ENTREPRENEURSHIP

Entrepreneur a person, who creates some new events, organizes factors of production,
undertakes risk & handles economic uncertainty involved in new enterprise /venture.
An entrepreneur is a person who starts an enterprise. He searches for change and responds to it.
A number of definitions have been given of an entrepreneur- The economists view him as a
fourth factor of production along with land labor and capital.
According to Oxford Dictionary: “One who undertakes an enterprise, especially a contractor –
acting as intermediary between capital and labor”
According to Peter .P. Drucker: “Innovation is the specific tool of entrepreneurs, the means by
which they exploit changes as an opportunity for different business or a different service”

Entrepreneurship:
A set of attributes that an entrepreneur possesses and practices to establish and run the
enterprise.
“Entrepreneurship is a purposeful activity of an individual or a group of associated people
undertaken to initiate, maintain an organized profit oriented business unit for the production
and distribution of economic goods and services.”

THE CONCEPT OF ENTREPRENEURSHIP

Entrepreneur Entrepreneurship Enterprise

Person Process of action Object

DIFFERENCE BETWEEN
ENTREPRENEUR ENTREPRENEURSHIP
PERSON LEADER
VISUALIZER VISION
CREATOR CREATION
ORGANIZER ORGANISATION
INNOVATOR INNOVATION
PLANNER PLANNING
LEADER LEADERSHIP.

Nature
 Creation of an enterprises
 Organizing function
 Innovation
 Risk bearing capacity
 Managerial and leadership function

Scope
 Desire of control over one’s future

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  More profits
 Lack of employment opportunity
 Government measures to promote entrepreneurship
Characteristics of an entrepreneur
 Risk taking capability: every business has risk of time money etc .so an entrepreneur
must have the risk taking capability.
 Creativity and innovation: an entrepreneur has an initiator possesses creativity and
innovative power.
 Need for achievement: the entrepreneur has strong desire to achieve the goal of
business. He is always driven by the needs for achievement.
 Need for autonomy: an entrepreneur does not like to be under anybody. It is the need
for autonomy which drives a person to be an entrepreneur.
 Self confident: an entrepreneur has confidence in him.
 Leadership capability: an entrepreneur must have leadership capability to lead works
under him
 Industriousness: a successful entrepreneur must have leadership capability to lead
workers working under him.
 Decision making capability: the entrepreneur has capability to take quick decision
 Adaptability: he has the capacity to adapt with any kind of situation that arise in the
enterprise
 Foresightness: The entrepreneurs have a good foresight to know about future business
environment.
Qualities of successful entrepreneur:
 Moderate risk taking: an entrepreneur always takes calculated risk to operate the
organization
 Hard work: an entrepreneur is very much hard worker, he or she always busy with
various types work.
 Accountability: a successful entrepreneur is accountable well as his associates always
accountable to him.
 Educated in real sense: successful entrepreneur is educated in real sense .he tries to
implement his organizational objectives through his education.
 Analytical mind: a successful entrepreneur is analytical minded. He scrutinizes every
activity on the organization.
 Dynamic leadership: a successful entrepreneur is always dynamic to operate the
organization
 Presence of mind: a successful entrepreneur is always at present of mind he is always
aware of activities that to happening in the organization and around him
 Accommodative: a good entrepreneur has the capacity to make his own place at every
sector
 Courageous and tactful: Corsages and techniques is very much essential for a
successful entrepreneur
 Maker of right decision: A successful entrepreneur makes right decision in right time
in right place

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  Foresighted: a successful entrepreneur foresights the future and take decision
accordingly
 Right perception of things: A successful entrepreneur things in a right way
 Strong desired to success: A successful entrepreneur have a strong desire to success.
he is driven by the desire to success
 Innovation: innovation is the process of making new something. A successful
entrepreneur is innovative
 Self confidence: A successful entrepreneur is self confidence. does not really on other
for decision or fate
 Goal setting: a successful entrepreneur set the goal

Types of Entrepreneurs:

 Innovation Entrepreneurs: Innovating entrepreneurs is who introduces new goods,

inaugurates method of production, discover new market and re-organizes the enterprise.
 Imitative entrepreneurs: These are characterized by readiness to adopt successful
innovations inaugurated by innovating enterprises. Imitative entrepreneurs do not
innovate the changes themselves they only imitate techniques and technology involved
by others.
 Fabian Entrepreneurs: Are characterized by very great caution and skepticism in
experimenting any change in their enterprises. They imitative only when it become
perfectly clear that failure to do so would result in a loss of the relative position in the
enterprise.
 Drone Entrepreneurs: They are characterized by a refusal to adopt opportunities to
make changes in production formulas even at the cost of severely reduced returns
relative to others like producers. Such entrepreneurs may even suffer from losses but
they are not ready to make changes in their existing production methods.

Functions of entrepreneur:
I. Primary Functions:-
(a) Planning: Planning process covers steps’:-

 Scanning of the best suitable idea

 Selection of product line
 Determination of business organization
 Estimation of the capital needed
 Selection of capital resources
 Selection of location
 Studying the govt. rules relations & policies
 Selecting the way to fulfill the govt. facilities
 Study of availability of work force
 Study of market strategy to be adopted.
(b) Organizations: Co-coordinators –land, labor and capital

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(c) Decision-making:
 Determination of the business objectives of the enterprise
 Decision regarding procurement of machine, material men, money and market.
 Decision regarding requisition of efficient technology & new equipments
 Maintenance of good relations with public authorities & with society at large.
(II) Other Functions:
 Diversification of production
 Expansion of the enterprise
 Maintaining cordial employer-employee relations
 Tackling of labor problems
 Co-ordination with outside agencies

(III) Functions important for developing countries:

 Management of Scarce resources
 Dealing with public bureaucracy
 Acquiring & Overseeing assembly of this factory
 Industrial designing & reengineering
 Marketing of product and responding to competitions
 Industrial new product
 Perception of market opportunities
 Financial & production management
 Management of customers and suppliers relations
 Management (Public bureaucracy)

Role of Entrepreneurship in economic development

 Employment Generation: growing unemployment particularly educated unemployment
is an astute problem of the nation. With the help of entrepreneur economic growth
providing direct & indirect employment to many more.
 National Income: Consists of goods and services produced in the country and those
imported. The goods and services produced one for consumption within the country as
well as to meet the demand of exports. The domestic demand increase with ever
increasing population and standards of living.
 Dispersal of economic power: The world affairs have been dominated by power. There
have been two types of power. Muscles power & economic power. Economic power is
the natural outcome of industrial and business activity. Industrial development normally
can lead to concentration of economic power in few hands.
 Balanced Regional Development: Balanced regional development leads to a large
number of public benefits like road, transport, healthy education, entertainment etc.
 Harness Locally available resources and entrepreneurship: India is considered to be
very much rich in natural resources. In spite of more than four decades of planned
development a large number of states have remained economically quite backward.
 Reducing unrest and social a tension amongst Youth: Many problems associated with
youth unrest and social tensions are rightly considered to be due to youth not being to

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 be engaged in productive work. In the changing environment where we are faced with
the problem of recession in wage employment. Opportunities, alternative to wage
career is the only viably option. The country is required to divert the youth with latent
entrepreneurial traits from wages career to self-employment career.
 Innovation in enterprise: Business enterprises need to be innovative for their survival
and better performance
 Improvement in living standards: Entrepreneurs set up industries, which remove
scarcity of essential commodities and introduce new products.
 Economic independence: Entrepreneurship is essential for national self-reliance.

ENTREPRENEURSHIP DEVELOPMENT PROGRAMMES

EDP becomes a matter of great concern in all developed and developing countries all over the
world.
 EDP means a programme designed to help a person in strengthening his
entrepreneurial; motive and in acquiring skills and capabilities necessary for playing his
entrepreneurial role effectively.
 EDP aims at developing entrepreneurial motives, skills and helping to play his/ her role
as an entrepreneur effectively.

