ENTREPRENEURSHIP DEVELOPMENT (MODULE-I)

Edited by: MANAV SIR

(Faculty: PMEC & Research Scholar: Berhampur University)

Module I: Understanding Entrepreneurship

Concept of Entrepreneurship, Motivation for Economic Development and Entrepreneurial
Achievement, Enterprise and Society, Why and how to start Business – Entrepreneurial traits and
skills, Mind Vs Money in Commencing New Ventures, Entrepreneurial success and failures,
Environmental dynamics and change.

Entrepreneurial Process
Step by step approach to entrepreneurial start up, Decision for Entrepreneurial start up.

CONCEPT OF ENTREPRENEURSHIP
What Is Entrepreneurship?
Entrepreneurship can be defined by describing what entrepreneurs do. For example:
"Entrepreneurs use personal initiative, and engage in calculated risk-taking, to create new
business ventures by raising resources to apply innovative new ideas that solve problems, meet
challenges, or satisfy the needs of a clearly defined market."
But as the following definitions state, entrepreneurship is not restricted to business and profit:
"Entrepreneurship involves bringing about change to achieve some benefit. This benefit may be
financial but it also involves the satisfaction of knowing you have changed something for the
better. "Entrepreneurship is essentially the act of creation requiring the ability to recognize an
opportunity, shape a goal, and take advantage of a situation. Entrepreneurs plan, persuade, raise
resources, and give birth to new ventures."

Who Are Entrepreneurs?

The word „Entrepreneur‟ has been taken from the French word. It means Between Takers.
Entrepreneur is another name of Risk Taker. An entrepreneur is an individual who takes
moderate risks and brings innovation. Entrepreneur is a person who organises/ manages the risks
in his/her enterprise. “Entrepreneur is a individual who takes risks and starts something new”
Definition
Let us now study some important definitions of the term ‘Entrepreneur’.
1. Richard Cantillon : “An entrepreneur is an agent who buys factors of production at certain
prices in order to combine them into a product with a view to selling it at uncertain prices in
future.”
2. J. B. Say: “An entrepreneur is the economic agent who unites all means of production, the
labor force of the one and the capital or land of the others and who finds in the value of products
his results from their employment, reconstitution of the entire capital that he utilizes and the
value of the wages, the interest and the rent which he pays as well as profits belonging to
himself.”
3. Joseph Schumpeter: “Entrepreneur is an individual who carries out new combines of means of
production by which there occurs disequilibrium.”
4. Peter Drucker: “Entrepreneur is one who always searches for change, responds to it and
exploits it as an opportunity. Innovation is a specific instrument of entrepreneurship. It is an act
that endows resources with a new capacity to create wealth; innovation indeed creates a
resource.”

Difference between Entrepreneurship and Intrapreneurship

Intrapreneurship is the change initiatives taken within a going concern by the people working in
that organization. Hisrich and Peters define. “Intrapreneurship is the entrepreneurship within an
existing organization”. The definition implies that new initiatives, creativity, and dynamism that
augment the organizational competence are intrapreneurship.
Skinner and Ivancevich observe, Intrapreneur is an entrepreneurial person employed by a
corporation anti encouraged to be innovative and creative’.
The expats suggest that intrapreneurship is such a thoughtful and creative initiative taken by the
person working in the organization that eventually ensures organizational success, progress,
competitive edge and market sustainability.

Therefore Intrapreneurs are usually found in enterprises that encourage experimentation, tolerate
failure, recognize success and share the wealth. Thus, it bridges the gap between science and
market place.
Businesses today are facing hyper competition. They need Intrapreneurial spirit to bridge the gap
between the demand of the market and the productive capacity of the organization.
Thus, organizations have to increase the creativity and innovation to sustain in the competitive
market successfully.
Therefore organizations use reward motivation, training and development, recognition,
incentives etc. to encourage incumbents to be innovative and creative so that it may get
competitive method, process, product and others to win and sustain in the market.
Intrapreneurship is the entrepreneurship within the organization undertaken by the working
people for making the organization competitive and sustainable in the present market and open
economy Entrepreneurship and Intrapreneurship sound similar but they have got difference in
their meaning and significance.
Under this context, we can show the differences between these two concepts in the following
bifurcated manner;
Differences between Entrepreneurship and Intrapreneurship
Points of difference Intrapreneurship Entrepreneurship

Definition Intrapreneurship is the Entrepreneurship is the dynamic

entrepreneurship within an existing process of creating incremental
organization. wealth.

Core objective To increase competitive strength To innovate something new of

and market sustainability of the socio economic value.
organization.

Primary motives Enhance rewarding capacity of the Innovation, financial gain tad
organization and autonomy. independence.

Activity Direct participation, which is more Direct and total participation in the
that delegation of authority. process of innovation. _

Risk Hears moderate risk. Bears all types of risk.

Status Organizational employee expecting Free and sovereign person doesn’t

freedom in work. bother with status.

Failure and mistakes Keeps risky projects secret unless it Recognizes mistake and failures so
is prepared due to high concern for as to take new innovative efforts.
failure and mistakes.

Decisions Collaborative decisions to execute Independent decisions to execute

dreams. dreams.

Whom serves Organization and intrapreneur Customers and entrepreneur

himself. himself.

Family heritage May not have or a little Professional or small business

 professional post. family heritage.

Relationship with Authority structure delineates the Basic relationship based on

others relation. interaction and negotiation.

Time orientation Self-imposed or organtzauonally There is no time bound.

stipulated time limits.

Focus of attention Technology and market. Increasing sales and sustaining

competition.

Attitude towards Follows self-style beyond given Adaptive self-style considering

destiny structure. Structure as inhabitants.

Attitude towards Strong self-confidence and hope Strong commitment to self-initiated

destiny for achieving goals. efforts and goals.

Operation Operates from inside the Operates from outside the

organization. organization.

Concept of Entrepreneurship:
The term ‘entrepreneur’ is derived from the French verb ‘enterprendre’. The meaning of this
verb is to undertake. The term ‘entrepreneur’ was applied to the leaders of military expeditions in
the early 16th century. Later on it was used to cover the contractors undertaking the civil
contracts of construction of bridges, dams, roads, etc. In the beginning of the 18th century the
term was used to refer to the economic activities. In France the farmers doing the farming
activity on commercial basis were also considered as entrepreneur. Thus we find that the
meaning of the term ‘entrepreneur’ has changed over a period of time from the leader of military
expeditions to individuals doing business by bearing the risk.
According to J.B. Say, “Entrepreneur is an Economic agent to unite all the means of
production”. An entrepreneur is an individual who takes moderate risks and brings innovation.
An entrepreneur is a person who has possession of a new enterprise, venture or idea and
assumes significant accountability for the inherent risks and the outcome.
An entrepreneur is "one who undertakes an enterprise, especially a contractor, acting as
intermediately between capital and labor." Some facts about entrepreneurs and
entrepreneurship:
Examine needs, wants, and problems to see how they can improve the way needs and wants are
met and problems overcome.
Narrow the possible opportunities to one specific "best" opportunity.
Think of innovative ideas and narrow them to the "best" idea.
Research the opportunity and idea thoroughly.
Enlist the best sources of advice and assistance that they can find.
Plan their ventures and look for possible problems that might arise.
Rank the risks and the possible rewards.
Evaluate the risks and possible rewards and make their decision to act or not to act.
Never hang on to an idea, no matter how much they may love it, if research shows it won't work.
Employ the resources necessary for the venture to succeed.
Understand that they will have to work long and hard to make their venture succeed.
Realize a sense of accomplishment from their successful ventures and learn from their failures to
help them achieve success in the future.

