MODULE 3

Definitions
Entrepreneur (Oxford Dictionary) – Person who undertakes an enterprise with
chances of profit or loss. (As I have understood, Entrepreneur is a person who
undertakes a business activity of which he has no background and faces considerable
risks in the process. If either of the two elements, i.e., “no background” or
“considerable risk” is missing in the venture, it is no entrepreneurship).

Enterprise (Oxford Dictionary) – Bold Undertaking

Entrepreneur – (New Encyclopaedia Britannica) – An individual who bears the risk of

operating business in the face of uncertainty about the future conditions.

Common Meaning – one who starts his own, new and small business

Entrepreneurship – It is a philosophy or process through which an entrepreneur seeks

innovation and employment.

Entrepreneur Entrepreneurship Enterprise

Person Process or Philosophy Object

Dissecting the word we get

Entre – Enter Pre – Before Neur – Nerve Centre

Entrepreneurship can also be described as a creative and innovative response to the

environment.

Entrepreneurship Theories
1600 – French verb – Entreprendre – to undertake.

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 1700 – Person bearing Risk or Profit in a fixed price contract (Risk)

1725 – Richard Cantillon – Person bearing risks is different from Capital Supplier (Risk)

1803 – J. B. Say – Shifts economic resources out from an area of lower to higher
productivity & greater yields (Value Addition)

1934 – Joseph Schumpeter – Innovator and develops untried technology (Productivity &
Innovation)

1961 – David McClelland – Highly motivated, energetic, moderate risk taker (Need for
achievement)

1964 – Peter Drucker – Searches for change, responds to it & exploits as opportunity
(Opportunity Focused)

1980 – Karl Vesper – Behaviour Perceptions– Economists, Psychologists, Businessmen,

Politicians (Environment)

1983 – Gifford Pinchot – Intrapreneur

1985 – Robert Hisrich – Creating something different with value, devoting time & effort,
assuming risks (FPS); results– rewards and satisfaction (Leadership & Vision)

Please note that key word in Entrepreneurship is RISK. Any venture where risk is
mitigated due to any reason does not qualify to be called entrepreneurship.

Entrepreneurs are people who create new business activity in the economy and bear
considerable business risk in the process. This is often done by starting new companies.
But they can also create new business activity by introducing a new product or creating a
new market.

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 Some other related facts about Entrepreneurship
• Entrepreneurs are made; they aren’t born. (This statement is more of public
posturing than fact. Essential characteristics of an entrepreneur, i.e.,
ambitiousness, capacity to take moderate risks, organizing ability, persistence,
vision, etc, cannot be taught in any school. These are inborn characteristics of a
person. Know this fact but don’t write it in the answer sheet).

• Incubator organization is an organization that supports entrepreneurs

• Venture Capitalists – VCs are like bankers, but since they aren’t subject to strict
regulations as bankers, they take greater risks in making investments – organized
as formal businesses, they expect to reap 25– 30% annually and get more actively
involved in the ventures than bankers do.

• Angels are private individuals who invest directly in firms and receive equity
stake in return – they act as advisers to founders.

• Don’t confuse entrepreneurship with running a business. Every person launching a

business is not an entrepreneur. A businessman’s son taking over his established
family business or starting another factory in neighbouring town is no entrepreneur
because he is well trained in matters of that business by virtue of constant exposure
since childhood. He has support of family and friends in terms of finance and
advice should going gets tough. With his training, professional and personal
contacts and financial backing, risk element and uncertainty are almost missing in
such business. Whereas, a farmer’s son, venturing to open a grocery or even
‘pan shop’ is an entrepreneur because he is stepping into an uncharted territory of
which he has little/no training and therefore bears considerable risk.

How do you define an entrepreneur in the 21 s t Century?

An entrepreneur of 21st century is a customer focused innovator. He uses e– knowledge.
Advantage is speed. He is a global thinker even though he may not necessarily be a global
player.
Standard ( New) Definition
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 Entrepreneurship is the process of creating something different with value by devoting
the necessary time and effort, assuming the accompanying financial, psychic, social risks
and receiving the resulting rewards of monetary and personal satisfaction and
independence.

Word “Entrepreneur” stems from French Verb Entreprendre – means between; taker or go
between

New Definition involves four aspects –

(a) The creation process

(b) Devotion of time and efforts

(c) Assumption of risks

(d) Rewards of independence, satisfaction, money.

Advantages of Entrepreneurship
To an Individual

(a) Provides Self Employment for the entrepreneur

(b) Entrepreneur can provide employment for near & dear one as well

(c) Entrepreneurship often provides an employment and livelihood for next

generations as well.

(d) Freedom to use own ideas – Innovation and creativity

(e) Unlimited income / higher retained income – Bill Gates has risen to
becomerichest in the world in a single life time through entrepreneurship

(f) Independence

(g) Satisfaction

To the nation

(a) Provides larger employment – Entrepreneurs provide employment for self

aswell as other people and is source of employment creation.
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 (b) Results in wider distribution of wealth – This is a logical sequel of
aboveissue. Higher the employment, greater the distribution of wealth

(c) Mobilizes local resources, skills and savings

(d) Accelerates the pace of economic development – Entrepreneurship is the

govt’s one of the most trusted vehicles for economic development

(e) Stimulates innovation & efficiency

Factors Favouring Entrepreneurship

1. Developed Infrastructure Facilities – Availability of infrastructure reduces the
cost & efforts and improves viability of projects through higher profit margins.

2. Financial Assistance – Easy availability of cheap funds is vital for promoting

entrepreneurship.

3. Protective and Promotional Policies – Most of the entrepreneurship projects start

very small and have no resilience. They are extremely vulnerable to competitors,
market, money markets, etc, for considerable time. Favourable Govt policies
shelter them from such vagaries.

4. Growth of Education – Science, Technology & Management – Growth of

education is believed to be promoting entrepreneurship. However, there are enough
examples to suggest otherwise. A very large proportion of first generation
entrepreneurs are low educated. Take the case of Microsoft Chairman Mr Bill
Gates or Reliance Founder Mr Dhirubhai Ambani. (We also have Mr Narayan
Murthy and Mr Ajim Premji to balance this scale). On a wider spectrum, Kerala,
the most literate state and West Bengal, another state high on literacy front, are
least entrepreneurial states where as Punjab, with 5 rank from bottom was top on
entrepreneurial charts.

5. Risk Taking Abilities – Risk taking ability is one of the pillars of entrepreneurial
spirits.

6. Hunger for Success (Capitalistic View) – Fire in the belly and dreams of riches is
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 what drives most entrepreneurs on this risky path. Any person content with what
he has would take the easier route of salaries job.

7. Environment/Culture Impact – Entrepreneurship is contagious. Communities like

Punjabies and Marwaries are historically entrepreneurial. They are known for
seeking and exploiting business opportunities in most remote areas. It is a culture
that propels them. (Go to Pull_Factors )

8. Social Security – Social security acts as a safety net against failure of enterprise.
Social security guarantees basic ‘roti, kapada aur makan’ in case of failure.
Entrepreneurial spirit of United States is born partly out of this security.