Need/Objectives of EDP:
 Develop and strengthen their entrepreneurship Development Programmes are
achievement.
 Analyze environmental set up relating to small industry & small industry & small
business.
 Select product
 Formulate project for the product
 Understand the process & procedure unvalued insetting up a small enterprise
 Know the sources of help & support available for starting a SSI
 Know the pros & cons on becoming an entrepreneur
 Appreciate the needed entrepreneurial discipline
 Develop passion for integrity and honesty
 Develop a broad vision about the business
 Enable to communicate clearly & effectively
 Acquire the necessary managers skills required to run a small enterprise

Courses contents and curriculum of EDP’s:

 General introduction to entrepreneurship: First of all, the participants are exposed to a

general knowledge of entrepreneurship such as factors affecting small scale industries.
The role of entrepreneurs in economic development the facilities available for
establishing small-scale enterprises.

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  Motivation training: The training inputs under this aim at inducing and increasing the
need for achievement among the participations
 Management Skills: Running a business, whether large or small requires the
management skill. Since a small entrepreneur cannot employ a management experts to
manage his/her business. He/she needs to be imparted basic and essential managerial
skills in the functional areas like finance, production and marketing.
 Support system & Procedure: The participants also need to be exposed to the support
available from different institutions and agencies for setting up the running SSI.
 Fundamentals of Project Feasibility Study: Under this input the participants are
provided guidelines on the effective analysis of feasibility or viability of the particular
point in view of marketing, organization, technical, financial and social aspects.
 Plant Visits: In order to familiarize the participants with real life situations in small
business, plant visits are also arranges. Such trips help the participants know more
about an entrepreneur’s behavior, personality, thoughts and aspirations.

Phases of EDP’s:
I. Pre Training Phase: The activities and preparations required to launch the training
programmes came under this phase. This phase accordingly includes the following:

 Selection of entrepreneurs
 Arrangement of infrastructure
 Tie up of guest faculty for the training purpose
 Arrangement for inaugurations of the programme
 Selection of necessary tools, techniques to select the suitable entrepreneurs
 Arrangement for publicity media campaigning for the programme
 Develop of application form
 Finalization of training syllabus.

II Training Phase: It is to bring desirable change in the behavior of the trainees. According a
trainee should see the following changes in the behavior after the trainees.
 Ideas, role
 Skills, Traits
 Behavior
 Mobilizing resources
 Motivation
III. Post Training Phase (Follow-Up)
 How to start their enterprises
 Policies/Guidelines

INSTITUTIONAL SUPPORT TO ENTREPRENEURS

OR

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 ROLE OF GOVERNMENT AND NON GOVERNMENT AGENCIES IN
PROMOTING ENTREPRENEURSHIP IN INDIA

Government Policy Towards entrepreneurs

The central government has taken the following policy decisions for the growth and
development of entrepreneurship:
i) To maintain a proper distribution of economic power between private and public sector.
ii) To encourage the tempo of industrialization by spreading entrepreneurship to every
city, town or Village.
iii) To disseminate the entrepreneurial acumen concentrated in a few dominant
communities to a large number of industrially dominant people of varied social strata.
Measures for the protection and Encouragement of Entrepreneurs
(i) Protective Measures: Such measures intend to protect the small industries from
competition why large industries which include:-
A) Reservation of certain items for the exclusive production of small scale sector.
B) Giving concessions to the small industries so that they may compete with big
industries.
ii) Promotional Measures: Such measures aim at promotion of small industries. These
include:
A) Supply of scarce raw materials to the small scale units at reasonable prices and setting
up of raw material depots to effect quick supply of such materials to the small units.
B) Setting up of common testing facilities centers for the benefit of cluster of groups of
small scale units situated in a particular region.
C) Assistance by the state small scale Industries development Corporations in securing
order from government departments.
D) Preference in land allocation and Power connection to small scale units and also
provision of power at concessional rates.
E) Setting up of industrial estates
F) Provision of technical assistance to small units by the central small Industrial
Organization in modernizing their methods of production.

Institutional Measures

Starting a business or industrial unit-say, enterprise in short-requires various resources and

facilities. Small scale enterprises, given their small resources, find it difficult to have these
own. Finance has been an important resource to start and run an enterprise because it facilitates
the entrepreneur to procure land, labor, material, machine and so on from different parties to
run his/her enterprise. Hence, finance is considered as life-blood: for an enterprise.

Institutional support to small entrepreneurs:

I. National small industries Corporation Ltd. (NSIC): The national small industries
corporation Ltd. An enterprise under the Union Ministry of Industries was set up in 1955 to
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promote aid and foster the growth of small scale industries in the country. NSIC provides a
wide range of services, predominantly promotional in character to small-scale industries. Its
main functions are:
 To provide machinery on hire-purchase scheme to small-scale industry
 To provide equipment leasing facility
 To help in export marketing of the products of small-scale industries
 To participate in bulk purchase programme of the government
 To develop prototype of machines and equipments to pass on to small-scale industries
for commercial production
 To distribute basic raw material among small-scale industries through raw material
depots
 To help in development and up gradation of technology and implementation of
modernization programmes of small-scale industries
 To impart training in various industrial trades
 To set up small-scale industries in other developing countries on turn-key basis
 To undertake the construction of industrial estates

II. Small Industries Development Organisation (SIDO): Small industries development

organization is a subordinate office of the department of SSI & ARI. It is an apex body and
nodal agency for formulating, coordinating and monitoring the policies and programmes for
promotion and development of small-scale industries. Development commissioner is the head
of the SIDO. He is assisted by various directors and advisors in evolving and implementing
various programmes of training and management consultancy, industrial investigation,
possibilities for development for different types of small-scale industries, development of
industrial estates etc.
The SIDO functions through 27 offices, 31 small industries Service Institutes (SISI) , 37
extension centers, 3 product-cum process development centers and 4 production centers. All
small scale industries expect those failing within the specialized boards and agencies like
KVIC, coir Boards, Central Silk Board etc. fall under the purview of the SIDO.

Main functions performed by SIDO:

a. Functions relating to co-ordination:
 To evolve a national policy for the development of small scale industries
 To co-ordinate the policies and programmes of various state governments.
 To maintain a proper liaison with the related central ministries, planning commissions,
state govt., and financial inst. Etc.
 To co-ordinate the programmes for the development of industrial estates.

b. Functions relating to Industrial development:

 To reserve items for production by small-scale industries
 To collect data on consumer items imported and then , encourage the setting of
industrial units to produce these items by giving coordinated assistance

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  To render required support for the development of ancillary units and
 To encourage small-scale industries to actively participate in Govt. stores purchase
programme by giving them necessary guidance, market advice and assistance.

c. Functions relating to Extension:

 To make provision of technical services for improving technical process, production
planning, selecting appropriate machinery, preparing factory layout and design.
 To provide consultancy and training services to strengthen the competitive ability of
small scale industries
 To render marketing assistance to small-scale industries to effectively sell their
products
 To provide assistance in economic investigation and information to small-scale
industries

III. Small Scale Industries Board (SSIB): The govt. of India constituted a board, small scale
industries board in 1954 to advice on development of small scale industries in the country. The
SSIB is also known as Central Small industries Board. The range of developmental work in
small, tiny and village industries in the state/union territories under their jurisdiction.
Incorporation under the companies act has provided SSIDCs with greater operational flexibility
and wider scope for undertaking a variety of activities for the benefit of the small sector.

The important functions performed by SSIDCs include:

 To procure and distribute scarce raw material
 To supply machinery on hire purchase system
 To provide assistance for marketing of the products of small-scale industries
 To construct industrial estates/sheds, providing allied infrastructure facilities and their
maintenance
 To extend seed capital assistance on behalf of the state govt. concerned. Provide
management assistance to production units.

IV.Small Industries Service Institutes (SISIs): The small industries services institutes are
set up to provide consultancy and training to small entrepreneurs-both existing and prospective.
The activities of SISIs are coordinated by the industrial management training division of the
DCSSI’s office. There are 28 SISIs include:

The main functions of SISIs include:

 To serve as interface between central and state govt
 To render technical support services
 To conduct entrepreneurship development programmes
 To initiate promotional programmes

The SISIs also render assistance in the following areas:

 Economic consultancy/Information/EDP consultancy

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  Trade and market information
 Project Profiles
 State industrial Potential survey
 District industrial potential surveys
 Modernization and in plant studies
 Workshop facilities
 Training in various trade/activities

V.District Industries Centers (DICS): The district industries centers programme was started
on May 8, 1978 with a view to provide integrated administrator framework at the district level
for promotion of small-scale industries in rural areas. The DIC’s are envisaged as a single
window interacting agency with the entrepreneur at the district level. Services and support to
small entrepreneur are provided under single roof through the DIC’s. They are the
implementing arm of the central and state governments of the various schemes and the
programmes. Registrations of small industries are done at the district industries centers.