Entrepreneurship is a fresh subject of research in educational area which is used in different

manner. It is a broad term scattered in diverse fields as economics, psychology, and sociology.
Various economists, sociologists and psychologists have used different approaches to explain the
concept of entrepreneurship. These approaches are summarized below:
1. Economic Approach:
Economists like Richard Cantillon, Adam Smith, J.B. Say, Carl Menger, Joseph Schumpeter
have explained the concept of entrepreneurship from the economic point of view. According to
the economic approach entrepreneurship is the process of initiating a new venture by organizing
the resources required and accepting the risk involved therein. Entrepreneurship and ultimately
economic development takes place when the economic condition is favorable.
An entrepreneur buys the factors of production at a certain price, converts them into products and
sells them at an uncertain price. Thus, economists have emphasized two main aspects, viz.
innovation and risk bearing. The entrepreneurs create new things, use new technology, find new
sources of raw material, source of new markets and so on. By the innovation function
entrepreneurs make available new products to the people and help to raise their standard of
living.
2. Sociological Approach:
Sociologists have emphasized the impact of social system, ethics, values, customs, and
perception on entrepreneurship. They hold that entrepreneurship flourishes in those societies,
which recognize the services of entrepreneurs respect them and give approval to the business and
wealth creation. According to them entrepreneur represents society’s model personality.
3. Psychological Approach:
According to the psychological approach entrepreneurship is influenced by factors like high
achievement, motive, self-reliance, creativity, and desire to regain the lost status. The
psychological approach is developed by Macmillan and Hansen.
4. Modern Approach:
The modern approach states that entrepreneurs have to function under adverse conditions. There
is a scarcity of labor, shortage of capital and uncertain market. Hence they require possessing
organizing skills, innovative ability, decision making ability, risk bearing capacity.

In previous time, more emphasis was given to the consumerist individual and to assess the
driving force to initiate new projects, establish firms and face the challenges. conference of
entrepreneurship held in USA, elaborated Entrepreneurship as the attempt to create value
through recognition of business opportunity, the management of risk taking appropriate to the
opportunity and through the communicative and management skills to mobilize human, financial
and material resources necessary to bring a project to fruition. The relationship between
entrepreneur and entrepreneurship are used exchangeable and it is shown in figures below:

Presently, entrepreneurship researchers investigate the incentive behind entrepreneurial activity

within specified groups who can do new business. The growth of new enterprises attracts many
researchers to discover the important facts and clarify the causes of success for some companies
than others.
Entrepreneurship Stimulants
A variety of social, economic, political and cultural factors are stimulating entrepreneurial
activity and thus generating more robust economic development. These stimulants are as
follows:
1. An increasing focus on capital formation. Availability of capital is a stimulant to an
entrepreneur to start a new firm and/ or give birth to a new idea.
2. The ability to transform scientific and technical developments through new institutional
development is a second stimulant.
3. A third stimulant is the supportive government programmes.
4. Availability of required training and inputs is the fourth stimulant.
5. A collaborative relationship between business and research and their direct attempts to transfer
technology to the market place may provide stimulus to a number of entrepreneurs who seek the
opportunity to commercialize their ideas.
6. Finally, an endeavor to create an environment conducive to innovation will provide a much-
needed stimulant to entrepreneurial activities.
The innovation centre provides technological evaluation, entrepreneurial assessment and other
related assistance to entrepreneurs.
Barriers:
Newly emerging industries, particularly of the first-generation entrepreneurs, even in the
underdeveloped economies are slowly but certainly tending to become high investment
industries and the entrepreneurs have to battle against a formidable force of hostile elements,
such as
(i) Erratic shortages of raw materials,
(ii) Flourishing black market,
(iii) Trigged up prices by monopolists,
(iv) Administrative mal-distribution,
(v) Gaps between official promise and performance,
(vi) Inefficiency of industrial management,
(vii) Irresponsible attitude to work,
(viii) Rising cost of capital and credit,
(ix) Deficient and arrogant institutional banking,
(x) Inadequacy of common services,
(xi) Primitive wholesale and retail trade outlets and others. New entrepreneurship in India has to
be cradled in this environment.
The present stage of entrepreneurship development programmes as a factor contributing to the
industrialization of backward and other areas needs a proper direction and organisation for
making it more effective and purposeful. The contribution of entrepreneurship development
programmes is very uneven among different regions and definite programmes need to be chalked
out to bring about some degree of uniformity and up gradation.
Before these problems are tackled, some important issues need immediate attention, for example,
(1) structure and composition of entrepreneurship development programmes;
(2) Areas of operations;
(3) Fixing of priorities;
(4) Follow-up;
(5) Spatial dispersal of the entrepreneurship development programmes;
(6) Training of trainees;
(7) Financing pattern.
Apart from these, some of the operational problems experienced in the course of implementing
the entrepreneurship development programmesare listed below:
(1) Past experience has shown that the supporting agencies/organizations either tend to be
slipshod in the first phase or are less interested in the third phase which means that the
programme fails to tap the entrepreneurial potential of the area or the trained entrepreneurs do
not receive the support and counseling which they need most.
(2) Most of the existing support organizations meant for maintenance operations are not for
innovative functions. There is also an element of cynicism. A reorientation in the attitude of
supporting organizations is called for.
(3) Poor investment on the part of institutions as also trainees and wrong selection of target
groups contributed largely to the failure of a number of entrepreneurship development
programmes.
(4) Experience revealed that entrepreneurial failures are mostly due to incompetence and poor
management.
(5) It is also said that there is an inherent inability to identify the needs of institutions and
differences of opinion prevailed amongst the practitioners and also amongst the trainees.
(6) It is also stated that there is a low institutional commitment for local support to the
entrepreneurs. There is also a very low level of Involvement in the marketing of the products of
the units.
(7) Non-availability of various inputs, i.e., raw materials, power etc., and infrastructure support
combined with poor follow-up by the primary monetary institutions resulted in the failure of the
entrepreneurship development programmes.
(8) It is also stated that there is ill-planned training methodology, inconsistency in the
programme design, its content, sequence and theme and the focus of the programme is not clear.
(9) Training institutions do not have much concern for the objective identification and selection
of entrepreneurs and the follow-up after training.
(10) Some of the institutions are still debating whether to have a proper identification and
selection of entrepreneurs for preparing successful entrepreneurs.
(11) Those involved in and concerned with the selection and follow-up activities have either
limited manpower support or a narrow linkage with other support agencies.
(12) It is also said that there is no standard curricula even in terms of a broad module being
adopted by interventions.
(13) A majority of institutions engaged in the entrepreneurship development programmes are
themselves not convinced of what they are doing as the task is delegated by the government. As
a result, the social objective aimed at is not achieved.
(14) Perpetual ambiguity in the objectives of entrepreneurship development programmes seems
to have percolated to the grass root level with a significant deterioration in terms of content and
interest.
(15) It has also been realized that absence of an appropriate industrial and commercial climate
coupled with lack of information and access to relevant technology has acted as a great handicap.
(16) Mechanical implementation of entrepreneurship development programmes, as it is
happening in many cases, will not solve the problems. The mechanical approach may help them
(entrepreneurs) to initiate the entrepreneurial development activity but they may not be able to
manage it and expand it successfully.

Qualities of Successful Entrepreneurs (Characteristics of Entrepreneurship):

