Entreprenuership: chapter 1 to 5

CHAPTER-1

Entrepreneur:

Economists has defined entrepreneur as a person who bring resources and generate wealth. He is a person who introduces changes, innovations and new order. Psychologist has viewed entrepreneur as a person who is typically driven by certain forces, like the need to attain or obtain something, to experiment, to accomplish or to escape the authority of others.

The person or group of person who creates new idea, innovate or invent new thing, bear risk, manage resources and turn into successful business is called Entrepreneur. Economists usually treat their service as separate factor of production called Entrepreneurship. Entrepreneur is the only factor of production whose role is to combine and organize other factors of production. The entrepreneur sees the value of a new idea and is able to organize and carry out the job of turning it into cash. They are the persons who shift economic resources out of an area of lower into an area of higher productivity and greater yield. The term entrepreneur may be properly applied to those who incubate (Develop) new ideas, start enterprises based on those ideas and provide added value to society based on their independent initiative. Entrepreneur as a risk-Bearer, entrepreneur as an organizer, and entrepreneur as a innovator. In conclusion we can say that Entrepreneur is the one who organizes and manages a business undertaking, assuming the risk for the sake of profit. He is the risk and uncertainty bearer, innovator, organizer of factors of production and effortful for creating something new.


 

Characteristics of an Entrepreneur or Entrepreneurial Traits:

1.      Desire for responsibility:  The entrepreneurs feel personal responsibility about the result of the ventures in which they are associated.

2.      Preference for moderate risk: the entrepreneurs are calculating risk taker instead of being wild risk-takers. They rarely play gamble.

3.      Confidence in their ability to succeed: the entrepreneurs have ample confidence in their ability to succeed. They are optimistic regarding their chance to succeed.

4.      Desire for immediate feedback: the entrepreneurs want to know how they are doing work. They are continuously interested for reinforcement.

5.      High level of energy: the entrepreneurs have high level of energy than average men. To be a successful entrepreneur, work long time and labor hard is a rule rather than exception. Their morale is like this “the harder you fall, the harder you bounce.”

6.      Future orientation: the entrepreneurs have well-defined sense of searching opportunities. They always look forward. They are less interested in what was done yesterday.

7.      Skill of organizing:  the entrepreneurs are well organizer. They group tasks necessary to achieve goal and allocate task to various positions. He delegates authority and responsibility of each position. He must also established harmony of efforts.

8.      Desire for high achievement: the main force that motivates the entrepreneurs is the desire for high achievement. They have strong desire to achieve their goal.

9.      High degree of commitment: the entrepreneurs need full commitment to initiate any venture successfully. They fully surrender their body, mind and money to the business.

10.  Flexibility: the entrepreneurs must flexible to adapt to the changing demand of their customers and their businesses.

11.  Independence: the entrepreneurs do not like to be directed by others. They like to work independent according to their routine.

12.  Foresight: the entrepreneurs have good foresight regarding the future business environment. They are able to forecast the likely future change in the market, change in the attitude of the customers, technological progress.

13.  Innovative: the entrepreneurs are continuously involved in innovation to make necessary arrangement to meet the changing taste of the consumer. For this they establish research and innovative centers.

Function of Entrepreneur:

1.      Planning

·         Setting goals

·         Developing business plan

2.      Organizing

·         Grouping of Tasks

·         Coordination

3.      Mobilizing Resources

·         Financial resources

·         Human resources

·         Technology resources

4.      Relationship Management

·         Exchange relationship

·         Professional relationship

·         Government relationship

·         Social relationship

5.      Control

·         Financial control

·         Production control

·         Management control

Types of Entrepreneurs

1.      Innovative Entrepreneurs: innovative entrepreneurs can be the following types:

·         Innovative: The entrepreneurs who make innovation are known as innovative entrepreneurs. They introduce new products, initiate new production technique, and discover new market, or new energy, or new source of raw materials.

·         Imitative: The entrepreneurs who imitate the innovations made by the innovative entrepreneurs are known as imitative entrepreneurs. They themselves do not make dynamic innovations. They simply adopt the technique and method initiated by others.

·         Fabian: the entrepreneurs who take extreme care while making any type of experiment in their business and who are of skeptic (pessimistic) are known as Fabian entrepreneurs.

·         Drone: the entrepreneurs, who reject the opportunity to make improvement in the technique of production even if the return has decreased in comparison the product of similar firms, are known as drone entrepreneurs.

·         Forced: they are the victim of circumstances. They forced to become entrepreneurs to fashion their own economic livelihood.

·         Empire builder: the entrepreneurs who go on creating new ventures one after another are empire builder.

2.      Behavioral

·         Solo operators: The entrepreneurs who work alone are called solo (alone) operators.

·         Active partners: the entrepreneurs who operate the business as joint venture are known as active partners.

·         Inventors: the entrepreneurs who discover new product from their capacity are called inventors.

·         Challengers: the entrepreneurs who make business due to challenges are called challengers. After meeting one challenge they search for other challenges.

·         Buyers: the entrepreneurs who like to run the business by buying the business in operation are called buyers.

·         Life timers: the entrepreneurs who take business as inseparable part of their life is known as life timers.

3.      Focus Group

·         Women: the women involved in independent business are known as women entrepreneurship.

·         Minority: minority races are also involved in business which is called minority entrepreneurship.

·         Immigrant: The people who go from one country to another country and run business are known as immigrant entrepreneurs.

·         Part-time: the person who do not sacrifice fixed salary but also run their independent business are called part-time entrepreneur.

·         Home-based: the entrepreneurs who run business from their home are called home-based business.

·         Family business: the business in which the financial control of the company lies with the two or more than two members of the family is called business of family ownership and the persons involved are known family business owners.

·         Corpreneur: the couples who work together as co-owner in their own business are known as corpreneurs.

·         Intrapreneur: the corporate entrepreneur is known as intrapreneur.

Distinction between an Entrepreneur and a Manager:

Entrepreneur and manager are not the same terms. In reality these two terms denote different meaning. An entrepreneur may initiate new business and may work also as the manager of that business. But managers cannot be an entrepreneur. The entrepreneur is the owner of the business firm whereas the manager is an employee. The entrepreneur receives dividend or profit for making investment, which is uncertain. On the other hand, the manager receives salary for the work done which is fixed and certain. A firm’s managers are agents who work for the firm’s owners, who are the principals. The main points of difference between an entrepreneur and a manager have been shown in table below:

Points	Entrepreneur	Manager
1.      Motive	The main motive of entrepreneur is to start a venture by setting up an enterprise. He understands the venture for his personal gratification.	But, the main motive of a manager is to render his services in an enterprise already set up by someone else.
2.      Status	An entrepreneur is the owner of the enterprise.	A manager is the servant in the enterprise owned by the entrepreneur.
3.      Risk-bearing	An entrepreneur being the owner of the enterprise assumes all risks and uncertainty involved in running the enterprise.	A manager as a servant does not bear any risk involved in the enterprise.
4.      Rewards	The reward is profit which is highly certain.	The reward is salary which is certain and fixed.
5.      Innovation	Entrepreneur acts as an innovator also called a change agent.	Manager simply translates the entrepreneur’s ideas into practice.
6.      Qualifications	An entrepreneur needs to possess qualities and qualifications like high achievement motive, originality in thinking, foresight, and risk bearing ability and so on.	A manager needs to possess distinct qualifications in terms of sound knowledge in management theory and practice.

Concept of intrapreneur

The corporate entrepreneurship is known as intrapreneurship and who perform such task is known as intrapreneur. The managers who make innovation by remaining within any firm are known intrapreneurs. Intrapreneurs are the creative employee of the organization who has ability to innovate some things. Intrapreneurs are not the owner of the business. They do not have any risk, profit or loss.

Difference Between entrepreneur and intrapreneur:

Difference	Entrepreneur	Intrapreneur
1.Dependency	An entrepreneur is independent in his operation.	But, an intrapreneur is dependent on the entrepreneur. i.e., the owner.
2. Raising of funds	An entrepreneur himself raises funds required for the enterprise.	Funds are not raised by the intrapreneur.
3. Risk	Entrepreneur bears the risk involved in the business.	An intrapreneur does not fully bear the risk involved in the enterprise.
4. Operation	An entrepreneur operates from outside	On the contrary, an intrapreneur operates from within the organization itself.

Concept of Entrepreneurship

Entrepreneurship is related to coordination, innovation and performance of the entrepreneur. The function performed by the entrepreneurs is known as entrepreneurship. Entrepreneurship is to be an entrepreneur. Entrepreneurship refers to the various activities done for the establishment and operation of an enterprise. Hence entrepreneurship is a system of creating new business. Entrepreneurship is the process of creating new idea and turning it into successful business. It involves creativity and innovation. It involves creating new idea, bring together factor of production, Plans organize, operates and assumes the risk of new venture and creating to incremental wealth. It can be said that entrepreneurship is a process which consists in doing things that are not generally done in the ordinary course of business routine.

The entrepreneurship is regarded as the engine of economic development. It has resulted in millions of new ventures in the world. It has appeared as the driving force for economic development. The interest in the concept of entrepreneurship is growing.

In conclusion, entrepreneurship means the process adopted by the entrepreneur for the operation of the business. Since the function performed by an entrepreneur is the entrepreneurship. Entrepreneurship is the creative process of exploiting opportunities by starting new venture through resource pulling, risk taking, innovating and managing for rewards. It is a change from present lifestyle.

The can be taken as the two faces of the same coin, which will be obvious from the following table:

Entrepreneur	Entrepreneurship
1.      Person	Process
2.      Organizer	Organization
3.      Innovator	Innovation
4.      Risk-taker	Risk-taking
5.      Motivator	Motivation
6.      Creator	Creation
7.      Visualize	Vision
8.      Leader	Leadership
9.      Imitator	Imitation
10.  Decision maker	Decision-making

Features of Entrepreneurship/ Characteristics of Entrepreneurship

1.      Dynamic process:

2.      Innovation

3.      Risk bearing

4.      Decision making

5.      Accepting challenges

6.      Organization

7.      Skillful management

8.      Making the business success

Factor Affecting Entrepreneurship:

1.      Economic Factors

·         Economic factors (Free market economies/ capitalism, centrally planned economies/ socialism, mixed economies.)

·         Capital

·         Human resources

·         Raw material

·         Market

·         Competition

·         Franchise

2.      Non-economic factors

·         Political factors

·         Social factors

·         Psychological factors

·         Technological factor

Entrepreneurship Decision Process:

1.      Conduct opportunity Analysis: opportunity is a favorable condition in the external environment. It enables an entrepreneur to start a new business. Ideas provide opportunities. Entrepreneurs must have the ability to generate a large number of ideas. Business opportunity identification consists of there steps:

·         Identifying sources of new ideas

·         Determining methods of generating new ideas

·         Selection of best idea

The entrepreneur can generate new ideas from the following sources:

·         Situation survey

·         Present work environment factors

·         Outside sources

·         Research and development

2.      Develop business plan: A business plan is developed as road map of the new venture. It sets goals to be achieved. It states the process and technology to be used. It identifies target market. It determines product, price, and promotion and distribution aspect. It describes finance and management aspects. Critical risks are assessed. Milestones are set for implementation.

3.      Setup the venture (Start-up): in this stage the new venture is established and legal aspect of venture is determined. The legal form of venture can be proprietorship, partnership and company. The scope can be service, manufacturing, construction and infrastructural activities.

4.      Acquire financial resources: Various options available for financing the new venture are examined. Early stage funding can be from self, family, friends and government sources. Growth stage finding can be debt from financial institutions or public offer of shares.

5.      Implement business plan: after acquiring financial resources, the proposed plan is implemented by organizing resources and building management team.

Role of Entrepreneurship in Economic Development

Economic development implies sustainable increase in quality of life. It encompasses increase in per capita income, education, health, and environmental protection. Entrepreneurship is the driving force for economic development. It plays a critical role in economic development in the following ways:

1.      Capital formation: the entrepreneurship promotes capital formation by mobilizing the idle savings of the people.

2.      Employment creation: the entrepreneurship creates employment opportunity by initiating new business.

3.      Increased productivity: entrepreneurship help in the optimum utilization of natural resources including land, labor and capital available in the country. This increase production and productivity.

4.      Balanced development: the entrepreneurs operate business in the different parts of the country on the basis of the availability of resources. This helps to achieve the objective of balanced regional development or removing regional disparity of the government.

5.      Equitable distribution: entrepreneurship help in reducing to concentration of economic power. They help in equitable redistribution of income, wealth, and political power in the country. It is because they provide employment to the deprived, exploited and poor people. The entrepreneurs make these people conscious.

6.      Export promotion: entrepreneurs promote foreign trade by initiating new products. This helps in earning foreign exchange and helps in reducing the disequilibrium in balance of payment.

7.      Industrialization: entrepreneur and entrepreneurship leads the country to industrialization. There is an increase in the economic activities in the country. It helps to transfer the people overly dependent on agriculture to the non-agriculture sector.