The SEEUY/PMRY for employment generation is also implemented by the DIC’s.

Functions:

 To conduct industrial potential surveys keeping in view the availability of resources in

terms of material and human skills, infrastructure, demand for product, etc. To prepare
techno-economic surveys and identify product lines and then to provide investment
advice to entrepreneurs.
 To prepare an action plan to effectively implement the schemes identified.
 To guide entrepreneurs in matters relating to selecting the most appropriate machinery
and equipment, sources of its supply and procedure for procuring imported machinery,
if needed, assessing requirements for raw materials etc.
 To appraise the worthiness of the various proposals received from entrepreneurs
 To assist the entrepreneurs in marketing their products and assess the possibilities of
ancillarsation and export promotion of their products
 To undertake product development work appropriate to small industries
 To function as the technical arms of DRDA in administrating IRD and TRRYSEM
programmes.

VI. Khadi and Village Industries Commission (KVIC)

• Statutory body created by an act of Parliament
• It is charged with planning, promotion, organization and implementation of the
program for the development of Khadi and other village industries in the rural areas in
coordination with other agencies engaged in rural development
• KVIC’s functions also comprise building up a reserve of raw materials and implements
for supply to producers, creation of common service facilities for processing of raw
materials and provision of marketing of KVIC products

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 • KVIC is entrusted with the task of providing financial assistance to institutions or
persons engaged in the development and operation of Khadi and village industries and
guide them through supply of designs, prototypes and other technical information
VII. National Science and Technology Entrepreneurship Development Board (NSTEDB)
• Established in 1982 by GOI, is an institutional mechanism to help promote knowledge-
driven and technology-intensive enterprises
Major objectives are:
 promote and develop high-end entrepreneurship for S&T manpower as well as self-
employment by utilizing S&T infrastructure and by using S&T methods
 Facilitate and conduct various informational services relating to promotion of
entrepreneurship
 network agencies of support system, academic institutions and R&D organizations to
foster self-employment using S&T with special focus on backward areas
act as a policy advisory body with regard to entrepreneurship
VIII.National Productivity Council (NPC)
• Autonomous institution functioning under the overall supervision of the Ministry of
Industry, GOI
• Primary objective is to act as a catalyst in enhancing the productivity of all sectors of
the economy, including industry and agriculture
• Administered by a tripartite Governing Council (GC) which has equal representation
from the government, industry and trade unions
• Active in the field of consultancy and training and has a number of specialized
divisions to provide tailor-made solutions to agriculture and industry. These divisions,
manned by trained consultants, deal with issues related to industrial engineering, plant
engineering, energy management, HRD, informal sector, agriculture and so on
• NPC is a member of the Asian Productivity Organization (APO), Tokyo, an umbrella
body of all productivity councils in Asian region
• To channelize expertise of NPC to small-scale and informal sector, SIDBI has tied-up
with NPC for enhancing technology in small units
IX.National Institute for Small Industry Extension and Training (NISIET)
• Set up in early 1950s, NISIET acts an important resource and information centre for
small units and undertakes research and consultancy for small industry development
• An autonomous arm of the Ministry of Small Scale Industries, the institute achieves its
objectives through training, consultancy, research and education, to extension and
information services
• In 1984, UNIDO has recognized NISIET as an institute of meritorious performance
under its Centre of Excellence Scheme to extend aid
X.National Institute for Entrepreneurship and Small Business Development (NIESBUD)
• NIESBUD is an autonomous body under the administrative control of the Office of the
DC(SSI)
• NIESBUD established in 1983 by the Ministry of Industry, GOI, as an apex body for
coordinating and overseeing the activities of various institutions/agencies engaged in
Entrepreneurship Development particularly in the area of small industry and business

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 • The policy, direction and guidance to the institute are provided by its Governing
Council whose chairman is the Minister of SSI.
• Besides conducting national and international training programs, the institute
undertakes research studies, consultancy assignments, development of training aids, etc.

Specialized institutions:

In addition to the above institution, the government has also set up the following specialized
institutions to boost the growth of all types of small-scale industries in the country:

I. Central Institute of Tool Design, Hyderabad: The central government set up this institute
in 1968 with the help of UNDP and ILO to help small-scale industries by imparting specialized
training to the personnel working in the design and manufacture of tools, jigs, fixtures, dies and
moulds. The other functions performed by it are:
 To offer consultancy and advisory services and assistance in the design and
development of tools.
 To suggest proper measures to improve the standard of tool, tooling elements, jig
components, dies etc.
 To offer the needed tool room facility.

II. Central tool room training center: In order to provide tool room services and facilities in
design, manufacture and training the government has set up four tool room training centers
located at Bangalore, Calcutta, Ludhiana and new Delhi.
III. Central Institute of Hand tool, Jalandhar: this institute has been set up with a view to
provide improved technology, raw materials design and testing for handloom industry. This is
the only institute of its kind in the country located at Jalandhar.
IV.Institute for design of Electrical measuring instruments, Mumbai: This institute was set
up in 1969 with the assistance from UNDP. It was set up to provide technical consultancy
services in the matters relating to design and development of electrical and electronic
instruments, tool designing and fabrication and training.
V. National Institution of Entrepreneurship and small business development, New Delhi:
It is an apex national level institute of its kind set up at New Delhi, 1983. Its main functions are
to coordinate research and training in entrepreneurship development and to impact specialized
training to various categories of entrepreneurs.

VI. Other Institutes: Following are some of the important institutes set up by the government
for development of small scale industries:

 Electronic Training and service institute, Nainital

 Central Machine Tools Ltd, Bangalore
 Sports goods and leisure time equipment, Meerut
 Central institute of plastics engineering and tools, Madras

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  National Institute of foundary and Forging Technology, Ranchi

VII.Technical Consultancy Organisation (TCO’s)

A network of Technical Consultancy Organizations was established by the All India Financial
institutions in the seventies and eighties in the collaboration with state-level financial
institution and commercial banks to cater to the consultancy needs of small industries and new
entrepreneurs. At present there is 17 TCO’s operating in various states which are:

 Andhra Pradesh Industrial and Technical Consultancy Organization Ltd(APITCO)

 Bihar Industrial & Technical Consultancy Organization Ltd.(BITCO)
 Gujarat Industrial & Technical Consultancy Organization Ltd(GITCO)
 Haryana-Delhi Industrial Consultants Ltd(HARDICON)
 Himachal Consultancy Organization Ltd(HIMCO)
 Industrial and technical consultancy org. of Tamilnadu Ltd(ITCOT)
 Jammu & Kashmir Industrial and Technical consultancy org. ltd.(J&KITCO)\
 Karnataka Ind. & Technical consultancy Org. Ltd(JUTCO)
 Madhya Pradesh Consultancy Org. Ltd(MPCON)
 Maharashtra Ind. & Technical consultancy Org. Ltd(MITCON)
 North-Eastern Industrial consultants Ltd(NECON)
 North-Eastern Ind. And Technical consultancy org. ltd(NEITCO)
 North-India Technical Consultancy Org. Ltd(NITCON)
 Orissa Industrial and Technical consultancy org. ltd(ORITCON)
 Rajasthan consultancy Org. Ltd(RAJCON)
 U.P. Industrial consultants Ltd.(UPICO)
 West Bengal Consultancy Org. Ltd(WEBCON)

State Level Institutions

I. State Financial Corporations (SFCs) – Main objectives are to finance and promote small
and medium enterprises in their respective states for achieving balanced regional growth,
catalyze investment, generate employment and widen ownership base of industry. Financial
assistance is provided by way of term loans, direct subscription to equity/debentures,
guarantees, discounting of bills of exchange and seed capital assistance. SFCs operate a
number of schemes of refinance of IDBI and SIDBI and also extend equity type assistance.
SFCs have tailor-made schemes for artisans and special target groups such as SC/ST, women,
ex-servicemen, physically challenged and also provide financial assistance for small road
transport operators, hotels, tourism-related activities, hospitals and so on. Under Single
Window Scheme of SIDBI, SFCs have also been extending working capital along with term
loans to mitigate the difficulties faced by SSIs in obtaining working capital limits on time