What makes entrepreneurs successful in their venture? Different experts have identified a
number of qualities of successful entrepreneurs; some of these important qualities have been
described below-
1. Innovation: Schumpeter has regarded ‘innovation’ as a main function of the entrepreneur.
Innovative entrepreneurs are required for achieving the rapid economic progress of a country.
Innovation is concerned with introduction of new products, adopting new technology, opening a
new market or discovering a new source of raw materials, creating a monopoly in the industry or
breaking the existing monopoly etc. Ratan Tata’s Nano car is best example of innovation.
2. Risk Assumption: Risk bearing is second important function of an entrepreneur. There is a risk
in every enterprise. The risk may arise due to natural calamities, changing government policy,
changing tastes of customers, increasing competition etc. The entrepreneur has to bear all these
risks and uncertainties in business. The success is not guaranteed in business. The entrepreneur
should take a calculated risk.
3. Decision making: Decision making is another important function of an entrepreneur. The
entrepreneur has to take decision as to selection of site, nature of product, technology to be used,
raising of capital, expansion of business etc. A successful entrepreneur is one who can take the
decision promptly and accurately.
A wrong, delayed decision may result into heavy loss. A business opportunity may be lost due to
delay in making decision.
4. Organizing: An entrepreneur has to collect the various factors of production viz. land, labor,
capital etc. and create an organization to undertake the production / trading activity. He is
required to possess good organizing skills. Organizing has become a difficult task in modern
times.
5. Management: An entrepreneur has to manage the activities of the enterprise in an effective
manner. He has to plan, co-ordinate and control these activities with a view to achieve the
business goals.
6. Ambition: Successful entrepreneurs have high ambitions about their venture. They want to
achieve high goals in business. Due to this high ambition or high achievement motive, they are
able to overcome the obstacles in their business, turn misfortunes into fortunes, suppress
anxieties and find out new ways and means.
7. Creativity: Successful entrepreneurs are creative or innovative in their task. They do new
things, manufacture new goods, find new sources of materials, use new methods of production,
and search new markets and so on. They do not invent new things but use these inventions for
producing new goods and services.
Tata Motor’s Nano car shows the innovativeness of Ratan Tata.
8. Self-confidence: Successful entrepreneurs have confidence in their skills and abilities. They
are sure about success in their business. They do not hesitate to launch new products, expand and
diversify their business. They are confident of overcoming any unanticipated problem and
survive in the adverse conditions.
9. Foresight: The successful entrepreneurs have a good foresight. They forecast the future
business environment i.e. how will be the likes and dislikes of customers, what will be the state
of technology and prepare a plan of action accordingly. Foresight helps them to cope up with
future environment effectively and stay ahead of others in the industry. Ratan Tata started
manufacturing of consumer cars after anticipating a sharp decline in the demand of heavy
commercial vehicles.
5. Hard work: If the entrepreneurs desire to succeed in their enterprise, they should be prepared
to work hard. They should work untiredly for hours together, be ready to do any kind of work in
their business. They should always remember that hard work fetches good fruits.
6. Emotional balance: There are always ups and downs in the business.
Sometimes you make profit; on other times you incur loss. But if you wish to succeed in
business, you should control emotions. Successful entrepreneurs neither get carried away due to
huge profit nor loose their hearts due to a heavy loss. They maintain emotional balance. They
treat these situations as normal features of business and remain calm and quiet.
7. Decision-making ability: The successful entrepreneurs have good decision making ability.
They make decisions promptly and accurately. The decision making ability helps them to solve
the business problems satisfactorily and exploit the opportunities. Decision-making is an
important function of entrepreneurs.
8. Courtesy: The successful entrepreneurs deal with the customers, vendors, employees,
government officials and the general public in a courteous manner.
Courtesy and modesty leads them to success.
9. Communication skill: Communication skill is another important quality of successful
entrepreneurs. With good communication skill entrepreneurs are able to convince effectively
their ideas, thoughts and job requirements to the employees and get the work done in a better
manner.
10. Good character: The character of an entrepreneur has become an important quality in modern
business. Today no enterprise can survive for a long time by following unethical and fraudulent
practices. Character is the result of cultural values.
11. Motivational ability: The successful entrepreneurs have ability to motivate the employees.
They can extract best work from them and achieve high goals. Motivational ability is also
required for getting the expected response from the customers, vendors and the government.
Consider again Ratan Tata, who ably motivated the vendors to supply components at a lower
price for the Nano car project.
12. Opportunist: The successful entrepreneurs are opportunists. They seek opportunities and
exploit them. They convert ‘problems’ into opportunities, i.e. polluted water may be a problem
for the general public but it is a golden opportunity for the entrepreneur to treat the water and
provide packaged pure drinking water.
13. Patience: The successful entrepreneurs have a lot of patience. They are not affected by
adverse situations like temporary failure, low consumer response, labor problems etc. They
continue to work hard and do not run away from the business. They are confident of achieving
success after some initial period.

Negative aspects:
Though an entrepreneur is his own boss, in some respects he is not. It is so because he is
constrained by various people like his financiers, laborers, suppliers, customers and so on.
He may have to face frustration since the scope of his operations is limited by his limited
resources.
He has to work long and hard hours from morning to dusk and his venture tends to absorb all his
energy and time. This may affect his social and family life.
At times he may have to face disappointments and frustrations since everything in his venture
may not always work the way he would like it to.
He has to always work with tension since there is always the risk of failure.

Factors affecting Entrepreneurship growth:

1. Economic factors
2. Social factors
3. Cultural factors
4. Personality factors
5. Psychological and sociological factors.

Economic Factors:
Lack of adequate basic facilities
Non- availability of capital
Non- availability of raw materials and finished goods.
Greater risk involved in business
Non- availability of skilled labour

Social factors
Customs and traditions
Rationality of the society
Social system
Social set-up

Personality Factors
Suspect personality
Emergence of planning

Types of Entrepreneurship:
1. Innovative Entrepreneur:
Innovative entrepreneurs are motivated by the idea of doing something new. They welcome the
advancements in science, technology and research fields. They make commercial use of
inventions and introduce new products, which hitherto were not used by customers, e.g.
increasing prices of petrol – diesel and their reducing supplies motivate them to launch LPG or
electric battery operated motorcars. Innovative entrepreneurs form a large number in developed
countries like U.S.A., France, and Germany etc. It is only because of the innovative
entrepreneurs the society gets new products like i-phone, electric battery driven car and standard
of living of people is improved. The favorable environment in terms of educational,
infrastructural facilities, availability of huge funds and the latest technology, increased needs of
people in developed countries enables the entrepreneur to innovate.
2. Imitative Entrepreneurs:
The tendency of imitative entrepreneurs is just reverse of that of innovative entrepreneurs. They
do not innovate but imitate the products and policies of innovative entrepreneurs functioning in
developed country.
Underdeveloped or developing countries require imitative entrepreneurs more than the
innovative entrepreneurs. The environment in these countries is not conductive for innovation.
There is a scarcity of funds, materials, labor in these countries. The level of research is low,
technology is quite old and the needs of people are limited.
The entrepreneurs, therefore, cannot assume the risk of innovation. They take moderate risk and
are content with limited income. Sony Corporation of Japan first launched a pocket cassette
recorder ‘Walkman’ when it received tremendous response; the other entrepreneurs imitated it
and started manufacturing such product.
3. Fabian Entrepreneurs:
These entrepreneurs take great precaution and are of suspicious mind in experimenting any
change in their enterprises. They conduct the business in a routine manner and are ready to
change only when they feel that failure to change would affect their position. They do not
welcome the changes.
They are lazy and indifferent towards the enterprise. They have moderate ambitions.
They are happy in carrying on their family business in a traditional manner. They are not
prepared to expand or change their business. Their traditional outlook is detrimental to the
progress of the country.
4. Drone Entrepreneurs:
These entrepreneurs stick up to the old values, customs and traditions. They are not willing to
effect changes in their enterprise, rather they oppose such changes. They blindly follow the
traditional methods of business even when it causes loss to them. Their attitude affects the
profitability, competitiveness and productivity of their enterprises.
5. First generation Entrepreneurs:
These entrepreneurs have no entrepreneurial background. They do not inherit entrepreneurship
from their earlier generation. They are first generation entrepreneurs in their family, e.g.
Late Dhirubhai Ambani was a first generation entrepreneur. His father and forefathers had no
business background. The first generation entrepreneur has to face a number of difficulties in
their enterprise. Their fund raising capacity is limited. No doubt these entrepreneurs have
acquired high knowledge and experience in their field. They are technocrats and have a strong
desire of starting their own enterprise. In most of the cases, they come from ordinary family and
lower castes.
First generation entrepreneurs should be encouraged since they create self-employment
opportunities and provide employment to others also.
6. Entrepreneurs by Inheritance:
Some persons become entrepreneurs by inheritance. They inherit entrepreneurship from their
earlier generations, e.g. Ratan Tata inherited entrepreneurship from J.R.D.Tata and Jamshetji
Tata. Due to entrepreneurial heritage these entrepreneurs have some inborn qualities of
entrepreneurship. They are brought up in the entrepreneurial environment. The ownership and
control of enterprise comes to them from their ancestors. The entrepreneurial culture is imbedded
in them from childhood. Since they belong to affluent families they are able to secure higher
education and advanced training.
They get an opportunity of apprenticeship in their family business. With this background they
can easily become entrepreneurs. There are certain disadvantages of this type of entrepreneur,
i.e. they create monopoly in the business, & the economic power is concentrated in few hands.
With their strong economic power they can influence the decision of the government etc.
However, these entrepreneurs are required to lay the foundation of industries and pave the way
of progress in the underdeveloped countries.
7. Urban Entrepreneurs:
These entrepreneurs come from urban areas. They get ample opportunities of higher education in
cities. The environment in cities is favorable to entrepreneurial growth. In urban areas, there is a
vast scope for starting enterprises in various fields. Adequate infrastructural facilities,
availability of skilled labor, regular supply of raw materials, provision of financial credit and
availability of large market enables the urban people to become entrepreneurs.
8. Rural Entrepreneurs:
These entrepreneurs are having their enterprises in rural area. They are engaged mostly in
traditional businesses, agriculture and village industries. They utilize the natural resources
available in local place and manufacture the goods required by the society. They can also provide
services required in rural area. They have to face a number of problems like shortage of capital,
lack of modern technology, skilled labor shortage and inadequate infrastructural facilities in
running their enterprises.
9. Foreign Entrepreneurs:
The entrepreneurs going out of their country and those coming from abroad in our country are
called as foreign entrepreneurs, e.g. Suzuki Company of Japan manufacture motor vehicles in
India. The world famous Indian hoteliers are less seen in industries requiring heavy manual
work.
They are less mobile as compared to male entrepreneurs. The negative attitude of society has
restricted the growth of women entrepreneurs. Even in 21st century males are treating women as
weak in all respect and have reservations about their role and capacity.
10. Individual Entrepreneurs:
These entrepreneurs start an enterprise by investing own funds and manage it themselves. If
required, they employ a few employees. They are sole operators. These entrepreneurs are found
on a large scale in small business, small industries, village and cottage industries. They become
entrepreneurs on the strength of their education, technical knowledge, skill and capital. There are
limits to the growth of their enterprises.
11. Institutional Entrepreneurs:
When a number of individuals come together and form a partnership company or co-operative
society to carry on some business, they are called institutional entrepreneurs. In institutional
entrepreneurs, the resources, knowledge and skill of a large number of individuals are pooled
together. Hence these entrepreneurs can do business on a large scale. Institutional entrepreneurs
are essential for carrying on business requiring huge amount of capital for reaping the benefits of
large scale operations.
12. Technological Entrepreneurs:
They are high-tech entrepreneurs. They have acquired advanced technical knowledge and are
interested in using this knowledge for business purpose, e.g. software engineers.
Vitthal Kamat has opened hotels in foreign countries. These entrepreneurs want to establish their
presence in the world, exploit business opportunities in foreign countries. The number of foreign
entrepreneurs has increased significantly due to the globalization policy followed by various
countries in last two decades.
13. Male Entrepreneurs:
On the basis of gender differences, the
entrepreneurs may be classified into two types, viz. male entrepreneurs and women
entrepreneurs. Male entrepreneurs are found on a very large scale because of the
male dominated societies across the world. Male entrepreneurs are hard workers,
ambitious and are functioning in all fields. They assume high risk; they start hightech
business. The extent of mobility is high in case of male entrepreneurs. They
are ready to go anywhere in the world.
14. Women Entrepreneurs:
In recent years, the number of women
entrepreneurs is increasing at a rapid rate. Women liberation movement, spread of
education in women, increasing awareness of women’s rights and family need have
contributed to the growth of women entrepreneurs. Women entrepreneurs have to
perform the same functions as the male entrepreneurs. However, women, by nature,
are more sensitive, less ambitious, moderate risk takers and have physical limitations.
Due to shortage of capital, lack of high technology, they enter into traditional business.

