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Entrepreneurship management.
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Concept of Entrepreneur, Entrepreneurship and Enterprise
( Define the concept- Entrepreneur and entrepreneurship)
Entrepreneur - The word is derived from a French word meaning between
taker or go between. The word typically describes the role of traders such as
Marco Polo, who would transfer the goods produced from producers to the
actual buyers. In the given process the merchants were the risk bearers and
profit sharing was 75:25 between producers and merchants.
In 17 th century persons who entered into a contract to perform stipulated
product at a predetermined price were referred as entrepreneurs. Richard
Cotillion, an economist is considered as the founder of the term. All risk
bearers such as farmers, merchants are taken as entrepreneurs as they buy at
a certain price but sell under uncertain conditions. From 18 th century onwards
entrepreneurs are differentiated from capital providers. In 19 th and 20 th century
entrepreneurs were those who organize and operate for personal gains.
The term entrepreneur is defined in a variety of ways. In fact the meaning of
the term has changed from country to country and time to time. The term
entrepreneur was applied to business by a French economists Cantillion to
describe a dealer who purchase means of production to convert them into
marketable products. Another French economist J.B.Say further refined the
idea by describing entrepreneurs as the one who shifts economic resources
out of an area of lower and into an area of higher productivity and greater
yield.
Dr. Joseph Schumpeter defined Entrepreneurs as those who lead enterprises
and role of an innovator entrepreneur is to set in dynamic disequilibrium,
which is the norm of healthy economy and is the central reality of economic
theory.
Peter Drucker while describing entrepreneurs state that usually entrepreneurs
do not bring about any change themselves, they always search for change,
respond to it and exploit it as an opportunity.
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Entrepreneur can be defined in terms of three distinguishing tasks that
they perform
1. Initiative
2. Organization of resources
3. Risk bearing
Entrepreneurs are self starters and are quick to identify the needs and have
strong desire for achievement.
Concept of Entrepreneurship is comparatively new and is used in a broad
domain. Entrepreneurship can be defined as doing new things or doing the
things in a new way
Definition evolved from work done at Harvard Business school
Entrepreneurship is the process of creating or seizing opportunity and pursuing
it regardless of the resources currently controlled.
Importance of entrepreneurship (Benefits to the nation)
Entrepreneurship has power to bring a radical change in the economic, social
and political status of a family, state or nation.
Economic history indicates a strong correlation between economic
development and entrepreneurship development. The countries with morenumber of entrepreneurs have developed at a faster rate than others. Peter
Druker has explained American development in 1960 - 1980s as a
development due to increasing number of startups that registered in the given
time span.
Three centuries prior to World War most of the jobs were created by high
technology industries. Economic expansion after World War II was fuelled by
Automobiles, steel, rubber and petroleum industries. According to Peter
Drucker they perfectly fit into Kondratieff cycle. Kondratieff Russian
economist was executed in mid 1930s because his econometric model
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predicted that Collectivization of farming would lead to sharp fall in agricultural
production. Kondratieff cycle of fifty years was based on dynamics of
technology. The cycle has first 20 years of expansion and last 20 years of
stagnation, where neither industries nor government can do anything for the
correction. Kondratieff theory fails to provide explanation for the 40 million jobs created in the American economy, at the time of so called long term
stagnation .
Entrepreneur economy helped America to support increasing number of job
seekers and kept economy on a fast moving track. The need to develop
entrepreneurship in India can discussed on the same line.
1. Entrepreneurships generate value and enhance personal, social,
national and global wealth.
2. Entrepreneurship generates employment opportunities. India with more
than 1000 million populations needs to generate the job opportunities as
the top priority.
3. Entrepreneurship promotes innovation- Innovations are either cost saving
or demand rising. Innovations promote economic development of thefamily, business and the nation.
4. Entrepreneurship encourages social change, transforming society into self
reliant and confident one.
5. Entrepreneurship enhances export possibilities.
Growth of entrepreneurship is unevenly distributed. Some nations have
prospered more than others only because of difference in entrepreneurshipdevelopment. Even within a given nation, the difference in the growth of
entrepreneurship has led to regional disparities.
Factor affecting growth of entrepreneurship
(Social, cultural, political, economic factors affecting entrepreneurship)
Development of entrepreneurship requires strong personal desire, encouraging
environment, appropriate social cultural system and proper support fromconcerned institutions. These are the major factors that encourage the growth
of entrepreneurship.
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1. Individual motivation . This is the basic requirement for
entrepreneurship development. The individual must have a strong
desire to be a successful entrepreneur. Achievement motivation, power
motivation develops desire to lead or start an oraganisation . Personalefficiency is again an important factor for individual motivation.
Efficiency implies power of decision making, leadership, project planning
and high levels of energy. Efficiency relating to manage financial,
marketing, personnel and technical activities. The individual need to
posses coping ability i.e. tackling the stressful situations. The success
of an enterprise depends upon a capable entrepreneur who will lead the
enterprise even during most stressful times. All entrepreneurs are highlymotivated.
2. Environment :- Economic and political environment, government
policies and infrastructure plays an important role in development of
entrepreneurship. Availability of raw material power supply transport and
communication marketing facilities financial institutions is prerequisites of a successful
enterprise. Government policies regarding taxation and subsidies effects profitability of anenterprise, consistence government policies give encouragement to development of
entrepreneurship.
3. Social Cultural systems : - Entrepreneur gets encouragement from society. Some
societies groom entrepreneur right from childhood and shape values and attitude of
individuals. Risk bearing approach, desire for independence is results of family and social
atmosphere. Social institutions affect individuals thinking and attitude. Peer pressure, social
pressure influence individual decisions. If society assigned high values to entrepreneurs
then individuals are automatically motivated to become entrepreneurs.
4. Family:- Goals and expectation of an individuals are framed by family expectations.
Individuals respond to this pressure normally in positive manner. Usually children born in
business family tend to become businessmen , they are groomed to take risk and taught to
be self- reliant, they value work and are willing to work with endurance.
5. Supports from concerned institution :-Several agencies and organizations operate to help
and support the entrepreneur. Following are the examples of support systems. Corporations
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specially set-up to develop entrepreneurship and small industries in a region, Financing
institutions including banks, extension services of the department of industries (including
SISIs), non- government organizations of small industries or entrepreneurs, consultants,
private agencies doing research or providing services to entrepreneur, and similar training
institutions. Educational institutions working in the field of entrepreneurship like Institutesof Technology, Institutes of Management, Universities, and engineering Colleges also
encourage and support entrepreneurship. Development of administration in the district and
large industrial establishment interested developing ancillary industries also promote
entrepreneurship. They help small units to grow and develop.
Entrepreneurial Behavior (EB) is a function of an individual personality characteristics andenvironmental factors. This could be represented as:-
EB = f (P,E)
Where
P = Personality characteristics
E = Environmental factors.
This environmental factor could be either nutrant or impediments to entrepreneurial
development.
One really cannot draw any conclusion regarding following points that how they promote
entrepreneurship. There are examples of entrepreneurs coming from varied educational
background, age and family background.
1. Education
2. Age
3. Family
4. Community
5. Technology
6. Resources
1. Education :- Educational background of individual and family plays an important role in
placing entrepreneurship development. Proper education especially education in field of
management is believed to encourage entrepreneurial ventures. However, on the other hand we
have instances where children born in poor and uneducated family have strong desire to excel in
their career and life.