9. Technical/Industrial Training Facilities – Industrial Training facilities on one

hand generate skilled manpower so vitally required for setting up enterprises
while on the other hand they are also nursery for future entrepreneurs. Among
the educated entrepreneurs, a majority is product of technical institutes from IIT
to ITI(Tier I to Tier III institutes).

10. Globalization – Globalization has provided another avenue for business. Many
dare devils have taken a head– along plunge into this uncharted water and have
written new success stories.

(Think of numerous other factors)

What m akes a S uccessful Entrepreneur?

1. The urge for achievement (most often monetary ambitions) – Most Important

2. Willingness to take moderate risks – (High risk takers are not entrepreneurs but
gamblers).

3. Determination to win

4. Win– Win Personality

5. Ability to identify & explore opportunities

6. Analytical ability to take strategic decisions

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 7. Perseverance

8. Flexibility

9. Capacity to plan and organize

10. Preparedness to undergo physical and emotional stress

11. Positive self concept/Self Belief

12. Future orientation – Vision

13. Ethics and Values – Mission

Who can be an Entrepreneur?

1. Who feels the need for achievement

2. Who can take moderate risks

3. Who possess skills in organizing

4. Who can capitalize on opportunities

5. Who has some financial strength – On his own or borrowed

6. Who has ability to work hard

7. Who has desire for responsibility

8. Who has a clear perception of probability of success

9. Who gets stimulation by feedback

10. Anyone – He can be male, female or even a Eunuch

11. Who does not have previous experience

Characteristics of an Entrepreneur

1. Mental ability

2. Clear objectives

3. Business secrecy
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 4. H.R. ability

5. Communication ability

6. Technical knowledge

7. Achievement– oriented

8. Perseverance

9. Ethical

10. Motivator

11. Self– confident

12. Long term involvement

13. High energy level

14. Problem solver

15. Initiator

16. Goal setter

17. Risk taker

(Please note that all the three headings are necessarily the same)

Key Elements of Entrepreneur

1. Need for Achievement

2. Risk taking

3. Organizing Skills

4. Ethics & Values

5. Vision

6. Innovation

Above is the list of key elements as per the professor, Mr JC Saboo. Individual opinions
may vary. In my own assessment, the last three do not form the part of key elements of
entrepreneur. Justification is as follows –
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 Ethics and Values – Almost every entrepreneur is raw and weak at the time of start. He
has little knowledge and even meagre resources. He is pitted against heavy odds like
established players in the market who usually have little respect for ethics. There is no
denying that Ethics will win in long term; provided you survive that long to benefit from
that win. For short and medium term, it is “hook or crook” attitude which brings business
success. Remember Sania Mirza’s Tee Shirt! – Nice girls don’t win matches. The
wisdomin the market place is – Pyar aur VYAPAR mein sab kuchh jaayaj hai. There is no
denying the fact that there are Tata, Infosys and Wipro business empires where almost
every brick is a hallmark of ethics, but the list probably is not very long. The list of
unethical, and yet successful, companies is rather long. We don’t have any system of
rating companies on ethical scale, else, the issue would have never arisen.

Vision – Rarely does an entrepreneur start with a 10 year vision. Almost every
entrepreneur, including Sir JRD Tata, starts small with basic survival or “little riches” as
the aim. The vision, mission and all such management jargons erupt only after a
reasonable level of success is attained.

Innovation – I personally consider Innovation fairly low in the entrepreneurial element

basket. Innovation helps in achieving success in business whether it is 10 generations old
business or an entrepreneur’s new enterprise. An entrepreneur is one who starts a business
enterprise of which he had no previous experience. Most entrepreneurs start with a routine
business activity without any innovative idea. It may be as common a business as a pan
shop. So, if a farmer’s son opens a pan shop, there is no innovation but it is
entrepreneurship. Whereas, if a panwalla’s son opens a new pan shop away from his
father’s shop, it is not even an entrepreneurship. But yes, if he later finds a way to export
his pan to some foreign country, there is innovation of finding a new market for his
product and it is entrepreneurship. He has gone into a territory which was new to him and
probably even to his trade.

As per my assessment, three qualities that replace above qualities are –

4. Perseverance – The start is tough and initial failures are common phenomenon.
If the person does not have a steely resolve and perseverance to keep going against
all odds, his failure is almost certain. In US, only one out of 10 new businesses
survive beyond 2nd year.

5. Hard Working – The initial years are sweat and sweat and even more sweat.
Resources are scarce, finances are scanty, knowledge is sketchy and goodwill is
zero. Untiring work bordering on the madness is common element in every
successful entrepreneur’s story. Almost every entrepreneur packs a 48 hrs work
schedule in his 24-hour day.

6. Self Confidence – They all have the confidence to overcome every odd.

Study the Profile of a Successful Entrepreneur and identify six key elements in order
of priority

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 E N T R E P R E N E U R ’ S B A C K G R O U N D & C H A R A C T E R I ST I C S
1. Family Environment – In most cases, people follow the footstep of father. A
businessman’s son takes up business and a salaried person’s son tries to find a job.
So, if a family has had a tradition of entrepreneurship, later generations also follow
the step of their ancestors, like the Gujaraties and Marwaries. Conversely, if a
family has had a bad experience with entrepreneurship, it is unlikely that next
generation will be very entrepreneurial.
2. Education – Education has no correlation with entrepreneurial spirit. If at all
there is one, it seems to be inverse. Most of the entrepreneurs come from low
education background. Educated people who get decent job rarely prefer comfort
of salaried job. It is only those who are unable to find a living for themselves
eventually try their hands at new business. For long long years, due to problems of
licence, quota and inspector raj, most educated people preferred govt job, for it
symbolized power, comfort, social status and for the people with low scruples,
money too. However, trend is slowly changing. With business environment
becoming easier and govt officials’ powers being on the wane, many educated
people are also beginning to venture into entrepreneurship
3. Age – There are people who start as early as probably 10 and some others after
their retirement. Harland David Sanders, better known as Colonel Sanders (not
a Army Colonel but an honorary one) started his famous Kentucky Fried Chicken
business quite late in his varied career. But commonly, men are often in the age
group of 25 – 35 and women in the age group of 30– 45.

4. Physical Attributes – Have absolutely no correlation with entrepreneurial spirit.

5. Marital Status – No direct correlation but going by the age group, most
entrepreneurs are married.
6. Working History – Entrepreneurs quite often have some working experience as a
salaried employee in the field of their venture. It always helps to learn a little about
business before putting your money in. Sindhi community follows this practice
assiduously.

7. Family Contacts – Family contacts in business world reduce the risks and help the
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 entrepreneur.
8. Professional Contacts – Professional contacts again help. IIT and IIM graduates
venturing into entrepreneurship often get help from their peer and seniors.

9. Personal values
10. Lifestyle – Most entrepreneurs are fond of good things in life but are willing to
wait till they strike rich. In the interim they are willing to rough it out.

What i s a job competency?