Other types:
1. Administrative Entrepreneurship.
2. Opportunistic Entrepreneurship.
3. Acquisitive Entrepreneurship.
4. Incubative Entrepreneurship.
5. Imitative Entrepreneurship.
6. Private Entrepreneurship.
7. Public Entrepreneurship.
8. Individual Entrepreneurship.
9. Mass Entrepreneurship.

They are discussed in a nutshell below:

1. Administrative Entrepreneurship
The entrepreneurial activity under this category is centered around administrative techniques and
functions. It gives a new option to handle prevailing or future situations in a more effective way
that provides advantages and competitive edge.
Total Quality Management, job redesigning, new techniques of doing things, participative
management or management by consensus is a few of the examples of administrative
entrepreneurship that increases overall organizational efficiency and that nukes the firm
successful and sustainable in the competitive market environment.
The old age pension scheme is such an administrative entrepreneurship of the government of
Bangladesh.
2. Opportunistic entrepreneurship
There is a proverb “Hit! while the iron is hot”. It is the best exhibit of the characteristic of this
category of entrepreneurship. Environmental changes always offer new opportunities. But
everybody is not equally capable of identifying and to utilize that opportunity on time.
The entrepreneurship that identifies, exploits and executes the opportunity in the first hand
regarded as opportunistic entrepreneurship.
3. Acquisitive entrepreneurship
The entrepreneurship that learns from others competencies is acquisitive entrepreneurship.
It acquires something new of value front, the competitive environment or achieves the
competitors’ technical capacities. It keeps the entrepreneurship sustainable in the competitive
environment.
The failure never restraints them from acquisition but motivates them further to discover such a
thing with a new visitor.
4. Incubative entrepreneurship
This category of entrepreneurship generates and nurses new ideas and ventures within the
organization. It executes them in a productive manner and ensures material gain for the
organization.
They pursue and help to get differentiated technologies to promote creations and innovations
Microsoft, Nokia etc. always incubates new varieties types of product and creates product
differentiation in the market.
5. Imitative entrepreneurship
The entrepreneurship that imitates a good or service operating in the market under a franchise
agreement is the imitative entrepreneurship. It is the medium that spread technology over the
world.
It adopts an existing technology in countries over the world. It also adopts an existing technology
with minor modification appropriate to the local condition.
6. Private Entrepreneurship
The entrepreneurship that is initiated under private sector is private entrepreneurship. The
government gives various support services through private and public concerns that encourage
private initiative in taking entrepreneurial ventures.
A layer and mutual relationship between private and public sectors would make economic
development speedy and balanced
7. Public entrepreneurship
The entrepreneurship that is undertaken by the government through its various development
agencies is public entrepreneurship. All countries, developed or underdeveloped, take a public
initiative in venture ideas to fulfill the initial deficiency of private entrepreneurs.
8. Individual entrepreneurship
The entrepreneurship that is undertaken by an individual or a family with the personal initiative
is individual entrepreneurship.
9. Mass Entrepreneurship
This type of entrepreneurship emerges in an economy where a favorable climate of motivation
and encouragement exist for developing a wide range of entrepreneurship among general mass is
mass entrepreneurship.’ It increases small and medium enterprises in a country.
Hans Schollhammer (1980) has classified entrepreneurship into five categories such as
administrative, opportunistic, acquisitive, incubative and imitative entrepreneurship. But with the
change of time Entrepreneurship classification has increased.

MOTIVATION FOR ECONOMIC DEVELOPMENT AND ENTREPRENEURIAL

ACHIEVEMENT:
Meaning:
Let us first understand the meaning of the term ‘motivation,’ in general. This will help us
understand and explain the meaning of the term ‘entrepreneurial motivation’. The word
motivation originally comes from the Latin word mover, which means “to motive”.
The term motivation has been derived from the English word ‘motive’. Motive is an inner state
of our mind that moves or activates or directs our behaviours towards our goals. Motives are
expressions of a person’s goals or needs. They give direction to human behaviour to achieve
goals or fulfill needs. Motive is always internal to us and is externalized via behaviour.
Let us give some definitions on motivation:
According to Fred Luthans, “Motivation is a process that starts with a physiological or
psychological deficiency or need that activates behaviour or a drive that is aimed at a goal or
incentive.”
Stephen P. Robbins (2010) defines motivation as “the willingness to exert high levels of effort
toward organizational goals, conditioned by the effort and ability to satisfy some individual
need.”
In the opinion of Gray and Starke, “Motivation is the result of processes, internal or external to
the individual that arouses enthusiasm and persistence to pursue a certain course of action.”
Based on above definitions, now motivation may be defined as one’s willingness to exert high
level of efforts towards the accomplishment of goal or fulfillment of need.
Accordingly, the entrepreneurial motivation may be defined as the process that activates and
motivates the entrepreneur to exert higher level of efforts for the achievement of his/her
entrepreneurial goals. In other words, the entrepreneurial motivation refers to the forces or drive
within an entrepreneur that affect the direction, intensity, and persistence of his / her voluntary
behaviour as entrepreneur. So to say, a motivational entrepreneur will be willing to exert a
particular level of effort (intensity), for a certain period of time (persistence) toward a particular
goal (direction).
The need for and significance of entrepreneurial motivation in running an enterprise can best be
appreciated as: “While an organization is like a vehicle, entrepreneurships as driving and the
entrepreneurial motivation as fuel or power that makes the organizational vehicle move or run.”