II. State Industrial Development / Investment Corporation (SIDC/SIIC) – Set up under the
Companies Act, 1956, as wholly owned undertakings of the State governments, act as catalysts

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in respective states. SIDC helps in developing land providing developed plots together with
facilities like roads, power, water supply, drainage and other amenities. They also extend
assistance to small-scale sector by way of term loans, subscription to equity and promotional
services. 11 out of 28 SIDCs in the country also function as SFCs and are termed as Twin-
function IDCs
III. State Small Industrial Development Corporations (SSIDC) – Established under
Companies Act, 1956, as State government undertaking, caters to small, tiny and village
industries in respective states. Being operationally flexible undertakes the activities like (i)
procure and distribution of scarce raw materials, (ii) supply of machinery to SSI units on hire-
purchase basis, (iii) product marketing assistance, (iv) construction of industrial estates, allied
infrastructure facilities and their maintenance (v) extending seed capital assistance on behalf of
State government and (vi) providing management assistance to production units

SOURCES OF FINANCE

A company would choose from among various sources of finance depending on the amount of
capital required and the term for which it is needed. Finance sources can be divided into three
categories, namely traditional sources, ownership capital and non-ownership capital.

Sourcing money may be done for a variety of reasons. Traditional areas of need may be for
capital asset acquirement - new machinery or the construction of a new building or depot. The
development of new products can be enormously costly and here again capital may be
required.

Finance is essential for a business’s operation, development and expansion. They can be
classified as Internal and External, Short-term and Long-term or Equity and Debt. It would be
uncomplicated to classify the sources as internal and external
Long term financing sources Medium term financing Short term finances are
can be in form of any of them: sources can in the form of one available in the form of:
1. Share Capital or Equity of them: 1. Trade Credit
Shares 1. Preference Capital or 2. Short Term
2. Preference Capital or Preference Shares Loans like
Preference Shares 2. Debenture / Bonds Working Capital
3. Retained Earnings or 3. Medium Term Loans Loans from
Internal Accruals from Commercial
4. Debenture / Bonds 1. Financial Banks
5. Term Loans from Institutes 3. Fixed Deposits for
Financial Institutes, 2. Government, a period of 1 year
Government, and and or less
Commercial Banks 3. Commercial 4. Advances
6. Venture Funding Banks received from
7. Asset Securitization 4. Lease Finance customers

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 8. International Financing 5. Hire Purchase Finance 5. Creditors
by way of Euro Issue, 6. Payables
Foreign Currency 7. Factoring
Loans, ADR, GDR etc. Services
8. Bill Discounting
etc.
Long Term Finance
A business requires funds to purchase fixed assets like land and building, plant and machinery,
furniture etc. These assets may be regarded as the foundation of a business. The capital
required for these assets is called fixed capital. A part of the working capital is also of a
permanent nature.
Funds required for this part of the working capital and for fixed capital are called long term
finance.
Purpose of long term finance:
Long term finance is required for the following purposes:
1. To Finance fixed assets:
Business requires fixed assets like machines, Building, furniture etc. Finance required to buy
these assets is for a long period, because such assets can be used for a long period and are not
for resale.
2. To finance the permanent part of working capital:
Business is a continuing activity. It must have a certain amount of working capital which
would be needed again and again. This part of working capital is of a fixed or permanent
nature. This requirement is also met from long term funds.
3. To finance growth and expansion of business:
Expansion of business requires investment of a huge amount of capital permanently or for a
long period.

Short-term Finance
 After establishment of a business, funds are required to meet its day today expenses.
For example raw materials must be purchased at regular intervals, workers must be paid
wages regularly, water and power charges have to be paid regularly. Thus there is a
continuous necessity of liquid cash to be available for meeting these expenses. For
financing such requirements short-term funds are needed. The availability of short-term
funds is essential. Inadequacy of short-term funds may even lead to closure of business.

Short-term finance serves following purposes

1. It facilitates the smooth running of business operations by meeting day to day financial
requirements.
2. It enables firms to hold stock of raw materials and finished product.
3. With the availability of short-term finance goods can be sold on credit. Sales are for a
certain period and collection of money from debtors takes time. During this time gap,
production continues and money will be needed to finance various operations of the
business.
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 4. Short-term finance becomes more essential when it is necessary to increase the volume
of production at a short notice.
5. Short-term funds are also required to allow flow of cash during the operating cycle.
Operating cycle refers to the time gap between commencement of production and
realisation of sales
SHORT TERM SOURCES
1.Indigenous Bankers:
Private money-leaders and other country bankers used to be the only sources of finance prior to
the establishment of commercial banks. They used to charge very high rates of interest and
exploited the customers to the largest extent possible. Now-a-days with the development of
commercial banks they have lost their monopoly. But even today some business houses have to
depend upon indigenous bankers for obtaining loans to meet their working capital
requirements.
2. Trade Credit refers to the credit that a buyer obtains from the suppliers of goods and
services. Payment is required to be made within a specified period. Suppliers sometimes offer
cash discount to buyers for making prompt payment. Buyer should calculate the cost of
foregoing cash discount to decide whether or not cash discount should be availed. A buyer
should also consider the implicit costs of trade credit, and particularly, that of stretching
accounts payable. These implicit costs may be built into the prices of goods and services.
Buyer can negotiate for lower prices for making payment in cash.
2. COMMERCIAL Banks: Commercial banks are the most important source of short-term
capital. The major portion of working capital loans are provided by commercial banks. They
provide a wide variety of loans tailored to meet the specific requirements of a concern.
The different forms in which the banks normally provide loans and advances are as
follows:
(a) Loans
(b) Cash Credits
(c) Overdrafts, and
(d) Purchasing and discounting of bills.
2. COMMERCIAL Paper:
• Commercial paper represents unsecured promissory notes issued by firms to raise short-
term funds. It is an important money market instrument in advanced countries like
U.S.A. In India, the Reserve Bank of India introduced commercial paper in the Indian
money market on the recommendations of the Working Group on Money Market
(Vaghul Committee).
• But only large companies enjoying high credit rating and sound financial health can
issue commercial paper to raise short-term funds. The Reserve Bank of India has laid
down a number of conditions of determine eligibility of a company for the issue of
commercial paper.
• Only a company which is listed on the stock exchange has a net worth of at least Rs. 10
crores and a maximum permissible bank finance of Rs. 25 crores can issue commercial
paper not exceeding 30 per cent of its working capital limit.
5. Installment Credit:

16
 • This is another method by which the assets are purchased and the possession of goods
is taken immediately but the payment is made in Installment over a pre-determined
period of time. Generally, interest is charged on the unpaid price or it may be adjusted
in the price.
• But, in any case, it provides funds for sometimes and is used as a source of short-term
working capital by many business houses which have difficult funds position.
6. Advances:
• Some business houses get advances from their customers and agents against orders and
this source is a short-term source of finance for them. It is a cheap source of finance
and in order to minimize their investment in working capital, some firms having long
production cycle, especially the firms manufacturing industrial products prefer to take
advance from their customers.
7. Factoring:
• Another method of raising short-term finance is through account receivable credit
offered by commercial banks and factors. A commercial bank may provide finance by
discounting the bills or invoices of its customers. Thus, a firm gets immediate payment
for sales made on credit.
• A factor is a financial institution which offers services relating to management and
financing of debts arising out of credit sales. Factoring is becoming popular all over the
world on account of various services offered by the institutions engaged in it.
• Factors render services varying from bill discounting facilities offered by commercial
banks to a total take-over of administration of credit sales including maintenance of
sales ledger, collection of accounts receivables, credit control and protection from bad
debts, provision of finance and rendering of advisory services to their clients.
8. Accrued Expenses:
• Accrued expenses are the expenses which have been incurred but not yet due and hence
not yet paid also. These simply represent a liability that a firm has to pay for the
services already received by it. The most important items of accruals are wages and
salaries, interest, and taxes.
• Wages and salaries are usually paid on monthly, fortnightly or weekly basis for the
services already rendered by employees. The longer the payment- period, the greater is
the amount liability towards employees or the funds provided by them.
9. Deferred Incomes:
• Deferred incomes are incomes received in advance before supplying goods or services.
They represent funds received by a firm for which it has to supply goods or services in
future. These funds increase the liquidity of a firm and constitute an important source of
short-term finance.
• However, firms having great demand for its products and services, and those having
good reputation in the market can demand deferred incomes.
10. Letter of Credit:
• A letter of credit popularly known as L/C is an undertaking by a bank to honor the
obligation of its customer up to a specified amount, should the customer fail to do so. It

