
Auto industry in Detroit Paris for high fashion Antwerp for diamonds Hollywood for movie production 5th Avenue in New York for Advertising Hsinchu in Taiwan for high technology

Entrepreneurship

Indian Clusters
IT firms in Bangalore Diamond polishing in Surat Textiles in Tirupur Seafood processing in Kochi Call Centres in Gurgaon / NCR Jute mills in Kolkata

Benefits of Clusters
Michael Porter: productivity of the companies in the cluster increases there is increased scope for innovation in the sector new businesses are encouraged to come up

Types of Clusters
A vertically-integrated cluster is made up of businesses linked through intense buyer-seller relationships. A horizontally-integrated cluster is made up of businesses which share a common market for their end products, use a common technological base or common skilled workforce, or require similar raw materials.
Entrepreneurship

Cluster Development
Supplier buyer relationships can be forged by collecting and distributing information about potential industry linkages. Common infrastructure can be supported by external agencies. Especially in the case of industries heavily dependant on specialized skills, providing skills training and education is a good means of supporting a cluster. Industries in a cluster can be aided by providing marketing channels.

BUYING A BUSINESS
CHAPTER 7 ENTREPRENEURSHIP

Chapter Objectives
To list the benefits of buying an existing business To list the disadvantages of buying an existing business To discuss the possible sources of information about a business for sale To describe a step by step process of buying a business To tabulate the factors to be investigated before a purchase To understand various methods of valuing a business To discuss the major mistakes made in buying a business To understand the concept of franchising To list the benefits of being a franchisee To discuss the factors important in evaluating a franchise opportunity To describe the elements of a franchise agreement

Entrepreneurship

Advantages of Buying a Business

Buying an existing business will enable you to go around a lot of problems likely to crop up in opening a business. The existing business would have already got some licenses and government approvals which would be otherwise difficult to get. Land is scarce and it is difficult to find an appropriate location. An existing business is likely to come bundled with the land. The plant and machinery have already been bought and have been installed and tested. Employees are experienced. A supplier base has already been established.

Entrepreneurship

Advantages of Buying a Business

There is a readymade market. A distribution network has been set up and money and effort has already been invested in establishing a rapport with retailers and wholesalers. Goodwill and reputation would have been built up. Cash flow is going to start immediately. Banks may be more willing to lend to a business with running operations, an established customer base and a steady cash flow. It might be cheaper than setting up new operations. The former owner may be persuaded to guide you in the early days. This free advice may prove to be invaluable.

Entrepreneurship

Disadvantages
The industry as a whole is not doing well and the situation is not likely to improve in the near future. The owner may not have been truthful about the business. The equipment could be old and outdated. The location is bad or is likely to become bad. Employees may be unproductive or incapable of meeting the standards required of them.

Entrepreneurship

Disadvantages
Any bad reputation that the business had acquired amongst suppliers, distributors and other people in the industry is likely to pass on to you. The previous owner may have got into some unfavourable long term contractual obligations The inventory lying in stores could be obsolete or unfit for use. If the companys products have not been received well by the market it will be harder to gain market share than it would have been for a new product.

Entrepreneurship

Buying a Business
Preliminary information collection Site visit Scrutiny Additional information collection Negotiation Transition

Getting Information
The industry Accountants, lawyers Bankers Advertisements Others

Scrutiny
Financial statements Other statutory documentation Valuation of capital equipment Inventory Licenses and permits Contracts with customers and suppliers Debt and accounts payable Accounts receivable Reputation of the firm

Valuation
Value of assets
Book value Replacement value Market value

Return on investment Payback period Discounted cash flow

Negotiations
Elements other than cash: Combination of stock and cash Accounts receivable Lease; with option to buy Non-compete clause

Common Mistakes While Buying

Scrutunise claims Risk vs returns Valuation of receivables Antagonising the seller

McDonalds
Arguably the most successful franchise chain Operates 30,000 outlets in over 100 countries Became a success after Ray Croc bought it from the McDonald Brothers

Franchising

Advantages of a Franchise
By taking a franchise, you get a proven system of operation. The franchisor allows you the use of an established brand name. The franchisees can also use professionally designed point of sale advertising materials, packaging material, posters and print and TV ads. This brand recognition is driven by national and regional advertising programmes. The franchisor will often train the franchisee and the franchisees employees before letting a new franchisee start the business.

