CASE STUDY OF A TECHNOCRAT

Who is an Entrepreneur?
One who creates a new business in the face of risk and uncertainty for the purpose of achieving profit and growth by identifying opportunities and assembling the necessary resources to capitalize on them.

Gist of the Case

y Mr Shah, a technocrat with Mech Engg degree and PG in Ind Mgt & Ind Engg. y Extensive experience having worked both abroad and in India. y Assisted by a Bank under a scheme for financing a project to manufacture of sty item, ie staple remover and job work on other smaller machinery parts. y Cost as projected Rs 20.2 lakhs, however sanctioned Rs 19.2 Lakhs by the bank. y He anticipated an annual turnover of Rs 47.2 lakhs and a pre-tax profit of Rs 8.3 lakhs. y With orders in hand, start and progress of the business delayed due to non-availability of suitable shed. Staple remover project called off.

Gist of the Case

Timeline y 1 month Started with machinery installed in a friend s shed. However, most of the products rejected, y 2nd month No improvement and Rs 1.5 lakhs of raw material wasted, y Bank put on hold subsequent disbursement of the loan due to non performance and only released with H.O. sanction,
y 6th month

Entire working capital utilised, assets nominal, bank disbursed Rs 2 lakhs by way of book debts and Mr Shah moved to its new rented shed with the expectations of rejection not to go beyond 5%, y Rejection continued at the same rate, blamed the employees, y Appointed a senior manager and quality control inspector,

Gist of the Case

y Problems surmounting with

customers and borrowers delaying payments. Bank raised the book debt to Rs 8 Lakhs. y Despite losing all customers and business absolute downturn, he refused to downsize his extravagant lifestyle. y 6th month onwards Due to a stroke of luck, he managed a new customer who managed to give his failing business venture a new lease of life. y Mr Shah preferred not to keep Bank informed of this positive development but Bank did come to know on one of its routine inspection and kept quiet about with renewed optimism.

y 11th month.

However,the contract was revoked. Again not informed, bank found out and refused any further assistance. y Mr Shah transferred his a/c to another bank but faced even stiffer opposition about his repayment aspect. y Legal proceeding initiated against Mr Shah by his creditors. y Bank also contemplating legal suit, invoking RBI guarantee and recalling the advance against him

Ten Deadly Mistakes of Entrepreneurship

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Failure to develop a strategic plan Management mistakes Lack of experience Poor financial control Weak marketing efforts Uncontrolled growth Poor location Improper inventory control Incorrect pricing Inability to make the entrepreneurial transition

CAUSES OF FAILURE- INSTANT CASE

y Lack of acumen/research on the part of Mr Shah. y Poor Planning. i) preparing a plan to please the bank not to run his business, ii) Not thinking outside the box, iii) He should have had a solid business plan that required a great amount of study of the market he thought he d jump into, iv) It should have been a product or service which had some potential, v) Proper planning is also essential at reducing risk.

CAUSES OF FAILURE- INSTANT CASE

y Poor financial control.

i) Taking TOO much money out TOO early, ii) In the first two years YOU pay the business after that the business pays YOU. You have to make sure you can sustain a business ( have the financial backing) for two years before you can expect a good return, iii) Since the business has to sustain itself for a initial period as stated above, drawings should have been kept to the barest minimum. y Marketing was important because people need to know about the company and its offerings. y Pricing strategy should have been worked out for customer retention.

CAUSES OF FAILURE- INSTANT CASE

y Lack of experience. It led to

i) Mistakes They are the best way to gain experience. Think of it as a learning curve and not the end of the world, y ii) Failure to plan for "failure"... ,i.e. no Back up plan, y iii) Also, failure to anticipate how much actual work will be required of Mr Shah, the Entrepreneur.

CAUSES OF FAILURE- INSTANT CASE

y Poor timing of the business and changes in

location lead to increase in fixed costs.

y poor selection of employee and bad industrial

relations.
y Mr Shah, being a technocrat all his life had not

been able to make the entrepreneurial transition .

y The last would be a business that just probably

wasn t required at that time.

CAUSES OF FAILURE- INSTANT CASE

Other reasons can be : 1) 2) 3) 4) 5) Due to competition from bigger players, pushing out of smaller firms, Increase in costs / expenses, Trends changing , Technology changing, Bad ideas.

WEAKNESSES AS A BORROWER
y Lack of financial planning at the outset. y Poor financial control due to lack of expert

help and own background. y No prior knowledge of financial statements. y Prioritisation of funds. y Business out of sync with the capital and cash flow.

Lessons to be learnt as an Entrpreneur

y Know your business in depth. y Develop a solid business plan. y Manage financial resources. y Understand financial statements. y Learn to manage people effectively. y Keep in tune with yourself.

Putting Failure Into Perspective

y Entrepreneurs are not paralyzed by the prospect of

failure.
y Failure a natural part of the creative process. y Successful entrepreneurs learn to fail intelligently.

THANK YOU