Nature of Motivation:
The nature of motivation emerging out of above definitions can be expressed as follows:
Motivation is internal to man:
Motivation cannot be seen because it is internal to man. It is externalized via behaviour. It
activates the man to move toward his / her goal.
A Single motive can cause different behaviors:
A person with a single desire or motive to earn prestige in the society may move towards to join
politics, attain additional education and training, join identical groups, and change his outward
appearance.
Different motives may result in single behaviour:
It is also possible that the same or single behaviour may be caused by many motives. For
example, if a person buys a car, his such behaviour may be caused by different motives such as
to look attractive, be respectable, gain acceptance from similar group of persons, differentiate the
status, and so on.
Motives come and go:
Like tides, motives can emerge and then disappear. Motives emerged at a point of time may not
remain with the same intensity at other point of time. For instance, an entrepreneur overly
concerned about maximization of profit earning during his initial age as entrepreneur may turn
his concern towards other higher things like contributing towards philanthropic activities in
social health and education once he starts earning sufficient profits.
Motives interact with the environment:
The environment in which we live at a point of time may either trigger or suppress our motives.
You probably have experienced environment or situation when the intensity of your hunger
picked up just you smelled the odour of palatable food.
You may desire an excellent performance bagging the first position in your examination but at
the same time may also be quite sensitive to being shunned and disliked by your class mates if
you really perform too well and get too much of praise and appreciation from your teachers.
Thus, what all this indicates is that human behaviour is the result of several forces differing in
both direction and intent.

The performance of an entrepreneur is dependent on his/her ability and willingness to perform.

Here, by ability we mean a function of education, experience and skill and by willingness we
mean to perform depending upon the level of motivation. Motivation is one of the fundamental
factors required for an entrepreneur to promote his/her ideas.

Why is Motivation Required?

The term motivation has been derived from the word ‘motive’ which is nothing but what
prompts any person to act in a particular manner. Motives are the definition of a person’s goals,
dreams and needs. They direct human behavior to towards achieving their goal.
When everything is properly organized, then what is the need of motivation?
The following points answer this question and gives an idea why motivation is an important
factor for an entrepreneur:
Tough competition: An entrepreneur needs to face tough competition, in order to sustain and
make a mark in this global market. To cope with this competition, motivation is required at each
stage of the firm.
Unfavorable environment: Nobody knows what the future holds. One has to take care of the
current economy and should be prepared for the worst situations of deteriorating economic
conditions. For this, motivation and optimism is essential.
To create public demand: Market runs by the people and for the people. To run a business
profitably, it is required to create a public demand for your product or service in the market and
attract as many customers as possible. To do this in the right way, motivation is required.
To enhance creativity: Market always wants something new and different. If every firm offers
the same product without any variation then there is no point of preferring one brand in
particular. To sustain one has to be innovative. Add some new features in the existing products
and services, make them more user friendly in a considerable budget. This requires motivation
too.
To increase productivity: It is very important to take care of the quality of the product as well
as the profit. People will always prefer a product which is cost efficient and of good quality. So,
motivation is required for increase the productivity.
Thus motivation plays a unique role in establishing a company by frequently boosting the
entrepreneur to do effective things efficiently.

What Motivates an Entrepreneur?

Many research studies have been conducted by researchers to understand and answer this
question so that the factors that motivate people to take all the risk and start a new enterprise can
be identified.
The 6Cs that motivate entrepreneurs to establish their own business are as follows:

Change – Entrepreneurs frequently want change, not only change, they also want to be the
bearers of change. They are solution givers and want to interrupt the status quo. They have a
vision like "I want to assemble the world's information" or "I want to put an AC at every desk"
and they take an attempt to make this change. In this attempt, some succeed and some fail.
Challenge – Some people love challenges and they opt for starting a new business as it is very
challenging to handle big problems. These people find typical job in a big corporate as boring
and not challenging enough.
Creativity – Running one’s own business is all about being more creative and having the
independence to make new discoveries. For example, testing a new website design, launching a
new marketing scheme, creating inventive items that solve a known issue in a different way,
creating new advertising campaigns, etc. One needs to have an infinite room to welcome and
introduce creativity in a small business.
Control – Some people tend to start a business because they don't want to be pushed around and
work for a product/company in which they have no way to shape their destiny. They want to be
their own boss having their own time, own pace, location of their choice, employees of their
choice and have a progressive role in deciding the direction of the company.
Curiosity - Successful entrepreneurs are always anxious and ask - "what if we do X this way?”
They want to have more than one option to do a work and choose the best one from them. They
want to understand the customer's perceptions, point of views, markets and competitors. They
are frequently anxious to see how their particular theory like "people want to do A with B"
works. In this aspect, they can’t be differentiated from a scientist who is trying to prove his
theorem.
Cash – The last but not the least part is the cash. Money says it all. Many non-entrepreneurs
have a misconception that cash comes first for entrepreneurs but this is never really true. If this
would be the case, then there is no reason for an Ellison or Gates to keep expanding their
business aggressively after they have made more than billion dollars. However, money is not the
primary motivation.
From the above discussion, it can be said that the highest motivating factor is the urge to get
something or the drive to do something differently.

Results of Motivation
Successful entrepreneurship needs determination, freedom, discipline, connectivity and an
abundance of skills in planning. People with a complete package of physical strength combined
with perseverance, mental strength, and self-discipline have the passion and urge to succeed.
With proper motivation, we get the following outcomes:

Heavy industrialization: Tremendous growth can be seen in industrialization. Example:

Companies like TISCO, TELCO have been set up and are flourishing.
Self-employment: A common man gets a chance to make a difference, set a new standard of
industrial growth. Example: Entrepreneurs like Dhirubhai Ambani and Azim Premji are born.
Economic growth: When there is growth in an individual’s economy, there is a growth in the
company’s economy, which in turn results in the growth of that particular area and country.
Example: Emergence of smart cities concept.
Creating new jobs: More entrepreneurship leads to more job openings. More job openings leads
to more employment opportunities.
Proper social benefit: When a country’s economy grows or increases we see that more
advanced and proper social benefits are provided to the general public like construction of roads,
school, hospital, colleges, etc.
Entrepreneurial drive is the inbuilt encouragement some people possess to make something
happen. It is the energy that pushes one forward as a founder and forces not to give up in the face
of failure, ultimately leading to success.

Entrepreneurial Motivating Factors:

Internal and External Factors
Entrepreneurial Motivating Factors: Internal and External Factors!
Let us address to the larger question what factors motivate entrepreneurs to start enterprises.
Many researchers have tried to understand and answer this question by conducting research
studies to identify the factors that motivate people to take all the risk and start a business
enterprise (Kamraj and Muralidaran 2005, Manimala and Pearson 1998, Maslow 1954, Mitchell
2004, Saxena 2005, Khanka 2009).
While some researchers have classified the factors motivating entrepreneurs into ‘push’
(compulsion) and ‘pull’ (choice) factors, most of the researchers have classified all the factors
motivating entrepreneurs into internal and external factors as follows:
Internal Factors:
These include the following factors:
1. Desire to do something new.
2. Become independent.
3. Achieve what one wants to have in life.
4. Be recognized for one’s contribution.
5. One’s educational background.
6. One’s occupational background and experience in the relevant field.
External Factors:
These include the following factors:
1. Government assistance and support.
2. Availability of labor and raw material.
3. Encouragement from big business houses.
4. Promising demand for the product.

One research study (Murthy et. al. 1986) reports that entrepreneurs are motivated to start
business enterprises due to the following three types of factors:
1. Ambitious factors.
2. Compelling factors
3. Facilitating factors.