It is knowledge, skills and attitude related to a particular job. Performance emerges from
the combination of knowledge, skills and attitude. A perfect balance of all the three is
required. They can not compensate each other. Mathematically, competency is not sum
total of knowledge, skill and attitude but their product. If one of the factors is zero,
ourpur is zero irrespective of how high are the other two. So, very high knowledge and
skill can not compensate absence of right attitude.

Some Definitions and Explanations

1. Knowledge – Collection and retention of information in a form that it can be
effectively used.

2. Skill is the physical or mental ability to do something well (hard and soft skills)

3. Motives are reasons for doing something (need)

4. Traits – Characteristical way in which a person behaves or responds to a

particularsituation.

5. Attitude reflects the way of thinking and

acting(Self and others determine the attitude)
6. Initiative – Willingness to take action solely on demand of the occasion without
being asked/prompted/forced by others. Taking actions to start the business and
expand into new areas, products and services.

7. Persistence – Repeated attempts to overcome obstacles despite failures. But a

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 successful entrepreneur analyses reasons for his failure, learns and modifies his
methods every time. But wisdom of knowing when to abandon attempts is more
important that capacity to persevere in the face of obstacles.

8. Information Seeking – Information is power. Right information at the right time

makes the job easier. Knowing that flight has got cancelled before you leave home
will save you time, money and spare frustration. A successful entrepreneur
invests in establishing information channels.

9. Concern for High Quality of Work – Quality has no set standards. Eventually, it
settles down to price – performance ratio. Whether a company follows Cost
Leadership or Differentiation strategy, it is value that customer perceives in
product which will sell the product in the market. Therefore, a entrepreneur has to
be conscious of delivering value.

10. Efficiency Orientation – Constantly looking for ways to do things faster or with
fewer resources or at a lesser cost.

11. Systematic Planning

(a) Breaking a large task into several sub tasks.

(b) Developing and using logical steps to analyse past events and forecast
futuredevelopments.

(c) Developing plans after duly anticipating obstacles and opportunities.

(d) Evaluating alternatives on merits and demerits.

12. Problem Solving

(a) Identifying the root cause of the problem.

(b) Developing strategies in the light of objectives, resources, and constraints.

(c) Generating new ideas or innovative solutions.

(d) Identifying the best idea and applying to reach the goals.

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 13. Persuasion – Persuasive ability is another key to success in entrepreneurial
success. Right from the time of arranging finances to the point where people are
cajoled to abandon a trusted product/brand and try out a new product, there are
100s or 1000s of people whose cooperation has to be sought. Persuasive skills
make the job much easier and faster.

14. Use of Influence Strategies – Using influence to get your job done is often at cross
roads with ethics. But every use of influence may not be unethical. If some one is
creating hurdles just because he is expecting bribe or simply being lazy, use of
little influence to get your job is done is definitely not unethical. However, if
influence is used to jump a queue and deny or delay a genuine claimant in the
process is definitely unethical.
15. Assertiveness

(a) Confronting problems and issues with other directly

(b) Be polite but firm.

(c) Telling others clearly what they have to do.

(d) Reprimanding those who fail to perform as expected however close they
may be.

16. Concern for Other’s Welfare – It is an important quality for team building which
is necessary if the initial success is to be translated into a larger success.

Entrepreneurship and Management Students

1. A Management Graduate is a person trained in necessary skills and knowledge to
manage an enterprise.

2. A Management Graduate is best placed to be an entrepreneur. With his

knowledge of business domain, his chances of launching a successful
entrepreneurial venture are much higher than any one else. It will benefit the
Management Graduate as well as the country.

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 3. Experience even from Harvard Business School confirms that more Management
Graduates take Entrepreneurial Role (after gaining some experience) and the
average income of entrepreneurs is higher by almost 2.5 times compared to their
friends who are in job.

4. A Management Graduate should therefore not be just a Job Seeker. He can and
should take the role of Job Provider.

5. Enterprises in protected economy can sustain mismanagement because the markets

are assured under quota and license raj. In the ensuing monopoly or monopolistic
market, there is a demand supply mismatch and therefore profit margins are high.
Therefore, there is enough resilience to sustain errors and consequential losses in
an entrepreneurial venture once the license was obtained.

6. Enterprises in competitive environment are essentially to be well managed. In the

resulting perfect or near perfect market, profits are thin and any losses due to
errors can not be passed on to the consumer. Therefore, entrepreneurial ventures
have tobe well managed.

7. Even in his employment in a company, he needs to become an

INTRAPRENEUR in order to deliver maximum to his employer and increase his
own stock in return.

8. Therefore, either way, Entrepreneurship Management becomes an essential part of

curriculum of management studies.

Entrepreneurial Decision Process

A person decides to do something either because something in that activity lures him or
he he takes it as option in lieu of something else, ie, he is forced to do it by people or
circumstances. The factors which lure a person to become entrepreneur are called Pull
factors and the factors that compel him are called Push factors.

Pull Factors

(a) Perception of Advantages – If a person feels that he can earn better or

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 overall gains in terms of money. Status, security, future, etc as an
entrepreneur are better than working as an employee, he tends to turn an
entrepreneur.

(b) Spotting an Opportunity – Many employees spot a business opportunity in

the course of their work and decide to exploit that opportunity rather than
pass it on to their employer. Many employees buy unsuccessful
businesses at throw away prices from their former employers and turn
them around.

(c) Government Policies – Govts very often formulate policies to promote

certain business activity or backward areas which offer tax
concessions/holidays, cash subsidies, cheap land, etc, which improve
success and profit prospects.

(d) Motivation from biographies or success stories.

(e) Influenced by Culture, Community, Family Background, Teachers, Peers,

etc. – (Refer page 5 para 7) Go to Environment_Impact

Push Factors

(a) Job Dissatisfaction – Many people start their own venture because they
feel dissatisfied with their existing jobs/boss/work environment.

(b) Relocation – Repeated or especially unhappy relocation some times

prompts some people to entrepreneurship.

(c) Joblessness – This is the biggest source of micro level entrepreneurships.

Many parents help their academically poor children, who fail to find a
job, to start their own micro ventures. But success rate in such ventures is
poor. The very traits responsible for their academic failure lead to business
failure.

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 (d) Lay off – Lay offs often lower the market value of an employee to half.
Thus, if a person is laid off and he is unable to find a suitable job for him,
he might think of starting his own business.

(e) Retirement – Many retired, but physically and mentally fit, people start
their own business either to supplement their pension/savings or just to
keep themselves gainfully occupied.

(f) Boredom – This is applicable to many ladies from well to do families. With
their army of servants to take care of home, they find an avenue to keep the
boredom away and start ventures like boutiques, fashion designing, etc.

Entrepreneurship and Economic Development

Entrepreneurial spirit of people is greatly responsible for economic development of any
country. There is no resource including diamond mines as valuable as human resource.
South Africa and a few other African countries despite their fertile gold and diamond
mines have remained poor/relatively poor, where as Japan with literally no natural
resources and having suffered devastation during WW–II became a developed country in
just three decades. Therefore, if a country allows its human resources to be
unutilized/underutilized (unemployment/disguised unemployment), its economic
development would be severely hampered.

Failure of communism worldwide and our own harrowing experience with

socialism has shown that “Govt has no business to be in Business”. Govt should only
govern. Business activity should be left to people. And this is where entrepreneurs enter
the picture.