Advantages of a Franchise
Ongoing product development and research is another advantage of being with a franchise chain. Large companies can gain from economies of scale but that would not be possible for individual entrepreneurs. The cost of starting up the franchise operations and the ongoing operating costs are very well documented by the franchisor and the details are shared with all prospective franchisees. A franchisor can add value by putting a quality program in place. The franchisor often does market research to find out if the market is big enough to support an outlet.

Choosing a Franchisor
It is good to get into an industry that is growing and shows signs of sustaining a rate of high growth over the next few years. It is also important to take into account, the performance of the franchisors products in the market. It is better to choose a franchisor, which has been in this business for a long time. It is disadvantageous to become one of the initial franchisees in a chain. The reputation of the franchisor counts for a lot.

Choosing a Franchisor
The franchisors relationship with other franchisees is also a very important factor to consider. Take a close look at the profitability indicated in the figures shared by the franchisor. Some of the assumptions made while arriving at those figures may need to be changed. It might need a good amount of investigation to come up with accurate estimates of the success rate of franchisees.

The Franchise Agreement

The size and location of space needed The franchise fee including down payment and continuing royalties Refundable deposits A franchisees allotted territory The range of products and services which are offered by the franchisor

The Franchise Agreement

Training and who pays for it Advertising and who pays for it Any other assistance No-compete clauses Dispute resolution and legal recourse

ENTREPRENEURIAL FINANCE
CHAPTER 8 ENTREPRENEURSHIP

Chapter Objectives
To list the various sources of debt finance To understand the process of securing debt finance To discuss the importance of collateral security To tabulate the lending strategies of banks To discuss the characteristics of venture capital To understand the structure of venture funds To list the various roles within a venture fund To understand how venture capitalists get compensated for their efforts To describe a step by step screening process followed by venture funds while making an investment To list the elements of a termsheet To understand the current scenario of VC funding in India

Disadvantages of Equity Finance

Dilution of shareholding Increased 3rd party governance Increased external controls Increased commitment to stated strategy

Sources of Debt
State Finance Corporations NBFC Banks

Securing Debt
Drawing up the business plan. Identifying sources of debt finance. Presenting the proposal to the bank. If the manager is considering your proposal favourably, you will have to go for further talks Once the two parties have broadly agreed, details have to be worked out.

Entrepreneurship

Principles of Good Lending

Purpose Safety Profitability Other considerations

Security
Collateral
Inside Outside

Personal guarantee Maturity Covenants Menu pricing

Lending Strategies
Financial statements Relationship lending
Length of relationship Breadth of relationship Degree of trust

Credit scoring

Venture Capital
Venture capital is characterized by: Financing of new and potentially high growth companies Investments primarily in the form of equity participation Assistance in the early days of the enterprise Adding value to the company through active participation, even joining the management on occasions Willingness to take on higher risk Expectation of higher rewards A long-term outlook regarding the investment

Entrepreneurship

Roles in a Venture Fund

General partner Investor Venture partner Entrepreneur-in-residence Others

Screening by VCs
Get rid of scamsters Major broad concerns Growth and industry considerations Monetising value

Important Considerations
The entrepreneurial team
Personal or individual characteristics Experience of the individual

Ease of exit
Via IPO Sale to PE, etc

The Termsheet
Amount and terms of investment Dividend policy Composition of the board of directors Reporting Liquidity (exit) plans Rights of sale Warranties Matters requiring venture capitalist approval

Entrepreneurship

Problems Facing VCs in India

Large established firms with strong growth figures look like a very attractive proposition. Investments in public listed firms are giving returns in excess of 30%, at far lesser perceived risk Small firms in India are informationally opaque. Indian entrepreneurs are perceived as lacking in marketing and management skills. Indian entrepreneurs are more reluctant to give up controls than their western counterparts. VCs face an exit challenge as the capital markets in India are still shallow Brand India is strong only in some manpower driven services sectors like IT and ITES.
Entrepreneurship

Sectors Favored by VCs

IT and IT-enabled services Software Products Wireless and telecom Banking and financial services Divestments in public sector units Media and entertainment Biotechnology Pharma and diagnostics High technology Manufacturing Retail