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2. Age :- This is an important factor in choosing the career. Usually the entrepreneur set their
enterprise after having some field experience. Some start their business immediately after
completing their education whereas some decide to take some industry experience before starting
the enterprise. However, majority of the entrepreneur make up their minds before 30. Individuals
in the age group 40 to 50 rarely take the risk of entrepreneurial venture and such thoughts are postponed till retirement and we observe that there are some successful entrepreneurs who have
stated the business after attaining their retirement age. One can understand the psychology of a
retired person when he decides to jump into a new venture after generating sufficient funds and
after fulfilling family responsibilities.
3. Family: - Family background as well as the financial status play and important role in
shaping the decision of investments. Parents are the role models for children. Their advice andattitude ultimately shape the behavior of children naturally enterprising parents encourage
entrepreneurship whereas risk adverse parents discourage entrepreneurship. Study of financial
status indicates that more than 60% of the first generation enterprises are started by entrepreneur
belonging to middle income group, very few entrepreneur have come from low income group. This
implies that the financial status is an important factor in deciding upon the entrepreneurial venture.
Cooperation from the spouse is a very vital element in development entrepreneurship it is
observed that male entrepreneur are supported by educated and working wives and women
entrepreneur get moral / financial support from parents, husbands and other family members.
4. Community :- Pre-entrepreneur background is a key factor in grooming the necessary skills.
Some communities are famous for entrepreneurship venture such communities value
business spirits and inculcate the same spirit among the children such communities follow the
established trade. Some communities, under some threats try to prove themselves by taking
risky ventures for example in India Marvadi and Sindhi community is famous for business
venture.
5. Technology :- Advanced technology does motivate entrepreneurs in their new ventures however
technology cannot deter the spirit of entrepreneurs. In many cases technology develops as a
response to the need and requirements of business.
6. Resources - Easy availability of resources encourage busines growth. The best example for
this factor is development of Tata Iron & Steel Co. ( TISCO) at Jamshedpur.
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Qualities of a successful entrepreneur
(Critical attributes of a successful entrepreneur)
1. Need for Achievement - All successful entrepreneurs have a very strong need for achievement.
This strong urge leads to absolute passion for the goal and the person gathers enormous energy to
work and push the entire team to the goal. Kiran majumdar, Narayan Murthy as first generation
entrepreneurs have exhibited this strong desire to establish the enterprise and untiring energy to
take the organization to higher levels.
2. Vision The entrepreneurs feel the change before it actually occurs. So they prepare for the
change in advance and thus make huge profit if their predictions proved to be correct. They
prdict market response to a given change and offer the products and services as per the
changed requirements.
3. High level of motivation - This class of people is highly motivated and in turn motivatesmany more to achieve their goals. Failures cannot stop them. They are very energetic and
carry positive vibes whwrever they go.
4. Risk bearing capacity - Entrepreneurs are risk bearers and they are ready to risk their
money, time and resources for the business. They all strongly believe that profit emerge
only if risks are properly managed.
5. Perseverance Stories of early struggles and failures are very common in the case of all
entrepreneurs. The business enterprises require proper care and nurturing at the early stages,entrepreneurs wait patiently to let the business settle and then bloom.
6. Self confidence and Self esteem- Most of the entrepreneurs set up the business in order to
be on their own. They believe in framing their own life as per their own wishes. They have
a very high degree of self respect and confidence to be master of their own fortune.
7. Excellent leadership- Entrepreneurs are the best leaders, who can motivate the entire team
towards the set goal. They have excellent skills of decision making and they work hard to
make their decision right. They are inspired and self motivated. They exhibit very high
levels of stamina with which they can work untiringly.
8. Team building ability A well focused and motivated team can achieve anything
and everything. Team building is a rare skill. The leader needs to address the conflicting
issues among team members and to set a common and bigger aim for all. He must create a
all win situation and distribute the gains to all. Leader needs to have faith and support of the
entire team to perform the difficult tasks. A successful entrepreneur possesses the team
building ability.
4. Ethics and values All the successful entrepreneurs base their business on the basic
principles of ethics and values. The statistical studies indicate a very high correlation between
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business ethics and long survival with good profits. The most respectable entrepreneurs of today,
Narayan Murthy and Ratan Tata are very well known for their ethics and values.
Prepare an outline of basic qualities of any one entrepreneur of your choice - Narayan Murthy
(Ref. his book Better India Better World.)
Difference between - Entrepreneur Manager - Intrapreneur
A Professional manager needs to know the basic principles of management.
1. Planning 2. Organising 3.Staffing 4.Monitoring and Controlling
Managers like entrepreneur, are energetic, motivated and goal oriented. We may compare the two
on the following grounds.
Managers work with a short term motive and resigns from the job when gets a better opportunity.
For an entrepreneur, his enterprise is like his own baby. So he has a longer perspective and is ready
to take any efforts for the betterment of the organisation
A good manager in any organisation is good at the assigned task. However he is a sheer follower of
the selected path but is unable to choose the best path. Entrepreneurs set the path.
A manager is paid a contractual payment and hence does not take any risk of profit and loss. For an
entrepreneur profit will be a reward for his risk bearing capacity.
Managers entire aim is to fulfill the targets set by the higher up and hence they have set objectives
to attain. Entrepreneurs set the goals themselves and motivate the team to attain these goals.
Managers maintain performance oriented relationship with colleagues and subordinates. They treat
the team members in a professional manner, whereas an entrepreneur considers the man power as
an important resource and hence treat all with more care and compassion.
In many cases, the manager has better paper qualification and the skill set than the entrepreneurs.
Manager is appointed for a specific profile and hence he is required to have the relevant experienceand qualifications. An entrepreneur may think of a business opportunity for which he himself may
not have the required skill set for the execution.
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Compare the personality of any good and successful manager known to you with Narayan
Murthy/ Bill Gates/ Sahanaj Hussain
Difference between entrepreneur and intrapreneur -
(Comparison between an intrapreneur and an entrepreneur-
Outline similarities and differences between entrepreneurs and managers)
Intrapreneur is the one who has new ideas or new ways of doing existing process within the
corporate unit.
Intrapreneurship can be termed as corporate entrepreneurship.
Intrapreneurs operate within the framework of the organization.
Encouraging intrapreneurship helps to improve the corporate business. Many modern organizations
such as Googal encourage the staff to think about the processes that are beyond their domain. This
leads to overall motivated atmosphere in the organization. If ideas need incubation and further
research, the company provides full support in terms of resources and time and the concern
employee is appropriately honored.
If intrapreneurship is encouraged, competitiveness among employees leads to better ideas and
better strategies. Corporate image is enhanced and corporations attract better employees. Attrition
becomes very low and the work environment becomes congeal. Thinking out of the box is
promoted among all employees. Interdisciplinary teams are formed and exchange of ideas improvethe overall productivity.
1. Both, entrepreneurs and intrapreneurs are creative and have capacity to innovate. Both are
highly motivated and are very focused on their aims.
2 Entrepreneurs undertake the risk of running a business whereas intrapreneurs do not bear
any business risks.
3 Entrepreneurs have to organize all the resources for the new experiment, pilot study and isoverall responsible for profits and losses whereas the company takes up the responsibility of
providing resources at different levels of experiments and the intrapreneur is not directly
responsible for the financial success and failure of the business
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4. Entrepreneurs set the goal and work hard to achieve the same, whereas intrapreneurs find
some new ideas within the corporates domain which may enhance the profitability of the
company.
The modern organizations are promoting intrapreneurship by conducting idea generation sessionsfor the employees. When employees across the verticals think out of their own domain or think out
of the box, better ideas emerge and if these ideas are properly shaped, it may lead to new areas of
business development.