Thus it is clear that entrepreneurship serves as a catalyst of economic development. On the whole, the role of entrepreneurship in economic development of a country can best be put as “an economy is the effect for which entrepreneurship is the cause”.

Challenges and Drawbacks of Entrepreneurship

1.      Uncertainty of income

2.      Risk of losing entire invested capital

3.      Long hours and hard work

4.      Lower quality of life

5.      Complete responsibility

6.      Centralized decision making system

7.      Traditional management

8.      Lack of professionalism and training

9.      Poor Human resource system

10.  Traditional technology

11.  Limited market

12.  Inadequate infrastructure

13.  Government policy and facilities

Family Business Succession Strategy:

Concept of Family Business

A family business includes one or more members of a family with financial control. A family business is a business in which one or more number of one or more families has significant ownership interest and significant commitment toward the business’s overall well being. It roots are fixed in family values. In USA, almost 90% of business is family owned and managed. In India and Nepal as well their share is significant in total business. In some countries, many of the largest publicly listed firms are family owned. A firm is said to be family-owned, if a person is the controlling shareholders.

Family participation as manager or owners of family business can strengthen the company because family members are often loyal and dedicated to the family enterprise. However, family participation as manager and/ or owners of a business can present unique problem because the dynamics of the family system and the dynamics of the business system are often not in balance.

Succession Planning

Business succession refers to the successfully passing the business down to a family members. It is big threat to family business. Only 50% of family business survives to the second generation. Only 14% make it to the third generation. And 14% make it to the third generation. And only 3% serving to the fourth generation and beyond.

Succession planning is a planning of transferring the business to the family member of the next generation. It is concerned with setting up a smooth transition between you and the future owners of your business. Business succession planning seeks to manage the following issues:

·         Who is going to manage the business when you no longer work the business?

·         How will ownership be transferred?

·         Will your business even carry on or will you sell it.

In family business, succession planning can specially complicated because of the relationship and emotion involved and because most people are not the comfortable discussing topics such as aging, death, and their financial affairs. An effective strategy needs to be formulated for family business succession. It should consider the following aspects:

·         The role of the owner in the transition (Change) stage should be clear. It can be working full time, part time or retirement. It can be staying as an advisor.

·         Family dynamics regarding the ability of family members to work together should be considered. Specific responsibilities should be given to each member succeeding the business.

·         Income for working family members and shareholders should be clearly stated.

·         Business environment during the transition should be congenial (friendly).

·         Loyal employee should be retained

·         Tax implications of succession should be considered

·         Training of the succession should be considered.

TYPES OF START-UPS

Concept:

Start-ups refer to the establishment of new venture. In this stage legal form of new venture, legal environment, financial sources and scope of new venture are determined. Start-ups is concerned with three main entrepreneurial issues. They are:

·         Legal forms of entrepreneurial organization: The prospective entrepreneurial organization legal structure that will best suit the demand of the new venture. The necessity for this comes from changing tax laws, liability situation, the availability of capital and complexity of business. Legal form of new venture can be sole trading, partnership and Joint Stock Company. Each form of organization has specific characteristics. It also has specific advantages and disadvantages. The entrepreneur’s specific situation, concerns, and desires will dictate the choice.

·         Legal environment and entrepreneurship: Entrepreneurs cannot be the legal expertise or background of a lawyer but they should be sufficiently knowledgeable about certain legal concepts that have implications for the business venture. There are many legal concepts that can affect entrepreneurial ventures. These concepts can be divided into 3 groups:

·         Legal concepts that relate to the inception of the venture.

·         Legal concepts that relate to the ongoing venture

·         Legal concepts that relate to the growth and continuity

·         Financial sources for entrepreneurial ventures: Finance is one of the important prerequisites to start-ups an enterprise. It facilitates and entrepreneur to bring together land, labor, machinery and raw material to combine them to produce goods. It is a lubricant and life blood to the process of production. Therefore, entrepreneurs must made plan to acquire required capital for start-ups. In financial plan, the entrepreneur should clearly answer the following three questions:

·         How much money is needed?

·         Where will money come from? And

·         When does the money need to be available?

Types of Start-Ups

1.      Life-Style Firms (Home Firms): A life-style firm is a private firm which is also called home firm. It usually achieves only modest growth due to the nature of the business, the objectives of the entrepreneur and the limited money. In this style of enterprise limited money is devoted to research and development. These types of firm may grow after several years. The no. of employees may be limited to 30 to 40 and have annual revenue of about $2 million. A life-style firm exists primarily to support the owners and usually has little opportunity for significant growth and expansion.

2.      The foundation company (innovation enterprise): the second types of start-ups are the foundation company which is also called innovation enterprise. It is created by research and development and lays the foundation for a new industry. This firm can grow in 5 to 10 years from 40 to 400 employees. Annual revenues may be about $10 million to $20 million. Since these types of start-up rarely goes public.

3.      The high-potential venture: the third type of start up is the high potential venture. This types of start-up requires greatest investment interest and publicity. Investors are striving to invest money in it. It growth is far more rapid than life style and the foundation company. After 5 to 10 years the company could employ 500 employees with 20 to 30 million in annual revenue. The company usually shortly becomes a public limited company.

Sources of Generating New Ideas:

Opportunity is a favorable condition in the external environment which enables an entrepreneur to start a new business. The first phase of lunching a successful venture is to search the ideas of good project because ideas provide opportunities to the entrepreneurs. Generating good business ideas seem to be simple but it is difficult to implement well. The imagination, sensitivity to environmental change and realistic evaluation regarding what the firm can do is needed for identifying such ideas. In order to select the most promising project, the entrepreneur needs to generate a few ideas about the possible projects he/ she can undertake. The project ideas can be discovered from various sources. They may include:

1.      Situation Survey: this involves survey of current situation in the general environment. Changes and developments in general environment such as political, legal, economic, socio-cultural and technological forces may provides ideas for the establishment of new business. The following forces of general environment are examined to generate new business ideas:

·         Technological changes

·         Political-legal changes

·         Socio-cultural changes

·         Economic changes

2.      Present work environment factors: Present work environment factors include internal factors which also provide some business ideas. They can be:

·         Vision, mission, goals, strategies and priorities

·         Sudden identification of opportunities

·         Efforts to overcome problems

·         Job experience, hobby and interest of entrepreneurs

·         Creativity of entrepreneurs

·         Existing companies can be source of new idea

3.      Outside sources (external sources):  Potential entrepreneurs can develop ideas from the external sources which includes:

·         Needs and requirement of consumers

·         Outside consultants and experts

·         Members of distribution channels

·         Foreign countries companies

·         Suggestions from friend, family etc.

·         TV, newspapers and media publication

·         Visiting to trade fairs and exhibitions

·         Attending education and training courses

·         Competitor’s activities

·         Government regulations

4.      Research and development: Research and development is the main sources of generating mew ideas. It is concerned with generating creative ideas. It helps to invent and innovate new things. Research can be conducted in the labs of current employment. It can also conduct in an informal lab in the basement or garage of home. A formal research and development department is a better place for the entrepreneur to come up with new ideas.

Entrepreneurial Issues for Growth and Development

The entrepreneurial issues for growth and development of business organization in the present business environment are grouped into 3 parts:

I.       Strategic planning and entrepreneurship:

Most entrepreneurs do some form of planning for their ventures, but it tends to be informal and unsystematic. The actual needs for systematic planning will vary with the nature, size and structure of the business. A small firm may successfully use informal planning because little complexity is involved. But an emerging venture that is rapidly expanding with constantly increasing personnel size and market operation will need to formalize it planning because a great deal of complexity exists. In the present business environment, an entrepreneur’s planning will need to shift from an informal to a formal systematic style. Formal planning is usually divided into two major types:

a.       Strategic Planning:

Strategic planning is the formulation of long range plans for the effective management of environmental opportunities and threats in light of a business’s strength and weaknesses. It includes:

·         Defining the venture’s mission

·         Specifying achievable objectives

·         Developing strategies

·         Setting policy guidelines.

Dynamic in nature, the strategic management process is the full set of commitments, decisions and actions required for a firm to achieve strategic competitiveness and earn above-average returns. The five basic steps must be followed in strategic planning:

·         Examine the internal and external environment of the venture (strength, weaknesses, opportunities, threats)

·         Formulate the venture’s long rang and short-range strategies (mission, objectives, strategies, policies)

·         Implement the strategic plan (programs, budgets, procedures)

·         Evaluate the performance of the strategy

·         Take follow-up action through continuous feedback

Value of Strategic Planning

Strategic planning is a key factor that influences a venture’s survival. Lake of formal and systematic strategic planning is a main cause of business failure in the current business environment. Research showed that the firm that engaged in strategic planning performed well those that did not use such planning. Proper strategic planning leads to better decision that in turn lead to increased profitability, increased time efficiency, company growth and knowledge of market. Survey of 500 US incorporation showed that majority of the entrepreneurs did not have a business plan when they started their firms but as the firm grew the planning process become more prevalent and formalized. This survey helps to conclude that strategic planning is a tool that helps to manage complexity in the business.

In conclusion, an entrepreneurs planning will need to shift from an informal to a formal and systematic because it helps firms to establish and exploit competitive advantages within particular environment context.

b.      Operational planning:

Operational planning also referred to as short-range planning or functional planning, consists of the specific practices established to carry out the objectives set forth in the strategic plan. The operational plan is thus an outgrowth or extension of the strategic planning process. In the area of finance, marketing, production, and management, functional policies need to be established in order to implement the goal determined in the strategy.

The overall planning process incorporates all of the factors involved in strategic planning and implementation tools of operational planning. Specifically, the tools applied in functional areas of the business will be a key to implementation of the planning process. Some of the tools must widely know and used are budgets, policies and procedures

·         Budgets are planning devices used to establish future plans in financial terms.

·         Policies are the fundamental guides for the venture as a whole.

·         Procedures are similar to policies; they are usually policies that have been standardized as continuing method.

II.                The challenge of Entrepreneurial Growth

The life cycle stages of an enterprise can be divided into deferent stages. These stages include:

·         New venture development

·         Start-up activities

·         Growth

·         Stabilization

·         Innovation or decline

Among these stages, managing growth can be a great challenge to the successful development of any venture. In this stage, a venture usually reaches major crossroads in the decision that affect its future. The growth stage often requires major changes in entrepreneurial strategy. Competition and other market forces call for the reformulation of strategies. The growth stage present newer and more substantial problems than the entrepreneur faced during the start-up stage. These newer challenges force the entrepreneur into developing a different set of skills while maintaining an entrepreneurial perspective for the organization. Growth stage is a transition from entrepreneurial one-person leadership to managerial team-oriented leadership. This is not easy to do. A number of problems can occur during this transition. They can be:

·         A highly centralized decision-making system

·         An overdependence on one or two key individuals

·         An inadequate managerial skills and training

·         A paternalistic atmosphere

These characteristics are effective in the new venture’s startup and initial survival but provide a threat to the firm’s development during the growth stage. In order to bring about the necessary transition, the entrepreneur must carefully plan and then gradually implement the following process:

·         The entrepreneur must want to make the change and must want it strongly enough to undertake major modifications in his or her own task behavior.

·         The day to day decision making procedures of the organization must be changed. Participation in this process must be expanded. Greater emphasis also should be placed on the use of formal decision techniques.

·         The two or three key operating tasks are primarily responsible for the organization’s success must be institutionalized. This may involve the selection of new people to supplement or replace indispensable individual who have performed these task in the past.

·         Middle level management must be developed. Specialists must learn to become functional managers, while functional manager must learn to become general managers.

·         The firm’s strategy should be evaluated and modified, if necessary, to achieve growth.

·         The organizational structure and its management system and procedures must be slowly modified to fit the company’s new strategy and senior manager

·         The firm must develop a professional board of directors.

III.             The management succession challenge:

Management succession challenge is another issue for entrepreneurs. Lack of succession planning leads to venture’s failure. Research shows that many privately held firms go out of existence after ten years; only three out of ten survive into a second generation. More significant, only 16% of all privately held enterprises make it to a third generation. The survey of 200 successful manufacturing firm showed that the average life expectancy for a privately held business is 24 years, which is also the average tenure for the founders of a business. One of the major problems most privately held businesses have is the lack of preparation for passing managerial control to the next generation. Most privately held firms never formulate succession plans.

Chapter 2:

The Entrepreneurial and Intrapreneurial Mind

The entrepreneurial Process:

       I.            Identification and evaluation of opportunity:

Opportunity is a favorable condition in the external environment. It enables an entrepreneur to start a new venture. Business opportunity identification and selection consists the following steps:

a.      Generation of ideas:

First of all the entrepreneur should create idea about various alternative projects that he can undertake in order to select the best project. The idea of project or business opportunities can be found out from various internal and external sources. Some of the sources of creating identifying good project idea may be explained as follows:

                                i.            Situation survey: situation survey refers to the survey of current situation in the external environmental factors. Under situation survey, technological changes, political-legal changes, socio-cultural changes, economic changes are surveyed.