(a) Entrepreneurs set up enterprises which provide employment not only to

themselves but to many others directly and indirectly and thereby put into
utilization Human Resource of the country.

(b) Entrepreneurs combine resources, put their time and efforts and produce
goods or services. The Value Addition that they do to the resources brings
prosperity to the country.

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 (c) What they contribute – productivity, output, value addition, income and
employment

(d) Entrepreneurship is a “Low Cost Strategy”. An entrepreneur works with

maximum financial efficiency in order to maximize his profits.
Entrepreneurs rarely indulge themselves in luxury of Business Class travel
and 5 Star Hotel comforts which the managers avail without fail. Thus,
many such costs are either avoided or kept in check. Entrepreneurs perform
the crucial role themselves.

(e) The spirit of Entrepreneurship – Drive, achieving higher goals, creativity,

innovative attitude.

(f) A dynamic society emerges and the spirit spreads like a chain reaction –
Many entrepreneurs have proved to be catalyst for growth of a bevy of
smaller entrepreneurs. Jamshedpur was a small town before Tata Steel
Plant was set up. Once the plant came up in the place, many people set up
their small enterprises to cater to the needs of the growing population.

Product Evolutio n Process

Fundamentals
of Science

RecognizedSocial Development Commercial

Technology
Need Phase Phase

Concept Testing Planning

Beginning of Technological Modeling Financing

Innovation Product Testing Manufacturing
Marketing

Invention / Innovation

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 The Evolution Process
(a) Intersection of knowledge and a recognized social need

(b) Initiation of technological innovation

(c) Iterative Synthesis

(d) Development Phase

(e) Industrial Phase

The Product Planning and Development Process

(a) Idea Stage – Idea – Evaluate

(b) Concept Stage – Lab Development – Evaluate

(c) Product Development Stage – Pilot Production – Evaluation

(d) Test Marketing Stage – Semi Commercial Production Evaluation

(e) Commercial Stage –

(i) Introduction

(ii) Growth

(iii) Maturity

(iv) Decline

Com m ercialization
(a) Role of Government

(b) Role of Corporate – Intrapreneurship

(c) Role of Individuals – Entrepreneurship

(d) Development of Technology

(i) Utilization of materials

(ii) Exploitation & transformation of energy

(iii) Understanding and application of Scientific Principles

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 (e) The Role of Government

(i) Promotional

(ii) Neutral

(iii) Regulatory

The Strategies for an Entrepreneurial f i rm

Below is illustrated recommended strategic response for a small firm under differing
conditions of technological and finance requirements for various industries

T – Technological Inputs M – Money Inputs

(a) Technology – High, Money – High – Industry requires large skilled
resources (difficult to obtain for a start up firm) and large financial strength
(again a difficult proposition for a new firm). Recommended response –
Act as a Supplier or Sub –Contractor.
(b) T– High, M– Low – Specialist firm, access to low cost research
(c) T– Low, M– High – Linkage with well– established channels
(d) T– Low, M– Low – Well suited to small firm
(e) Low Tech – High Volume – Requires strong Financial Ability
(f) High Tech – Low Volume – Requires Strategic Ability
(g) Emerging Options – Franchisee; Sub– contractor

Business Environm ent & Entrepreneurship Environm ent

(a) Political – System, Stability, Leadership

(b) Socio– cultural – Culture, Community, Values, Ethics, Attitude

(c) Technological – Education, Absorption, Competition, Innovation

(d) Legal – Regulatory framework, Consumer protection, Concern

forenvironment, Labour laws

(e) Economic – GDP, GNP, Resources, Fiscal, Non– fiscal policies,

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 Incentivesand Subsidies

Dimensions of Environment
(a) SPECTACLES – Social, Political, Economic, Cultural, Technological,
Aesthetic, Customer, Legal, Environmental and Sectoral

(b) PEETS – Political, Economic, Ecological, Technological and

Socio–demographical

(c) SLEPT – Social, Legal, Economical, Political and Technological

Factors Influenc ing Entrepreneu rship

Individual

Economic Socio-cultural
Environment
factors
Support
Systems

Political Legal Technological

Environment Environment Environment

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OUTLINE OF A BUSINESS PLAN

1. Introductory page

(a) Name and address of the venture

(b) Names and addresses of the principals

(c) Nature of business

(d) Statement of financing needed

(e) Statement of confidentiality of the report

2. Executive Summary

3. Industry Analysis

(a) Future outlook and trends

(b) Analysis of competitors

(c) Market segmentation

(d) Industry forecasts

4. Description of Venture

(a) Product(s)/Service(s)

(b) Size of business

(c) Office equipment and personnel

(d) Background of entrepreneurs

5. Production Plan or Operations Plan

(a) Manufacturing process (amount subcontracted)

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 (b) Physical plant

(c) Machinery and equipment

(d) Names of suppliers of raw materials

6. Marketing Plan

(a) Pricing

(b) Distribution

(c) Promotion

(d) Product forecasts

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 (e) Controls

(f) e– initiatives

7. Organizational Plan

(a) Form of ownership

(b) Identification of partners or principal shareholders

(c) Authority of principals

(d) Management– team background

(e) Roles and responsibilities of members of organization

8. Assessment of Risk

(a) Evaluation of weaknesses of business

(b) New technologies

(c) Contingencies plans

9. Financial Plan

(a) Pro forma income plan

(b) Cash flow projections

(c) Pro forma balance sheet

(d) Break– even analysis

(e) Sources and applications of funds

10. Appendices (contains backup material)

(a) Resumes of principals

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 (b) Letters

(c) Market research data and survey results

(d) Leases or contracts

(e) Price lists from suppliers

(f) Facility layout

(g) Draft marketing brochure with or without pricing

(h) Structure of e– marketing thrusts, if any

Business plans rank no higher than 2/10 as a predictor of a new venture’s success. With
all the uncertainties involved, it is not easy to forecast or make future projections. An
entrepreneurial venture faces even greater uncertainties. It is hard to predict even
revenues.

let alone the profits. Thus, every investor knows that any financial projections for a new
company that stretch beyond a year are an act of imagination.
It does not mean to say that business plans should not include numbers. Business plans
should include numbers but those numbers should appear in the form of a business
model that shows that the entrepreneurial team has considered the key drivers of the
venture’s success or failure.

Estimation of time and capital is another hurdle faced during preparation of project plan.
Break even analysis is very important. Also the time when cash flow will turn positive
needs to be estimated. But these information should come towards the end of the project
report.

There are four independent factors critical to every new venture and should be
highlighted in the business plan –

1. The People
The most important determinant of success. The men and women starting and
running the venture, as well as, the outside parties providing key services or
Department of Mechanical Engineering Page | 24
 important resources for it, such as its lawyers, accountants and suppliers.

An ordinary plan can succeed if the execution is immaculate, but an outstanding

plan will surely flop without effective execution. Thus, the people involved in the
new venture are most important. Arthur Rock, a Venture Capitalist legend
associated with companies like Apple, Intel and Teledyne states,

“I invest in people, not ideas”

Three important questions need to be answered in every business plan –

(a) What do they know (about business)?