The process can be outlined as
1. Create a healthy and interactive work environment
2. Encourage and respect new ideas
3. Give opportunities to all to handle different responsibilities.4. Conduct idea generation sessions in regular intervals.
5. Select workable ideas.
6. Provide necessary resources for R and D and incubation.
7. Provide mentoring
8. Appreciate and encourage concern employee/employees in public
9. Implement the idea and have the market test
An excellent example of Intrapreneurship is Tata Swach Water purifier that will have low cost to
suit the requirements of lower middle class and poor class. The product is designed for the rural
market.
Gather more information about Swatch water purifier
Theories of entrepreneurship
Market Process Theory
Hayek and Krizner
Knight - Risk and Uncertainty
Joseph Schumpeter - Theory of Innovation
Hayek Relationship between market equilibrium and role of entrepreneurs
Process of adjustment
Centralised and decentrlised process
Hayek Relationship between market equilibrium and role of entrepreneurs
Process of adjustment
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Centralised and decentrlised process
Krizner-
Alertness to disequilibrium
Flashes of eoresights
EcoKnight-
Risk and uncertainty
Consolidation of uncertainty
Appointment of the personnel
Rewards to entrepreneurs For the ability
Scarcity of supply of self confident people with necessary power.
Joseph Schumpeter
Innovation and invention
Five types of innovations
New Product
New Market
New source of raw material
New method or tecnology
New form of organisation
Effects of innovation -
Demand
Cost
Three motivating factors
1. Dream
2. Strong willpower
3. Joy of creation
Economic Theories
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1. Richard Cantillon Noted economist and renowned author developed an early theory of
entrepreneurship in 1700 , describing entrepreneur as risk bearer. All those who buy at a
certain fixed price and sell at an uncertain price operate at risk. Therefore merchants,
farmers, craftsmen are the real entrepreneurs.
Persons bearing risks are different from one who is supplying capital.2. Mark Casson According to this theory, the demand for an entrepreneur arises out of the
need to adjust to the changes . The supply of entrepreneurs is scarce as the qualities
required for a successful entrepreneur are very rare.
Definition- J B Say coined the term Entrepreneur
Joseph Schumpeter Innovation
Peter Drucker- The entrepreneur always searches for change, responds to it and exploits it as
an opportunities.Entrepreneurship Composite skill mix of qualities and traits
Creative and innovative response to the environment- social, education, business, agriculture
and many more.
Doing new things or finding a new way of doing existing process.
Scope of the concept
Business
AgriculturePublic administration
Service sector
Social work
1997 Survey of 30 founder companies of 17 states of US upto $6.5 B
Effectual reasoning
Inverse of Causal
All teaching so far is to develop causal reasoning
Managerial thinking Causal reasoning
Strategic thinking - Creative causal reasoning
Entrepreneurial thinking Effectual reasoning
Causal process idea market research financial projections team business plan
finance prototype to market to exit.
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The process of effectual reasoning
Three categories of means
1.What they are traits, tastes and abilities
2.What they know education, training, expertise and experience3. Whom they know social and professional network
Causation model -
Example of starting an Indian restaurant by causal way-
Effectuation model lunch packets to restaurant
Principles of effectual reasoning
1- Affordable loss principle hands on selling
2. The principle of strategic partnership focus on building partnership than competitors analysis
3. The leveraging contingencies principle The ability to turn unexpected into profitable.
Predictable market and unpredictable market
Causal reasoning -
If we predict the future, we can control it
Effectual reasoning -
To the extent we can control the future , we need not predict it.
Effectual logic is people dependent.
Getting right people
Dark side of the reasoning
No specific goal
Efforts - will and aspirations of the people.
Example of U- Haul (1945) Leonard Shoen
Creating right people
Indian styles of entrepreneurship
India is a country of multiple language, caste and culture. Indian business scenario is influenced by
all these aspects. The family, value system and society play a very important role in shaping of the
individuals.
History of Indian entrepreneurship
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Prior to British rule, India was well-known for the artwork, spices, silk, and handicraft among all
neighboring and even far off countries. All these businesses had brought glory and fame to India in
the international market. Many communities such as Parsees, marwarees, gujrathies and Punjabis
were known for the business traits.
During British rule all the business suffered a set back because our goods could not stand the
competition from British goods in terms of quality and price. The education system produced more
clerks and accountants rather than business leaders. However, some money lenders, steel
companies were set up in this time span.
After Independence, we did not have a sizable rise in startup companies. In fact Indian
entrepreneurship has remained limited to some specific regions, caste and communities. Parsees,marwares, gujrathies and Punjabis still dominate the business scenario. The leading business houses
are carrying on their family business. The basic features of Indian styles of business
1.Family based business houses More than often, business runs in some of the business families.
Tata, Birla are some of the business family groups which are being run for years and are in fourth
and fifth generations.They have diversified in many areas and today they are coporate giants. Vast
experience and through understanding of Indian market have enabled them to take correct and
timely decisions and so are highly successful.
These business houses started with a focus on one area and gradually with backward and
forward linkages they have attained diversification. The new generations have added different
dimensions to business handled by previous generations. For example, Asim Prmji added IT arm,
Vijay Mallya added airlines. The major controls are retained in the family and then they have gone
public to raise the required resources.
2.Caste/Community based businesses - Some communities are known for their expertise in
specific areas such as Money lending and trading in Marwari community and Stock broking in
Guajarati. Many Gujarati motels are famous in US and UK. Patels are known for their shops
providing all Indian products in US and UK.
3.Sindhi and Punjabi styles - A different class of businessmen emerged after independence and
post partion of India and Pakistan. Those Sidhi and Punjab who migrated to India had to struggle
for their survival. They came to India and left all their wealth back in Pakistan. They entered in
business for sheer survival and then are now established business houses.
5. High tech IT based business houses A new class of educated people entered into
knowledge based industry with IT boom. Numbers of new IT companies were set up by IT
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professionals around 1980. For eg Infosys, Patni computers. Indian IT professionals have also set
up new companies in Silicon valley of US.
6. Women enterprises Few Indian women with extraordinary capacities have proved to be
very successful in their business. They have come from different family , educational background,
but have shown common qualities ,such as commitment and perseverance. Kiran Shaw majumdar (Biocon), Sahanaz Hussain (Sahanaz), Vandana Luthra (VLCC)are some of the successful women
entrepreneurs.
7. Social entrepreneurs - The individuals aiming at social change and enabling weaker
elements, are setting up social enterprises. This is a very recent development and in this style of
business social change happens along with commercial gains. Anandvan, a colony set up by Baba
Amte for rehabilitation of leprosy patients is a place where the patients have achieved self
sufficiency and are producing surplus for the market. Pratham Mr. Chavan, Arvind Kejriwal(Megasaysay Recipient and a social entrepreneur)
Challenges
1. Our education system is tuned to produce more clerks and accountants rather than
entrepreneurs. Education system need more flexibility and space for original thinking for the young
minds.
2. Even today, some of the communities prefer to avoid risk and prefer to take risk free way of
life. They do not have nor nurture the business traits.
3. Indian peoples attitude towards money and business needs to be changed. Most often
money is treated as evil and the rich and wealthy are assumed to be cheaters and unreliable. We
need to concentrate on the following-
Entrepreneurship Development Education -
Skill development Program
Mentoring and incubation centers
To bridge up the resource gap - Funding
Women and Entrepreneurship-
Traditionally the role of women in any society was limited to child bearing and upbringing,
household responsibilities such as cooking and housekeeping, maintain the social and family
relationships and to provide a whole-hearted Support to all family members.