                              ii.            Internal sources/ Present work environment factors: Internal environment of the organization can be the sources of new idea. Internal sources of idea are:

·         Vision, mission, goals, strategies and priorities of entrepreneurs provide ideas for new ventures.

·         Effort to overcome problem or identify opportunities by entrepreneur suddenly provide new idea.

·         Job experience, hobby and interest f entrepreneur provides new ideas.

·         Entrepreneurial creativity also provides new ideas.

·         Existing companies can be sources of new ideas.

·         Suggestion made by research and development department, committees, task forces, work teams, and quality circles can provide useful ideas for project

                            iii.            External sources/ Outside Sources: The following outside sources can be helpful in generating new ideas:

·         Need and requirement of consumers

·         Outside consultants and experts

·         Members of distribution channel

·         Foreign country

·         Suggestion from family, friend etc.

·         Television, newspaper, and media publication

·         Visit to trade fairs and exhibitions and attending education and training courses.

·         Competitor’s activities

·         Government policies, rules and regulation.

                            iv.            Research and development: It is the largest source of new ideas. Research can be conducted in the labs of current employment. It can also conduct in an informal lab in the basement or garage of home. A formal research and development department is a better place for the entrepreneur to come up with new ideas.

b.      Evaluation of ideas: the new idea is evaluated in terms of :

                                i.            Profit Test:  In this criterion, the profitability of the idea is assessed. Marketing, production and financial aspect are analyzed.

                              ii.            Constraints Test: the idea should fit the financial, manpower, time, and other constraints faced by the entrepreneur.

                            iii.            Risk Test: A risk is any event that could prevent the realization of objective. The evaluation of idea also involves risk analysis. Risk can be:

·         Idea risk

·         Process risk

Risk analysis consists of assessment of risk and possible action.

c.       Selection of Best idea: After identifying business ideas, the entrepreneur should select the appropriate project from among various alternative ideas. The evaluated ideas are classified into three group:

·         Promising ideas: they are possible alternatives for new opportunities.

·         Marginal ideas: they are stored for future uses.

·         Reject ideas: they are dropped

A choice is made from among promising ideas. 

    II.            Develop Business Plan: 

After identification of best idea, business plan is developed to convert the idea into successful venture. The business plan is a roadmap of proposed new venture of the entrepreneur. It is written document that details the proposed venture. It is required to mobilize financial resources for the new venture. It also serves as a working document once the venture is established. It covers business description of the venture, marketing aspects, financial aspects, operations aspects and management aspects. It analyses critical risks and presents a timetable for implementation of new venture. A detailed business plan consists of ten sections:

·         Executive Summary

·         Business description element

·         Marketing element

·         Production element

·         Finance element

·         Management element

·         Critical risk element

·         Harvest strategy element

·         Milestone schedule

·         Appendix.

 III.            Determine the resources required:

The resources needed for the new venture should be determined. No business can thrive (succeed) without resource capabilities. The following factors should be considered:

·         Determine resources needed

·         Determine existing resources

·         Identify resource gaps and available suppliers

·         Develop access to needed resources

 IV.            Manage the enterprise:

The management aspects of running the new venture are considered. They are:

·         Organization structure of the venture.

·         Development management style

·         Understand key variables for success

·         Identify problems and potential problems

·         Human resource management aspects of the venture.

·         Implement control system

·          Develop growth strategy

Managerial Versus Entrepreneurial Decision Making

The difference between the entrepreneurial and the managerial styles can be viewed from five key business dimensions—strategic orientation, commitment to opportunity, commitment of resources, control of resources, and management structure. Managerial styles are called the administrative domain.

1.      Strategic Orientation

The entrepreneur’s strategic orientation depends on his or her perception of the opportunity. This orientation is most important when other opportunity have diminishing returns accompanied by rapid changes in technology, consumer economies, social values or political rules.

The administrative (managerial) domain is operant in nature. Managerial strategic orientation is driven by controlled resources. Managerial domain is concerned with the use of planning system as well as measuring performance to control current resources.

2.      Commitment to Opportunity

Entrepreneurs are revolutionary and have a short time span in terms of opportunity commitment. The entrepreneurial domain is pressured by the need for action, narrow decision windows, acceptance of reasonable risk and few decision constituencies.

In terms of commitments to opportunities, managers are evolutionary with long duration. The managerial domain is not only slow to act on an opportunity but once action is taken, the commitment is usually for a long time span. They are pressured by acknowledgement of multiple constituencies, negotiation about strategic, course of risk reduction and coordination with existing resources base.

3.      Commitment of Resources

An entrepreneur is used to having resources committed at periodic intervals that are often based on certain tasks or objectives being reached. This multistage commitment allows the resource providers (such as venture capitalists or private investors) to have an exposure at each stage of business development. The following factors pressures entrepreneurs for the periodic commitment of resources

·         Lack of predictable resource need

·         Lack of control over the environment

·         Social demand for appropriate use of resource

·         Foreign competition

·         Demands for more efficient use

In administrative domain, commitment of the resources is for the total amount needed. He desires a single stag with complete commitment of resources. This resources commitment come form need to reduce risk, incentive, compensation, turnover in mangers, formal planning system.

4.      Control of Resources

Entrepreneur tries to use rented resources where possible. If the has difficulty in obtaining resource, he tends to have multi uses for the same resources. He focus on rented and multi use of same resources due to the pressure of long resource life compared with need, risk of obsolescence, risk involved in the identified opportunity, inflexibility permanent commitment resources etc.

The administrator is rewarded by effective resource administration. He wants to own or accumulate as many resources as possible. The pressures of power, status, financial status, coordination of activity etc cause the administrator to avoid rental or other periodic use of the resources. Thus, manager tends to accumulate resources as it is a source of power for him.

5.      Management Structure

Entrepreneurs tend to have a flat organization as it allows him greater degree of control. He focuses on multiple informal networks. He want such flat with multiple inform network due to pressure of coordination of key non controlled resources, challenge to hierarchy, employees’ desire for independence etc.

Manager tends to follow a formal hierarchical structure as they know this consolidated their power. Manager wants clearly defined lines of authority and responsibility.

Corporate Entrepreneurship or Intrapreneurship:

The corporate entrepreneurship is known as intrapreneurship and who perform such task is known as intrapreneur. Intrapreneurship is a process of innovation that occurs inside established companies through efforts of creative employees. Corporate management is promoting entrepreneurs within the corporate structure. This development of entrepreneurial within the corporate structure is called intrapreneurship. In the globalized context, corporations are promoting individuals with entrepreneurial skill within the organization and capitalizing on their skills and capabilities.

Intrapreneurship is developed within big business houses. This means, intraprenership is the outcome of the creative activities of employees in big business. The intrapreneurship emerges through long years of experience in big corporation. Intrapreneurship requires large amount of capital and team of people with multidisciplinary expertise.

Difference between entrepreneurship and intrapreneurship

·         Entrepreneurships the process of establishing an independent business venture whereas intrapreneurship developed within big business houses.

·         Entrepreneurship is the outcome of the creative activities of entrepreneur whereas intrapreneurship is the outcome of the creative activities of employees in big business.

·         The entrepreneurship depends on the nature and attitude of the entrepreneur whereas intrapreneurship depends on the climate of corporation.

·         The entrepreneurship generally begins with development of small business with limited capital and other resources whereas intrapreneurship requires large amount of capital and a team of people with multidisciplinary expertise.

Causes for interest in Intrapreneurship (The need for corporate entrepreneuring)

Many companies today are realizing the need for corporate entrepreneuring. Both business firms and consultants are recognizing the need for in-house entrepreneurship. This need has arisen in response to a number of pressing problems. They can be:

1.      Interest in intrapreneurship has resulted from events occurring on social, cultural, and business levels. There is an increasing interest in “doing your own thing.”
Individuals frequently desire to create something of their own. They want responsibility and want more freedom in their work environment. Frustration can develop and result in the employee becoming less productive or leaving the organization. This has recently caused more discontent in structured organizations. When meaning is not provided within the organization, individuals often search for an institution, such as intrapreneurship, that will provide it.

 Intrapreneurship is one method for stimulating and capitalizing on those who think that something can be done differently and better.

2.      It is important to instill the entrepreneurial spirit in an organization in order to innovate and grow. In a large organization problems occur that thwart creativity and innovation. This growth and diversity that can result are critical, since large corporations are more efficient in a competitive market than are smaller firms.

3.      The resistance against flexibility, growth, and diversification can be overcome by developing a spirit of entrepreneurship, called intrapreneurship, within the existing organization.

4.      There are social, cultural, and business pressures for intrapreneurship. Hyper competition has forced companies to focus on new product development, increased productivity, and decreasing costs.

Establishing Intrapreneurship in an organization:

Intrapreneurship is reflected in the entrepreneurial activities of the colorations and top level management’s shift in paradigm. The entrepreneurial efforts consist of four elements. They are:

a.      New business venturing: New business venturing refers to the creation of new business within an existing organization.

b.      Organizational innovativeness: Organizational innovativeness refers to product and service innovation with an emphasis on development and innovation in technology.

c.       Self Renewal: Self-renewal reflects the transformation of organizations through the renewal of the key ideas on which they are built.

d.      Proactiveness: Proactiveness includes initiative and risk taking, as well as competitive aggressiveness and boldness.

Climate for Intrapreneurship:

a.       Management commitment: The first step is to secure a commitment to intrapreneurship in the organization by top, upper, and middle management. Without top management commitment, the organization will never be able to make the necessary changes. Once top management has committed to intrapreneurship for a sufficient length of time, the concept is introduced throughout the organization.

b.      Technology: The organization operates on the frontiers of technology. Research and development are key sources for new product ideas. The firm must operate on the cutting edge of technology and encourage and support new ideas instead of discouraging them.

c.       Failure allowed: Experimentation, or trial and error, is encouraged. Successful new products usually do not appear fully developed; instead they evolve. A company has to establish an environment that allows mistakes and failures. Without the opportunity to fail, few corporate intrapreneurial ventures will be developed.

d.      Resources available and accessible: The resources of the firm need to be available and easily accessible. Often, insufficient funds are allocated to creating something new. Available resources are committed instead to problems that have an immediate effect on the bottom line. Some companies, such as Xerox, 3M, and AT&T have established separate venture capital areas for funding new internal and external ventures. When available, the reporting requirements can become obstacles to obtaining resources.

e.       Multidiscipline teamwork approach: A multidisciplinary team approach needs to be encouraged. One key to intrapreneurial success is the existence of “skunkworks” involving key people. Another complication is the fact that a team member’s promotion within the corporation is based on performance in the current position, not in the new venture. The corporate environment must establish a long time horizon for evaluating the success of the overall program.

f.       Voluntary involvement: The spirit of intrapreneurship cannot be forced on individuals; it must be voluntary. Most managers in a corporation are not capable of being successful intrapreneurs. Those that emerge must be allowed to carry a project through to completion. An intrapreneur falls in love with the new venture and will do almost anything to ensure its success.

g.      Reward system: The seventh characteristic is a reward system. The intrapreneur needs to be appropriately rewarded for the energy and effort expended on the new venture. An equity position in the new venture is one of the best motivational rewards.

h.      Sponsors and champions available: A corporate environment favorable for intrapreneurship has sponsors and champions throughout the organization who support the creative activity and resulting failures.

i.        Strong support system: The intrapreneurial activity must be whole-heartedly supported

j.        Training: The organization can use a group of managers to train and share their experiences with other members. These sessions should be conducted one day per month for a specified period of time. Information about intrapreneurship and about the company’s specific activities should be well publicized.

k.      Customer oriented: The organization needs to develop ways to get closer to its customers by tapping the data base, hiring from smaller rivals, and helping the retailer.

Intrapreneurial Leadership Characteristics:

There are certain individual characteristics needed for a person to be a successful intrapreneur. They includes:
1. Understanding the environment: An intrapreneur needs to understand all aspects of the environment. Creativity tends to decrease with age and education. The individual must be creative and have a broad understanding of the internal and external environments of the corporation.
2. Being visionary and flexible: The intrapreneur must be a visionary leader. Leadership is the ability to dream great things and communicate them in a way that people say “yes” to being part of the dream. To establish a successful new venture, the intrapreneurial leader must have a dream and overcome all obstacles to achieve it.
3. Flexible and creating management options: The intrapreneur must be flexible and create management options. An intrapreneur is open to and encourages change. By challenging the beliefs and assumptions of the corporation, an intrapreneur can create something new in the organization structure.
4. Encouraging teamwork: He or she needs the ability to encourage teamwork and use a multidiscipline approach. Every new company formation requires a broad range of business skills. Recruiting those in the organization requires crossing established departmental structure. The intrapreneur must be a good diplomat to minimize disruption
5. Encouraging open discussion: Open discussion must be encouraged to develop a good team for creating something new. Many corporate managers have forgotten that frank, open discussion is part of the learning process. A successful venture can be formed only when the team feels the freedom to disagree and to review an idea. The degree of openness among the team depends on the degree of openness of the intrapreneur.
6. Building a coalition of supporters: Openness leads to a strong coalition of supporters and encouragers. The intrapreneur must encourage each team member, particularly during hard times. A good intrapreneur makes everyone a hero.
7. Persisting: an intrapreneur must be persistent to create a new venture and move forward towards successful commercialization.