Theories of entrepreneurial motivation:

Some of the most important theories of motivation are as follows: 1. Maslow’s Need Hierarchy
Theory 2. Herzberg’s Motivation Hygiene Theory 3. McClelland’s Need Theory 4. McGregor’s
Participation Theory 5. Urwick’s Theory Z 6. Argyris’s Theory 7. Vroom’s Expectancy Theory
8. Porter and Lawler’s Expectancy Theory.
From the very beginning, when the human organisations were established, various thinkers have
tried to find out the answer to what motivates people to work. Different approaches applied by
them have resulted in a number of theories concerning motivation.
These are discussed in brief in that order.
1. Maslow’s Need Hierarchy Theory:
It is probably safe to say that the most well-known theory of motivation is Maslow’s need
hierarchy theory Maslow’s theory is based on the human needs. Drawing chiefly on his clinical
experience, he classified all human needs into a hierarchical manner from the lower to the higher
order.
In essence, he believed that once a given level of need is satisfied, it no longer serves to motivate
man. Then, the next higher level of need has to be activated in order to motivate the man.
Maslow identified five levels in his need hierarchy as shown in figure 17.2.

These are now discussed one by one:

1. Physiological Needs:
These needs are basic to human life and, hence, include food, clothing, shelter, air, water and
necessities of life. These needs relate to the survival and maintenance of human life. They exert
tremendous influence on human behaviour. These needs are to be met first at least partly before
higher level needs emerge. Once physiological needs are satisfied, they no longer motivate the
man.
2. Safety Needs:
After satisfying the physiological needs, the next needs felt are called safety and security needs.
These needs find expression in such desires as economic security and protection from physical
dangers. Meeting these needs requires more money and, hence, the individual is prompted to
work more. Like physiological needs, these become inactive once they are satisfied.
3. Social Needs:
Man is a social being. He is, therefore, interested in social interaction, companionship,
belongingness, etc. It is this socialising and belongingness why individuals prefer to work in
groups and especially older people go to work.
4. Esteem Needs:
These needs refer to self-esteem and self-respect. They include such needs which indicate self-
confidence, achievement, competence, knowledge and independence. The fulfillment of esteem
needs leads to self-confidence, strength and capability of being useful in the organisation.
However, inability to fulfill these needs results in feeling like inferiority, weakness and
helplessness.
5. Self-Actualization Needs:
This level represents the culmination of all the lower, intermediate, and higher needs of human
beings. In other words, the final step under the need hierarchy model is the need for self-
actualization. This refers to fulfillment.
The term self-actualization was coined by Kurt Goldstein and means to become actualized in
what one is potentially good at. In effect, self- actualization is the person’s motivation to
transform perception of self into reality.
According to Maslow, the human needs follow a definite sequence of domination. The second
need does not arise until the first is reasonably satisfied, and the third need does not emerge until
the first two needs have been reasonably satisfied and it goes on. The other side of the need
hierarchy is that human needs are unlimited. However, Maslow’s need hierarchy-theory is not
without its detractors.

2. Herzberg’s Motivation Hygiene Theory:

The psychologist Frederick Herzberg extended the work of Maslow and propsed a new
motivation theory popularly known as Herzberg’s Motivation Hygiene (Two-Factor) Theory.
Herzberg conducted a widely reported motivational study on 200 accountants and engineers
employed by firms in and around Western Pennsylvania.
He asked these people to describe two important incidents at their jobs:
(1) When did you feel particularly good about your job, and
(2) When did you feel exceptionally bad about your job? He used the critical incident method of
obtaining data.
The responses when analysed were found quite interesting and fairly consistent. The replies
respondents gave when they felt good about their jobs were significantly different from the
replies given when they felt bad. Reported good feelings were generally associated with job
satisfaction, whereas bad feeling with job dissatisfaction. Herzberg labelled the job satisfiers
motivators, and he called job dissatisfies hygiene or maintenance factors. Taken together, the
motivators and hygiene factors have become known as Herzberg’s two-factor theory of
motivation
Herzberg’s motivational and hygiene factors have been shown in the Table 17.1

According to Herzberg, the opposite of satisfaction is not dissatisfaction. The underlying reason,
he says, is that removal of dissatisfying characteristics from a job does not necessarily make the
job satisfying. He believes in the existence of a dual continuum. The opposite of ‘satisfaction’ is
‘no satisfaction’ and the opposite of ‘dissatisfaction’ is ‘no dissatisatisfaction’.
According to Herzberg, today’s motivators are tomorrow’s hygiene because the latter stop
influencing the behaviour of persons when they get them. Accordingly, one’s hygiene may be the
motivator of another.

3. McClelland’s Need Theory:

Another well-known need-based theory of motivation, as opposed to hierarchy of needs of
satisfaction-dissatisfaction, is the theory developed by McClelland and his associates’.
McClelland developed his theory based on Henry Murray’s developed long list of motives and
manifest needs used in his early studies of personality. McClelland’s need-theory is closely
associated with learning theory, because he believed that needs are learned or acquired by the
kinds of events people experienced in their environment and culture.
He found that people who acquire a particular need behave differently from those who do not
have. His theory focuses on Murray’s three needs;
Achievement, Power and Affiliation.
In the literature, these three needs are abbreviated “n Ach”, “n Pow”, and “n Aff” respectively’.
They are defined as follows:
Need for Achievement:
This is the drive to excel, to achieve in relation to a set of standard, and to strive to succeed. In
other words, need for achievement is a behaviour directed toward competition with a standard of
excellence. McClelland found that people with a high need for achievement perform better than
those with a moderate or low need for achievement, and noted regional / national differences in
achievement motivation.
Through his research, McClelland identified the following three characteristics of high-
need achievers:
1. High-need achievers have a strong desire to assume personal responsibility for performing a
task for finding a solution to a problem.
2. High-need achievers tend to set moderately difficult goals and take calculated risks.
3. High-need achievers have a strong desire for performance feedback.
Need for Power:
The need for power is concerned with making an impact on others, the desire to influence others,
the urge to change people, and the desire to make a difference in life. People with a high need for
power are people who like to be in control of people and events. This results in ultimate
satisfaction to man.
People who have a high need for power are characterized by:
1. A desire to influence and direct somebody else.
2. A desire to exercise control over others.
3. A concern for maintaining leader-follower relations.
Need for Affiliation:
The need for affiliation is defined as a desire to establish and maintain friendly and warm
relations with other people’. The need for affiliation, in many ways, is similar to Maslow’s social
needs.
The people with high need for affiliation have these characteristics:
1. They have a strong desire for acceptance and approval from others.
2. They tend to conform to the wishes of those people whose friendship and companionship they
value.
3. They value the feelings of others.

Figure 17.2 is a summary chart of the three need theories of motivation just discussed. The chart
shows the parallel relationship between the needs in each of the theories. Maslow refers to
higher- lower order needs, whereas Herzberg refers to motivation and hygiene factors.
4. McGregor’s Participation Theory:
Douglas McGregor formulated two distinct views of human being based on participation of
workers. The first basically negative, labeled Theory X, and the other basically positive, labled
Theory Y.
Theory X is based on the following assumptions:
1. People are by nature indolent. That is, they like to work as little as possible.
2. People lack ambition, dislike responsibility, and prefer to be directed by others.
3. People are inherently self-centered and indifferent to organisational needs and goals.
4. People are generally gullible and not very sharp and bright.
On the contrary, Theory Y assumes that:
1. People are not by nature passive or resistant to organisational goals.
2. They want to assume responsibility.
3. They want their organisation to succeed.
4. People are capable of directing their own behaviour.
5. They have need for achievement.
What McGregor tried to dramatise through his theory X and Y is to outline the extremes to draw
the fencing within which the organisational man is usually seen to behave. The fact remains that
no organisational man would actually belong either to theory X or theory Y. In reality, he/she
shares the traits of both. What actually happens is that man swings from one set or properties to
the other with changes in his mood and motives in changing .environment.

5. Urwick’s Theory Z:
Much after the propositions of theories X and Y by McGregor, the three theorists Urwick,
Rangnekar, and Ouchi-propounded the third theory lebeled as Z theory.
The two propositions in Urwicks’s theory are that:
(i) Each individual should know the organisational goals precisely and the amount of
contribution through his efforts towards these goals.
(ii) Each individual should also know that the relation of organisational goals is going to satisfy
his/her needs positively.
In Urwick’s view, the above two make people ready to behave positively to accomplish both
organisational and individual goals.
However, Ouchi’s Theory Z has attracted the lot of attention of management practitioners as well
as researchers. It must be noted that Z does not stand for anything, is merely the last alphabet in
the English Language.
Theory Z is based on the following four postulates:
1. Strong Bond between Organisation and Employees
2. Employee Participation and Involvement
3. No Formal Organisation Structure
4. Human Resource Development
Ouchi’s Theory Z represents the adoption of Japanese management practices (group decision
making, social cohesion, job security, holistic concern for employees, etc.)by the American
companies. In India, Maruti-Suzuki, Hero-Honda, etc., apply the postulates of theory Z.