The role of women in modern society is changing gradually. It is found that women can perform
better if they are convinced and enabled.
Characteristics of women
1. Physical strength Women are physically stronger than men and have longer life
expectancy than men.
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2. Adaptability Women can adapt easily to a change in the situation.
3. Understanding others requirements- Since women take care of all the family members,
they are found to be more sensitive to the others requirement.
4. Commitment Women by nature are found to be more committed. They believe in
fulfilling the promises they make. In case of repayment of loans, the number of womendefaulters is much less than that of men.
5. Financial management Women manage funds in a better way. They know how to manage
with limited resources to meet the end requirements. They are expert in sitting the priorities.
6. Leadership The natural leadership talents come out of the desire to achieve and excel.
Favorable factors for women to be an entrepreneur -
1. Flexibility and adaptability2. Desire to support to family income
3. Natural ability to multitasking
4. Sense of responsibility
5. Higher degree of commitment
6. Leadership styles participative and democratic type
7. Endurance and perseverance
Weaknesses of women entrepreneurs
8. Sensitivity and low emotional intelligence- This has an adverse impact on the rational
decision making process.
9. Lack of interest in legal matters Since women are sensitive and are driven by emotions
rather than facts, they are likely to commit errors bypassing the legal framework.
10. Submissive nature Many women do not pursue their viewpoint and try be more
accommodative rather than being persistent.
11. Limited mobility and exposure Lack of exposure and protective upbringing limit the
imaginations of women. Ideas become tough and hence the business suffer.
Barriers for Women entrepreneurs-
Age of entry
Education
Family background and support
Psychological factors
Case study (UOM 2005)
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Shahnaz Husain : Worlds Greatest Woman Entrepreneur
There are perhaps few others who can stand testimony to the truth of these words, as Shahnaz
Husain, Indias pioneer in herbal cosmetics. Credited with single-handedly placing Indian Herbals
on the world cosmetic map, her success story that of young girl from a conservative Muslim
family who rose to become an international trailblazer in the field of herbals is by now legend.
President of CIDESCO, the first Asian to enter Selfridges in London and break a 40-year old sales
record GQM Commitment to Quality award, FICCIs outstanding woman entrepreneur, US
magazine Successs Worlds Greatest Woman Entrepreneur the list of accolades and
achievements is endless.
An entrepreneur in the truest spirit of the word, the lady has a whopping 80 percent of the domestic
herbal market, and sales counters in the best stores internationally, be it the Seibu Chain in Japan,Bloomingdales in the US, Galeries Lafayette in Paris, Harrods and Selfridges in Londonit goes
on.
Meeting the high priestess of herbals in her office in Greater Kailash, one is struck by the fact that
Shahnaz wears the accolades with the confidence of a person who deserves them there is no self-
effacing embarrassment when she discusses the more than humble beginnings of the Shahnaiz
Husain empire.
Though I was married at a very young age, I always knew that I was made for something more,
begins Shahnaz. Not prepared to sit back as a housewife and mother at the age of 16, the young
Shahnaz set about writing for magazines to earn money so that she could fund her education.
Staying with husband Nasir in Tehran, Shahnaz found the ideal opportunity in the international
beauty schools there. After studying cosmetic chemistry in international beauty schools in centres
including London, Paris and Denmark for close to eight year, Husain hit upon the idea of exploringthe 4000-year old Indian Ayurvedic system, so that she could research and develop herbal cures
and treatments.
I had seen the debilitating effects of synthetic cosmetics abroad; there was no doubt in my mind
that the herbal system would work, recalls Shahnaz.
She returned to India to set up shop in one room, with a startup investment of Rs.35,000/- borrowed
from her father. The going was tough Shahnaz had priced her product well above the existing
market.
I began with just one product Shalife, a massage cream. My facial was priced at Rs.100, while
you get one in the market for a paltry for Rs.6, reminisces Husain. However, that did not stop the
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crowds from coming in, and soon, Shahnaz had more than clients than she could handle. The lady
invented a marketing style uniquely her own; she decided to make the brand a personality-driven
one, flying in to various cities to lecture on herbal and Ayurveda, inaugurating Shahnaz franchises
and salons, and returning the same day.
I would go to a place for one day, offer free prescriptions and advice, inaugurate the salon, and go
back, says Shahnaz. It worked - today, there are more than 600 salons in India and abroad. The
Shahnaz Husain group of companies has acquired a global presence, with exports to 132 countries
including those in the Middle East, South-East Asia, Australia and all over Europe. Recently, the
company has been approached by a Fortune 500 investment company to explore business
opportunities.
The strategy was one she applied with great success internationally as well at one point, during a
makeup demonstration in Russia, Shahnaz was asked to stop as the floor was caving in under the
pressure of the people who had turned upto watch. Interestingly, Shahnaz has never advertised her
product, a fact that Harvard in the US wanting to use her marketing system as a case study.
In retrospect, Shahnaz attributes her success to her sheer grit and determination. I do not
believe in destiny the word fail does not exist in my dictionary. I never fail, because I never
stopped trying, says she. That she doesnt is obvious 17 herbal lines, with many more in R&D,
Husain is busy expanding her empire by adding health resorts, signature garments accessory lines
and more to her portfolio.
Having completed 25 years in the business, the self-taught marketing miracle reveals her formula
for success. In life, you get what you negotiate. Any woman has the capacity to do what I did it
doesnt matter what you want, what matters is how badly you want it.
Questions :
1. Examine the true qualities involved in Mrs.Shahnaz Husain as a successful entrepreneur.
2. Describe the pricing and marketing strategy adopted by Shahnaz Husain.
3. How does Shahnaz Husain start her new saloon ?
4. What are the factors that led Shahnaz become successful globally ?
Economic environment and analysis of business opportunities -
Political Economic Social Technological (PEST) analysis -
Political aspects
1. Internal stability Internal law and order provide necessary
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safety required by business enterprises.
2. Military invasion or external aggression discourage business ideas 3.
Political
Ideologies-
Government policies regardingPolitical support for new ventures
Economic aspects
Economic system
capitalism freedom of enterprises private ownership ; Socialism Central planning and
government ownership and Mixed economy Coexistence of Planning and freedom of investment
and coexistence of private and public ownership
Business cycles Phases - Inflation boom disinflation- recession Crisis- revival
Moderate degree of inflation is favorable for business as profits rise during this
phase and recession is characterized as falling profits and hence is not a
favorable phase for business.
Exchange rates Business depending on imports and exports are affected by
exchange rates.
Financial institutions Existence of financial network help business to raise
short and long term loans.
Fiscal and monetary policies- The fiscal policy determines the tax liabilities
of the business and people and monetary policy determines the cost and
availability of funds. Both are important factors that affect the profitability of the business.
Social aspects
Demographics
Education
Class and caste and gender issues
Culture and attitude
Technological aspects
Technological status
Cost of technology
Technology and cost of production
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Other complimentary resources
The industry analysis can be done through following two models -
Michael Porter Five forces model
John Mullins Seven domain model
Michael Porters Five forces model Late 1970s To measure the attractiveness of the industry
Profitability of the industry
Five forces
Threat of entry
Buyer power
Supplier power
Threat of substitutes
Competitive revelry
Threat of entry Is it easy or difficult to enter the industry?
Those hoping to build enduring business prefer high entry barriers
Buyer power Do buyers have power to set terms and conditions?
Entrepreneurs prefer weak buyer power
Supplier power -Do supplier have power to set terms and conditions?
Entrepreneurs prefer weak supplier power
Threat from the substitutes-
Will substitutes steal my market?