Chapter 3

The Environment for Entrepreneurship

Entrepreneur’s Environment:

Environment for entrepreneurship consists of forces that directly or indirectly influence the activities of creating and developing new business in the society. It is the composite of all forces surrounding and influencing the entrepreneur’s activities. They consist of political-legal, economic, socio-cultural and technological forces in external environment. They cannot be controlled. Environmental forces and factors influence entrepreneurial activities by providing opportunities and threats. They are complex, dynamic and uncertain. The entrepreneurs most monitor and respond to changes to exploit the opportunities and face challenges resulting from changing business environment. The effect of environmental factors differs from organization to organization, industry to industry and markets to markets

Government Policies and Actions:

The policies and actions may directly and indirectly affect the entrepreneurial activities. It may promote or limit entrepreneurial activities. Government policies and actions influence entrepreneurial policies and practices. It defines what entrepreneurs can and cannot do. Entrepreneurs must follow the legal provision of the country.

The entrepreneurship friendly industrial policy, industrial act, commercial policy etc. can promote entrepreneurship. The government must create conductive environment for entrepreneurship by making available basic facilities and services live transport, communication, power etc. and incentive, subsidy, concession sound legal system etc. such facilities reduce the risk and uncertainties of the entrepreneurs. Hence, the supportive actions of the government are very conductive for entrepreneurial development. Entrepreneurship has flourished and developed in the countries where the government has provided such facilities. On the other hand entrepreneurship and economic growth is slow in the countries where the government has adopted indifference policy regarding entrepreneurship. One of the main reasons rapid economic growths in the countries is regarded to be the positive or market friendly role played by the government towards the business.

In order to increase more positive business environment, the role of the government should not be interfering and regulating in the daily activities of the enterprises. But, should be supporting, faciliting and removing and constraints of initiative, innovation and risk-taking.

The government in order to help and create positive business environment should make following changes in its policy formulation and involvement (Kohli and Sood, 1987):

·         Simplification of labor policy

·         Reforms in the tax policy

·         Streamling legal frame work fro enterprise creation, operation and liquidation

·         Make effort to create competitive market (remove entry barriers)

·         Simplification of the regulation and controls (investment, production, marketing, prices, foreign direct investment and technology transfer)

·         Address practical implementation of the policy.

·         Transparency of policy and their implementation.

Government polices that affect entrepreneurship

·         Industrial policy

·         Monetary policy

·         Fiscal policy

·         Privatization policy

·         Trade policy

·         Employment and trade policy

·         Tourism policy

·         Foreign investment policy

The industrial policy, 2010 spells out its policies, strategies, promises and commitments:

·         Commits state-support for the development of infrastructure up to factory sites for priority industries.

·         Provides special tax holidays for industries in rural and under-industrialized parts of the country.

·         Recognizes and allow sub-contracting of production for the first time in the country’s history.

·         Promises to help foster backward linkages, mainly facilitating small scale industries, in incorporate in the large manufacturing process

·         Provision of differential tariff rates for raw material imports and the import of finished goods. The aim of this provision is to promote domestic manufacturing over direct trade.

·         Promises protection, duty and tax discount incentives for industries using local raw material and higher value addition.

·         Entrusts the government to lay down industrial infrastructures such as roads, electricity, and telecommunication in different districts that have been identified as possessing manufacturing and processing potentials

·         Pledges additional promotional incentive packages for export industries, particularly the small and medium enterprises.

·         Recognizes Research and development and market promotion as an integral part of the industrial activities and allows 5% income tax deduction for each purpose.

Infrastructure:

Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise. They are the services and facilities necessary for an economy to function. It can be defined as the set of interconnected structural elements that provide framework supporting an entire structure of development. It includes both physical infrastructure such as transport, communication, water supply, energy etc and non physical infrastructure such as financial system, education system, health care system, the system of government, law enforcement as well as emergency services. Infrastructure facilitates the production of goods and services and also the distribution of finished products to markets. In least developed and developing countries entrepreneurs are not motivated to establish enterprise due to the lake of adequate infrastructure. Inadequacy of infrastructure limits the entrepreneur’s activities. Therefore, government is responsible to develop basic infrastructure in the country to promote entrepreneurship.

Types of Infrastructure:

·         Hard Infrastructure: hard infrastructure refers to the large physical networks necessary for the functioning of a modern industrial nation. It includes the capital assets that serve the function of entrepreneurs. It include:

·         Transportation infrastructure

·         Energy infrastructure

·         Water management infrastructure

·         Communications infrastructure

·         Solid waste management

·         Soft Infrastructure: soft infrastructure refers to all the institutions which are required to maintain the economic, health, and cultural and social standards of a country, such as the financial system, the education system, the health care system, the system of government, and law enforcement, as well as emergency services. The essence of soft infrastructure is the delivery of specialized services to entrepreneurs. It includes

1.      Governance infrastructure

• The system of government and law enforcement, including the political, legislative, law enforcement, justice and penal systems, as well as specialized facilities (government offices, courthouses, prisons, etc.), and specialized systems for collecting, storing and disseminating data, laws and regulation
• Emergency services, such as police, fire protection, and ambulances, including specialized vehicles, buildings, communications and dispatching systems
• Military infrastructure, including military bases, arms depots, training facilities, command centers, communication facilities, major weapons systems, fortifications, specialized arms manufacturing, strategic reserves

2.      Economic infrastructure

·         The financial system, including the banking system, financial institutions, the payment system, exchanges, the money supply, financial regulations, as well as accounting standards and regulations

·        Major business logistics facilities and systems, including warehouses as well as warehousing and shipping management systems

·        Manufacturing infrastructure, including industrial parks and special economic zones, mines and processing plants for basic materials used as inputs in industry, specialized energy, transportation and water infrastructure used by industry, plus the public safety, zoning and environmental laws and regulations that govern and limit industrial activity, and standards organizations

·        Agricultural, forestry and fisheries infrastructure, including specialized food and livestock transportation and storage facilities, major feedlots, agricultural price support systems (including agricultural insurance), agricultural health standards, food inspection, experimental farms and agricultural research centers and schools, the system of licensing and quota management, enforcement systems against poaching, forest wardens, and fire fighting

3.      Social infrastructure

·         The health care system, including hospitals, the financing of health care, including health insurance, the systems for regulation and testing of medications and medical procedures, the system for training, inspection and professional discipline of doctors and other medical professionals, public health monitoring and regulations, as well as coordination of measures taken during public health emergencies such as epidemics

·         The educational and research system, including elementary and secondary schools, universities, specialized colleges, research institutions, the systems for financing and accrediting educational institutions

·         Social welfare systems, including both government support and private charity for the poor, for people in distress or victims of abuse

4.      Cultural, sports and recreational infrastructure

·         Sports and recreational infrastructure, such as parks, sports facilities, the system of sports leagues and associations

·         Cultural infrastructure, such as concert halls, museums, libraries, theatres, studios, and specialized training facilities

·         Business travel and tourism infrastructure, including both man-made and natural attractions, convention centers, hotels, restaurants and other services that cater mainly to tourists and business travelers, as well as the systems for informing and attracting tourists, and travel insurance

Assistance for Entrepreneurship (institutional support to entrepreneurship development)

Concept:

The support provided to the entrepreneurs by various institution like government, non-government, cooperatives and private organization in the form of facilities, incentives and policies that aims to promote, support and facilitate entrepreneurship in a country is known as institutional support or assistance. Entrepreneurship required promotional, supportive and facilitative assistance from various institution to solve and diminish various problem faced by entrepreneurs. Availability of support makes the business environment conducive and enabling for entrepreneur. These may come up in various forms such as loan, access to capital market, market facility and locations, research and development, information flow, training and skill entrancement programs, competency development oriented classes etc.

Need for institutional assistance or support:

Establishing a business is not a small task. In the contest of Nepal it has to be coordinated a lot of channel. Different types of resources and facilities are required in order to establish any business or industry. For example, the adequate of finance, availability of raw material, adequate supply of skillful manpower. Without it, it is only a day dream of person to establish an industry. Small entrepreneurs are unable to make available such facilities by themselves. The main problems that confront entrepreneurs are:

·         Shortage of capital: Poor access to capital and credit

·         Scarcity of raw materials: Unreliable supply sources for inputs

·         Marketing problems: Poor access to market and tough competition. Lack of market information.

·         Lack of opportunities for competency development

·         Lack of access to appropriate infrastructure

·         Poor access to information, research and extension  services

·         Lack of supportive policies and incentives

Institutional assistance to entrepreneurs is mainly needed in the following areas:

a.       Capital resources: entrepreneurs have lack of adequate capital resources. New venture also do not easy assess to capital market instruments. Loans from formal financial institutions such as commercial and development bank and other financial institutions are needed to finance new venture. Besides this international NGO’s also provide loans to target entrepreneur.

b.      Limited market: the domestic market for Nepalese products is very limited due to small size of the country and its population. Besides, this purchasing power of the people is very low. Due to the low development of transportation and communication the products can not be marketed easily through in low cost.

c.       Infrastructure availability: entrepreneurs need infrastructure facilities in terms of industrial sheds, transport, communication, power, water, waste disposal etc. institutions are needed to build infrastructure. Generally government institution, supported by foreign aid, undertakes the task of infrastructure development.

d.      Raw material supply: easy availability of raw material facilities supports entrepreneurial growth. The scarcity of raw materials in the country is also a cause of low industrial investment. New ventures, especially those based on new technology, require raw material from foreign sources. Nepal’s major industries such as woolen carpet, ready-made garments and handicrafts are dependent on imported raw material and intermediated products. The problem of raw material is one of the main reasons for low capacity utilization. Institutions are needed to take care of raw material supply to meet the need of a variety of entrepreneur.

e.       Defective government policies and incentives: entrepreneur needs a sound policy for creating sound industrial environment. But the government policy of Nepal is neither sound nor consistent, nor are they effectively implemented. Government institutions are the prime sources of formulation policies. The industrial policy of Nepalese has reserved cottage and small industries for Nepalese citizens. The legal frame work enacted by the government generally carries a number of incentives for entrepreneurial activities.

f.       Long procedures of bureaucratic: Entrepreneurs have faces a long bureaucratic process. They have complete different processes like, visit different ministries and departments for registering industries for exports of the product. For getting foreign exchange for getting financial support etc. the bureaucracy being inefficient is corrupted as well. Entrepreneurs are needed a sound bureaucratic system.

g.      Access to information, research and development: this is the age of information technology. Information is power. Research and development is the sources of innovation and inventions. Institutions are needed to supply relevant information to entrepreneurs. They are also needed to conduct research and provide extension services relevant to entrepreneurs. Government institutions are important fulfill such needs.

Institutional Assistance to Entrepreneurs in Nepal

Entrepreneurship has remained the backbone of Nepalese economy. But the pace of its growth has remained slow. Majority of entrepreneurial ventures currently remain sick or closed. Institutional support to industries in Nepal is through government agencies, specialized agencies, consultancy services, institutional finance and marketing services.

1.      Government Agencies

·         Ministry of industry

·         Department of industry

·         Department of cottage and small industries

·         Office of the registrar of companies

·         Nepal bureau of standards and metrology

·         Nepal tourism board

2.      Special agencies of government

·         Industrial promotion board

·         One-window committee

·         Nepal industrial development finance

·         Industrial district management limited

·         National productivity and economic development centre

·         Microenterprise, cottage and small industries promotion board

·         Industrial enterprise development institute

·         Private sector associations

3.      Institutional Finance

·         Commercial banks

·         Development banks

·         Micro finance banks

·         Finance companies

·         Rural cooperatives (approved by NRB)

·         Unregulated cooperatives

·         Insurance companies

·         Employee provident fund

·         Citizen’s investment trust

·         Postal saving bank branches

·         NGO microfinance co.

·         Deposit insurance and credit guarantee corporation

4.      Consultancy services:

·         Institute of chartered accountants of Nepal (ICAN)

·         Centre for economic development and administration (CEDA)

·         Nepal engineering consultancy service (NEPECON)

5.      Marketing services

·         Trade and export promotion centre

·         Carpet and wool development board

·         Ready-made garment export promotion committee

6.      Industrial estates:

Balaju, Hetauda, Patan, Nepalgunj, Dharan, Pokhara, Butwal, Bhaktapur, Birendranagar, Dhankuta, Fajbiraj.

Franchising:

Franchising can simply be defined as a form of contractual arrangement in which a retailer (franchisee) enters into an agreement with a producer (franchisor) to sell the producer’s goods or services for a specified fee or commission. It is a form of business ownership created by contract whereby a company grants a buyer the rights to engage in selling or distributing its products or services under a prescribed business format in exchange for royalties or share of profits. The buyer is called the franchisee and the company that sells rights to its business concept is called the franchisor.

Thus, franchising is any arrangement in which the owner of a trademark, trade name or copyright has licensed others to use it in selling goods or services. The franchisee is generally legally independent but economically dependent on the integrated business system of franchisor.