MAKING A BUSINESS PLAN

CHAPTER 9 ENTREPRENEURSHIP

Chapter Objectives
To understand how a business plan is divided into sections To list the uses of a business plan To lay out the steps involved in writing a business plan To list out data required in drawing up a business plan To discuss about the various types of business plan To understand the significance of an executive summary To understand the structure and composition of various sections of a business plan To list the various appendices and exhibits needed in a business plan

Uses of a Business Plan

Equity funding Bank finance Alliances Recruitment Clarify the business Others

Kinds of Business Plans

Summary Plan Executive summary Full Business Plan Operational Business Plan The oral presentation

Steps in Writing a Business Plan

Define purpose Collect Information Put it down The rough draft. Financial analysis Finishing Review

Data Required
Company details
Documents relating to formation Shareholding details Permits and registrations

Management
Organization chart Details of key employees Consultants and advisors Compensation and other employee agreements Market statistics from secondary sources Reports on trends, etc Competitor data Customer surveys

Industry and Competitors

Data Required
Operations
Product specifications Contracts and purchase orders for raw materials Competitive advantages Details of Intellectual Property (Patent, license, and trademarks) Regulatory approvals Industry standards as per regulations Plant layout and operations plan Research and development plans

Marketing and Sales

Marketing plan Advance orders, if any Marketing materials

Financial Information
Data on fixed and variable costs to be incurred Financial forecasts

Key Sections of a Business Plan

Executive summary The company The management team The industry and the market Operations The marketing plan Financial plan Risks and contingencies Appendices

Executive Summary
The executive summary is probably the most important section of the business plan. It is basically the whole business plan condensed into a few pages The main objective of the executive summary is to entice the reader to go through the entire plan.

The Company
History Current Status Future

The Management Team

Technical and professional qualifications Quality of work experience Experience in the relevant sector Reputation in the business community Evidence of moral integrity Financial capacity Networking with other vital people in the industry

The Industry and the market

An industry is a collection of sellers A market is a collection of buyers
Concentrate on the relevant segments

Competition

Operations
Gantt chart outline setup Technology Raw material strategy Production planning Quality HR policy

Marketing
Target Segments Branding Product Packaging Pricing Distribution Promotion

Finance
Funds sought Projected financial statements Costing details Break even and payback analysis

Risks and Contingencies

Identify major threats and risks Outline strategies for countering them

Appendices
Copy of documents pertaining to incorporation or formalisation of partnership. CVs of the entrepreneur/s and of key employees Copies of various permits or permissions granted. Copies of papers pertaining to sale or lease of land for the business Copies of documentation of proprietary intellectual property Graphical representation of schedule including milestones and dates Photographs of location Factory or plant layout Graphical representation of production process

Appendices
Findings of market survey conducted Photograph of product or prototype Storyboards or mock-ups of advertisements Projected balance sheets Projected profit and loss accounts Projected cash flow statements Sensitivity analysis of P&L a/c Break even analysis Financial ratios

MANAGING OPERATIONS
CHAPTER 10 ENTREPRENEURSHIP

Chapter Objectives
To understand the importance or correct purchasing in a venture To list the activities involved in purchasing To tabulate the elements of a purchase policy To discuss the ways to evaluate suppliers To discuss the best practices in purchasing To list the kinds of inventory carrying costs To classify different kinds of inventory To understand the importance of cash management To understand the role of the cash manager To appreciate the challenges posed by cash flows To understand the principles of receivables management To discuss managing for disasters To understand the strategies followed by seasonal businesses

Purchase
Unplanned purchasing can lead to: spending more money than you need to buying goods that aren't of the proper quality choosing suppliers that don't offer the required level of customer service

Entrepreneurship

Role of the Purchase Manager

gather orders from various departments make sure the orders are complete, stay within specified spending parameters select appropriate vendors order for the goods check condition upon receipt check to make sure the invoice is correct ensure timely payment of the invoice by forwarding it to the accounting department communicate effectively with the suppliers on various issues

Purchase Policy
The purchase policy should address the following issues: Who is authorized to purchase various goods? How is the budget set for a purchase? How does the venture hope to ensure competition among vendors? How to ensure quality of received goods? What will be the payment system? What will be the level of confidentiality between the venture and vendors?
Entrepreneurship

Suppliers
Evaluate a supplier on: Timely delivery Completeness of orders shipped Quality of items Price competitiveness Strength of financial condition Ability to service special orders Quality of customer service Expertise of sales representatives and technical staff Consistency on above factors