Entrepreneurs prefer little threat
Competitive rivalry Is competitive rivalry intense or genteel?
Entrepreneurs prefer little rivalry.
John Mullins Seven domain model- The business road test John Mullins
1.Industry Micro
2.Industry - Macro
3.Market Macro
4.Market Micro
5.Entrepreneurial team- Mission, aspiration
6.Entrepreneurial team- Ability to execute
7.Entrepreneurial team- Connectedness across the value chain
Process of idea generation, screening and selecting an appropriatebusiness idea.
Feel the market pain and find out what can sell in the market.
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Define the product.
Estimate the market size.
Decide upon the team
Prepare the business plan
Validate or screen the viability of the projectOrganize resources
Choose business form
Execute the idea.
Recently the process of idea generation is slightly modified Saras Sarsvathy HBR submission
Write down what one is good at, in order of individual efficiency.
Check the market requirement for a suitable business opportunity that matches the efficiency.
Select the idea which has a potential market and for which the team has the required skill set.Prepare business plan for that idea.
Check the feasibility of the idea.
Organise the required resources.
Business Plan
Why to prepare business plan?
Business plan is an important tool for a prospective entrepreneur who is seriously thinking of
starting a business.
To raise the external finance
To consider all facets of business
To Test feasibility
Provides confidence in decision making
Identify the future needs
Entrepreneur/ CEO should himself or herself write the Business Plan in order to have clarity about
the entire proposal.
The main focus of the business plan is on Market plan, Financial plan and on the details of
management team
Appropriate cover page, graphs, diagrams and photographs are needed to make business plan
attractive for interested parties.
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There is no specific format of business plan as yet however a general guideline can be drawn as
follows -
General outline of a business plan -1. Executive summary
2. Background of the business
3. Product description
4. Market analysis
5Management and organisation
6. Financial summary
7. Funding requirement8. Appendices
1.Contents of Executive Summary-
Mission
Purpose
Sales and Marketing strategy
Business opportunity and product design
Management team and their experience
Financial planning and projections
Future projections
Required funding
Executive summary must highlight the idea and ability of the team for the execution of the same.
2. Background The entrepreneur needs to explain the consumer pain that his product may be
addressing or new area it may be introducing. The evolution of the idea and the current stage of the
business must be mentioned. The entrepreneurs belief in his own idea is the prerequisite for
attracting funding and good people to the venture.
3 Product/service description
Description of the product, the unique features of the product must be explained by the
entrepreneur. Distinguishing the product via a comparison with competitors product brings clarity
for the readers. Honest acceptance of limitations and the identification of the risk highlights the
unbiased and logical thinking of the entrepreneurs.
4 Market analysis
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Realistic estimation of the market size, taste and trends in the market help in arriving at the proper
estimation of the financials. Mention of the characteristics of target market, future market trends
and distribution channels add weight to business plan.
5 Management team and organisationDetails of team members along with their skill sets and commitment
Details of Advisers, network and contacts
6. Financial summery
Projected Profit and Loss account, balance sheet and cash flow forecasts Quarterly analysis for at
least three years
7. Funding requirement Assessment of the requirement
Sources of funds
Usage of funds with details of expenditure
Timeframe required
To go live Time needed to bring product in the market
To Break even Pay back period Time needed to get the initial investment back.
Exit route
8. Appendices or Exhibits
Product description
Marketing and sales plan
Financial projections
Project plan
Management biographies
Details of Marketing plan
4 Ps- Product
1. Product variety, Quality, Design, Features, Brand name, Packaging, Size, Services,
Warranty and Returns.
2. Price List price, Discounts, Allowances, Payment period and Credit terms.
3. Promotion Sales promotion, Advertising, Sales force, Public relations and Direct marketing
4. Place - Channels, coverage, Location, Invetory and Transport.
Marketing mix strategy
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Offering mix Communication mix
Distribution channels Target customers
Details of Financial planning-
Profit and Loss account Expected revenue, cost taxes and profits.Projected Balance sheet assets and liabilities.
Cash flow statement estimated cash receipts and disbursement for the period and resulting
inflow or outflow
Estimation of the operating cash requirements
Break-even analysis FC / (P V)
Why businesses fail?
Marketing aspect Competitors, customer service, lack of team support and changingcustomer requirement
Financial aspects Errors in cash flow estimation, lack of foresight
Unrealistic goals, lack of deadlines, lack of flexibility and personal issues.
For a successful new ventures following focus is required
1. Constant feel of the market
2. Financial foresight
3. Building a top management team
4. Entrepreneurs decision and
5. Outsiders advice
Univac- Company to manufacture first computer- lost business to IBM as it never
visualized the size of the market. DDT , Xerox and Novocain suffered because of the same
reasons.
Lack of market focus.
Innovators have limited vision or tunnel vision.
Wrong financial foresight-
Old bankers rule of thumb Cash income will be delayed by 6months and outlay
will be proponed by 6 months.
Increasing Capital requirement
Lack of Financial management system- controls
Failure to build a top management team
Team building should start before the need is felt.
Assignment of key areas
To trust people
Entrepreneurs decision
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Soichiro Honda , Henry Ford and Henry Ford II
Narayan Murthy and Bill Gates
Prepare a business plan of your own suitable business idea.
While assessing any business plan check the marketability of the idea, details of marketing plan, details of financial plan and the information about the team and
its vision, mission and skill set
Options to start a business or Quick Startups
1. Franchising
2. Acquisition
3. Ancillary unit4. Starting afresh
1.Franchising Definition A management whereby the manufacturer or sole distributor of
trademarked product or services gives the exclusive rights of local distribution to independent
retailers for their payment and conformance to standardized operating procedures.
Franchiser The one who lends his trademark
Franchisee The one who pays royalties for the right business under franchisers name
Three types of franchising
Product- Dealers, Outlets selling the branded products Car dealers , sellers of consumer
durables.
Process Outlets producing and sellingthe branded product or services- MacDonalds, KFC,
Subway etc.
Business format name, process and knowledge transfer- Chain of hotels, Chain of cinema
houses etc.
Advantages to franchisee
Lesser risk
Already established name and brand
Managerial assistance training and guidance
Initial financial support
Identified location, suppliers and market
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Challenges for the franchisee Dependency on franchiser leading to lot of controls and
regulations.
If the franchiser faces problems and decides to discontinue the product or service, then
franchisee is not left with any other option.
Advantages to Franchiser 1.Expansion with lesser cost and responsibilities
Economies of scale Reduction in cost
Diversification of the market risks-Operation at different locations reduce the risk.
Challenges for franchiser Quality control- In process and business format types of
franchisee, The franchiser has lessof direct control over the quality of the product and
services.
Acquisition This can be considered as a start up or expansion strategy
Acquisition is preferred for the advantages s uch as
1.well established customer base, suppliers and sales channel
2.Existing staff and goodwill
Challenges-
Study of the company for sale
Need to have expertise to handle the weak areas
Retention of key employees
Determining the price of acquisition - Methods of valuation -
(Asset valuation and Cash flow)
Identification of the candidate
Ancillary unit- Manufacturing the spare parts or components of a product or developing a part of
the service. Here the scale of production, technology and investment requirement is comparatively
smaller. This can be an option of startup for a SME entrepreneur or can be considered as backward
integration strategy for expansion.
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Advantages- The ancillary units can be set up with less of investment, and the output has an
assured market. This becomes a B to B model and hence enjoys certain coverage from the market
risk. The company gets support and help from the parent company for expansion as well as for
Rand D.
Challenges 1. These units face derived demand and hence the profits depend on demand for the
parent product. The piling up of the inventory stock is again a major risk for the unit.