Advantage of Franchising:

1.      Training and guidance: The greatest advantage of buying a franchise is that the franchisor will usually provide both training and guidance to the franchisee. As a result, the like hood of success is much greater for franchisees who have received this assistance than for small business owners in general.

2.      Brand-name appeal: the franchiser’s brand name appeals the customer. The national advertising by the franchisor creates such brand name appeal. The layout, facilities and decorations are standardized.

3.      Financial Assistance: another reason a franchise can be a good investment is that the franchisor may be able to help the new owner to secure the financial assistance needed to run the operation. In fact some franchisors have personally helped the franchisee get started by lending money and not requiring any repayment until the operation is running smoothly. In short, buying a franchise is often an ideal way to ensure assistance from the financial community.

4.      A proven track record: Franchising makes the task of getting started easier because the franchisee gets a business format already market tested and found to work. Hence, buying a franchise is so far safer than trying to start a business.

5.      Increase purchasing power: Franchising may increase the franchisee’s purchasing power also. Because, being part of a large and that too recognized organization means paying less for a variety of things such as supplies equipment, inventory, services, insurance and so on. It also can mean getting better service from suppliers because of the importance of the organization (franchisor) of you is part (franchisee).

Disadvantage of Franchising:

1.      The controlled exercised by the franchisor: Unlike entrepreneurs who start their won business, the franchisees find no room or scope for enjoying their creativity. They have to work as per the given format. A number of restrictions are also imposed upon the franchisees. Restriction may relate to remain confined to product line or a particular geographical location only.

2.      Franchise Fees: the franchisee must may different fees to the franchisor. Such fees are franchisee fee, royalty payment, promotion costs, inventory and supplies cost, and building and equipment cost. the larger and more successful the franchisor, the greater the franchise fee.

3.      Unfulfilled promises: In some cases, especially among less-known franchisors, the franchisees have not received all they were promised. Many franchisees have found that the promised assistance from the franchisor has not been forthcoming. If franchisees complain, they risk having their agreement with the franchisor terminated or not renewed.

4.      No right to sell the business: Franchisees usually do not have the right to sell their business to the highest bidder or to leave it to member of their family without approval from the franchisor.

5.      No goodwill: Though the franchisee can build up goodwill for his or her business by his or her efforts, goodwill still remains the property of the franchisor.

6.      Dependent: The franchisee may become subject to fail with the failure of the franchisor.

7.      Buy back option: Franchisors generally reserve the option to buy back an outlet upon termination of the contract. Many franchisees become vulnerable to this option. As such, they operate under the constant fear of non-renewal of the franchise arrangement.

Types of Franchising:

            Franchising arrangements are broadly classified into three types;

1.      Product Franchising: this is the earliest type of franchising. Under this, dealers were given the right to distribute goods for a manufacturer. For this right , the dealer pays a fee for the right to sell the trademarked goods of the producer. Product franchising was used, perhaps for the first time, by singer Corporation during the 1800s to distribute its sewing machines. This practice subsequently becomes popular in the petroleum and automobile industries also.

2.      Manufacturing Franchising: Under this arrangement, the franchisor (manufacturer) gives the dealer the exclusive right to produce and distribute the product in a particular area. This type of franchising is commonly used in the soft-drink industry.

3.      Business-Format Franchising: this is recent type of franchising and is the most popular one at present. It is an arrangement under which the franchisor offers a wide range of services to the franchisee, including marketing, advertising, strategic planning, training, production of operations manuals and standards and quality-control guidance.

Difference between Franchising and Distributorship or Agency

Distributorship and agency are the more traditional forms of distributing goods or services. Under these, the principal is not allowed to exert the real control over the distributor or agent. Here, the franchising differs from the distributorship and the agency in the sense that it allows the franchisor to exercise a higher degree of control over the franchisee. As a matter of fact, the franchisor has a right to say in all important matters like branding, methodology and mergers.

Strategic Alliances:

A Strategic Alliance is a relationship between two or more parties to achieve a set of agreed goal or to meet a critical business need while remaining independent organizations. An arrangement between two companies that have decided to share resources to undertake a specific, mutually beneficial project is called strategic alliance. In a strategic alliance, each company maintains its autonomy while gaining a new opportunity. A strategic alliance could help a company develop a more effective process, expand into a new market or develop an advantage over a competitor, among other possibilities. Well-structured strategic alliances can improve profitability and allow a company to more easily enters new markets

Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property. The alliance is a co-operation or collaboration which aims for a synergy where each partner hopes that the benefits from the alliance will be greater than those from individual efforts. The alliance often involves technology transfer (access to knowledge and expertise), economic specialization, shared expenses and shared risk.

Stages of Alliance Formation

A typical strategic alliance formation process involves these steps:

• Strategy Development: Strategy development involves studying the alliance’s feasibility, objectives and rationale, focusing on the major issues and challenges and development of resource strategies for production, technology, and people. It requires aligning alliance objectives with the overall corporate strategy.
• Partner Assessment: Partner assessment involves analyzing a potential partner’s strengths and weaknesses, creating strategies for accommodating all partners’ management styles, preparing appropriate partner selection criteria, understanding a partner’s motives for joining the alliance and addressing resource capability gaps that may exist for a partner.
• Contract Negotiation: Contract negotiations involves determining whether all parties have realistic objectives, forming high caliber negotiating teams, defining each partner’s contributions and rewards as well as protect any proprietary information, addressing termination clauses, penalties for poor performance, and highlighting the degree to which arbitration procedures are clearly stated and understood.
• Alliance Operation: Alliance operations involves addressing senior management’s commitment, finding the caliber of resources devoted to the alliance, linking of budgets and resources with strategic priorities, measuring and rewarding alliance performance, and assessing the performance and results of the alliance.
• Alliance Termination: Alliance termination involves winding down the alliance, for instance when its objectives have been met or cannot be met, or when a partner adjusts priorities or re-allocates resources elsewhere.

Advantage of strategic alliance:

The advantages of strategic alliance include:

1. Allowing each partner to concentrate on activities that best match their capabilities.
2. Learning from partners & developing competences that may be more widely exploited elsewhere.
3. Adequate suitability of the resources & competencies of an organization for it to survive.

Disadvantages

Implementing and managing a strategic alliance may be difficult because each alliance partner has a different way of operating. Mistrust could occur, particularly when competitive or proprietary information is involved. The alliance partners could become more dependent on each other, making it difficult to operate again as separate entities if required.

Types of Strategic Alliance:

There are four types of strategic alliances: joint venture, equity strategic alliance, non-equity strategic alliance, and global strategic alliances.

• Joint venture is a strategic alliance in which two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage.
• Equity strategic alliance is an alliance in which two or more firms own different percentages of the company they have formed by combining some of their resources and capabilities to create a competitive advantage.
• Non-equity strategic alliance is an alliance in which two or more firms develop a contractual-relationship to share some of their unique resources and capabilities to create a competitive advantage.
• Global Strategic Alliances working partnerships between companies (often more than two) across national boundaries and increasingly across industries, sometimes formed between company and a foreign government, or among companies and governments.

·         Technology Licensing: this is a contractual arrangement whereby trade marks, intellectual property and trade secrets are licensed to an external firm. It is uses mainly as a low cost way to enter foreign markets. The main downside of licensing is the loss of control over the technology-as soon as it enters other hands the possibility of exploitation arises.

·         Product Licensing: this is similar to technology licensing except that the license provided is only to manufacture and sell a certain product. Usually each licensee will be given an exclusive geographic area to which they can sell to. It’s a lower-risk way of expanding the reach of your product compared to building your manufacturing base and distribution reach.

·         Franchising: franchising is any arrangement in which the owner of a trademark, trade name or copyright has licensed others to use it in selling goods or services. The franchisee is generally legally independent but economically dependent on the integrated business system of franchisor.

·         Research and development: Strategic alliances based around Research and development tends to fall into the joint venture category, where tow or more businesses decide to embark on a research venture through forming a new entity.

·         Distributors: if you have a product one of the best ways to market it is to recruit distributors, where each one has its own geographical area are type of product. This ensures that each distributor’s success can be easily measured against other distributors.

·         Distribution Relationships

This is perhaps the most common form of alliance. Strategic alliances are usually formed because the businesses involved want more customers. The result is that cross-promotion agreements are established. Consider the case of a bank. They send out bank statements every month. A home insurance company may approach the bank and offer to make an exclusive available to their customers if they can include it along with the next bank statement that is sent out. It’s a win-win agreement – the bank gains through offering a great deal to their customers, the insurance company benefits through increased customer numbers, and customers gain through receiving an exclusive offer.

·         Outsourcing

The 1980s was the decade where outsourcing really rose to prominence, and this trend continued throughout the 1990s to today, although to a slightly lesser extent. The early forecasts, such as the one from American Journalist Larry Elder, have been shown to not always be true: “Outsourcing and globalization of manufacturing allows companies to reduce costs, benefits consumers with lower cost goods and services, causes economic expansion that reduces unemployment, and increases productivity and job creation.”

·         Affiliate Marketing

Affiliate marketing has exploded over recent years, with the most successful online retailers using it to great effect. The nature of the internet means that referrals can be accurately tracked right through the order process. Amazon was the pioneer of affiliate marketing, and now has tens of thousands of websites promoting its products on a performance-based basis.

E-Commerce

E-Commerce is establishing exchange relationships electronically through e-mail, internet, and electronic platforms to satisfy individual needs of customers. It is direct marketing based on electronic communication. E-commerce is conducted through on-line computers. E-commerce is the buying and selling of goods and services on the Internet, especially the World Wide Web.  Internet serves as the communication channel.

E-commerce encompasses the use of technologies, processes and management practices that enhance organizational competitiveness through strategic use of electronic information. E-commerce is, thus a modern methodology that addresses the need of organizations merchants, and consumer. It cuts costs while improving the quality of goods and services and increasing the speed of service delivery.

Ecommerce can be broken into four main categories: B2B, B2C, C2B, and C2C.

• B2B (Business-to-Business)
  Companies doing business with each other such as manufacturers selling to distributors and wholesalers selling to retailers. Pricing is based on quantity of order and is often negotiable.
• B2C (Business-to-Consumer)
  Businesses selling to the general public typically through catalogs utilizing shopping cart software.
• C2B (Consumer-to-Business)
  A consumer posts his project with a set budget online and within hours companies review the consumer's requirements and bid on the project. The consumer reviews the bids and selects the company that will complete the project.

·         C2C  (Consumer-to-Consumer)
There are many sites offering free classifieds, auctions, and forums where individuals can buy and sell things to online payment systems like PayPal where people can send and receive money online with ease. eBay's auction service is a great example of where person-to-person transactions take place everyday since 1995

Features of E-Commerce

·         Individualized communication:

·         Data depository

·         E-mail and Electronic platforms

·         On-line selling

·         Relationship marketing

Connectivity through e-commerce:

E-commerce takes a customer concept for individualized marketing. It is rapidly growing.

1.      Connecting with customers:

·         E-commerce connects directly with customers on one to one basis. Voice mail has facilitated interactions with customers. Connectivity can be: Business to consumer (B2C), business to business (B2B), Consumer to consumer (C2C), consumer to business (C2B). Databases are built to provide information about individual customer.  Cost, time, distance and space are minimized.

·         Ecommerce connects with carefully selected customers. It targets profitable customers.

·         E-commerce connects customers for a lifetime. It helps to build relationship to make longer term profits.

2.      Connecting with stakeholders:

·         E-commerce connects with stakeholders, such as employees, suppliers, competitors, middlemen, and marketing intermediaries. Paper work is eliminated

·         E-commerce connects with strategic alliance partners. They can be related to marketing, logistics, technology, finance.

3.      Connecting globally:

·         E-commerce has facilitated connections with global customers. It has expanded geographical coverage of purchasing manufacturing and marketing.

Benefits of e-commerce

E-commerce is win-win situation for the consumer and the product/ service provider. The distinct advantages e-commerce can offer to the consumer are:

·         Consumer has much wider choice available on the cyber market.

·         They can compare products, features, prices and even look up reviews before they select what they went.

·         They also have the convenience of having their orders delivered right to the doorstep.

·         Finally, consumers are driven to e-shopping in hordes as even branded goods cost less on the net.

The major advantages that e-commerce can bring to the companies are:

·         It minimizes inventory cost: E-commerce venture need not maintain huge inventories or expensive retail show rooms. Their marketing and sales force is a fraction of those of traditional mortar-based businesses. E-commerce can minimize inventory costs by adopting just-in-time system enhancing the firm’s ability to forecast demand more accurately.

·         Improve customer services: It has been found that providing both customer and after-sale services account for up to 10 per cent of the operating costs. By putting these services on-line under e-commerce, these costs get reduced, on the one hand, and simultaneously the quality of services also gets improved, on other. High quality customer relationship called customization is crucial for retaining customers in the e-commerce environment. It become necessary for the company to enhance customer loyalty, otherwise the customer, who is full of choices, can jump from one website to another. If company is to stay in business then it will have to deliver the products or services to customer as they want, when they want and how they want.