(b) Whom do they know (the customers, the people in the govt, etc)? and,

(c) How well are they known (their reputation that can be leveraged with
various stakeholders of business like suppliers, employees and govt
officials)?

Thus, a business plan should describe each member’s knowledge of the new
venture’s type of products and markets – from competitors to customers.
2. The Opportunity

A profile of business itself – what it will sell and to whom, whether the business
can grow and how fast, what its economics are and who and what stands in the
way of success.

A good business plan begins by focussing on two aspects of opportunity –

(a) Is the total market for the venture’s product large, rapidly growing or both?

(b) Is the industry now, or can it become, structurally attractive?

Investors look for a large and rapidly growing market because it is much easier to
Department of Mechanical Engineering Page | 25
 obtain a share of a growing market than to fight with entrenched competitors for a
share of a mature or stagnant market. The business plan should establish the
attractiveness of the industry in terms of growth potential. Building and
launching of the product in the market place is the next emphasis point in the
project report.

If it were easy to spot the opportunities, they would have become extinct. They
willbe killed before they are born.

Pricing is another issue. Difficult to guess but inevitable for any project
report.Cash flow is equally important. The project report should include –
(a) When does the business have to buy resources, such as supplies, raw
materials and people services?

(b) When does the business have to pay for them?

(c) How long it takes to acquire a customer?

(d) How long before customer sends the business cheque?

(e) How much is the investment for each rupee of sale?

Growth opportunities in terms of place, product, customer base, etc needs to be

elaborated.

Project plan also needs to discuss the mouse traps that the business can get caught
into and plan to avoid them.

Competition is the next issue that should be addressed in great detail. Following
questions should be answered –

(a) Who are the new venture’s current competitors?

(b) What resources do they control? What are their strengths and weaknesses?

(c) How will they respond to the new venture’s decision to enter business?

(d) How can the new venture respond to its competitors’ response?
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 (e) Who else might be able to observe and exploit the opportunity?

(f) Are there ways to co-opt potential or actual competitors by forming

alliances?

3. The Context – The big picture – The regulatory environment, interest rates,
demographic trends, inflation and the like – basically factors that change
inevitably but can not be controlled by the entrepreneur.
4. The Risk and Rewards – An assessment of everything that can go wrong and
right and a discussion of how the entrepreneurial team can respond.

The business plan remains same irrespective of the fact whether it is an entrepreneurial
venture or being launched by the established company. After all the market does not
differentiate on the basis of whose money it is; whether of the investor or the
shareholders.

Characteristics and Guiding Factors for Successful Entrepreneur

Characteristics of a successful entrepreneur

1. The urge for achievement (most often monetary ambitions) – Most Important

2. Willingness to take moderate risks – (High risk takers are not entrepreneurs but
gamblers).

3. Self Confidence – Confidence in own ability to win against all odds.

4. Ability to identify & exploit opportunities

5. Analytical ability to take strategic decisions

6. Perseverance

7. Determination to win

8. High organisational ability

9. Who has some financial strength – On his own or borrowed

10. Who has ability to work hard

11. Who has desire for responsibility

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 12. Win– Win Personality

13. Flexibility

14. Capacity to plan and organize

15. Preparedness to undergo physical and emotional stress

16. Positive self concept/Self Belief

17. Future orientation – Vision

18. Ethics and Values – Mission

Guiding Factors –

1. Clear objectives,

2. HR abilities,

3. Communication ability,

4. Technical knowledge,

5. High energy level,

6. Motivator,

7. Self confidence,

8. Problem solver,

9. Goal setter.

Factors Favouring Growth of Entrepreneurship

Following are the major factors which favour growth of entrepreneurship in a country

1. Developed Infrastructure Facilities – Availability of infrastructure reduces the

cost & efforts and improves viability of projects through higher profit margins.

2. Financial Assistance – Easy availability of cheap funds is vital for promoting

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 entrepreneurship.

3. Protective and Promotional Govt Policies – Most of the entrepreneurship

projects start very small and have no resilience. They are extremely vulnerable to
competitors, market, money markets, etc, for considerable time. Favourable Govt
policies shelter them from such vagaries.

4. Growth of Education– Science, Technology & Management – Growth of

education is believed to be promoting entrepreneurship. However, there are
enough examples to suggest otherwise. A very large proportion of first generation
entrepreneurs are low educated. Take the case of Microsoft Chairman Mr Bill
Gates or Reliance Founder Mr Dhirubhai Ambani. (We also have Mr Narayan
Murthy and Mr Ajim Premji to balance this scale). On a wider spectrum, Kerala,
the most literate state and West Bengal, another state high on literacy front, are
least entrepreneurial states where as Punjab, with 5th rank from bottom on
educational scale was top on entrepreneurial charts. But, this entrepreneurial
backwardness of Kerala and West Bengal is probably attributable to political and
labour climate.

5. Risk Taking Attitude – Risk taking attitude is one of the pillars of entrepreneurial
spirits.

6. Hunger for Success (Capitalistic View) – Dreams of riches and fire in the belly
is what drives most entrepreneurs on this risky path. Any person content with
what he has would take the easier route of salaried job.

7. Environment/Culture Impact – Entrepreneurship is contagious. Communities

like Punjabies and Marwaries are historically entrepreneurial. They are known
for seeking and exploiting business opportunities in most remote areas. It is a
culture that propels them. (Go to Pull_Factors )

8. Social Security – Social security acts as a safety net against failure of enterprise.
Social security guarantees basic ‘roti, kapada aur makan’ in case of failure.
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 Entrepreneurial spirit of United States is born partly out of this security.

9. Technical/Industrial Training Facilities – Industrial Training facilities on one

hand generate skilled manpower so vitally required for setting up enterprises
while on the other hand they are also nursery for future entrepreneurs. Among
the educated entrepreneurs, a majority is product of technical institutes from IIT
to ITI (Tier I to Tier III institutes).

10. Globalization – Globalization has provided another avenue for business. Many
dare devils have taken a head– along plunge into this uncharted water and have
written new success stories.
11. Economic Growth Rate of Country – A growing economy creates more demand
and improves prospects of success.

12. General Business Environment – External environmental factor i.e. political,

socio cultural, technology, legal, economic affect growth of entrepreneurship.
Kerala and West Bengal have remained entrepreneurially backward due to poor
political and legal environment.

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 Q. Compare Franchising, Ancillarisation and Acquisitioning as a
startup for an entrepreneur.
Franchising –
The toughest part of business is to gain customer acceptance and trust for your product.
Franchising is an start-up strategy that minimizes this uncertainty from business venture.
Franchising strategy is adopted by well-established and visible brands.

Franchising is a special form of licensing which allows the franchisee to sell a highly
publicized product or service using the franchiser’s brand name or trademark, carefully
developed procedures and marketing strategies. The franchise is operated by the
franchisee, who must adhere to the strict policies of the franchising company. Like in
case of licensing, in this case too, the franchisee pays a fee to the franchiser, normally
as percentage of sales.