2.Delayed payments from the other business unit aggravate risk elements.
3. Changed specifications If the parent product requires any modifications , the this unit need to
adapt to the change instantly.
Starting a fresh
Market
Existing New
Product Existing Market Penetration Market development
New Product Development Diversification
The new business can be penetrating the market if the entrepreneur feels that there is further scope
to sell more in the same market. A revised or a new product is sold the market under Productdevelopment. When an entrepreneur tries to explore a new market with the existing product, he is
adopting market development strategy. If an entrepreneur is aiming to sell a new product in
altogether new market, he is diversifying.
Growth strategies
Diversification
Joint ventures
Acquisitions
Mergers
Franchising
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Diversification
Current product New product
Current market Market penetration Product develop.
New market Market develop. Total diversification
Joint venture Both the parties contribute to create new
equities.
Local partnerSpreading of risk
New technology
Leveraging strength and finance
ECommon in automobiles and food
conomies of scaleGlobal Expansion
Relocation
Financing growth
Indian multinational enterprises
A multinational corporation (MNC) is an enterprise which owns or controls production facilities or provides services to more than one country. United Nations defined MNC as enterprises which
control assets - factories, mines, sales offices and the like in two or more countries. The
International Labour Organization (ILO) has defined MNC as a corporation which has its
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management headquarters in one country known as the home country and operates in several other
countries known as host countries.
The companies of merchant traders in medieval Venice and the English, French and Dutch trading
companies of 17 th and 18 th centuries were very close to present form of MNC. However they were
essentially trading companies rather than manufacturing ones. The first modern MNC is generally
thought to be the Dutch East India Company which was set up in March 1602. The MNCs have
grown in terms of physical, economic and political power over the years. Most of the large business
houses have overseas operations.
However, recently even small or start up companies are also getting involved in foreign operations
at an early stage. They are popularly known as Micro-multinationals. Enabled by Internet based
communication tools, this new breed of multinational companies is growing in numbers. These
multinationals start operating in different countries from the very early stages. What differentiates
micro-multinationals from the large MNCs is the fact that they are small businesses. Some of these
micro-multinationals, particularly software development companies, have been hiring employees in
multiple countries from the beginning of the Internet era. But more and more micro-multinationals
are actively starting to market their products and services in various countries. Internet tools like
Google and Yahoo make it easier for the micro-multinationals to reach potential customers in other
countries. Service sector micro-multinationals, like Facebook started as dispersed virtual businesseswith employees, clients and resources located in various countries. Their rapid growth is a direct
result of being able to use the internet, cheaper telephony and lower traveling costs to create unique
business opportunities
The macro objectives of MNCs are to make worldwide profit and maximize their market share of
the global market. The decision to set up production or the service providing units in a different
country is mainly guided by economic and political considerations.
Cost considerations Easy and cheaper availability of resources such as raw material and
labour, motivates the company to shift the production base or to undertake typical production
processes at different locations This enhances their profit margin. Cheaper and abundant labour
available at India and China has attracted many MNCs operations to their countries.
2. Technological and infrastructural advantage The companies operating in less developed
economies plan to set up production units in advanced nations to reap the befit of technology. The IT majors of Indian origin have their international offices in US and other
advanced countries.
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3. Economies of scale As the scale of production enhances, the company can take advantage
of managerial, technological, financial economies of scale and hence can attain higher
profits.
4. Market considerations A country with good demographics and purchasing power attracts
the best of the business houses. India and China are presently considered as the best market
to sell anything and everything. Leading companies of different sectors are reaching out to
these huge markets.
Market imperfections and price discrimination In current global scenario, the market leader
company aspirers to gain global leadership through acquisition of market players in the host
country. Pepsi and Coca Cola have followed this strategy across the globe to maintain the
leadership and to practice the price discrimination. Hedging the market risk The economies of different nations face different phases of the
business cycle. Even today, when many nations are still struggling to come out of recession,
some are experiencing 8 to 10% of the growth rate. Market conditions differ from country to
country. Hence having business in many countries can give a good cover for the risk.
Tax and other fiscal gains Governments of some nations provide incentives to MNCs such as
tax breaks, pledges of governmental assistance or improved infrastructure, or lax environmental
and labor standards enforcement. This process of becoming more attractive to foreign
investment can be one of the driving forces for MNCs.
Because of their size and technological strength, multinationals can have a significant impact on
government policy matters. Along with economic gains, MNCs aim at attaining political control on
the host country. The MNCs give threat of withdrawal to set the policies at their advantage. MNCs
lobbying is directed at a range of business concerns, from tariff structures to environmental
regulations. Companies that have invested heavily in pollution control mechanisms may lobby for
very tough environmental standards in an effort to force non-compliant competitors into a weaker
position. Corporations lobby tariffs to restrict competition of foreign industries. Overall all MNCs
aim at influencing the government policy decisions to maximize the economic and political gains of
themselves and the home country.
When a domestic company aims at MNC status, it needs to undertake a comprehensive study of the
proposed host country in terms of prevailing economic, political, social and cultural conditions.
Every country has different rules and guidelines regarding foreign trade and investment and the
company needs to follow the same. Setting up of foreign offices is a part of strategic planning for
the company and hence the decision needs to be taken after due diligence.
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The domestic corporation has different routs open to become a MNC. A company may adopt any
suitable strategy
1. To open a liaison office in the host country
2. To initiate a representative office
3. To start a project office
4. To set up a branch office
5. To establish wholly or partially owned subsidiary office
6. To enter into joint venture with enterprise of the other nation.
Presently, numbers of Indian companies have attained the status of MNCs and their operations are
widely spread across the globe. In global world of the day, multinational corporations are the
powerful agents of economic, political and social change
Social Entrepreneurship
William Drayton- Asoka (1980) introduced the concept of social Entrepreneur.Definitions 1. Social entrepreneurs are individuals with innovative solutions to
societys most pressing social problems
2-Schwab Foundation for Social Entrepreneurship - Social entrepreneurs
Innovate by finding a new product, a new service, or a new approach to a
social problem.
3-Wikipedia defines social entrepreneurs as someone who recognizes a social
problem and uses entrepreneurial principles to organize, create and manage
ventures to make social change.
Social entrepreneurs assess their success in terms of the impact that they
have made on society.
4-Arvind Kejriwal (Megasaysay Recipient and a social entrepreneur)
Social entrepreneur is blend of entrepreneur and NGO.
The concept - Social returns on investment (SROI)
Guidelines to measure social benefits.
1. Include positive and negative impacts.
2. Consider all stakeholders.
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3. Avoid double counting the value created by the company.
4. Quantify and monetize the social impact.
5. Add the necessary risk factor.
6. Use appropriate discounting methods for social cash flows.
7. Social challenges caste, class and sex discrimination, Illiteracy8. Economic challenges Poverty, inequality and
9. Political challenges Corruption, lack of transparency
Health and hygiene - Ignorance, misconceptions and resources to fight
diseases
Socio-Psychological challenges Stress , depression
Need for social entrepreneurship in India - Existance of Dualism-Urban Rural divide, Economic divide i.e. gap between rich and poor, Social
divide, gender Discrimination and Regional divide call for the intervention by
the social entrepreneurs.
Reasons for slow progress
1. Focus of social entrepreneurs on social change and hence revenue side
is neglected.
2. No institutional setup for encouragement3. Lack of social support
4. Absence of regulatory body
Roadmap towards social entrepreneurship
Social Servant leadership Robert Greenleaf (1977)
Dr. V as an example of socil servant leadership
2- Agapao Love Respectful consideration and treatment for others.