17
 helps its customers to obtain credit from suppliers because it ensures that there is no
risk of non-payment.
• L/C is simply a guarantee by the bank to the suppliers that their bills up to a specified
amount would be honored. In case the customer fails to pay the amount, on the due
date, to its suppliers, the bank assumes the liabilities of its customer for the purchases
made under the letter of credit arrangement.
11. Public Deposits:
• Acceptance of fixed deposits from the public by all type of manufacturing and non-
bank financial companies in the private sector has been a unique feature of Indian
financial system. The importance of such deposits in financing of Indian industries was
recognized as early as in 1931 by the Indian Central Banking Enquiry Committee.
• It has been most common in the financing of cotton textile industry in Bombay and
Ahmedabad, but in the recent years many companies have accepted deposits from the
public to finance their working capital requirements.
• The manifold increase in demand for public deposits from the corporate sector in India
has been on account of restrictive credit policy of the Govt. of India and a substantial
credit gap existing in the market.
• As a result, companies have been accepting deposits directly from the public by
offering higher rates of interest as compared to banks and post offices to meet their
requirements of funds. But even by offering higher rates of interest to the investors, the
cost of funds raised through public deposits to the companies has been lower than the
minimum rate of interest on bank advances.
12. Customers’ Advances
• Sometimes businessmen insist on their customers to make some advance payment. It is
generally asked when the value of order is quite large or things ordered are very costly.
Customers’ advance represents a part of the payment towards price on the product (s)
which will be delivered at a later date. Customers generally agree to make advances
when such goods are not easily available in the market or there is an urgent need of
goods. A firm can meet its short-term requirements with the help of customers’
advances.
LONG TERM SOURCES OF FINANCE
1. EQUITY SHARES
Equity Shares also known as ordinary shares, which means, other than preference shares.
Equity shareholders are the real owners of the company. They have a control over the
management of the company. Equity shareholders are eligible to get dividend if the company
earns profit. Equity share capital cannot be redeemed during the lifetime of the company. The
liability of the equity shareholders is the value of unpaid value of shares.
Features of Equity Shares
1. Maturity of the shares: Equity shares have permanent nature of capital, which has no
maturity period. It cannot be redeemed during the lifetime of the company.
2. Residual claim on income: Equity shareholders have the right to get income left after
paying fixed rate of dividend to preference shareholder. The earnings or the income available
to the shareholders is equal to the profit after tax minus preference dividend.

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3. Residual claims on assets: If the company wound up, the ordinary or equity shareholders
have the right to get the claims on assets. These rights are only available to the equity
shareholders.
4. Right to control: Equity shareholders are the real owners of the company. Hence, they have
power to control the management of the company and they have power to take any decision
regarding the business operation.
5. Voting rights: Equity shareholders have voting rights in the meeting of the company with
the help of voting right power; they can change or remove any decision of the business
concern. Equity shareholders only have voting rights in the company meeting and also they can
nominate proxy to participate and vote in the meeting instead of the shareholder.
6. Pre-emptive right: Equity shareholder pre-emptive rights. The pre-emptive right is the legal
right of the existing shareholders. It is attested by the company in the first opportunity to
purchase additional equity shares in proportion to their current holding capacity.
7. Limited liability: Equity shareholders are having only limited liability to the value of shares
they have purchased. If the shareholders are having fully paid up shares, they have no liability.
2. CREDITORSHIP SECURITIES
Creditorship Securities also known as debt finance which means the finance is mobilized from
the creditors. Debenture and Bonds are the two major parts of the Creditorship Securities.
Debentures
A Debenture is a document issued by the company. It is a certificate issued by the company
under its seal acknowledging a debt. According to the Companies Act 1956, “debenture
includes debenture stock, bonds and any other securities of a company whether constituting a
charge of the assets of the company or not.”
Types of Debentures
1. Unsecured debentures: Unsecured debentures are not given any security on assets of the
company. It is also called simple or naked debentures. This type of debentures are treaded as
unsecured creditors at the time of winding up of the company.
2. Secured debentures: Secured debentures are given security on assets of the company. It is
also called as mortgaged debentures because these debentures are given against any mortgage
of the assets of the company.
3. Redeemable debentures: These debentures are to be redeemed on the expiry of a certain
period. The interest is paid periodically and the initial investment is returned after the fixed
maturity period.
4. Irredeemable debentures: These kinds of debentures cannot be redeemable during the life
time of the business concern.
5. Convertible debentures: Convertible debentures are the debentures whose holders have the
option to get them converted wholly or partly into shares. These debentures are usually
converted into equity shares. Conversion of the debentures may be:
Non-convertible debentures
Fully convertible debentures
Partly convertible debentures
Features of Debentures

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1. Maturity period: Debentures consist of long-term fixed maturity period. Normally,
debentures consist of 10–20 years maturity period and are repayable with the principle
investment at the end of the maturity period.
2. Residual claims in income: Debenture holders are eligible to get fixed rate of interest at
every end of the accounting period. Debenture holders have priority of claim in income of the
company over equity and preference shareholders.
3. Residual claims on asset: Debenture holders have priority of claims on Assets of the
company over equity and preference shareholders. The Debenture holders may have either
specific change on the Assets or floating change of the assets of the company. Specific change
of Debenture holders are treated as secured creditors and floating change of Debenture holders
are treated as unsecured creditors.
4. No voting rights: Debenture holders are considered as creditors of the company. Hence they
have no voting rights. Debenture holders cannot have the control over the performance of the
business concern.
5. Fixed rate of interest: Debentures yield fixed rate of interest till the maturity period. Hence
the business will not affect the yield of the debenture.
Term Loans are loans for more than a year maturity. Generally, in India, they are available for
a period of 6 to 10 years. In some cases, the maturity could be as long as 25 years. Interest on
term loans is tax deductible. Mostly, term loans are secured through an equitable mortgage on
immovable assets. To protect their interest, lending institutions impose a number of restrictions
on the borrowing firm.

3. RETAINED EARNINGS
Retained earnings are another method of internal sources of finance. Actually is not a method
of raising finance, but it is called as accumulation of profits by a company for its expansion
and diversification activities. Retained earnings are called under different names such as; self
finance, inter finance and plugging back of profits. According to the Companies Act 1956
certain percentage, as prescribed by the central government (not exceeding 10%) of the net
profits after tax of a financial year have to be compulsorily transferred to reserve by a company
before declaring dividends for the year. Under the retained earnings sources of finance, a part
of the total profits is transferred to various reserves such as general reserve, replacement fund,
reserve for repairs and renewals, reserve funds and secrete reserves, etc.
Advantages of Retained Earnings
Retained earnings consist of the following important advantages:
1. Useful for expansion and diversification: Retained earnings are most useful to expansion
and diversification of the business activities.
2. Economical sources of finance: Retained earnings are one of the least costly sources of
finance since it does not involve any floatation cost as in the case of rising of funds by issuing
different types of securities.
3. No fixed obligation: If the companies use equity finance they have to pay dividend and if
the companies use debt finance, they have to pay interest. But if the company uses retained
earnings as sources of finance, they need not pay any fixed obligation regarding the payment of
dividend or interest.