McDonald outlets are all franchisee outlets. Actually most of the food chain companies’
outlets are franchisee outlets.

The entrepreneur is trained in conduct of business and supported in marketing by the

franchiser besides using a name that has some established image and some ready
customers.

Four Characteristics of Franchising –

(a) A contractual relationship in which franchise licenses the franchisee to

carryout business under the name owned by or associated with franchiser

(b) Controlled by the franchiser over the way in which franchisee carries out
thebusiness

(c) Assistance to the franchisee by the franchiser in running the business

priorto commitment and through out the contract period

(d) Franchisee’s business is a separate entity from that of the franchiser.

Thefranchisee provides and seeks capital in the venture.
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 There are three types of franchising available –

1. Product Franchising – Sales outlets are franchised. Most of the apparels and
shoes companies follow this format. It facilitates easy accessibility to the product
for customer and achieves sale transaction without any value addition.

2. Process Franchising – outlets are granted to use the brand name and process of
the franchiser. The process and recipe are generally patented by the parent
company. Like soft drinks companies who franchise bottling plants (but draw the
money by sale of soft drink concentrate)

3. Business format franchising – Name, sale and method of doing business are
transferred for a yearly fee/percentage of yearly sales. McDonalds outlets fall
in this category. This is the most common type of franchising.

Advantages to the Entrepreneur –

1. Product Acceptance – The franchisee usually enters into a business that has an
accepted brand name and therefore ready customer base. The franchisee,
therefore, does not have to spend resources trying to establish the credibility of
the business.

2. Management Expertise – Management assistance is provided by the franchiser.

Each new franchise is often required to take a training program on all aspects of
operating the franchise. This training could include classes in accounting,
personnel management, marketing and production.

3. Capital Requirement – A new venture can be costly both in terms of time and
money. The franchise offers an opportunity to start a new venture with upfront
support that could save the entrepreneur significant time and possibly less
capital. In some cases the franchiser will also finance the initial investment to start
the franchise operation. The initial capital required to purchase the franchise
generally reflects a fees for the franchise, construction cost and purchase of
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 equipment. The pre-structured layout of the facility, control of stock, inventory
and the potential buying power of the entire franchise operation can save the
entrepreneurs significant funds.

4. Knowledge of the Market – Most franchiser will be constantly evaluating market

conditions and determining the most effective strategies to be communicated to
the franchisees.

5. Operating and Structural Control – Two problems that many entrepreneurs

have in starting a new venture are maintaining quality controls of the product
and services and establishing effective managerial controls. Administrative
controls usually involve financial decisions revolving to cost, inventory, cash
flow and personal issues such as criteria for hiring/firing, scheduling and training
to ensure consistent service to the customer. These controls will usually be
outlined in a manual supplied to the franchisee by the franchiser.

Advantages to Franchiser (As expansion strategy used by Entrepreneur)

The most obvious advantage of franchising as a expansion strategy for the entrepreneur
is that business can be expanded quickly with little capital. A franchiser can expand a
business nationally and even internationally by authorising and selling franchise in
selected locations. The capital necessary for this expansion is much less than it should be
without franchising. Operating a franchised business requires fewer employees than a
non– franchised one. Head quarters and regional offices can be slightly modified to
primarily support the needs of the franchises.
Cost Advantages –

The franchiser can purchase supplies in large quantities and get economies of scale that
would not have been possible otherwise. Many franchised businesses purchase parts,
accessories, packaging and raw material in large quantities and then in turn sell them to
franchisees.
Problems in Franchising

1. The problem in franchising usually centre on the inability of the franchiser to

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 provide service and advertising. When promises made in the franchise
agreement are not kept, the franchisee may be left without any support in
important areas.
2. The franchisee may also face a problem when a franchiser fails or is brought out
by another company. In some case, the franchiser finds it difficult to find quality
franchisee. Poor management can cause individual franchise failure.

Q. Comparison – Manager v /s Entrepreneur

Ans. An Entrepreneur and a Manager make an interest comparison. To succeed as an
entrepreneur, one is required to possess great managerial skills and more. Therefore,
there are a lot of commonalities between the two in terms of planning, organising,
directing and controlling abilities which are essential qualities of a manager. However,
there are great deal of differences as well. The differences primarily lie in approach to
various issues.

Business Managers Entrepreneur

Dimension
Primary Promotion & other traditional Independence, opportunity to
Motive corporate rewards, such as office create& money
s staff & powers
Time Short term - meeting quotas & Survival and achieving 5 to 10
Orientation budgets, weekly, monthly & yr growth of business
quarterly
Functional Delegates & supervises more Direct involvement
Style thandirect involvement
Risk Appetite Low – Careful approach to Moderate risk taker.
decision making Followsdreams with
decisions. Deals with
mistakes and failures
Attitude Conservative, hierarchical, status No concern about status symbol
conscious attitude

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 Decision Takes the safest path. Tries to Independent in decision making.
Making Style push decision making to others Takes bold decisions with
to be able to avoid blame in case calculated risk in favour of higher
of failure. Follows the wishes of profit potential.
higher management

Q. Comparison – Male Vs Female Entrepreneur

Ans. While essential qualities remain the same irrespective of the gender of entrepreneur,
female entrepreneurs exhibit certain subtle distinctions due to their psychological make
up as well as social and family obligations –

Factor Male Entrepreneur Female Entrepreneur

Motivation Desire to control own destiny. Need for achievement. Support
Desire for better life style. family income.
Impetus Disagreement with bosses or Frustration at not being allowed
dissatisfaction with working togrow in previous situation
conditions, lay off,
unemployment.
Sources offunds Personal asset & savings, Personal assets & savings,
bank financing, investors, personalloans
loan from friends & family
Occupational Experience in the line of work Middle mgmt or
Background as recognised specialist or one administrativelevel
who has gained a high level of experience in the field
achievement in the field,
competent in a variety of
business
function
Personality High level of self-confidence, Medium level of self-confidence,
Characteristics lowin flexibility and tolerance. More flexible & tolerant. Low
Betterat dealing with economic level of comfort in dealing with

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 environment but less adept at economic environment but adept
dealing with social athandling social environment.
environment

Background Age when starting venture– 25 Age when starting venture– 35

to35 to45
Degree in business or Degree in liberal arts.
technicalfield, usually
Engineering
Support Professionals like lawyers, Spouse is first, close friends
Groups accountants being first, second and followed by others.
thereafter spouse and followed Support of women professional
by friends andothers groups and trade associations
Little reliance on trade actively sought.
associations
Nature of Manufacturing, construction, high Service related – educational
Venture technology service, consulting or
publicrelations
Size of Medium to large Generally small to medium
Venture

Q What are prominent organisations promoting entrepreneurship in

India? Give a Brief account of activities of each organisation.
Ans. There are several organisations engaged in conducting entrepreneurship
development program in India. The lead in the matter was taken by the Small
Industrial Development Organisation (SIDO) through its service centres. Other
organisations that have been actively conducting Entrepreneurship Development
Programmes are –

(a) State Bank of India;

(b) Financial institutes such as IDBI Entrepreneurial Motivation Training

centrein northern – eastern region,

(c) Xavier Institute of Social Services, Ranchi

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 (d) Industrial Consultancy Organizations in various states,

(e) Centre for Entrepreneurship Development, Ahmedabad

(f) State Financial Corporations,

(g) Centre of Entrepreneurship development, Hubli

(h) Small Industries Extension Training Institute, Hyderabad,

(i) National Science & Technology Entrepreneurship Development Board etc.