3 -Altruism,4-T rust, Empowerment Altruism Set of moral acts intended to promote
happiness for others and Perseverance to face the challenges
5. Newness syndrome
Challenges from the society
Challenges from the target group
All regular entrepreneurial challenges
6-The change makers7-Drive the change, steering the change
8. Collaboration
With Corporate sector CSR activity
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With Government Projects
With Community -
How it works?
Deep retrospection and Far Vision
Strong ambition and belief
Transparency
Commitment
Social Mission with a sustainable model-
Double bottom-line strategy
Social mission and Sustainability of the model
Grameen Bank is an example of social entrepreneurship initiated by Dr.
Muhammad Yunus in Bangala Desh with an objective to enable rural women
with funds to start their own small business.
Examples of Indian Social Entrepreneurs -
Goonj- Mr. Anshu Gupta
Left his job in 1998- Family support. Corporate collaboration
Recycling of cloths, books and school material to poor and disaster victims
Aasha Foundation Dr. Glory Alexander
Action Service Hope for Aids
Established 1998
Special focus on prevention, treatment and support to HIV infected
people and their families.
Parivartan Mr. Arvind Kejriwal
IIT- 1989
Parivartan in 2000
Transperant governance and RTI
Pratham -Madhav Chavan
Established in 1994
to make education mandatory to all children
Corporate, Government and citizens
Project and funding
ICICI bank , Government
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GEM report- Global Entrepreneurship Monitoring stressed on the need for the
support to entrepreneurs.
There are three types of supports provided to entrepreneurs world wide -
1. Incubation2. Business cluster
3. Policies
Global Entrepreneurship Monitor (GEM)
As per HBR Sept. 2010
The findings are based on study of entrepreneurs from 54 countries
emerging and developed markets of 2009
Incidence of entrepreneurship is twice in emerging markets
Only 14% of startups create 20 or more jobs.
In developing countries -Out of 100 , 10 were launching business
Out of 10, four were necessity driven and six are opportunity driven.
In developed nations Out of 100 only 5 were ready to launch business
and out of five one was necessity driven and four opportunity driven.
Need to develop opportunity driven business.
The study of entrepreneurship at Saudi Arabia indicates that top 500
companies have grown at 40% and have created almost 30,000 jobs.
The reasons for the higher Entrepreneurial intensity in emerging
economies
Migration talent- Talents returning back for better opportunities at home.
Pent up supply- Due changes in government policies of the emerging
economies.
Low seed requirement- Small ideas with less capital requirement
Abilities to scale up- Large market and support from growing economy
Incubators Govt. and educational institutions are creating incubators to
nurture and support new business ideas.
Global radar When such small business appear on global scene, they
receive appreciation and support as incentive to do still better.
Support at different levels family, friends, community, alumni
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Indian clusters- IT at Bangalore, Automobile at Pune.
Policy framework ( Ref. MSME act 2006)
Entrepreneurship education
Skill development
Innovations
Simplification of procedures
Access to market
Access to finance
Special support to weaker sections
Need For Finance- (Risk Return ratio)
1. Long term For Start ups, expansion, diversification, take over, buyouts..
2. Short term For day to day operations and transactions
Long term - Equity
Term loans
Higher purchase
Short term Bank borrowing
Sundry creditors
Personal
Deposits from customers
Stages of business financing
1. Early stage financing Seed capital, start up- For developing and
selling the product such Funds are costly as it carry very high risk.
2. Expansion or development finance Funds for working capital,
sales expansion.
3. Bridge finance in the interim period preparation towards going
public.
Funds are easy and less costly
4. Acquisition and buyout- Funds in large amounts are needed for
such purposes.
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Three risk capital markets
1. Informal risk capital market Angel investing.
2. Venture capital market
3. Private equity market Informal risk capital market Angle investing.
A group of wealthy investors who support early stage business ventures
are called as Angle investors or Business angles.
Role of angle investor is to invest their funds in startups at seed
and early stage. Along with this financial assistance, they also provide
much needed entrepreneurial expertise, knowledge and contact
networks. Most of the angles undertake investment for helping theentrepreneurs fulfill their dreams. For many angles, investing is giving
back to community. Angle investing is very popular in US, UK and other
developed countries.
Angle investors are highly motivated and high net worth
individuals falling in the age group 45 to 65. Most of them are successful
entrepreneurs and many times do not disclose their identity while
assessing the business proposal.Angels love to take risk and usually invest around 5% of their net
worth in any one company. Angles are quick at decision making as they
are dealing with their own money. They follow IPO or management
buyout as their exit policy. The time horizon is 3 to 7 year and they
expect returns in the range of 30 to 100%. The expected Risk- Reward
Ratio is higher for startup and less for established ones.
Types of angles Guardian angels , who bring in entrepreneurialexpertise and Operational angles are the one who have industry
experience but may not have the experience of starting a company.
Financial angles may neither have entrepreneurial nor industry
experience, and may have monetary returns as the objective.
The common criteria used by angles for selection of a business
proposal are
Potential returns on the investment. A good business plan in terms of vision, mission, planning and projections.
Capable management
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Existence of exit route
The history indicates a massive growth in number of angel investors and
the amount of angle funding. In 1878, J P Morgan and Spencer Trask backed
the idea of electricity of Thomas Edison. The growth thereafter is mainly due tofocus of venture capital funds on larger and later stage investment rather than
early stage and start ups.
Google is Worlds greatest angel investment in 1996 Larry Page and
Sergey Brin of Stanford university started a search engine and in 1998, one of
the founder of Sun Microsystems provided the angle funding of $100,000 to
start Google Inc.
Ram Shriram, one of the founder employee has now become an angleinvestor in the Silicon valley and is interested in becoming an angle investor in
India.
For many years, Gururaj Deshpande (Sycamore Networks, Inc) mentored and
invested money in helping first-time entrepreneur, Sanjay Nayak, build India's
first homegrown telecom-equipment company, Tejas Networks. Now six years
old, Tejas Networks has grown dramatically and currently holds the No. 2
market share in India. Similarly, former McKinsey & Co. managing directorRajat Gupta, who left India more than 20 years ago, used a combination of his
Indian savvy skills and brilliant network abroad to help build the Indian School
of Business and the Public Health Foundation of India (PHFI). Six years after it
opened its doors for the first time, ISB is now the eighth largest business
school in the world.
Venture capital or VC or Venture is a type of private equity capital typically
provided for early-stage, high growth potential companies in the interest of generating a higher returns. Venture capital investments are generally made
as cash in exchange for shares in the invested company. It is typical for
venture capital investors to identify and back companies in high technology
industries such as biotechnology and information and communication
technology.
Venture capital firms typically comprise small teams with technology
backgrounds or those with business training or deep industry experience.
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A core skill within VC is the ability to identify novel technologies that have the
potential to generate high commercial returns at an early stage. By definition,
VCs also take a role in managing entrepreneurial companies at an early stage,
thus adding skills as well as capital (thereby differentiating VC from buy out
private equity which typically invest in companies with proven revenue), andthereby potentially realizing much higher rates of returns. Inherent in realizing
abnormally high rates of returns is the risk of losing all of one's investment in a
given startup company. As a consequence, most venture capital investments
are done in a pool format where several investors combine their investments
into one large fund that invests in many different startup companies. By
investing in the pool format the investors are spreading out their risk to many
different investments versus taking the chance of putting all of their money inone start up firm.
