Entrepreneurship and business management

Asif Khan 1

Entrepreneurship and Business Management

Mega Bucks Workshop

Indian Institute of Technology

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What is Entrepreneurship?

Capacity to take risks

Ability to own and organize

Desire and capability to innovate and diversify (Stepanek, 1962)

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Who is an entrepreneur?

Person conducting own business (Webster)Person who sets up business deals in order to make profits (Collins Cobuild)Organizer of an economic venture, one who owns, organizes, manages, and assumes the risks of the business (Chandrashekhar)

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Why entrepreneurship?

Process of creating something different, with value, by devoting necessary time and effort, by assuming the accompanying financial, psychological, and social risks, and receiving the resulting rewards of monetary and personal satisfaction (Bowen and Hisrich, 1986).

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Role of the Entrepreneur

An innovator who combines technical innovations and financial finesses.

Important role in producing competitive products, processes, and services.

Generation of new employment

Local and regional economic development

Improved allocation of resources and transfer of technologies

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Entrepreneur as an Economic Pioneer

Introduction of new goods and products

Introduction of new processes and methods of production

Opening up of new markets

Opening up of new sources of supply

Industrial re-organization

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Strategic Importance of the Small-Scale Sector

Significant contributions to national income, employment, and export earnings

Value of output over Rs. 5,70,000 crores

Employment of over 17.5 million (> twice the private sector; almost as much as all public sector employment)

Exports of over Rs. 54,000 crores (> 35 per cent of all exports) (2000-01 figures)

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Entrepreneurship and Small Businesses

Entrepreneurship is especially critical in small businesses because:

Important sources of competition for large firms; challenge their economic power

Offer a wide range of choice to consumers

Sources of innovation and creativity

Good career opportunities to work in an unstructured environment of a small company

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Marketing Management

Demand variables:

Demographic, social, economic, political, and competitive factors in market environment

Psychological, social, and economic patterns in customer motivations

All autonomous factors

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Semi-demand variables:

Market segmentation

Customer behavior

Only partially under the control of the entrepreneur

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Decision Variables:

Product characteristics and pricing

Distribution and personal selling

Advertising policies

Mostly under the control of the entrepreneur

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The essential entrepreneurial function in marketing management is to design an integrated marketing plan, where the demand and semi-demand variables of the market are related to the product and decision variables of the firm.

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Market Research

Marketing success depends on design of a distinctive marketing plan

A small entrepreneur should not try to compete on a product-to-product basis with large firms (same goods to same customers thru same channels at same prices !!)

Instead, try to do “something different”.

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Operations Management

Process of designing and utilizing the physical resources of the firm to maximize the operational capabilities of the companyProduct/ service designProcess designJob design Job standards

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Operations Management

The entrepreneur’s smaller firm generally has to provide specialized, few-of-a-kind products and personalized services, without the benefits of mass production and mass distribution

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Financial Management

1. Effective utilization of the assets- current(short-term) and capital (long-term)

2. Provision of funds to support those assets

3. Use of current liabilities, intermediate loans, and capital debt or equity

4. Difficult for smaller companies to compete, in finance, with larger firms, simply because they lack money.

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Finances needed for:

1. New investments in product development

2. Expansion of markets

3. Process improvements, etc.

Conserve available funds by preparing detailed financial plans, e.g. cash budgets, capital investment analysis, short-term plans

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Finding additional funds from sources as

1. Current liabilities

2. Bank loans

3. Equity investments

4. Retained earnings

5. Venture capital proposals

6. Angel funding proposals

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Product Development

Improvements in design of existing product

Inventions of new products

Lack resources for full R&D facility

Must use available capabilities efficiently

Outsourcing of R&D and innovation

Technical feasibility, market feasibility, development time and cost, manufacturing capability, and strategic fit

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Organizational Management and ControlSmaller companies go thru identifiable stages of growthIncreased specializations in tasks of staffIncreased delegation on part of founderIncreased systematization and formalization of information reporting and accounting procedures

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Formation and Growth

Formal and legal procedures of formation- memoranda and articles of associationSole proprietorshipPartnershipPrivate limitedPublic listingCooperative

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Formation and Growth

Purchase of a small company- identify, screen, evaluate, negotiate, and structure payments

Consolidation of a new company- intense conservation of cash, firm limitations on expenses, continual examination of company’s strategy.

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Conclusions

Entrepreneurship is a challenging and rewarding profession

Need to concentrate on market analysis, financial resources, and technology management

Cannot compete directly with the “big guys”, so need to be ingenious and innovative in all entrepreneurial functions