A need was felt to evolve an integrated national approach towards training program for
various centre’s and states’ entrepreneurship development programme. In order to train
the entrepreneurs, proper syllabi needed to drawn. Moreover, it was felt that there are
not enough trainers and motivators to run the Entrepreneurship Development
Programmes.

The training program is designed to serve the following objectives –

1. To impart basic knowledge about the industry, product & production methods

2. To build the necessary skill for new entrepreneurs.

3. To assist the entrepreneur to function more effectively in his present position by

exposing him to various relevant concepts, techniques & information.

4. To expose the entrepreneur to latest developments which directly or indirectly

affect him.

5. To broaden the vision of entrepreneurs by providing them suitable opportunity

foran interchange of experiences within and outside an industry.

6. To impart customer education

7. To impart knowledge of the marketing of goods

Methods of Training –

1. Individual Instructions – Under this method, a single individual is selected for

training. This mode of training is undertaken where a complicated skill is to be
imparted to an individual

2. Group Instructions – This mode of training is suitable for a group of

individuals for tasks which are not very complicated and entire group needs

Department of Mechanical Engineering Page | 37

 same set of skills.

3. Lecture Method – Here the instructor teaches the theoretical aspects. Any
practicals are followed by the learners subsequently. Under this method,
whenever there are any doubts they may be clarified on the spot.

4. Demonstration Method – Where the performance of work to be shown

practically by the instructor for better understanding, this method can be
followed. This is more concerned with the practical then theoretical aspects.

5. Written Instruction Method – The medium of training is followed where a

feature reference is to be made by the learners. This method is mostly followed
where a standardisation production is followed.

6. Conference – Conferences are organised wherein experts in the field share their
ideas & bring to the notice of learners new ideas & techniques to increase the
production

7. Meeting – Meetings are a mode of training involving a group of people who

discuss the various problems confronting them; they exchange ideas & views and
learn from each other.

Q What is the importance of International Entrepreneurship in a

developing country like India. Please give your suggestion in
building an Indian MNC. Mention in brief factors you consider
favourable as well as barriers.?
Ans. For any nation aspiring for growth, entrepreneurship is the key requisite.
Entrepreneurship is about value addition to the resources. And it is here that the real
opportunity lies, in going for international entrepreneurship.

Every country has some resources that are unique to that country and often in abundance.
Due to oversupply within the country, such resources do not fetch good price in domestic
market. However, same products are scarce in many countries around the world. If these
products can be exported to those countries, much higher revenue and profits are assured
Department of Mechanical Engineering Page | 38
 in foreign exchange which is a scarce commodity for every developing nation.

Unfortunately, most developing countries, in their exasperation to earn foreign exchange,

export their natural resources in raw or semi-finished form without much value
addition and do not extract full potential of their export capabilities. Take the case of
Indian traditional export of leather. We have been exporting shoe uppers and leather
sheets for ages but have failed to establish an international brand in leather product
which could have commanded probably 10 times the price of raw material or semi
finished products. We had the skilled manpower, technology and every resource and yet
were content to produce raw material and semi finished products for foreign companies.

International Entrepreneurship will benefit our country in the following ways

 It will lead to improved foreign exchange earnings and strengthen the economy
by improving the balance of payment position.

 It will generate employment amongst the local people and will benefit the society
at large.

 The earnings will add to the GNP/GDP & will be a source of tax collection for
the government besides contributing to increasing the per capita income and basic
standard of living.

 Export being the priority sector of the country, govt will invest in the much
needed infrastructure which will help in development of the country.

Suggestions for building Indian MNC

International business is not easy. Firstly there is often an inherent bias against foreign
firms from developing countries in terms of quality. Even in cases where quality is not
an issue, racial and nationalistic chauvinism surface to deny them the business. Uproar in
US UK and other European countries against process outsourcing is a case in study.
Department of Mechanical Engineering Page | 39
 Secondly, regulations, social habits, business systems, legal systems, etc are often
drastically different. Therefore, international business is never an easy task. Before an
entrepreneurial

Department of Mechanical Engineering Page | 40

 venture thinks of doing business on foreign soil, it should first consolidate domestically
and try to achieve a leadership position in the domestic market.

Before venturing into foreign business, an Indian entrepreneur must understand how
international business differs from his local business . The key to his success lies in
being able to understand the above & respond accordingly. International entrepreneurial
decisions are more complex due to the following factors –

 Economics – Creating a business strategy for a multi country business means dealing
with differences with levels of Economic development, currency valuations,
government regulations, banking systems, as well as market /distribution systems .
The extent of the quality of these factors significantly impacts the ability to
successfully engage in international business .

 The Country’s Balance of Payment (BOP) Position – BOP affects the cross
currency exchange rates which affect the margin since there is often considerable
time gap between contract and realisation of payments in foreign business.

 Political Environment – The differences in political & legal environments across

international markets pose different challenges in doing business in foreign markets.
Each element of the business strategy of the international entrepreneur can be
affected by political/legal environments.

 Culture – The impact of culture on Entrepreneurs is significant with respect to the

strategies that they intend to employ. Each element of the business plan has to be in
congruence with local culture . Understanding local culture is essential to
development of business. The product and marketing strategies have to be adoped to
the local culture. Mr Vijay Mallya can not distribute his annual bikini calendar as a
product promotion article in Middle East Countries while it will be pretty welcome
in Europe and US.

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  Technology – Many of the production technologies are not acceptable in certain
countries.

As a gradual approach, a new company should preferably try to tap the markets in other
developing and underdeveloped countries where quality consciousness and bias against
Indian growth is less or absent. Thereafter, the company can start moving gradually
towards more sophisticated markets of Europe and US.

Hence the major steps should be

1. Stage 1 – Make initial movements into international business following a highly

centralised decision making process. Tread carefully & start operations through
direct or Indirect exports. In this stage the entreprenuer & his organisation
undergo the learning & experience curve effects which will help in the long run

2. Stage– 2 – After the product and the company has gained acceptance in foreign
market, the decision making process has to get de–centralised. The firm could
employ a multi country strategy by tailoring its products to suit each countries
preferences & culture or go in for high degree of integration & standardisation.
3. Stage– 3– Once decentralisation has been achieved, the HQ should retain tight
control over corporate strategy and divest tactical implementation to the local
units.

Trade Barriers

 Import quotas imposed by developed nations on goods allowed from developing

nations .
 Local tariffs/import duty in developed nation making Indian goods non–
competitive.
 Subsidies to local manufacturers makes imports unviable

 Trade blocks & free trade areas between developed nations & their neighbours
favours trade between them. For eg, EU countries, NAFTA, etc. which reduces

Department of Mechanical Engineering Page | 42

 India’s chances of doing business in these sectors.