·         Reduce distribution cost: E-commerce also reduce distribution cost of goods and service. The Electronic Data Interchange (EDI) based on EECD study has revealed that the time needed to process an order declined by a minimum of 50% to maximum of 96% per cent. It is really amazing.

·         Helps business globalize: E-commerce by minimizing costs enables companies’ especially small ones to make information on its products and services available to all the potential customers spread over worldwide.

·         Helps market products more quickly: By taking the entire product design process on-line, drawing partners and customers into the process and removing the traditional communication barriers, companies can bring products and services to market far more quickly.

Challenges of e-commerce

E-commerce in spite of opportunities also bears the challenges as well at the same time. The major challenges of e-commerce facing by small enterprises are mentioned below:

·         Infrastructural problems: infrastructural problem is the main challenge of e-commerce. With out development of modern communication and transportation, e-commerce is not possible.

·         Absence of cyber laws: Another big challenge associated with e-commerce market is the near absence of cyber laws to regulate transactions on the net. WTO is expected to enact cyber laws soon.

·         Privacy and security concern: another challenge related to e-commerce is privacy and security. There is no protection offered either by Website or outside watchdogs against hazard created by exploitation one’s privacy.

·         Digital Illiteracy and consumer awareness: At present, digital illiteracy is one of the formidable problems e-commerce is facing in Nepal. On the other hand, the continuous exodus of skilled computer engineers to other countries has denuded Nepal of software engineers. This has posed a real thereat to the Nepal IT industry.

The consumer does not browse the net knowing the consequent hassles of connectivity and other botherations. Added to this building trust on the electronic media also takes long time more especially when the vendor is situated at a very far off place.

·         Virus Problem: the computer virus is also a major problem in the execution of e-transactions.

·         English specific: the software so far in the country is English specific. But, in order to make e-commerce reach to the small enterprises, it needs to be available in the languages (regional) of the owners of the small enterprises to enable them to adapt e-commerce processes in their operations. Sooner it is done better will be it for small enterprises to adapt e-commerce.

·         Payment issue: the electric payment is made through credit card which could not become popular in Nepal due to the penetration of credit card in Nepal is very low and the Nepali customers are quit skeptical of paying by credit card with the increasing threat of fraud played by hackers. In Nepal credit card could not gain growth mainly because of authentification and recognition problems of electronic signatures.

·         Tax related issue: Tax administration is yet another complex problem in e-commerce. It is difficult to administer tax related matter in e-transactions. It will provide ample scope for tax evasion.

Impact of E-commerce on Entrepreneurship

·         Direct marketing

·         Electronic marketing

·         Cost effective

·         Marketing mix

·         Promotion

·         Strategic alliances

E-commerce strategy for entrepreneurs:

·         Presence: The e-name is registered. The entrepreneur builds excitement about products of the venture in the market place to make its presence felt.

·         Penetration: the entrepreneur focused on gaining greater market share for the products.

·         Profitability: The entrepreneur focuses on increasing revenue.

Ethic and Social Responsibility

In the broadest sense, ethics provide the basic rules or parameters for conducting any activity in an acceptable manner. More specifically, ethics represent a set of principles prescribing a behavioral code that explains what is good and right or bad or wrong.  It is a set of moral principles or values that governs the conduct of an individual or a group. What is lawful conduct is not always ethical conduct. The law may permit something that would be ethically wrong. Business ethics comprises the moral and standards that guide behavior in the world of business.

Business ethics is an important issue today. Business organizations are being questioned and charged for their unethical behavior. Ethical issues arise in every stages of business. Criticisms are being labeled against them for their unethical actions by different sections of the society. Entrepreneurs cannot afford to overlook such criticisms and charges. Their role has thus, increased. They have now to adopt ethical behavior and be responsive. The call for better business ethics is clearly a challenge for managers today.

Some business collapses over the last few years that have exposed the lack of moral code & ethics.  It appears that business needs a core of ethics & integrity to flourish and enjoy long term success.  Ethics are not optional because entrepreneurs work & live with other human beans.

Sources of Business Ethics:

An organization’s ethics is derived from three principal sources:

·         Societal ethics: Societal ethics are standards that govern how members of a society deal with each other in matters involving issues such as fairness, justice, and rights of the individual. The ethical standards originate from a society’s laws, customs and practices. These are basically unwritten valuesand norms of a society. Societal ethics differ from society to society.

·         Professional ethics: Professional ethics are standards that govern how members of a profession like entrepreneurs make decisions.

·         Individual ethics: individual ethics are personal standards and values that govern how individuals interact with on another. Sources of individual values include the influence of one’s family, friends and relatives.

Role of Ethics in Entrepreneurship

·      Ethics have a huge role to play in business as they give a guideline as to which business practices are socially and morally acceptable and which are not.

·      In cases where there are no laid down rules as to the right and wrong ways of doing business, Ethics fill in the gap and give the much needed direction.

·      Awareness of ethics promotes entrepreneurs to stop from engaging in business practices that lead to loss of human life and human rights compromise the environment or bring about gain at the unfair expense of other businesses, employees, consumers, etc.

·      Sound business ethics benefit the consumer as they strive to direct businesses to be open and honest to their customers

Professor David Batstone offers ten Principles for entrepreneurial ethics:

·         Company directors and management will consider their work force valuable team members, not merely hired labor

·         A company will think of itself as a part of a community, not just a “market”

·         A company will take every possible care to ensure the quality and safety of the products it brings to the public

·         A company will treat the environment as a silent “stakeholder,” a party to which it is wholly accountable

·         A company will strive to diversify the kind of people who lead and manage its affairs

·         A company will pursue international trade and production based on reciprocal exchanges that respect the same rights accorded its own people

·         A company will care for an organizational culture that encourages its employees to give critical feedback on unethical practices, and even “blow the whistle” when their voices are ignored

·         A company will protect the privacy rights of its suppliers, customers, and employees

·         A company will deliver what it promises, and promise what it can deliver

·         A company will not seek to generate any revenue from practices that threaten life

Social Responsibility:

The obligation of an organization's management towards the welfare and interests of the society in which it operates is called social responsibility. It is a principle that companies should contribute to the welfare of society and not be solely devoted to maximizing profits. It focuses on what an organization does to society and what it does for society.

Socially responsible companies can act in a number of ways to benefit society. For example, companies can give money to the arts, fund academic scholarships, support community-building initiatives, and so on. They can also commit to not pollute or to reduce the pollution they put out, to not build weapons, and so forth.

Areas of Social Responsibility:

Enterprises have clear and distinct responsibilities to various groups and entities that have a stake in the firms. These include:

1.      Towards Consumers: Consumer plays a important role in the survival and growth of business. Consumers provide sales revenues, the main source of income for a business firm. Therefore, the purpose of a business is to create customer. For that, business has the accountability towards its customers. This includes:

·         Charge reasonable prices for products.

·         Provide quality products, product guarantee, and after sale services consistent with customers’ requests.

·         Truthful and socially responsible advertising

·         Protection against monopoly and restrictive trade practice.

·         Treat customers fairly in all respects of the business transactions

·         Make effort to ensure that the health and safety of consumer will be enhanced by the product and services.

2.      Towards Shareholders: Shareholders are the investors. They together own the business. They contribute capital to the business in the hope of earning dividends and appreciation in share prices. The shareholders are also the members of society. Thence, the accountabilities that a business owes to its shareholders are:

·         Regularity of dividend

·         Disclose relevant information to shareholders

·         Respect shareholders’ requests, suggestions, complaints, and formal resolution

·         Report on social issues ( the amount spent on social and development programmes)

3.      Towards employees: Employees are the vital components of a business firm. They are employed in a business as workers and managers. As workers, they are directly involved in performing the basic and operating organizational functions. Thus, business firm owes responsibilities to these employees on the following counts:

·         Provide legitimate decision-making and policy-making freedom to managers and ensuring their full potential growth.

·         Provide fair wages, bonus and other economic benefits to all employees that improve their living conditions

·         Grant right to form union, giving representation on decision-making bodies

·         Provide working conditions that respect each employee’s health and dignity

·         Institute grievance settling, social security and welfare schemes.

4.      Towards government: government is the agency that governs all the institution and individuals in the country. It is done through promulgation and implementation of appropriate laws and regulations. With this background, business must be responsible to the government in the following ways:

·         Pay tax regularly

·         Follow the guidelines and policies

·         help the government’s efforts to solve national problems

·         purchase treasury bills issued by government

·         Avoid unfair trade practices

·         Help government stop black marketing

5.      Towards Society: Business is operated in a society and has to consider the necessity to improve the quality of life and contribute towards well being of the society. In doing so, business has to fulfill following responsibilities:

·         Make efforts to reduce pollution of any kind

·         Make optimum utilization of natural and national resources

·         Provide maximum employment opportunities

·         Preserve social and cultural values

·         Promote national integration and development

·         Business must act as a good citizen.

Small Business Venturing Exporting:

Exporting is the practice of sending or carrying merchandise to a foreign country for trade or sale. International business is a potentially lucrative area for many businesses, but the small business owner should be aware that establishing oneself in a foreign market is a complex, time-consuming task. Small business should not enter the world of international trade until they have fully researched both their own exporting capabilities and various business conditions in the target market(s) abroad. Indeed, consultants point to a wide range of factors to consider when assessing your company's readiness to expand its business beyond borders. These include company export readiness, potential foreign markets, product distribution options, legal factors, operating costs and profit margin, financing resources, and exporting alternatives (such as joint ventures or off-shore manufacturing facilities).

Exporting is sometimes thought of as a practice that is largely the province of large businesses and international corporations, but exporting can also be helpful to a small business in a variety of ways. A small business that establishes its products in the international marketplace can increase sales and profitability, enhance its domestic reputation, reduce its dependence on domestic markets, reinvigorate the sales potential of existing products, stabilize seasonal market fluctuations, sell excess production capacity, and increase awareness of possible foreign competitors.

Of course, exporting is not a risk-free venture. Expanding a small business's operations into foreign markets may require the development of new promotional materials, assumption of increased short-term debt as a result of new operational and administrative costs, re-assignment of personnel, and adjustments in product functionality and appearance to meet the commercial and social standards of the environment in which the business hopes to establish itself.

Preparing for the World of Exporting:

Small business consultants counsel their clients to undertake research and self-analysis before committing time and resources to breaking into international markets. Indeed, consultants stress that a small business should be able to answer positively to the following questions before considering expanding its business to include exporting:

• Is the business currently successful in its domestic operations?
• Does the business owner understand the types and amounts of investments (time, capital, and people) he or she will have to make to establish the business's product in the targeted market?
• Is the business sensitive to the cultural implications of doing business in the targeted market?
• Is the business willing to commit needed resources to make the exporting effort work?

In order to arrive at an informed answer to the above questions, consultants recommend that business owners with an eye to international markets take the time to complete an international business plan. This document can highlight potential trouble spots and business areas that need further research. Exporting factors that should be considered in any international business plan include:

• Identification of potential market
• Demographic and political environment of potential market
• Economic status of potential market
• Social and cultural environment of potential market
• Access to potential market (includes research on tariffs and other trade barriers, treaties, trade regulations, patent and trademark protection)
• Demand for product
• Possible competition within potential market
• Possible distribution channels
• Local distribution and production environment within potential market
• Exporting methodology
• Any necessary adjustments to product or packaging
• Marketing strategy
• Cost of exporting operation
• Pricing strategy
• Projected sales
• Projected fortunes of domestic operation

Method of Exporting

There are two types of exporting: direct and indirect.

1. Direct exports

Direct exports represent the most basic mode of exporting, capitalizing on economies of scale in production concentrated in the home country and affording better control over distribution. Direct export works the best if the volumes are small. Large volumes of export may trigger protectionism.  Direct exporting practices generally require greater initial outlays of funds, personnel, and other resources, and they are generally regarded as riskier in nature than indirect exporting options. But direct exporting can also be a tremendously profitable practice. It basically requires businesses to find a foreign buyer for its products and make all arrangements to deliver those goods to the buyer.

Types of Direct Exporting:

a)      Sales representatives

Sales representatives represent foreign suppliers/manufacturers in their local markets for an established commission on sales. Provide support services to a manufacturer regarding local advertising, local sales presentations, customs clearance formalities, legal requirements. Manufacturers of highly technical services or products such as production machinery, benefit the most form sales representation.

b)     Importing distributors

Importing distributors purchase product in their own right and resell it in their local markets to wholesalers, retailers, or both. Importing distributors are a good market entry strategy for products that are carried in inventory, such as toys, appliances, prepared food.

Advantages of direct exporting

• Control over selection of foreign markets and choice of foreign representative companies
• Good information feedback from target market
• Better protection of trademarks, patents, goodwill, and other intangible property
• Potentially greater sales than with indirect exporting.

Disadvantages of direct exporting

• Higher start-up costs and higher risks as opposed to indirect exporting
• Greater information requirements
• Longer time-to-market as opposed to indirect exporting.