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4. Flexible sources: Retained earnings allow the financial structure to remain completely
flexible. The company need not raise loans for further requirements, if it has retained earnings.
5. Increase the share value: When the company uses the retained earnings as the sources of
finance for their financial requirements, the cost of capital is very cheaper than the other
sources of finance; hence the value of the share will increase.
6. Avoid excessive tax: Retained earnings provide opportunities for evasion of excessive tax in
a company when it has small number of shareholders.
7. Increase earning capacity: Retained earnings consist of least cost of capital and also it is
most suitable to those companies which go for diversification and expansion.
4. PREFERENCE SHARES
The parts of corporate securities are called as preference shares. It is the shares, which have
preferential right to get dividend and get back the initial investment at the time of winding up
of the company. Preference shareholders are eligible to get fixed rate of dividend and they do
not have voting rights.
Preference shares may be classified into the following major types:
• Cumulative preference shares: Cumulative preference shares have right to claim
dividends for those years which have no profits. If the company is unable to earn profit
in any one or more years, C.P. Shares are unable to get any dividend but they have right
to get the comparative dividend for the previous years if the company earned profit.
• Non-cumulative preference shares: Non-cumulative preference shares have no right
to enjoy the above benefits. They are eligible to get only dividend if the company earns
profit during the years. Otherwise, they cannot claim any dividend.
• Redeemable preference shares: When, the preference shares have a fixed maturity
period it becomes redeemable preference shares. It can be redeemable during the
lifetime of the company. The Company Act has provided certain restrictions on the
return of the redeemable preference shares.
• Irredeemable Preference Shares: Irredeemable preference shares can be redeemed
only when the company goes for liquidator. There is no fixed maturity period for such
kind of preference shares.
• Participating Preference Shares: Participating preference shareholders have right to
participate extra profits after distributing the equity shareholders.
• Non-Participating Preference Shares: Non-participating preference shareholders are
not having any right to participate extra profits after distributing to the equity
shareholders. Fixed rate of dividend is payable to the type of shareholders.
• Convertible Preference Shares: Convertible preference shareholders have right to
convert their holding into equity shares after a specific period. The articles of
association must authorize the right of conversion.
• Non-convertible Preference Shares: There shares, cannot be converted into equity
shares from preference shares.
Features of Preference Shares
The following are the important features of the preference shares:

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 1. Maturity period: Normally preference shares have no fixed maturity period except in
the case of redeemable preference shares. Preference shares can be redeemable only at the
time of the company liquidation.
2. Residual claims on income: Preferential shareholders have a residual claim on income.
Fixed rate of dividend is payable to the preference shareholders.
3. Residual claims on assets: The first preference is given to the preference shareholders
at the time of liquidation. If any extra Assets are available that should be distributed to
equity shareholder.
4. Control of Management: Preference shareholder does not have any voting rights.
Hence, they cannot have control over the management of the company.
5. Leasing
6. Hire purchase
7. Franchising
Franchising is a method of expanding business on less capital than would otherwise be needed.
For suitable businesses, it is an alternative to raising extra capital for growth. Franchisors
include Budget Rent-a-Car, Wimpy, Nando's Chicken and Chicken Inn.

Under a franchising arrangement, a franchisee pays a franchisor for the right to operate a local
business, under the franchisor's trade name. The franchisor must bear certain costs (possibly
for architect's work, establishment costs, legal costs, marketing costs and the cost of other
support services) and will charge the franchisee an initial franchise fee to cover set-up costs,
relying on the subsequent regular payments by the franchisee for an operating profit. These
regular payments will usually be a percentage of the franchisee's turnover.

Although the franchisor will probably pay a large part of the initial investment cost of a
franchisee's outlet, the franchisee will be expected to contribute a share of the investment
himself. The franchisor may well help the franchisee to obtain loan capital to provide his-share
of the investment cost.

Advantages
✔ Large amounts can be borrowed.
✔ Suitable for long-term investments.
✔ The lender has no say on how the money is spent.
✔ Need not be paid back for a fixed time period and banks do not withdraw at a short notice.
✔ Interest rates are lower than for bank overdrafts and are set in advance.

NEW VENTURE DEVELOPMENT

New venture development is a beginning stage in the life cycle of a business when the business
is being evaluated then created. To be judged successful in any economy, venture development
creates employment and economic growth.
New venture development is a complex and multidimensional phenomenon.
An entrepreneurial venture development brings something new to the marketplace, whether it
is a new product or service (Moshi, an alarm clock incorporating artificial intelligence, or

22
Amazon.co, disrupting traditional brick-and-mortar retail), a new marketing strategy (twitter),
or a new way to deliver a products and services to consumer ( The wall street journal
interactive edition). An entrepreneurial venture creates new value in a number of important
ways. Entrepreneurs create new jobs that do not merely draw from existing businesses; and by
finding niches in the market, entrepreneurs serve customer needs that are currently unserved.
Many ventures will be invested in by one or more individuals or groups with expectation of the
business bringing in a financial gain for all backers. Most ventures are created based on
demand of the market or a lack of supply in the market.

STAGES OF NEW VENTURE DEVELOPMENT

STAGE 1: FORMULATION OF NEW VENTURE: This stage consists of activities

associated with the initial formulation of the venture. This initial phase is the foundation of the
entrepreneurial process and requires creativity and assessment. In addition to the accumulation
and expansion of resources, this is a creative, assessment, and networking stage for initial
entrepreneurial strategy formulation.
STAGE 2: START-UP ACTIVITIES: This stage encompasses the foundation work needed
to create a formal business plan, search for capital, carry out marketing activities, and develop
an effective entrepreneurial team. These activities typically demand an aggressive
entrepreneurial strategy with maximum efforts devoted to launch the venture.
STAGE 3: GROWTH: This stage often requires major changes in entrepreneurial strategy.
Competition and other market forces call for the reformulation of strategies. For example,
some firms find themselves “growing out” of business because they are unable to cope with the
growth of their ventures.
STAGE 4: BUSINESS STABILISATION: This stage is a result of both market conditions
and entrepreneurs efforts. During this stage, a number of developments commonly occurs,
including increased competition, consumer indifference to the entrepreneurs good(S) or
service(S), and saturation of the market with a host of “me too” look-alikes. Sales often begin
to stabilise, and the entrepreneur must start to think about where the enterprise will go during
the next three to five years.
STAGE 5: INNOVATION OR DECLINE: Firms that fail to innovate will die. Financially
successful enterprises often will try to acquire other innovative firms, thereby ensuring their
own growth. Also, many firms will work on new product/service development to complement
current offerings.

ESSENTIAL REQUIRMENT FOR SUCCESS OF NEW VENTURES

1) SOUND MARKET ANALYSIS: Market analysis looks at the potential opportunities
and the pitfalls that business will face. These opportunities and pitfalls must be
realistically assessed in light of the strengths and weakness of business plan. Factors
usually considered in market analysis are the market size, its growth rate, and its cost
structure and distribution channels.
2) SUFFICIENT FINANCING: Sufficient financing for a new business venture is
critical to success. Insufficient financing is one of the main reasons that new businesses

23
 fail. A new business does not have a steady, ongoing clientele and its brand will not be
recognisable in the marketplace.
3) FINDING THE PROPER NICHE: A new venture should create is own niche in the
market or industry. The niche should play into the strengths of the business and, if
possible, minimise its weaknesses. One way to identify a niche market to break-down
the demography of the market into small categories. Evaluate the benefits and
drawbacks of each market segment. Take into account factors such as the best method
of reaching potential customers via marketing and the competition entrepreneur may
face.
4) WORKABLE MARKETING PLAN: A key contributor to business success is a
variable marketing plan tailored to the venture niche. A marketing plan sets goals for
the organisation and gives it direction and purpose. The plan contains information about
company, Its product and the ventures objective and strategies. The plan should budget
the expenditures of marketing efforts for at least one year.