Trade barriers increase an entrepreneurs cost of exporting products & hence such
increased cost will force entrepreneur to establish the manufacturing base in those
countries to surmount such barriers.

Favourable Conditions

The Indian government is encouraging international entrepreneurship by offering the

following initiatives –
 Tax sops on export earnings

 Setting up of export processing zones close to ports

 Waiver of import duties on essential raw material meant for processing export
goods
 Waiver of sale tax, octroi & other govt. levies on export goods

 Providing for cheaper land to 100 % EOUs.

 Duty Drawback Schemes.

Q. Describe the process the of scanning the environment to start an

entrepreneurial venture, please give a scheme to short list a few
good business idea?
Ans. For a new venture to be set up, an initial environment analysis is critically
required to identity trends, changes accruing at national and international level, gather
knowledge about the government polices in terms of financial and commercial impact on
the company, knowledge about raw material ability, infrastructure and utilities
availability at the proposed site, etc.–

Analysis of External (Macro) Environment – Macro environment is source of threats,

opportunities & constraints and uncontrollable. Therefore, the strategy has to be drawn
around those uncontrollable within the constraints imposed and opportunities offered by

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 them. Macro Environment can be further sub-dived into following

(a) Remote Environment (Global as well as Domestic)

(i) Social

(ii) Legal

(iii) Economic

(iv) Political

(v) Technological

(b) Industry Environment – Porter’s five forces model –

(i) Entry Barriers

(ii) Suppliers Powers

(iii) Buyers’ Power

(iv) Substitute Availability

(v) Competitive Rivalry

(c) Operating Environment

(i) Competitors

(ii) Creditors

(iii) Customers

(iv) Labour

(v) Suppliers

(d) Socio - Cultural Environment

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 (i) Demographic factors such as:

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 (aa) Population size and distribution

(ab) Age distribution

(ac) Education levels
(ad) Income levels
(ae) Ethnic origins
(af) Religious affiliations
(ag) Housing conditions

(ii) Attitudes/Belief towards: Materialism/capitalism/socialism, free

enterprise individualism, role of family, role of government,
collectivism, language, etc

(iii) Cultural structures including: Religious beliefs and practices,

consumerism, environmentalism, Work Ethics, Pride of
accomplishment, diet and nutrition, etc.
(e) Technical Environment
(i) Efficiency of infrastructure, including: roads, ports, airports,
rollingstock, hospitals, education, healthcare, communication, etc.

(ii) New manufacturing processes

(iii) New products and services of competitors

(iv) New products and services of supply chain partners

(v) Any new technology that could impact the company

(f) Legal Environment

(i) Minimum Wage laws

(ii) Environmental Protection laws

(iii) Industrial laws

(iv) Union laws

(v) Copyright and Patent laws

(vi) Effectiveness of Law & Order enforcement machinery.

Department of Mechanical Engineering Page | 46
 (g) Political Environment

(i) Political Climate – Type of govt

(Capitalist/Communist/Democratic/ Autocratic/Monarchy/etc)

(ii) Political Stability and Risk – What political stability relates to

business is the stability of govt policies. In many countries like

Japan, Italy, France, Germany and even in our own country, govts
have changed but business policies of the govt have remained
constant over the time. Political instability is serious when business
policies change drastically with govts.

(h) Economic Environment

(i) GNP or GDP per capita

(ii) Economic growth rate

(iii) Inflation rate

(iv) Consumer and investor confidence

(v) Currency exchange rates

(vi) Unemployment rate

(vii) Balance of payments

(viii) Future trends

(ix) Budget deficit or surplus

(x) Corporate and personal tax rates

(xi) Import tariffs and quotas

(xii) Export restrictions

(xiii) Restrictions on international financial flows

Scanning these macro environmental variables for threats and opportunities requires that
each issue be rated on two dimensions. It must be rated on its potential impact on the

Department of Mechanical Engineering Page | 47

 company, and rated on its likeliness of occurrence. Multiplying the potential impact
parameter by the likeliness of occurrence parameter gives us a good indication of its
importance to the firm.

Innovation and Entrepreneurship.

An innovation is gainful modification to the product or process. An existing product can
be made better by adding more features modifying design to make it safer or more user
friendly. Or the method may be modified to produce it in more cost effective way. Some
times the raw materials are substituted to bring down the cost. All these are examples of
innovation. In short Innovation is achieved by Value Analysis/Value Engineering.

Its never easy to compete against old players in any walk of life. New entrant faces
considerable odds in the beginning and only this battle. Innovation is the best ally of an
entrepreneur in this battle. It helps him to gain competitive advantage in his business
either due to cost advantage or due to differentiation of product. Innovations in
marketing and distribution help him gain the market share quickly.

Innovation is needed by the entrepreneur for following reasons –

1. To face competition.

2. To stand out in the clutter.

3. To survive recession

4. To solve certain problems.

Installing Attitude for innovation –

1. Encourage creative conflict

2. Big ideas from small teams

3. Learning happens from the desk

4. Understand the product users

5. Live in the future

6. Failure sometime produces innovation

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 7. Joint prototyping to brain storming for fast track innovation
Different Sources of Innovation –

1. Unexpected occurrences

2. Process needs

3. Incongruities

4. Industry & market changes

Creativity & Its Role in Developing Business Ideas

Creativity is showing imagination & originality. It is basically an innovation generated
by entrepreneur in business to solve or generate ideas to serve the market better.
Creativity can decline due to age, education, idleness, perceptual, cultural, emotional &
organizational factors. Creative thinking is basically a process of searching, screening &
connecting thoughts. Creativity can be used for development of better business ideas in
terms of product, process, market development aspects.

The various creativity oriented problem solving & idea generating techniques are as
follows –

1. Brainstorming – A small group of min 6 to max 12 people sit together and

exchange their ideas freely without any reservations. No criticism is allowed. A
senior person moderates the discussions.

2. Reverse Brainstorming – This is basically the evaluation stage. After the brain
storming, the group sits together to find what is wrong with each idea. In a way
it isa method of selection by elimination.

3. Synectics – Synectics is a problem solving tool that stimulates thought processes

which would normally not occur to the person. This method, developed by
William Gordon, has as its central principle:

"Trust things that are alien, and alienate things that are trusted."

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 What it means simply is that don’t take anything for granted while seeking solution to
your problems. Don’t limit yourself to your trusted old methods nor should you
disregard a old failed method. It is thus possible for new and surprising solutions to
emerge. Its main tool is analogy or metaphor.

Synectics is more demanding a process than brainstorming, since it involves many

steps

4. Gordon Method – Unlike most other methods, this method starts by not
disclosingto the members the nature of problem. Only general concept associated
with problem is outlined and then members discuss all the aspects of problem.
This method ensures that thought process of members is not clouded or
channelled by problem.

5. Checklist method – Page 142 of Hisrich book.

6. Free Association

7. Forced Relationship

8. Collective Notebook Method

9. Heuristics

10. Scientific Method

11. Kemper– Tregoe Method

12. Value Analysis

13. Attribute listing method

14. Morphological analysis

15. Matrix charting

16. Modification matrix

17. Inspired Approach

18. Parameter Analysis

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