Prioritising Purchases
Some items need more attention than others, on the basis of: Unit cost Total cost Time to delivery Quality Criticality

Inventory
Costs of carrying inventory Interest on the financial investment in inventory. Cost of insurance covering inventory. Rental or ownership related costs of the store Cost of handling inventory Obsolescence Pilferage, wastage or deterioration of stock

Types of Inventory
On the basis of stage in process: Raw Materials Work In Progress (WIP) Finished goods Goods for resale

Types of Inventory
On the basis of reason for stock to be held: Buffer stock Safety stock Overproduction Lot delay stock Demand fluctuation stock Line balance stock

Cash Management
The efficient utilization of current assets and current liabilities throughout each phase of the business cycle. The systematic planning, management and monitoring of the companys collections and disbursements. The collection, management and dissemination of information to enable effective use of available funds.

Good Vs Bad Cash Management

Increasing the possibility that your business never runs out of cash. Eliminating the constant worry associated with not knowing your current and future cash position Improved relationships with your vendors as a result of good payment practices. The ability to foresee cash flow problems long before they actually happen. Suppliers are going to be dissatisfied with late paymentsand that will lead to higher prices, late deliveries or quality problems. If you are unable to meet salary obligations on payday, employees are going to be worried about the financial stability of the firm. If your cash problems are a result of tardy collections, customers will stand to gain a lot by not paying up and taking their business elsewhere.

Cash Manager
Role of the cash manager: Efficiently collecting cash inflows Concentrating collected funds Controlling the timing of cash outflows Forecasting the cash position Securing adequate sources of short-term funds Optimizing use of any temporary cash surpluses Gathering timely information Implementing the systems necessary to monitor, manage and control the cash position Ensuring the internal and external transfer of financial data between departments or with the bank.

Cash Problems
As a result of business growth, cash can be: Mismatched Irregular Unpredictable

Collecting Accounts Receivable

Investigate new customers. Supply against written orders. Sign on a legal contract. Maintain close contact with customers. Get and repeat positive feedback. Send invoice ASAP.

Collecting Accounts Receivable

Contact before sending invoice. Keep a close watch on customers fortunes. Immediately contact on any delayed payment. Be firm Allow a customer to graduate in his credit ratings with you.

Managing During Disasters

Identify risks Reduce risks Plan Train Getting back to business

Seasonal Businesses
Seasonal businesses try to cut costs during the off season. The easiest way to do that is to cut down operations is seasons of low demand. By design some seasonal businesses have low installed capacities but create additional capacities for the season. E.g. restaurants putting in additional seats during a festive occasion are common sight in all major cities.

 Many businesses which close down during the off season depend on temporary labour and sometimes even the infrastructure is leased for a short time only. Clothes exhibitions that spring up in temporary shamianas (tent) are also another familiar sight in all cities.

 The off season is a very good time to carry out routine maintenance and repair work. In case the business is doing very well, the off season is a good time to plan and execute expansion plans. In case the goods can be stocked, the fallow time in the off season can be use to smoothen out the production schedule. So the entire year can be used to plan out production, which is ultimately sol within a short time.

HUMAN RESOURCE MANAGEMENT

CHAPTER 11 ENTREPRENEURSHIP

Chapter Objectives
To discuss the process of hiring an employee To describe the interview process To discuss the induction process To understand the ways of motivating employees To discuss the important aspects of salary and perks To list the ways of providing training to employees To understand the process of firing an employee

Job Description
Elements of a job description Details of the job responsibilities The qualifications desired The kind of experience the candidate should possess Salaries and other benefits to be given Career path

Hiring
People you know personally can be good employees. A referral is the next best thing to knowing the candidate personally.

Other Sources
Advertisements in local newspapers Posting on online job sites Accessing listed resumes Tapping a placement agency

Induction
Signing of joining papers Narration about the company A tour of the facilities Early mentoring

Motivation
Employees seek the following from their jobs: Recognition for good work done by them Meaningful participation in the ventures endeavours A feeling of belonging and of sharing in the success of the organization Opportunities for growth in accordance with their competence and experience Security in their job as long as they perform according to expectations Monetary reward for performance in their job Benefits relating to medical expenses and insurance
Entrepreneurship

Salary
How employees measure their salary: The salary is comparable to salaries of others in similar jobs in other companies within the industry The salary being paid should be comparable to what the employee is likely to get in some other job. The salary should compare with salaries of others with similar responsibilities within the company The salary should be comparable to the salaries of his friends and peers outside the industry

Components of a Salary
The fixed component Allowances Provident fund Medical insurance and a life insurance cover. Additionally, a medical reimbursement can be provided for incidental medical expenses. Annual bonus based on salaries or on performance. Employee stock option plan (ESOP)

Some Perks
Work related awards and competitions Recreation room in the office An annual picnic or excursion Recognising achievements of employees and their family members in other spheres Employees can be encouraged to attend seminars, workshops and short term courses.