2. Indirect exports

Indirect exports are the process of exporting through domestically based export intermediaries. The exporter has no control over its products in the foreign market.

Types of Indirect Exporting

a)      Export trading companies (ETCs)

These provide support services of the entire export process for one or more suppliers. Attractive to suppliers that are not familiar with exporting as ETCs usually perform all the necessary work: locate overseas trading partners, present the product, quote on specific enquiries, etc.

b)     Export management companies (EMCs)

These are similar to ETCs in the way that they usually export for producers. Unlike ETCs, they rarely take on export credit risks and carry one type of product, not representing competing ones. Usually, EMCs trade on behalf of their suppliers as their export departments.

c)      Export merchants

Export merchants are wholesale companies that buy unpackaged products from suppliers/manufacturers for resale overseas under their own brand names. The advantage of export merchants is promotion. One of the disadvantages for using export merchants result in presence of identical products under different brand names and pricing on the market, meaning that export merchant’s activities may hinder manufacturer’s exporting efforts.

d)     Confirming houses

These are intermediate sellers that work for foreign buyers. They receive the product requirements from their clients, negotiate purchases, make delivery, and pay the suppliers/manufacturers. An opportunity here arises in the fact that if the client likes the product it may become a trade representative. A potential disadvantage includes supplier’s unawareness and lack of control over what a confirming house does with their product.

e)      Nonconforming purchasing agents

These are similar to confirming houses with the exception that they do not pay the suppliers directly – payments take place between a supplier/manufacturer and a foreign buyer.

Advantages of Indirect Exporting

• Fast market access
• Concentration of resources for production
• Little or no financial commitment. The export partner usually covers most expenses associated with international sales
• Low risk exists for those companies who consider their domestic market to be more important and for those companies that are still developing their R&D, marketing, and sales strategies.
• The management team is not distracted
• No direct handle of export processes.

Disadvantages of Indirect Exporting

• Higher risk than with direct exporting
• Little or no control over distribution, sales, marketing, etc. as opposed to direct exporting
• Inability to learn how to operate overseas
• Wrong choice of market and distributor may lead to inadequate market feedback affecting the international success of the company
• Potentially lower sales as compared to direct exporting, due to wrong choice of market and distributors by export partners.

Those companies that seriously consider international markets as a crucial part of their success would likely consider direct exporting as the market entry tool. Indirect exporting is preferred by companies who would want to avoid financial risk as a threat to their other goals.

Major Constraints

The major constraints encountered by the small units in exporting their products are as follows:

a)      Credit Policy: The small scale units have weak-base of their own funds, on the one hand, and have no access to other sources of funds like capital market, on the other. Hence, they have to depend upon the state financial corporations, the commercial banks and private money lenders to meet their long-term and short-term capital requirements. It requires high cost of capital. Therefore, there should be the need for a comprehensive credit scheme targeted at small industry exports.

b)     Infrastructure: Lack of infrastructure facilities like power supply, transportation and communication adversely affect the quantity and quality of production, its costs and delivery.

c)      Technology: Technology is the heart of quality and competitiveness. However, the adoption of technology in small industries hampered due to lack of infrastructural facilities, on the one hand, and the present investment ceiling of the small scale industry, on the other.

How to Export Commercial Goods into New International Markets

1. Export Planning

2. Screening Potential Markets

·         Obtain export statistics. 

• Identify potential markets. 
•  Target the most promising ones. 

 3. Assessing Your Target Markets 

• Examine product trends
•  Research the competition
•  Analyze the market. 
• Identify barriers. 
•  Choose a market. 

4. Finding Qualified Buyers

• Search online. .
• Attend trade shows. . 
• Contact industry associations. 
• Use the Department of Foreign Affairs and International Trade (DFAIT) Trade Commissioners Service. 

5. Taking Care of Logistics

6. Export Documentation

7. Pricing it Right

·         Cost based. 

• Market demand. 
• Competitor pricing. 

8. Payment Terms

• Cash in advance. 
• Documentary Letters of Credit (LCs). 
• Open account. 

9. Export Financing

 

Entrepreneurial network

In business, entrepreneurial networks are social organizations offering different types of resources to start or improve entrepreneurial projects. Having adequate human resources is a key factor for entrepreneurial achievements. Combined with leadership, the entrepreneurial network is an indispensable kind of social network not only necessary to properly run the business or project, but also to differentiate the business from similar projects.

Purpose

The goal of most entrepreneurial networks is to bring together a broad selection of professionals and resources that complement each other's endeavors. Initially a key priority is to aid successful business launches. Subsequently provide motivation, direction and increase access to opportunities and other skill sets. Promotion of each member’s talents and services both within the network and out in the broader market increases opportunities for all participants.

One of the key needs of any startup is capital, and often entrepreneurial networks focus on providing such financial resources, particularly tailored to their membership demographic.

Entrepreneurial networks may also become community involved, endorsing reforms, legislation or other municipal drives that accommodate their organization's goals.

Membership composition

• lawyers, various specialties
• scientists
• engineers
• architects
• contractors/construction managers
• real estate professionals
• suppliers
• government people or institutions
• partners
• high skilled employees
• clients or any other kind of social contacts that can make the entrepreneurial business (or project) successful
• mentors
• investors

E-entrepreneurship

E-entrepreneurship describes entrepreneurship in e-business. E-entrepreneurship refers to establishing a new company with an innovative business idea within the Net Economy. It uses an electronic platform in data networks. E-entrepreneurship offers its products or services based upon a purely electronic creation of value. We use the term e-entrepreneurship to refer primarily to the digital enablement of transactions and processes within a firm, involving information systems under the control of the firm. E-entrepreneurship does not include commercial transactions involving an exchange of value across organizational boundaries. This value offer by e-entrepreneurship is only made possible through the development of information technology. Example of e-entrepreneurship is Google.com, eBay.com, yahoo.com, amazon.com, etc.

The e-dimension of entrepreneurship incorporates all the key elements of entrepreneurship including risk-taking, proactive, and innovation in building, running and managing e-business. The concept of e-entrepreneurship is not limited to small e-businesses but includes corporate e-intrapreneurship which is embedded in establishing e-infrastructure to do e-business in large organizations. E-entrepreneurship operates in a fast-moving, highly uncertain, unknowable and unpredictable context. It requires change in the traditional concept of entrepreneurship. For example, the traditional notion of entrepreneurship of  being or becoming an expert or finding and protecting a unique knowledge in a niche market, clashes with the fact that e-business knowledge is often short-lived and available to everyone, anytime, and anywhere.

Advantages:

·         The advantage of e-business is its ubiquity, or the ability to transcend geographical constraints and remain accessible from everywhere.

·         The second biggest advantages of e-business are its cost-effective nature. An e-business does away with many processes and costs associated with a traditional business.

·         The e-business also requires fewer employees, with the entrepreneur herself able to single-handedly manage the entire operations of a small or medium e-business.

·         E-businesses help in serving the customer better. In e-business, customer’s access comprehensive information of the desired product or service, make comparisons, and effect the purchase, all with a few clicks of the mouse.

·         The customer of an e-business can access the entrepreneur directly through email or online chat, compared to dealing with the many hierarchical levels, or lengthy telephone holds up when trying to access the customer service department of a traditional business.

Disadvantages:

·        The biggest disadvantage of e-business is its inherent separation from the customer. The customer and the product come face to face in a traditional brick and mortar business. The faceless nature of an e-business causes an issue of trust, which remains hard to resolve.

·        Another big disadvantage of e-business is its unsuitability in many areas or sectors. E-business, for instance, cannot treat a patient.

·        The success of an e-business depends on strong computer systems, updating and maintaining the website, security of e-commerce transactions, reliability of shipping and delivery, and search engine optimization.

·        A far bigger threat is the danger from viruses, Trojans, worms, and other malware.

·        Finally, success of an e-business depends largely on the success of the delivery channel partner. Only those e-businesses that can ensure delivery of the product to the customer in a timely and safe manner can survive.

Success factors

·         Computer Science

It is important to have substantial knowledge about the technologies

·         Information Management

The technological basis provided by CS must be managed and it is important to have knowledge about security, data warehousing, data mining.

·         Business Administration

It is essential to have solid business knowledge

2.1. Entrepreneurship vs. e-Entrepreneurship

entrepreneurship consist on the process of creating something new and assuming the risks and rewards, e-Entrepreneurship will consist on creating owner business activity on internet in some area to sell or provide service something only online, such as email service DVDs, including rental and Books, Computers, T-shirts, Cell phones, Magazine subscription, Software, etc.

Chapter 4

Creativity and Business Ideas

Concept of Creativity:

Creativity is the generation of ideas that result in the improved efficiency or effectiveness of a system. It is the ability to discover new ways of looking at problems and opportunities. Creativity can be defined as the tendency to generate or recognize ideas, alternatives, or possibilities that may be useful in solving problems, communicating with others, and entertaining ourselves and others. It is any act, idea, or product that changes an existing domain or that transforms an existing domain into a new one.

It is the result of free, unbiased and unconventional thinking. It is based on mental vision, imagination and observation. It is systematic and logical process to see, recognize, and create opportunity. It concerned with solving business problem by continually asking “What if….?” or “Why n…?”

In conclusion, creativity is the entrepreneurs’ ability of analyzing problem from every possible angle: what is the problem? Whom does it affect? How does it affect them? What costs are involved? Can it be solved? Would the marketplace pay for a solution?

Aspect of Creativity:

Creativity has two aspects:

1.      Process: creativity process is goal-oriented. It is designed to find solution to a problem. This process occurs in a creative climate.

2.      People: creativity lies in people. They are inherently creative. It is people who determine the solution to a problem. They use following approaches to discover to solve problems:

·                  Adaptive approach: existing solution are adapted to solve problems.

·                  Innovative approach: innovative solution is formulated to solve problems.

Essentials of Creative Climate:

Creativity occurs in a creative climate. Characteristics creative climate are:

·         Trustful management that does not over control.

·         Open communication inside and outside the organization

·         People with variety of personality types.

·         Willingness to accept change.

·         Experimentation with new ideas.

·         Little fear of making mistakes.

·         Merit-based human resource management.

·         Encouragement to ideas through brainstorming, suggestion system etc.

·         Sufficient financial, physical and information resource.

·         Channeling of creativity in various arenas.

Creative Process:

The creative process has four commonly agreed steps:

1.      Background or knowledge accumulation: the first step in creative process is knowledge accumulation. It involves investigation and information gathering to get various perspectives on the problem. People practice the creative search for background knowledge in a number of ways. Some of the most helpful follow:

·         Read in a variety of fields

·         Join professional groups and associations

·         Attend professional meetings and seminars

·         Travel to new places

·         Talk to anyone and everyone about your subject

·         Scan magazine, newspaper, and journals for articles related to subject

·         Develop a subject library for future reference

·         Carry a small notebook and record useful information

·         Devote time to pursue natural curiosities.

2.      Incubation: the second step involves sleeping on the problem. It involves assimilation of knowledge to generate new idea to solve the problem. Creative individuals allow their subconscious to mull over the tremendous amounts of information they gather during the preparation phase. The incubation process often occurs while they are engaged in activities totally unrelated to the subject or problem. It happens even when they are sleeping. Some of the most helpful steps to induce incubation follow:

·         Engage in routine mindless activities (cutting the grass, painting the hours)

·         Exercise regularly

·         Play (sports, board games, puzzles)

·         Think about the project or problem before falling asleep

·         Meditate or practice self-hypnosis

·         Sit back and relax on a regular basis

3.      The idea experience: this phase of the creative process is often the most exciting. In this stage the idea or solution the individual is seeking is discovered. Ideas emerge in a rough form. Idea experience can be speeded up by:

·         Daydream and fantasize about your project

·         Practice your hobbies

·         Work in a leisurely environment (for example, at home instead of the office)

·         Put the problem on the back burner

·         Keep a notebook at bedside to record late-night or early-morning ideas

·         Take breads while working.

4.      Evaluation and implementation: the fourth step is to modify, test or rework on rough ideas to put them in final form. It takes courage, self-discipline and preservance to evaluate and select the ideas. Some of the most useful suggestions for carrying out this phase follow:

·         Increase your energy level with proper exercise, diet, and rest

·         Educate yourself in the business-planning process and all facets of business

·         Test your ideas with knowledgeable people

·         Take notice of your intuitive hunches and feelings

·         Educate yourself in the selling process

·         Learn about organizational policies and practices

·         Seek advice from others

The ideas that pass the test of evaluation are implemented.

The Role of Creativity:

Basically creativity can play important role in following aspect of entrepreneurial work:

·         A creative person can innovate ideas as per the demand of market chance.

·         They can materializing the imagination to mould the change

·         Able to change the domain of thought

·         They can synthesize the ideas from scientific invention to changing demand of people.

·         The leader of the organization is creative they can allow to set the governing rules themselves which can help them to bring new business ideas in the organization.

·         To bring the new ideas in the organization they have to allow trial and error which may cause failure. Creative people may allow such failure in the organizations.

