Entrepreneurship

Chapter 20
Dr. Rajesh Ramchunder
“Your time is limited, so don’t waste it living
someone else’s life. Don’t be trapped by dogma
– which is living with the results of other
people’s thinking. Don’t let the noise of other’s
opinions drown out your own inner voice. And
most important, have the courage to follow
your heart and intuition. They somehow
already know what you truly want to become.
Everything else is secondary.”- Steve Jobs
 Definition
• An Entrepreneur is someone who is his/her
own boss.
• An entrepreneur is a person who spots a gap
in the market, and conceptualizes and
evaluates a business idea to fill that gap.
• Entrepreneurs are people that notice
opportunities and take the initiative to
mobilize resources to make new goods and
services.
Common Characteristics of Entrepreneur
• The need for achievement
• The preference for calculated risks
• The willingness to take personal responsibility
for accomplishment
• An ability to deal with conceptual ideas
• A high perception of the probability of success
• High levels of physical and intellectual energy
• Future orientated
• Organizational skill
• Money is considered as a means to achieve
objectives
 Intrapreneurs
• Intrapreneurs also notice opportunities and
take initiative to mobilize resources, however
they work in large companies and contribute
to the innovation of the firm.
• Intrapreneurs often become entrepreneurs.
• Learning organizations encourage
intrapreneurship.
 New Business Opportunity
• Identifying the correct business opportunity that matches the
skills and resources available to an entrepreneur is of critical
importance.
• The following key issues need to be considered
– The innovation and creative process – key drivers to
success
– The relationship between ideas and a viable business
opportunity – Not every idea has the seeds for a profitable
business opportunity
– When to enter the market and associated strategic
posturing
The entrepreneurial innovation and
creative process
1. Entrepreneur spot a 9. Implementation
gap in the market

8. Evaluates entry strategy &

tactics
2. Gathers initial data
and formulates a
concept

7. Critical evaluation
• Reality check
3. Identifies obvious: • Own ability to
• Key success factors implement
• Key risk • Cash flow analysis
• market

6. Integrate and combines

results from steps 1 – 5 to
4. Tentative evaluation reach tentative conclusion
• Using own reservoir
of experience and 5. Search for similarities
• Cost/benefit analysis • Other examples?
• Related ideas?
 Some questions to ask in order to
evaluate business ideas
• Am I going to make money out of this idea?
• Would I be able to sell the product or
services?
• Would I be able to manage the key risks?
• Am I going to enjoy this?
• What happens after this venture?
 Forms of Business ownership and
modalities of start-up
Modalities of start -up

• Start-up from scratch

• Buy-out existing business
• Buy-into and existing
business
• Franchise
• Family Business