More perks
Free or subsidised lunch in the office Discounts to employees on company products Involving employees in a joint social cause Employees can be allowed to work from home on selected days Bonus can be given to some or all employees. Gifts like a watch or a household appliance on some important occasions

ENTREPRENEURIAL MARKETING
CHAPTER 12 ENTREPRENEURSHIP

Chapter Objectives
To look at the marketing constraints of entrepreneurial firms To list the characteristics of entrepreneurial marketing To tabulate market research practices in entrepreneurial firms To discuss the concepts of segmentation, targeting and positioning and their relevance to entrepreneurial marketing To understand the process of brand building in entrepreneurial firms To explore pricing in entrepreneurial marketing To look at the distribution function in small firms To explore non-traditional advertising in entrepreneurial firms To tabulate different types of promotional campaigns

Characteristics of Entrepreneurial Firms

Limited resources Small size Newness

Entrepreneurial Marketing
Proactive orientation Innovativeness Customer focus Opportunity focus Risk management Value creation

Market Research
Field survey Systematic Observation Focus groups Secondary sources Test marketing

Field Survey
Low cost field surveys: Convenience sampling Snowball sampling Omnibus sampling Low-cost surveyors

Good Market Research

The researcher understands decision alternatives and the information required The relationship between results and the decision is understood by the entrepreneur and the researcher The results are communicated well. Poor research design and poor planning can delay the research or can result in erroneous conclusions. There is no fudging of data

Forecasting Demand
Define the total market Divide total demand into distinct market segments Forecast drivers of demand in each segment Match with own product to come up with possible sales of own product in that segment Total the forecasted sales in the segments that can be profitably targeted Conduct sensitivity analysis to understand assumptions
Entrepreneurship

Attractiveness of a Segment
Is your product able to deliver the value sought by a segment, better than the competition? Can the segment be easily identified? Is the segment big enough in terms of potential revenue? How easy is it to reach the segment with the positioning communication and with the product?
Entrepreneurship

Branding
Strategic brand building Identity-building brand exposure Involve the customer in the brand building experience Borrow practices from across industries Pilot test novel ideas Have a brand manager Monitor results Do not outsource

According to Aaker, the following are the difficulties in branding: Pressure to compete on price Proliferation of competitors Fragmentation of media and markets Brand relationships Bias towards changing strategy Bias against innovation Pressure to invest elsewhere Short term pressures

Entrepreneurship

Costs and Pricing

Producers costs indicate a floor price Customers cost indicates price sensitivity Competitors costs indicate their strength

Pricing
Assess what value customers place on the product. Look for variations in the way customers value the product. Identify a pricing structure. Consider competitors reactions. Monitor realised prices. Assess customers emotional response to prices.

Pricing Percepts
Pricing of a product should work towards maximising present worth The unit for making decisions and for measuring return is the entire economic life of the product Pricing begins before production commences and re-pricing continues for the entire life cycle Different pricing strategies can be used in different segments

Price Sensitivity
Price sensitivity is less if a third party bears the cost. Sensitivity is high when the cost of the item is a significant portion of the individuals total expenditure. Price sensitivity is higher in the case of B2B buyers as the buyer is not end user. When there is no differentiation between the products available, it becomes easy to compare products in the category and the price sensitivity of customers increase. Price sensitivity is more when there is easy access to competing products. Sensitivity decreases when there is a high cost of switching. When a long term relationship with the seller is not important, price sensitivity is low.

Response to a Price Cut

Competitive price cut or low cost product

Accommoda te or ignore

No

Is your position in other markets of risk?

No

Is there a response that would cost less than the preventable sales loss?

Yes

If you respond, is competitor willing and able to reestablish the price difference?

No Respond

Yes Yes Does the value of the markets at risk justify the cost of response? While the multiple responses required to match a competitor cost less than the preventable sales lose?