6. Argyris’s Theory:
Argyris has developed his motivation theory based on proposition how management practices
affect the individual behaviour and growth In his view, the seven changes taking place in an
individual personality make him/her a mature one. In other words, personality of individual
develops
Argyris views that immaturity exists in individuals mainly because of organisational setting and
management practices such as task specialisation, chain of command, unity of direction, and
span of management. In order to make individuals grow mature, he proposes gradual shift from
the existing pyramidal organisation structure to humanistic system; from existing management
system to the more flexible and participative management.
He states that such situation will satisfy not only their physiological and safety needs, but also
will motivate them to make ready to make more use of their physiological and safety needs. But
also will motivate them to make ready to make more use of their potential in accomplishing
organisational goals.

7. Vroom’s Expectancy Theory:

One of the most widely accepted explanations of motivation is offered by Victor Vroom in his
Expectancy Theory” It is a cognitive process theory of motivation. The theory is founded on the
basic notions that people will be motivated to exert a high level of effort when they believe there
are relationships between the effort they put forth, the performance they achieve, and the
outcomes/ rewards they receive.
The relationships between notions of effort, performance, and reward are depicted in Figure 17.3

Thus, the key constructs in the expectancy theory of motivation are:

1. Valence:
Valence, according to Vroom, means the value or strength one places on a particular outcome or
reward.
2. Expectancy:
It relates efforts to performance.
3. Instrumentality:
By instrumentality, Vroom means, the belief that performance is related to rewards.
Thus, Vroom’s motivation can also be expressed in the form of an equation as follows:
Motivation = Valence x Expectancy x Instrumentality
Being the model multiplicative in nature, all the three variables must have high positive values to
imply motivated performance choice. If any one of the variables approaches to zero level, the
possibility of the so motivated performance also touches zero level.
However, Vroom’s expectancy theory has its critics. The important ones are:
1. Critics like Porter and Lawler lebeled it as a theory of cognitive hedonism which proposes that
individual cognitively chooses the course of action that leads to the greatest degree of pleasure or
the smallest degree of pain.
2. The assumption that people are rational and calculating makes the theory idealistic.
3. The expectancy theory does not describe individual and situational differences.
But the valence or value people place on various rewards varies. For example, one employee
prefers salary to benefits, whereas another person prefers to just the reverse. The valence for the
same reward varies from situation to situation.
In spite of all these critics, the greatest point in me expectancy theory is that it explains why
significant segment of workforce exerts low levels of efforts in carrying out job responsibilities.
8. Porter and Lawler’s Expectancy Theory:
In fact, Porter and Lawler’s theory is an improvement over Vroom’s expectancy theory. They
posit that motivation does not equal satisfaction or performance. The model suggested by them
encounters some of the simplistic traditional assumptions made about the positive relationship
between satisfaction and performance. They proposed a multi-variate model to explain the
complex relationship that exists between satisfaction and performance.
What is the main point in Porter and Lawler’s model is that effort or motivation does not lead
directly to performance. It is intact, mediated by abilities and traits and by role perceptions.
Ultimately, performance leads to satisfaction,. The same is depicted in the following Fig 17.4.

There are three main elements in this model. Let us briefly discuss these one by one.
Effort:
Effort refers to the amount of energy an employee exerts on a given task. How much effort an
employee will put in a task is determined by two factors-
(i) Value of reward and
(ii) Perception of effort-reward probability.
Performance:
One’s effort leads to his/her performance. Both may be equal or may not be. However the
amount of performance is determined by the amount of labour and the ability and role perception
of the employee. Thus, if an employee possesses less ability and/or makes wrong role perception,
his/her performance may be low in spite of his putting in great efforts.
Satisfaction:
Performance leads to satisfaction. The level of satisfaction depends upon the amount of rewards
one achieves. If the amount of actual rewards meet or exceed perceived equitable rewards, the
employee will feel satisfied. On the country, if actual rewards fall short of perceived ones, he/she
will be dissatisfied.
Rewards may be of two kinds—intrinsic and extrinsic rewards. Examples of intrinsic rewards are
such as sense of accomplishment and self-actualisation. As regards extrinsic rewards, these may
include working conditions and status. A fair degree of research support that, the intrinsic
rewards are much more likely to produce attitudes about satisfaction that are related to
performance.
There is no denying of the fact that the motivation model proposed by Porter and Lawler is quite
complex than other models of motivation. In fact motivation itself is not a simple cause-effect
relationship rather it is a complex phenomenon Porter and Lawler have attempted to measure
variables such as the values of possible rewards, the perception of effort-rewards probabilities
and role perceptions in deriving satisfaction.
They recommended that the managers should carefully reassess their reward system and
structure. The effort-performance-reward-satisfaction should be made integral to the entire
system of managing men in organisation.
Motivation for Entrepreneurial Achievement:
Entrepreneurship has a major contribution in the growth of national economy. So, it is very
important to acknowledge the motivational features spurring people to become entrepreneurs and
explaining why some are more successful than others.
An enterprise is nurtured by the society. Thus, we can say, it is a portion of society. In the social
environment, both of them share a close bonding where they affect each other and share their
profits and loss combined. In this “affecting & being affected relationship”, a proper balance
should be maintained.
Entrepreneurial Achievement
Entrepreneurs are not always motivated by profit but regard it as a standard for measuring
achievement or success. An entrepreneur greatly values self-reliance and strives for distinction
through excellence. They are highly optimistic (otherwise nothing would be undertaken), and
they always favor challenges of medium risk that is neither too easy, nor ruinous.
Given below are some factors that contribute to the success of an entrepreneur. The factors
are:
Self-confidence: Before convincing others to trust us, it is important to trust our self. The
determination or the courage and belief one has on self to achieve the goal is known as self-
confidence.
Experience: It’s not always necessary to be experienced for starting a business, but yes,
having some experience will definitely help save time and effort.
Profit: Opting for a business that has a demand in the market, is always a better choice.
However, it is always good to think of a steady income rather than just profit.
Brand: Everybody opts for or at least wishes to opt for branded products or services. The
reason varies, some see it as a standard of living, for some it’s the quality. Keeping this in mind,
it is very important to create a signature mark of your product.
Market share: It adds to an individual’s, groups, or firm’s contribution in the market when by
contributing their company product in the market. A company designs a product with respect to
the demand of the mass.
ENTERPRISE AND SOCIETY
Who can teach us better than our own parents? A brilliant way of learning the “name of the
game” of running an own business is first working in the family business.
Family business is a golden ticket for family members to hold human capital linked to
operating a business. It is not necessary to gain this experience in the same industry, probably
because basic business experience is what counts.
The major scope through which families shift their business success across generations is by
working through experience. However, a major drawback is the cycle of low rates of business
ownership could be easily broken and relatively worse business outcomes could be passed from
one generation to the next. It is very important to address the lack of opportunities to work in
family businesses.
Role of Society
The major role of the society in entrepreneurship is support. Entrepreneurs contribute to the
society in the following ways:
Business yields and allots products and services to meet certain public requirements. Business
has to be very flexible and frequent research on consumer demands should be done to increase
profit.
Entrepreneurs create job opportunities. Income is ensured through entrepreneurship. It is a
very important factor to consider.
Entrepreneurship has its own contribution in the national well-being. It ensures it in different
ways, assisting the government to preserve and manage all kinds of public, social institutions and
services, etc.
Entrepreneurs facilitate in enlightening and educating people and motivating their growth at a
personal level. Due to high level of competition in the market, it is important for both
businessmen as well as their employees to be involved in the constant process of learning and
improving personal skills and abilities like creativity, determination, communication skills and
vision for new business chances.
Role of Family
A lot has been documented about the importance of the entrepreneur’s access to financial capital,
as well as educational achievement and progress, to the enterprise’s ultimate success. The family
background of an entrepreneur is often an unrecognized aspect of success. Few facts regarding
the role of family for entrepreneurs are:
Two to three times more business is owned by the children of industrialists than those whose
parents don’t own a business. So it is pretty clear that, business ownership runs within the family
but the question here is does it lead to success?
Entrepreneurs working in their family business before starting a business of their own, tend to
be 10 to 40 percent more successful than they would be otherwise.
The would-be entrepreneur gains valuable experience through informal learning and
apprenticeship that occurs while working in a family business.