REASONS FOR FAILURE OF NEW VENTURE

1) Selling too cheaply: New ventures often chase sales volume, and assume that rock
bottom prices will fuel sales. More often than not, that is not the path to success.
2) INEFFECTIVE MARKETING AND ADVERTISING: Many new ventures in a
attempt to manage costs, develop their own marketing campaign without fully
understanding the market and competitive landscape competition is fierce, markets are
crowded, and the “noise” can be overwhelming.
3) INSUFFICIENT CAPITAL: Many new business owners underestimate how costly it
can be to open an enterprise, while overestimating how much revenue their business
will bring in during the first few months or years.
4) POOR PLANNING: Another major reason for business failure is lack of planning.
Developing a detailed, well-researched business plan before opening the door for
commerce is crucial.
5) UNREALISTIC EXPECTATIONS: Some new business fail because of the owners
unrealistic expectations. Well-intentioned entrepreneurs may open a business with the
idea that the are going to get rich quick, be their own boss or enjoy more spare time if
they are not plugging away at a 40 hour office job.
6) 6) LOCATION: Even the best-laid plans for new businesses can succumb to failure if
the location is not right. For example, a new art gallery might thrive in a city’s bustling
arta and dining district but fail in a commercial shopping mall.
7) 7) POOR INDUSTRY KNOWLEDGE AND MARKET DYNAMICS: Some
business owners start their businesses before fully investigating the industry like the
trends in industry, opportunities and threats, etc. The essence of establishing an
enterprise is to provide a service or product to fill a need in the marketplace.
8) 8) ABSENCE OF CLEAR MARKETING STRATEGY: Marketing is the backbone
of every enterprise. When enterprise stop marketing, business dies. Poor or no
marketing programme aimed at attracting new customers is inimical to organic growth.

24
9) 9) UNDERESTIMATING COMPETITION: Some new venture creators
underestimate the reaction of the competition when they start their businesses. Any
owner of an existing business perceives a new entrant to the industry will be taking
away some of its customers, will aggressively take steps to defend their customer base.
10) 10) EXPANSION BEYOND RESOURCES: Some firms grow rapidly, and their
book-keeping system are not designed to handle dramatic growth. In numerous cases,
venture owners simply tried to save money on their book-keeping system by taking
shortcuts-all with disasters effects.
11) 11) LACK OF INFORMATION ABOUT CUSTOMERS: Unsuccessful firms
generally lack information about their customers. For example, one company had been
shipping goods to customers without making credit investigations.
12) 12) LACK OF MARKETING RESEARCH: Major ventures are started without any
market research being conducted. Changes in market conditions can leave a firm in
very poor position.
13) 13) LEGAL PROBLEMS: Saving money on legal fees could be extremely short
sighted. When long, drawn-out patent infringement proceedings become necessary,
firms are ill prepared to deal with them. Using the foresight to obtain competent legal
advice from he beginning many problems can be avoided.
14) 14) ONE PERSON MANAGEMENT: It can lead to company failure. One person’s
technical genius serving as the reason for the company’s success is fine. however,
without that person, will the business fail?

SUGGESTIONS TO AVOID FAILURES OF NEW VENTURE

1) Acquiring insights in the business: Successful entrepreneurs develop special insights
through research, interactions with suppliers, customers, trade associations, consultants
and other source of knowledge.
2) DEVELOPING FEEDBACK SYSTEM: A business plan provides an entrepreneur
with milestones and benchmarks against which performance can be monitored
regularly.
3) MANAGING FINANCIAL RESOURCES: This requires developing proper
information system so that decisions can be made on an informed basis.
4) MANAGING PEOPLE: Ultimately the success of a new venture depends on the team
of employees since the entrepreneur cannot do everything alone. Adequate attention to
development of capable and motivated team is therefore a critical need.
5) MANAGING YOURSELF: Finally, the venture’s success depends to a large extent
on the entrepreneurs capability, commitment, passion and leadership.

LIMITATIONS OF NEW VENTURE DEVELOPMENT

1) SALES FLACTUATIONS: Working for a large firm that pays regularly allows the
employee to budget food expenditures, plan vacations, and buy clothing. The venture
owner/entrepreneur, however, often faces sales fluctuations. In some months, sales are

25
 very high, and in others they drop-off dramatically. Virtually every new venture
experiences sales fluctuations.
2) COMPETITION: A disadvantage of owning a business is the risk of competition. In
particular, an individual may start a business and prosper for three or four years before
meeting insurmountable competition. Or changes in market demand may occur, and the
owner will find that the new demand is being satisfied by large competitors. For
example, small restaurants and dinner may loose customers to fast-food chains.
3) FINANCIAL LOSSES: When the owner makes all major decisions, inevitably some
of them will be wrong. On occasion, inventory will be too high (or low); a product line
developed at a great expense will not sell; a price reduction will not increase demand,
with a resulting decline in total revenue; an advertising campaign will not pay for itself;
or an increase in the sales force will prove to be a mistake, and excess personnel will
have to be laid off.
4) EMPLOYEE RELATIONS: The new venture owner also needs to be concerned with
employee relations. If the workers are not content, sales will suffer.
5) LAWS AND REGULATIONS: New ventures are subject to a multitude of laws and
regulations. For example, federal law requires the owner to pay social security taxes
for all employees as well as to withhold federal taxes from each persons pay and remit
these funds to the government. At state level, in addition to employee taxes, often a
state sales tax has to be collected and sent to the proper state agency.
6) RISK OF FAILURE: The ultimate risk the new venture owner/manager face is
failure, usually with a loss of most, if not all, of the money invested in enterprise. All
entrepreneurs face the risk, and, despite experience and business knowledge, many fail
because of factors beyond their control.
7) REASONABILITY: Starting a new business can provide entrepreneurs with an
opportunity to take the reins and to be in control of own career. However, power also
comes with responsibility. As an entrepreneur, entrepreneur alone is responsible for the
success or failure of business. If a problem arises, entrepreneurs can no longer get help
from supervisor.

ENTREPRENEURIAL STRATEGIES
Entrepreneurship involves identifying and exploiting entrepreneurial
opportunities. However, to create the most value entrepreneurial firms also
needs to act strategically. There are entrepreneurial strategies that help them to
run a successful organisation. Entrepreneurs apply these strategies for success
for the future or existing business.

A) BEING FIRST MET WITH THE MOST

Being “first with the most” is the approach that many people consider the entrepreneurial
strategy par excellence. Indeed if one were to go by the popular books on entrepreneurs, one
would conclude that this is the only entrepreneurial strategy.

26
The important features of the strategy are explained below:
1) Creating something new: Perhaps because “first with the most” must aim at creating
something truly new, something truly different, non-experts and outsiders seem to do as well as
the experts, in fact , often better.
2) Hits right on target or it misses: The strategy of being “first with the most” has to hit right
on target or it misses altogether.
3) Demands substantial and continuing efforts: This strategy also demands substantial and
continuing efforts to retain a leadership position; otherwise, all one has done is creating a
market for a competitor.
4) There is only success or failure: Entrepreneur knows that for everyone who succeeds with
the strategy, many more fail. If it does not work right away, it is a total failure.
5) Risky proposition: The strategy of being “first with the most” is indeed o risky that many
of the entrepreneurial strategies are based on the assumption that being “first with thee most”
will fail far more often than it can possibly succeed.

B) HITTING THEM WHERE THEY ARE NOT

CREATIVE IMITATION
1)Let someone else innovate, then can easily supply. The maket: creative imitation waits
until somebody else has established the new, but only “approximately”. Then it goes to work.
And within a short time it comes out with what the new really should be to satisfy the
customer, to do work customers want and pay for.
2)Less risky approach: By the time the creative imitator moves the market has been
established and the new venture has been accepted. Indeed, there is usually more demand for it
than the original innovator can easily supply..

3) Not exploit failure of pioneers: Creative imitation does not exploit the failure of the
pioneers as failure is commonly understood. On the contrary, the pioneers must be successful.
The apple computer was a great success story, and so was the acetaminophen brand that
Tylenol ultimately pushed out of market leadership.
4) Requires rapidly growing market: The strategy of creative imitation requires a rapidly
growing market. Creative imitation satisfies a demand that already exists rather than creative
one.
5) Work effectively in high-tech areas: creative imitation is likely to work most effectively in
high-tech areas for simple reason high-tech innovators are least likely to be market focused.
• ENTREPRENEURIAL JUDO:
AIMS AT OBTAINING A LEADERSHIP POSITION AND EVENTUALLY DOMINANCE.
TO USE THE ENTEPRENURIAL JUDO STRATEGY, ONE STARTS OUT WITH AN
ANALYSIS OF THE INDUSTRY, THE PRODUCERS AND THE SUPPLIERS, THIER
HABITS, ESPECIALLY THEIR BAD HABITS AND THEIR POLICIES.
i) NOT INVENTED HERE: The arrogance that leads a company to believe that
something new cannot be any good unless they themselves thought of it.
ii) Creaming the market: this is only focus on the high profit segment of a market.