Forms of business ownership

Sole Ownership Close corporation Partnership Joint Venture Limited liability Company
 Forms of Business Ownership
• A sole ownership is the most common form of business
organization. It's easy to form and offers complete
managerial control to the owner. However, the owner is
also personally liable for all financial obligations of the
business
• A partnership involves two or more people who agree to
share in the profits or losses of a business.
– Advantages include ease to set up/manage and limited up-front
capital required
– Disadvantage – unlimited liability of the partners and the action of
one partner may cause liability damage to the other partners
 Forms of Business Ownership
• A corporation is a legal entity that is created to conduct
business. The corporation becomes an entity-separate
from those who founded it-that handles the
responsibilities of the organization. Like a person, the
corporation can be taxed and can be held legally liable for
its actions. The corporation can also make a profit. The key
benefit of corporate status is the avoidance of personal
liability. The primary disadvantage is the cost to form a
corporation and the extensive record-keeping that's
required. While double taxation is sometimes mentioned
as a drawback to incorporation, the S corporation (or
Subchapter corporation, a popular variation of the regular
C corporation) avoids this situation by allowing income or
losses to be passed through on individual tax returns,
similar to a partnership.
 Forms of Business Ownership
• A hybrid form of partnership, the limited liability
company (LLC) , is gaining in popularity because it allows
owners to take advantage of the benefits of both the
corporation and partnership forms of business. The
advantages of this business format are that profits and
losses can be passed through to owners without taxation of
the business itself while owners are shielded from
personal liability.
 Selecting a Business Entity
• When making a decision about the type of business to form,
there are several criteria you need to evaluate:
– Legal liability. To what extent does the owner need to be insulated
from legal liability?
– Tax implications. Based on the individual situation and goals of
the business owner, what are the opportunities to minimize
taxation?
– Cost of formation and ongoing administration. Tax advantages,
however, may not offer enough benefits to offset other costs of
conducting business as a corporation
– Flexibility. Your goal is to maximize the flexibility of the ownership
structure by considering the unique needs of the business as well
as the personal needs of the owner or owners
– Future needs. When you're first starting out in business, it's not
uncommon to be "caught up in the moment." You're consumed with
getting the business off the ground and usually aren't thinking of
what the business might look like five or ten-let alone three-years
down the road. What will happen to the business after you die?
What if, after a few years, you decide to sell your part of a business
partnership?
 What is Business Plan?
❑The business plan is a written document prepared
by the entrepreneur that describes all the relevant
internal and external elements and strategies for
starting a new venture.
❑It is a integration of functional plans such as
marketing, finance, manufacturing, sales and
human resources.
 Who should write the plan?
• The business plan should be prepared by
the entrepreneur.
• The entrepreneur may consult with many
other sources in its preparation, such as
lawyers, accountants, marketing
consultants, and engineers.
Scope and Value of the Business Plan – Who
Reads The Plans?
❑The business plan may be read by
employees, investors, bankers, venture
capitalists, suppliers, customers, advisors,
and consultants.
❑There are three perspectives should be
considered in preparing the plan :
❑Perspective of the entrepreneur
❑Marketing perspective
❑Investor’s perspective
 Scope and Value …
❑The business plan is valuable to the entrepreneur,
potential investors, or even new personnel, who
are trying to familiarize themselves with the
venture, it goals, and objectives.
❑It helps determine the viability of the venture in
a designated market
❑It provides guidance to the entrepreneur in
organizing his or her planning activities
❑It serves as an important tool in helping to
obtain financing.
 Outline of a Business Plan
• Introductory Page
– Name and address of business
– Name(s) and address(es) of principal(s)
– Nature of business
– Statement of financing needed
– Statement of confidentially of report
 Outline …
• Executive Summary – Three to four pages
summarizing the complete business plan
– What is the business concept or model?
– How is this business concept or model
unique?
– Who are the individuals starting this
business?
– How will they make money and how much?
 Outline …
❑ Environmental and Industry Analysis
❑Future outlook and trends
❑Analysis of competitors
❑Market segmentation
❑Industry and market forecasts
❑ Description of Venture
❑Product(s)
❑Service(s)
❑Size of business
❑Office equipment and personnel
❑Background of entrepreneurs
 Outline …
❑Production Plan
❑Manufacturing process (amount subcontracted)
❑Physical plant
❑Machinery and equipment
❑Names of suppliers of raw materials
❑Operational Plan
❑Description of company’s operations
❑Flow of orders for goods and/or services
❑Technology utilization
 Outline …
❑Marketing Plan
❑Pricing
❑Distribution
❑Promotion
❑Product forecasts
❑Controls
❑Organizational Plan
❑Form of ownership
❑Identification of partners or principal
shareholders
❑Authority of principals
❑Management-team background
❑Roles and responsibilities of members of
organization
 Outline …
❑Assessment of Risk
❑Evaluate weakness of business
❑New technologies
❑Contingency Plans
❑Financial Plan
❑Pro forma income statement
❑Cash flow projections
❑Pro forma balance sheet
❑Break-even analysis
❑Sources and applications of funds
 Outline …
• Appendix (contains backup material)
– Letters
– Market research data
– Leases or contracts
– Price lists from suppliers.
 Using and Implementing The
Business Plan
❑The business plan is designed to guide the
entrepreneur through the first year of operations.
❑Implementation of the strategy contain control
point to ascertain progress and to initiate
contingency plan if necessary.
❑Business plan not end up in a drawer somewhere
once the financing has been attained and the
business launched.
 Measuring Plan Progress
❑Entrepreneur should check the profit and loss
statement, cash flow projections, and
information on inventory, production, quality,
sales, collection of accounts receivable, and
disbursements for the previous month.
❑Inventory control
❑Production control
❑Quality control
❑Sales control
❑Disbursements
 Updating the Plan
❑The most effective business plan can become out-
of-date if condition change.
❑If the change are likely to affect the business plan,
the entrepreneur should determine what revisions
are needed.
❑In this manner, the entrepreneur can maintain
reasonable targets and goals and keep the new
venture on a course that will increase probability
of success.
 Why Some Business Plans Fails?
❑Goals set by the entrepreneur are unreasonable.
❑Goals are not measurable
❑The entrepreneur has not made a total
commitment to the business or to the family.
❑The entrepreneur has no experience in the
planned business.
❑The entrepreneur has no sense of potential threats
or weaknesses to the business.
❑No customer need was established for the
proposed product or service.