No

No

Yes

Yes Respond

Respond

Distribution Alternatives
Go directly to the consumer Go directly to the retailer: bypass distributor Use sales agents Participate in establisher channel structure Set up your own intermediaries

Distribution Tasks

Buzz Marketing
Most recent studies show that word-of-mouth is 10 times more effective than other media Media is getting fragmented and ad clutter is rising. Companies feel the need to stand apart Traditional forms of media are rising in cost. A 30 second slot during a cricket match on a TV channel can cost over seven lakhs. Too many marketers are making conflicting claims. The common mans trust in ads is coming down. Many new technologies provide the impetus for the acceleration of buzz marketing.
Entrepreneurship

Strategies for Buzz

Give away valuable products or services Take advantage of others resources The proper transfer mechanism should be in place Give people a story to tell The entire self replicating communication should be scalable Utilize existing communication networks rather than creating new ones
Entrepreneurship

Promotion
Objectives in a promotional campaign: SALES Increase in distribution outlets Increase in shelf space Increased in-store presence Expand the selling season Increase purchase frequency Increase usage occasions Increase average transaction size Induce trial

Steps in Planning a Promotion

Planning a promotional campaign Establish its objectives Plan on strategies and tactics Establish criteria for success Create back-up plan Review and test Put controls in place Roll out

Types of Promotions
Contests Coupons Discounts Continuity Point Of Purchase Sampling Event Free gift Trade Promotions

Training
Training of employees can be carried out by the following: Training institutes Business schools In House training Online

Firing
Reasons for termination of employment: Indiscipline Impropriety Underperformance Lay off Resignation

Process of Termination
An exit interview should be conducted and reasons for the termination should be honestly discussed. A letter of recommendation should be promptly given to the exiting employee. All terminal benefits and other payments due should be made promptly. All documentation citing the reasons for termination should be organized.

NEW PRODUCT DEVELOPMENT

CHAPTER 13 ENTREPRENEURSHIP

Chapter Objectives
To understand the importance of having a NPD process To list the types of new products To study the various stages of the NPD process To understand the adoption of new products To tabulate the best practices in NPD To look at various ways of involving customers in the NPD process To list various barriers to NPD To discuss the common mistakes in NPD
Entrepreneurship

Types of New Products

New-to-the-world products New product lines Additions to a product line Improvements and revisions of existing products Repositioning Cost reduction

Failure Rate of New Products

Number of failure

Debugging Stage

Expected Product Life

Wearout Stage

Time

The NPD Process

Opportunity identification Concept generation Concept evaluation Technical Development Launch Life Cycle Management

Product Testing
Alpha testing Beta testing Gamma testing

The Adoption Process

1. 2. 3. 4. 5. Awareness Interest Evaluation Trial Adoption

Adopter Groups
According to Rogers, the adopter groups are: 1. Innovators 2. Early adopters 3. Early majority 4. Late majority 5. Laggards

Adopter Categories

21/2% Innovators
131/2% Early
adopters

34% Early majority

34% Late majority

16% Laggards

Time of Adoption of Innovation

Entrepreneurship

Adoption
These five product characteristics influence product adoption: Relative advantage Compatibility Complexity Divisibility Communicability

Communicate with the customer Tap employees for ideas New product team Budgeting Letting go

Involving the Customer

Lead user method Mapping the consumption chain

Barriers to NPD
Shortage of funds Limited scope in some product categories Lack of time Restrictive laws and regulations Small markets Changing technology Changing consumer preferences

Entrepreneurship

Common Mistakes in NPD

No market research Hasty commercialization Focus on product Lack of communication Product availability Pricing it high Pricing it low

Success of Entrepreneur in Rural India

PANKAJ KUMAR Rai Business School

Content
Rural Enterprise :- Some Facts Agriculture Entrepreneurial Development Under TRYSEM Risk taking Among Rural Entrepreneur Development Strategy For Small Entrepreneur Entrepreneurial Development In Backward Area

RURAL ENTERPRISES: SOME FACTS

Fair industrial activity in rural India. There are 42.12 million enterprises in the country engaged in different economic activities other than crop production and plantation of which 25.81 million (61.30%) are in the rural areas. The annual rate of growth of enterprises and employment in rural areas was 5.53% and 3.33% respectively as compared to 3.71% and 1.68% respectively in urban centers. Average annual growth in employment is higher in rural areas (3.33%) than in urban India (1.68%).