A venture capitalist is a person or investment firm that makes venture
investments, and these venture capitalists are expected to bring managerial
and technical expertise as well as capital to their investments. A venture
capital fund refers to a pooled investment vehicle that primarily invests the
financial capital of third-party investors in enterprises that are too risky for the
standard capital markets or bank loans .
Venture capital is also associated with job creation, the knowledge economy
and used as a proxy measure of innovation within an economic sector or
geography.
Venture capital is most attractive for new companies with limited operating
history that are too small to raise capital in the public markets and have notreached the point where they are able to secure a bank loan or complete a
debt offering . In exchange for the high risk that venture capitalists assume by
investing in smaller and less mature companies, venture capitalists usually get
significant control over company decisions, in addition to a significant portion
of the company's ownership (and consequently value).
Young companies wishing to raise venture capital require a combination
of extremely rare yet sought after qualities, such as innovative technology,
potential for rapid growth, a well-developed business model, and an impressive
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management team. VCs typically reject 98% of opportunities presented to
them, reflecting the rarity of this combination.
For a very long time, Silicon Valley venture capitalists only invested
locally. However, throughout the years, they expanded their investments
worldwide. Most recently, Matrix Partners, a leading American venture
capitalist firm, had announced a $150 million India fund, where they will
provide internet, mobile, media, entertainment, leisure, and travel services to
customers in Mumbai. Sequoia Capital, a Silicon Valley-based VC firm, wanted
to take advantage of investing in startup companies and had acquired
Westbridge Capital, an Indian firm, for $350 million. Several other major VCs
who are also taking advantage of the growing Indian market are Kleiner
Perkins, NEA, Norwest, Battery, Sierra, and Canaan Partners. It is no wonder
that venture capitalist investments in India have risen dramatically within the
past few years. From 2005 to 2007, VC investments in India grew from $320
million to about $777 million, respectively.
Indian Venture capital
All India level-
State level-
Bank sponsored
Private funds
Support Infrastructure for Entrepreneurs
Portfolio objectives of V. C.
ROI - Early start ups 50%Development finance 40%
Characteristics of venture capital -
Long term investment of 5 to 10 years .
Lack of liquidity.
High risk.
Equity participationParticipation in management.
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Three criteria of assessment
1. Strong management team backed by the strong family support.
2. Unique product that has market opportunities.
3. Significant capital appreciation
Process of assessment
1. Preliminary screening
2. Understanding and Agreement
3. Review and due diligence
4. Final approval
5. Valuation of a company
6. Business history7. Industry analysis
8. Cost liabilities
9. Future earnings and Dividend payment plan
10. Goodwill and intangibles
11. Previous stocks performance.
General valuation approachesAssessment of comparable companies
Present value of future cash flows
Replacement value
Adjusted book value General valuation method
Present value = Future value/ (1+i) n
Investors share = Initial funding/ Present value.
Basic tips to entrepreneurs
Perfect Business plan
Proper way of approach
Avoid shopping
Proper presentation
Private equity capital.
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Equity pool is formed by wealthy partners, investment bankers,
institutions and foreign investors to invest in companies which are not
listed or to enable leveraged buyout .
First established in 1946 , by France- born Professor General Georges F
Doriot at Harvard Business School and two wealthy men, John Whitneyand Laurance Rockfeller. The seeds of the US private equity industry were planted in
1946 with the founding of two venture capital firms: American Research and Development
Corporation (ARDC) and J.H. Whitney & Company . Before World War II , venture capital
investments (originally known as "development capital") were primarily the domain of
wealthy individuals and families. ARDC was founded by Georges Doriot , the "father of
venture capitalism"and founder of INSEAD, with capital raised from institutional investors,
to encourage private sector investments in businesses run by soldiers who were returningfrom World War II. ARDC is credited with the first major venture capital success story
when its 1957 investment of $70,000 in Digital Equipment Corporation (DEC) would be
valued at over $355 million after the company's initial public offering in 1968 (representing
a return of over 500 times on its investment and an annualized rate of return of 101%) It is
commonly noted that the first venture-backed startup is Fairchild Semiconductor (which
produced the first commercially practicable integrated circuit), funded in 1959 by what
would later become Venrock Associates.
Private equity is money invested in companies that are not publicly
traded on a stock exchange or invested as part of buyouts of publicly traded
companies in order to make them private companies.
Among the most common investment strategies in private equity include
leveraged buyouts (LBO), venture capital , growth capital , distressed
investments and mezzanine capital . Many times investments are short innature.
Leveraged buyouts involve a financial sponsor agreeing to an acquisition
without itself committing all the capital required for the acquisition. To do this,
the financial sponsor will raise acquisition debt which ultimately looks to the
cash flows of the acquisition target to make interest and principal payments.
Acquisition debt in an LBO is often non-recourse to the financial sponsor and
has no claim on other investment managed by the financial sponsor.
Therefore, an LBO transaction's financial structure is particularly attractive to a
fund's limited partners, allowing them the benefits of leverage but greatly
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limiting the degree of recourse of that leverage. This kind of financing
structure leverage benefits an LBO's financial sponsor in two ways: (1) the
investor itself only needs to provide a fraction of the capital for the acquisition,
and (2) the returns to the investor will be enhanced (as long as the return on
assets exceeds the cost of the debt).
As a percentage of the purchase price for a leverage buyout target, the
amount of debt used to finance a transaction varies according to the financial
condition and history of the acquisition target, market conditions, the
willingness of lenders to extend credit (both to the LBO's financial sponsors
and the company to be acquired) as well as the interest costs and the ability of
the company to cover those costs. Historically the debt portion of an LBO will
range from 60%-90% of the purchase price, although during certain periods
the debt ratio can be higher or lower than the historical averages. Between
2000-2005 debt averaged between 59.4% and 67.9% of total purchase price
for LBOs in the United States.
Business Ethics Origin from Ethos which means character or manners. Character or
conduct is determined by the series of actions.It is study of moral behavior or conduct It is
Normative science stating what is right and what is wrong.Moral principles and standards that
guide behavior of the business world. Systematic handling of values in business and industry.
Mc Namara defines Business ethics is generally coming to know what is right and what is
wrong in the work place and doing what is right.
Ethical values is a mechanism that controls behavior of business Ethical restrains are more
powerful than crude controls such as police, laws and economic disincentives.
Sources of ethics-
1. Religion
2. Culture3. Genetic inheritance
4. Legal system
5. Code of conduct
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Views towards business ethics-
Business as a part of society Business for the social gain. Classical economists believed
that the only goal of business is profit maximization. Integrated view Business as
economic entity must aim at profit but also needs to fulfill social responsibilities.
Business ethics and business success
1.Profits 2.Long run survival 3.Diversification 4.Support from society 5.Support from
employees
Business ethics and Social Accountability
CEP and ILO
SA8000 (1998)
covers all labour rights
GRI 2002
97 performance indicators
Economic performance 13
Environment performance 35
Social performance - 49
labour practice and decent work- 17
Human rights 14
Society - 7
Product responsibility - 11
Business ethics- Marketing
Pricing
Promotion
Business ethics and Finance
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Insider trading
Hostile takeovers
Frauds in financial statements
Business ethics and Human Resources
Hiring
Retrenchment
Remuneration
Discrimination
Towards ethical behavior
Commitment from the top
Code of ethics
Transparency
Reward and punishment system
Internal and External audit
Examples of ethical companies Tata group of companies
Unethical behavior and business failure- Satyam
Governments role in developing entrepreneurship in India -
Coir Board - Coir Board is a statutory body established by the Government of India under a legislation enacted by the Parliament namely Coir Industry Act
1953 (45 of 1953) for the promotion and development of Coir Industry in India