·         Routine work may kill the creativity. People may have different ways to perform particular task. So, they should be flexible in the activities to perform.

Sources of new business ideas:

The sources of new business ideas can be:

1.      Consumers: organization may get new business ideas through regular listening to the customers. Customer complaints or suggestions can lead for the development of new products, services or processes. If we regularly records complaints and try to minimize such complaints it may give a birth of a new product.

2.      Competitors: Entrepreneur always constantly monitors the activities of the competitors. What are competitor’s new products, services or processes? What alteration in the existing system are they binging into the practice? Who are competitors’s dissatisfied customers? That do they want? What new readjustment can help to bring hose to company’s offering? Seeking answers of such questions may help for development of new products, services or process.

3.      Channel members and sales force: these people are very close to the customers. They frequently listen customer complaints and suggestions. They also can notice the inconveniences of customers and competitors activities and offering. They regularly monitor the customer’s evaluation of the offering with respect to competitor’s offerings.

4.      Government: government can be the sources of new product idea. Government agencies may suggest ideas through training or registration activities while entrepreneurs go for registration of the entrepreneurial work. They can pursue different policies and publications for entrepreneurship development in the country. Government can establish different standards and measures for business up gradation which can provide the avenues for new product, service or process development to the entrepreneurs.

5.      Research and developmental work: Entrepreneur can establish a separate unit for regular research and development work, or hire such expert team for a specific research and development work or can find out a new combination of offering uniquely in their day to day activities.

Technique or Method of Idea Generation:

1.      Brainstorming: Brainstorming is a method of idea generation. Its purpose is to solve problem that are new to the organization. In brainstorming, the group meets to generate alternatives. The members present ideas and clarify them with brief explanation. Each idea is recorded on a flip chart. Group members are encouraged to offer any idea that occurs to them, even those that seem too risky and impossible to implement. In this process, criticisms or evaluation of ideas in not allowed. Quantity of ideas is very important. Each individual should not screen his or her ideas.

After a list of ideas has been generated, those most obviously impracticable are eliminated from the list. The quantities of ideas that remain in the list are then kept for serious discussion. This process ultimately lead to a broad agreement on the vital ideas to be considered for implementation.

2.      Reverse Brainstorming: Reverse brainstorming is like brainstorming but in reverse brainstorming criticism is allowed. It is conducted finding the fault of others. Questions are asked how it cannot work or idea can fail.

3.      Brain writing: unlike in brainstorming, the individual in groups write down their ideas on sheets of paper. The papers are then exchanged and other members of the group make modifications and suggestions writhing. Each participant thinks and records ideas individually, without any verbal interaction.

Here are the steps in a typical Brain writing session:

·                Participants sit around a table and each one gets a sheet of paper with the same problem statement written at the top. Just like in traditional brainstorming, also need a moderator for the session.

·                  At the moderator’s signal, each participant has to write down ideas on the sheet of paper. Just like in traditional brainstorming, the ideas should always go unedited.

·                  When time is up (or when everybody’s done), each participant passes the sheet of paper to the participant to the left.

·                  Each participant now reads the ideas that were previously written and a new round starts. Each participant must again come up with new ideas. Participants are free to use the ideas already on the sheet as triggers — or to ignore them altogether.

·                  The group can agree to stop after a fixed number of rounds (such as when sheets come to a full turn around the table) or when participants feel that contributions are exhausted.

·                  After the idea-gathering phase is completed, the ideas are read, discussed and consolidated with the help of the moderator, just like in traditional brainstorming.

4.      Nominal Group Technique: nominal group technique involves a two-stage process. In the first stage, individual work separately. Then, in the second stage, they work as an interacting group to evaluate and choose the alternatives. Thus, the first stages involve generating ideas, goals and alternatives. The second stage involves the group collectively listing and then evaluating the ideas, goals and alternatives generated in the first stage. This technique is very useful for identifying and evaluating options, and solving a problem when no standard is available. It is especially useful because it allows individuals to generate ideas independently and then bring them together to evaluate those ideas.

5.      Free association: Free association is a technique used in psychoanalysis and also in psychodynamic theory. In this method person work through their own material, rather than parroting another’s suggestions considered free association as the first instrument for the scientific examination of the human mind. It is a technique that asks questions about objects or ideas in an effort to develop new ideas. It is five step process:

·            Isolate the element of the problem

·            Find the relationship between these element

·            Record the relationship in an orderly form

·            Analyze the resulting relationship

·            Develop new idea from these patterns

6.      Expert Opinion (Delphi Technique): in this method opinion of experts and experienced person is taken as basis of generating new idea. This method is called Delphi technique. Delphi technique is particularly used for decision making among geographically scattered organization. The experienced and knowledgeable persons are asked to give their opinion through a questionnaire about a particular event and situation. The opinions are, thus, gathered and compiled to get on overall integrated view of the experts on the subject. This integrated version is sent back to the experts for moments and further opinion. This expert opinion, thus, becomes the useful input for generating new idea.

7.      Factual Information: in this method, information is collected to define the problem, identify alternatives, and evaluating the outcomes of these alternatives. In all these activities, information is vital. Decisions, which are based on objective facts and information, are unbiased and more scientific. There is no scope for emotions and social pressures when decisions are based on information. The problem with this approach is that desired information is not available all at time. Access to information requires cost, time and money.

8.      Intuition and Experience: information is not available all the time. Hence, the decision makers use intuitions. They use their hunches, instincts, inner feeling, and previous experience to reach a decision. In situation such as customer complaints, an injury, or a natural disaster, time constraints make this action the only viable choice. Intuition produces good results because they are derived from previous experience.

Business Incubation Program:

A business incubation program is an economic and social development process designed to advice potential start-up companies through a comprehensive business assistance program. It is a business support system that accelerates the establishment of successful business by providing resources and services to the entrepreneurs. The primary goal of business incubation is to produce successful businesses that are able to operate independently and financially viable. It offers services to support the establishment and development of new, small and medium companies. It catalyze the process of starting and growing companies by providing entrepreneurs with the expertise, networks and tools thy need to make their venture successful. It is concerned with:

·               Start up consulting and business planning

·               Consulting in all areas important for business development and growth

·               Consulting for access to financing

·               Training and networking

What does the business incubation program offer?

• Mentoring on Business Basics
• Online Resources for Entrepreneurs
• Financial Management
• Business Plan Development
• Technology Assistance
• Links to Strategic Partners
• Advisory Boards and Mentors
• Access to Networking Activities
• Marketing Assistance
• Legal Advice
• Access to Local Funds

Business Incubator:

A business incubator is an economic and social development entity designed to advise potential start-up companies, help them to establish, and accelerate their growth and success through a comprehensive business assistance program. A business incubator (Business and innovation center) is a physical facility aimed promoting economic development of its community development. Business incubators will provide a variety of resources or resourcefulness which may include the following:

·            Shared premises

·            Business advice

·            Business services

·            Networking

·            Mentoring

·            A full time manager

The importance of Business incubators:

Business incubators support the development of start-ups by providing them with advisory and administrative support services. An incubator's primary objective is to produce successful and financially viable firms that can survive on their own. Early incubators focused on technology companies or on a combination of industrial and service companies, but newer incubators work with companies from diverse industries.

Finance

Incubators help start-ups save on operating costs. The companies that are part of an incubator can share the same facilities and share on overhead expenses, such as utilities, office equipment rentals, and receptionist services. Start-ups can also take advantage of lower lease rates if the incubator is located in low-rent industrial parks. Incubators may also help start-ups with their financing needs by referring them to angel investors and venture capitalists, and helping them with presentations. Start-ups may have better luck securing financing if they have the stamp of approval of incubator programs.

Management

In addition to financial help, start-ups also need guidance on how to compete successfully with established industry players. Incubators can tap into their networks of experienced entrepreneurs and retired executives, who can provide management guidance and operational assistance. For example, a biotechnology start-up would benefit from the counsel of retired pharmaceutical executives who have first-hand experience of the drug development and clinical approval process. Similarly, a restaurant entrepreneur could learn about the difficulties of overseas expansion from retired hospitality-industry executives. Start-ups usually benefit from having respected individuals on their boards of directors and scientific advisory panels, because these individuals bring invaluable connections and experience to the table.

Synergy

The close working relationships between an incubator's start-ups create synergies. Even after the start-ups leave an incubator, the connections and networks established through these relationships can endure for a long time. Start-up entrepreneurs can provide encouragement to one another, and employees may share ideas on new approaches to old problems. Start-ups may plan joint marketing campaigns and cooperate on product development initiatives.

Economy

By helping new businesses prosper, incubators assist in creating long-lasting jobs for their host communities. They create long-lasting jobs for new graduates, experienced mid-career personnel, and veteran executives. This benefits communities and drives economic growth.

Chapter 5:

Business Development Plan for a New Venture.

Business plan is a written statement regarding what the entrepreneur is going to do. It is a guideline regarding what the entrepreneur has wanted to achieve and how has he wanted to achieve. The business plan is a roadmap of proposed new venture of the entrepreneur that describes current status, expected needs and projected results of new venture. It develops the new venture for investment and allocates resources in a coordinated manner. It provides a clear picture about:

·         Business description of new venture.

·         Goal of new venture.

·         Activities to be done in the new venture.

·         Timing of doing the activities and their sequence.

·         Methods of doing the activities.

·         Responsibilities for doing each activity.

·         Resources needed for doing each activity.

·         Projected profit.

A clear and complete business plan is the main document required to mobilize financial resources for new venture. It also serves as a working document once the venture is established. It analyses critical risks. It also presents a time table for implementation of new venture.

Benefits of Business Plan (Value of Business Plan)

The benefits of business plan are as follows:

1.      Risk management: all aspects of the new venture are carefully analysed. This helps the entrepreneur to deal with risks and uncertainties that may arise. It also provides contingency plans for such situations.

2.      Objectivity: the time, effort, research and discipline needed to prepare a business plan forces the entrepreneur to view the venture objectively and critically. Close scrutiny of assumption made about the venture’s success is done.

3.      Communication: the completed business plan helps entrepreneur to communicate with outside parties. Financial sources can use it for investment purposes.

4.      Implementation: the business plan serves as an operational tool for guiding the implementation of new venture toward success.

5.      Control: the business plan establishes standards for performance as bench marks. Actual performance can be compared with standards to take corrective actions.

6.      Efficiency: the business plan improves efficiency of new venture by minimizing waste. Results can be achieved on time within budgeted costs and of desired level of quality

Scope of the business plan:

The business plan may be read by employees, investors, bankers, ventures capitalists, suppliers, customers, advisors, and consultants. Whoever is expected to read and focus? Since each of these groups reads the plan for different purpose, the entrepreneur must be prepared to address all their issues and concerns. In some ways, the business plan must try to satisfy the needs of everyone, whereas in the actual marketplace the entrepreneur’s product will be trying to meet the needs of selected groups of customers.

However, there are probably there perspectives that should be considered when preparing the plan.

·         Entrepreneur’s perspective: the perspective of the entrepreneur, who understands better than anyone else the creativity and technology involved in the new venture. The entrepreneur must be able to clearly articulate what the venture is all about.

·         Marketing perspective: entrepreneur will consider only the product or technology someone would buy it. Entrepreneurs must try to view their business through the eyes of their customer.

·         Investor perspective: the entrepreneur should try to view his or her business through the eye of the investor. Sound financial projections are required. If the entrepreneur does not have the skills to prepare this information, then outside sources can be of assistance.

The depth and detail in the business plan depend on the size and scope of the proposed new venture. Thus, differences in the scope of the business plan may depend on whether the new venture in a service involved manufacturing or is a consumer good or industrial product. The size of the market, competition, and potential growth may also affect the scope of the business plan.

Reasons of some business fail:

Generally a poorly prepared business plan can be blamed to fail due to one or more of the following factors:

·         Goal set by the entrepreneur are unreasonable

·         Goals are not measurable

·         The entrepreneur has not made a total commitment to the business or to the family.

·         The entrepreneur has no experience in the planned business.

·         The entrepreneur has no sense of potential threats or weakness to the business.

·         No customer need was established for the proposed product or services.

Setting goals requires the entrepreneur to be well informed about the type of business and the competitive environment. Goals should be specific and not so mundane as to lack any basis of control.

In addition, the entrepreneur and his or her family must take a total commitment to the business in order to be able to meet the demands of a new venture. For example, it is difficult to operate a new venture on a part time basis while still holding on to a full time position. And it is difficult to operate a business without an understanding from family members as to the time and resources that will be needed. Lenders or investors will not be favorably inclined toward a venture that does not have full time commitment. Moreover, lenders or investors may expect the entrepreneur to make a significant financial commitment to the business even if it means a second mortgage or a depletion of saving.

Generally, a lack of experience will result in failure unless the entrepreneur can either attain the necessary knowledge or team up with someone who already has it.

The entrepreneur should also documents customers’ needs before preparing the plan. Customer needs can be identified from direct experience, letters form customers or marketing research. A clear understanding of these needs and how the entrepreneur’s business will effectively meet them is vital to the success of the new venture.