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iii) Belief in quality: quality is not what the supllier puts in but what the customer is
willing to pay for.
iv) Premium pricing: always an open invitation to acompetitor.
v) Maximisation: as the market grows, a leader tries to satisfy every single user with the
same product or service.
C) Occupying a specified niche
The niche strategy aims at control. The strategies aim at positioning an enterprise in large
market or a major industry. The entrepreneurial niche strategy aims at obtaining a practical
monopoly.
Changing the economic characteristics

In the entrepreneurial strategies, the aim is to introduce an innovation. In the entrepreneurial

strategy discussed here, the strategy itself is the innovation. The product or service it carries
may well have been around a long time- but the strategy converts this old, established product
or service into something new. It changes its utility, its value, its economic characteristics.
But they do so in four different ways:
1) By creating utility
2) By pricing
3) By adaptation to the customers social and economic reality
4) By delivering what represents true value of customer

BUSINESS PLAN
Meaning of business plan
A business plan is a written document that describes all the steps necessary in opening and
operating a successful business. The project is initiated with the prepartion of a formal,
wri8tten master palm. The purpose of this plan is to guide the project manager and team
throughout the project life cycle. In simple words, a business plan is a basic document which
gives an explicit but precise account of what one has in mind to achieve and, in the context it
defines: what will have to be done? When will be done? How will be done? Who will do? How
much will it cost?
A business plan spells out principal features and the future prospects of a proposed business.
Besides it provides analyses of and insights into vital issues that are to be attended to and
sorted out with an eye to achieving the ultimate goal.
A business plan presents a strategy for turning a feasible business concept into a successful
business.
A written document describing the nature of the business, the sales and marketing strategy,
and the financial background, and containing a projected profit and loss statement

Characteristics of business plan

1) It must be arranged appropriately, with an executive summary, a table of

contents, and chapters in the right order.
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 2) It must be right length and have the right appearance not too long and not
too short not too fancy and not too plain.
3) It must give a sense of what the founders and the company except to
accomplish three to seven years into the future.
4) It must explain in quantitative and qualitative terms the benefits to the
users of the company products or services.
5) It must present the hard evidence of the marketability of the products or
services.
6) It must justify financially the means chosen to sell the products or
services.
7) It must explain and justify the level of products development which has
been achieved and describe in appropriate detail the manufacturing process
and associated costs.
8) It must portray the partners as a team of experienced managers with
complementary business skils.
9) It must suggests as high an overall rating as possible of the venture product
development and team sophistication.
10) It must contain believable financial projections with the key data
explained and documented.

Objectives of business plan

• Structuring thoughts and ideas: business planning forces a business to
take a critical look at its own management and the extent to which intended
investments are appropriate within that context. While an organisation may
seem to have it all worked out giving a plan a concrete structure will bring
any white spots and overlaps to light.
• Supporting a need for finance: A business plan usually requires an
investment decision and a request for the reservation of funds.
Considerable amounts are often involved.
• Facilitating a decision making process: As a rule the business plan is
used as a decision document as well. A decision to fund conclusion is
usually based on the business plan, and is often linked to a request for
funding.
• Setting a course for operational management: A business plan also
specifies the operational course to be followed. It is like a compass for
organization showing it how to work out the new investment. It tells the

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 organization how things are to be done who needs to be involved, what is
expected for them and how much they will need to do.

Components of business plan

• Introductory page: This is title or cover page that provides a brief summary of the
business plan contents. The introductory page should contain the following:
i) the name and address of the company.
ii) the name of the entrepreneurs, telephone numbers, and website address if available.
iii) a paragraph describing the company and nature of the business.
• Executive summary: This section of the business plan is prepared after the total plan is
written. About two or three pages in length, the executive summary should estimate the
interest of the potential investor.
i) what is the business concept or model?
ii) how is the business concept or model unique?
iii) how will they make money and how much?
• Market analysis and industrial analysis: it is important to put the new venture in a
proper context by first conducting an environmental analysis to identify trends and
changes occurring. Examples are:
i) Economy
ii) Culture
iii) Technology
iv) Legal concerns
• Description of venture: The description of venture should be detailed this section of
the business plan. This will enable the investor to ascertain the size and scope of the
business. This statement basically describes the nature of business.
• Production plan: If the new venture is a manufacturing operation, a production plan is
necessary. This plan should describe the complete manufacturing process. If some or all
the manufacturing process is to be subcontracted.
• Operations plan: All businesses i.e. Manufacturing or non manufacturing should
include an operations plan as a part of the business plan. This section goes beyond the
manufacturing process and describes the flow of goods and services from production to
the customer.
• Technical plan: This section helps anyone in outlining the technology needs. If yours is
a technology intensive company than technology need may be far more complicated.
• Marketing plan: The marketing plan is an important part of the business plan since it
describes how the product or services will be distributed priced and promoted.
Marketing research evidence to support any of the critical marketing decision strategies
as well as for forecasting sales should be described in this section.
• Organisational plan: The organisational plan is the part of the business plan that
describes the ventures form of ownership i.e. Proprietorship, partnership or corporation.
• Social plan: An entrepreneur must understand business exists because social exists.
Hence one must keep the broader societal interests in mind while conducting business
and do not take up anything which harms the societal interests in long run.
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 • Financial plan: Three financial areas are discussed in this section of the business plan.
First the entrepreneur should summarise the forecasted sales and the appropriate
expenses for atleast the first three years. Net profit after taxes can that be projected by
estimating income taxes.

Essential requirement of developing business plans

• Keep the business plan short: keep the business plan as short as possible without
compromising the description of the venture and its potential.
• Be focused: Do not over diversify the venture. It means that attention must be focused
on one or two services or product lines and markets because a new or young business
does not have the management depth to pursue too many opportunities.
• Avoid use of jargon: Do not describe technical products or manufacturing processes
using jargon that only expert can understand. Most venture capitalists do not like to
invest in what they do not understand or thin the planners do not understand.
• Be realistic and objective: Finally a planner must be rigorously realistic and objective
in making estimates and discussing risks.
• Make proper mission statement: Use mission statement to spell out the reasons for
getting into chosen business. Perhaps one is starting a health and fitness centre because
one has the expertise and believes one has new ideas that one can put into practice.

Tips for creating business plan for investor

• Prepare presentation script first.
• Keep business plan up to date.
• Make plan tell a story
• Don’t leave information gaps.
• Make it read smoothly.
• Stay away from fancy tiles.
• Wages and salaries.
• Estimate non essentials.
• Price and quantity.
• Don’t write a book.
• Know the audience.
• Clearly describe product/service benefits.

Advantages of business plan

• Take charge if entrepreneurial life: A business plan is evidence of the initiative. It
shows that one have discipline to focus the energy on an important project. It also
shows that one understand how to achieve progress and growth, solve problem along
the way, and the realise the ultimate goals.
• Layout a master blueprint: A business plan is an entrepreneur what a set of detailed
architectural drawings is to a builder. It shows the logical progression of steps needed
to reach established goal.

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 • Communicate master plan to members of team: A business plan allow one to
communicate to colleagues a step by step agenda for reaching goals. Some portions of a
business plan can also be used in training and coordinating meetings.
• Attract money to project: potential suppliers of capital and other needed resources
will place great value on business plan as they determine whether or not to participate
in venture.
• Increase opportunity for success: Comprehensive business planning can identify level
of performance that is supposed to be achieved in business.
• Develop mission and vision: A business plan can set a clear mission and vision for a
business. It enables the entrepreneur to make the right decisions and take appropriate
actions in the future.
• Identify the main competitor: Business planning will enable entrepreneur to
determine who their main competitor are their strength and weaknesses and determine
the right strategy to face them.
• Increase the stakeholders confidence: Every stakeholder who has an interest in
business will eager to know the company strengths like finances, resources and
company viability.

The Parts/ Elements of a Business Plan

Cover Page Market Analysis

Title Page Competitive Analysis
Table of Contents Marketing Plan
Executive Summary Operations Plan
Management Plan Organizational Plan
Company Description Financial Plan
Product and Service Plan Growth Plan
Mission and Vision Statements
Contingency Plan
Industry Overview Supporting Documents

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