Agriculture

Towards enabling Rural Areas.

Risk Coverage
Crops insurance KCC Other Loan

Information Technology Development

Use of Village Internet kiosk and mobile phones for Obtaining market-prices in different Markets Transaction and deal-closing from villages Scheduling delivery Booking of transport Direct payment through banks and loan repayment

Training Programmed
Skill Improvement Trainings Entrepreneurial Development Programmers ( EDPs ) Agriculture and Animal Husbandry

Training on DTP Fashion Designing

Entrepreneurial Development Under TRYSEM

Component of TRYSEM
Identification of entrepreneurial Quality. Identification of entrepreneurial opportunity. Training in motivation and skills. Provision of credit facilities. Risk sharing by providing investment subsidy. Help in developing new materials and Market. Constant monitoring and follow-up.

Risk taking Among Rural Entrepreneur

Types of Risk
Technical Risk

Economic Risk

Types of Risk

Social Risk

Environmental Risk

Development Strategy For Small Entrepreneur

Condition Influencing The Entrepreneurial Trends

Social Conditions

Economic Conditions = (infrastructural & institutional) Sufficient (+)

Entrepreneurial Trends

Favorable (+)

High (+ +)

Favorable (+)
Unfavorable (-) Unfavorable (-)

Insufficient (-)
Sufficient (+)

Low (+ -)

Low (+ - )

Insufficient (-)

Little ( - - )

Entrepreneurial Development In Backward Area

Training and Entrepreneurship Development Programme in India

Importance of training Methods of training EDP- Need and importance Phases of EDP Selection of entrepreneurs for EDP Training programme - Course contents Pre requisites of EDP Organisations providing EDP

Importance of Training
Ensures availability of skilled manpower at all management levels Enhancing abilities, potential among entrepreneurs Increase efficiency Maintain and enhance product quality

Methods of Training
Individual instruction Group instruction Lecture method

Demonstration method
Written instruction method

EDP
Designed with an aim of encouraging self employment Imparts training and motivates potential and existing entrepreneurs to start new business or diversify and expand the existing one Helps employment and wealth creation among educated unemployed youth

Phases of EDP
Select area from existing government policy guidelines/socio-economic reports Techno-economic survey of the selected area; feasibility study

Identify potential and existing entrepreneurs interested in starting new business/expansion/diversification

Selection of entrepreneurs for EDP

The programme is well publicised and promoted to attract maximum applications for screening Selection of top 25 to 30 applicants only

Applications screened for:

Demographics and socio cultural data age,

Training Course contents

Introduction to entrepreneurship Motivation training Essentials of management Fundamentals of project feasibility study

Organising the business

Pre requisites of EDP

Selection of entrepreneurs Inputs for EDP Support system Follow up

Organisations providing EDP

 Established by Government of India in 1983 An apex body for coordination and supervision on activities of various institutes engaged in entrepreneurial development

National Institute for entrepreneurship and Small Business Development (NIESBUD)

Helps evolution of EDP, model syllabi, effective training strategies, methodology, manuals and tools

Small Industries Service Institutes (SISI)

Three months part time evening courses in management
4-6 weeks part time courses in intensive training in functional areas (marketing, finance) Special courses in quality control, HR, production planning, product development

Small Industries Development Organisation (SIDO)

Runs EDP in collaboration with financial institutes, directorate of industries
Gives on the job training on shop floor (carpentry, electrical devices) Sends its officials/trainers to organisations to update their knowledge

National Small Industries Corporation (NSIC)

Provides apprenticeship for 2 years Training supervisory staff of SSI up to 2 years Training to engineers up to 2 years Training workmen for 12 months

Training to set up own venture

Entrepreneurship Development Institute of India (EDII)

Develops programmes for entrepreneurial training and development Develops innovative training techniques for trainers Focused attention on women entrepreneurs with first such EDP in 1988 EDP for rural entrepreneurship

National Alliance of Young Entrepreneurs (NAYE)

Contribution in encouraging women entrepreneurship Set up womens wing in 1975 This wing assists women in:
Getting better access to resources, infrastructure, markets Identify investment opportunities Attending to problems of individual industries Sponsor participation in trade fairs, exhibitions, conferences Organise seminars, training programmes, workshops