WHY AND HOW TO START A NEW BUSINESS:

Some other factors like consumer relation, social support, government support also contribute as
important factors in entrepreneurial achievement.
Why Start a Business?
Running one’s own business has a drift to take up entire life, so it is very important to assess
whether or not the reasons are logical and practically implementable. This section looks at some
of the most common reasons why people opt for their own business.
We have heard a million reasons not to go into business for its too risky, it might lead to debts,
there will be no social life, and the list goes on. But even with all these uncertainties, people are
still allured to the start-up world. There are just as many, if not more reasons to take a stand and
start our own business.
The objectives when starting a business can be broadly split into two categories:
 Financial objectives, and
 Non-financial objectives
The media tend to focus on the financial objectives – so let's deal with these first.
Financial objectives
Most business start-ups begin with one main financial objective – to survive.
Why survival? Because a large percentage of new businesses do not survive much beyond their
launch. The entrepreneur discovers that the business idea is not viable – the business cannot be
run profitably or it runs out of cash. Start-ups have a high failure rate.
Survival is about the business living within its means. To survive, the business needs to have
enough cash to pay the debts of the business as they arise – suppliers, wages, rent, raw materials
and so on. To survive, a business needs to have:
 Sufficient sources of finance (e.g. cash, a bank overdraft, share capital)
 A viable business model – i.e. one which can make a profit
If survival can be assured, then profit is the next most important financial objective for a new
business. A profit is earned when the revenue of the business exceeds the total costs. The
entrepreneur can choose to reinvest (aka "retain") the profit in the business, or take it out as a
personal payment or dividend.
For many small business owners, profit is the return for all the hard work and risks taken. Profit
is thereward for taking a risk and making an investment. Ideally, the profit earned is sufficient to
provide the entrepreneur with enough income to live. In many cases it will be more than
sufficient, once the business has been trading successfully for a few years
However, it is important to appreciate that, to make a sustainable profit, a new business needs to
be able to:
 Add value
 Sell into a large enough market
Another financial objective is personal wealth. Some entrepreneurs have an objective that goes
beyond wanting to earn an adequate income. They aim to build a valuable business that can
substantially increase their personal wealth.
Non-financial objectives
Contrary to popular belief, starting a business is not always about financial objectives. Very
often a new business is started with other, non-financial objectives in mind.
Here are some of the non-financial motives that are often quoted by entrepreneurs:
 More control over working life – want to choose what kind of work is done. The need
for greaterindependence is a major motivator.
 Need a more flexible and convenient work schedule, including being able to work
from or close to home. This motive is an important reason behind the many home-based
business start-ups
 Feel that skills are being wasted and that potential is not being fulfilled
 Want to escape an uninteresting job or career
 A desire to pursue an interest or hobby
 Fed up with being told what to do – want to be the boss!
 Want the feeling of personal satisfaction from building a business
 Want a greater share of the rewards from the effort being put in – compared with simply
being paid by an employer
 Fed up with working in a business hierarchy or bureaucratic organisation (people with
entrepreneurial characteristics often feel stifled working and having to co-exist with
others!
 As a response to a shock or other major change in personal circumstances – e.g.
redundancy, divorce, illness, bereavement
Some of the other reasons to start a business are:

An entrepreneur owns his/her business, hence is his/her own boss. It gives the liberty to make
decisions and implement them. It’s a proven fact that most entrepreneurs never wish to go back
to working for someone else.
The thought of leaving behind a legacy, is a great motivator for many.
It’s a good option of taking over a family business and adding a new dimension to the same.
The sense of achievement or being successful in doing something one’s own way.
To prove oneself as being self-competent, being in complete control, and making an impact on
the society.

How to Start a Business?

Starting a business includes planning, making key financial decisions and completing a series of
legal exercises.
These 10 steps help to plan, prepare and manage one’s own business:
Step 1: Writing a business plan – Write all tools and resources required to create a business
plan. This written guide will help in mapping out how to start and run a business successfully.
Step 2: Getting business assistance – There are numerous programs available to assist
startups, micro businesses, and underserved or disadvantaged groups.
Step 3: Selecting a business location – Take suggestions on how to select a customer-
friendly location and comply with the zoning laws.
Step 4: Financing our own business – Search for government-backed loans, venture capital
and research grants to help getting started.
Step 5: Determining the legal structure of business – Decide which form of ownership is
best - like sole proprietorship, partnership, limited liability Company (LLC), corporation, S
corporation, nonprofit or cooperative organization.
Step 6: Registering a Business Name like "Doing Business As"– Register the business
name with the state government.
Step 7: Getting a Tax Identification Number – Learn which tax identification number is
needed to obtain from the IRS and/or state revenue agency.
Step 8: Registering for State and local Taxes – Enroll with the State to obtain a tax
identification number, workers' compensation, unemployment and disability insurance.
Step 9: Obtaining business licenses and permits– Enlist for federal, state and local licenses
and permits required for the business.
 Step 10: Understanding employee responsibilities – Learn the legal formalities that needs to
be taken care of to hire employees.

ENTREPRENEURIAL TRAITS AND SKILLS

TRAITS:
In order to organize and run a business successfully, an entrepreneur must possess certain traits
important for driving success. Some of them are:
Self-confidence: Others will trust you only when you trust yourself. This is the most
important trait of an entrepreneur, who should have the confidence to take one’s own decisions.
Risk-taking ability: Business is all about taking risks and experimenting. Entrepreneurs need
to have a risk-taking ability.
Decision-making ability: Entrepreneurs should have the willingness and capability to take
decisions in favor of the organization all the time.
Competitive: Entrepreneurs should always be ready to give and face competition.
Intelligent: Entrepreneurs always need to keep their mind active and increase their IQ and
knowledge.
Visualization: Entrepreneurs should have the ability to see things from different point of
views.
Patience: This is another virtue which is very important for entrepreneurship as the path to
success is often very challenging and it requires a lot of patience for sustenance.
Emotional tolerance: The ability to balance professional and personal life and not mixing the
two is another important trait of an entrepreneur.
Leadership quality: Entrepreneurs should be able to lead, control and motivate the mass.
Technical skill: To be in stride with the recent times, entrepreneurs should at least have a
basic knowledge about the technologies that are to be used.
Managerial skill: Entrepreneurs should have the required skill to manage different people
such as clients, employees, co-workers, competitors, etc.
Conflict resolution skill: Entrepreneurs should be able to resolve any type of dispute.
Organizing skill: They should be highly organized and should be able to maintain everything
in a format and style.
High motivation: Entrepreneurs should have high level of motivation. They should be able to
encourage everyone to give their level best.
Creative: They should be innovative and invite new creative ideas from others as well.
Reality-oriented: They should be practical and have rational thinking.

SKILLS OF AN ENTREPRENEUR
Every entrepreneur should have the following necessary skills to run his/her business smoothly.
Confidence to Delegate Tasks
An entrepreneur likely has a full plate and feels that he/she can take on any task. But in reality,
they keep adding to the already-full plate and eventually it is going to collapse and create a mess.
An entrepreneur should be confident to delegate tasks to an experienced member of the
company, who has the ability to get tasks completed.
Effective Time Management
Proper time management is necessary to differentiate between the extremely urgent tasks and
those that can wait. An entrepreneur should use a notebook or whiteboard to prioritize tasks by
writing them down.
Mobile devices and tablets have calendars and notepads, but nothing is more effective than
actually making a “to-do” list. Concentrate on one task at a time and don’t let new “to-do’s”
disrupt your focus. Check them out one at a time.
Visualizing Aim and Success
Entrepreneurs need to visualize their goals and success in their mind first, if they wish to plan on
making it a reality. Not only do they need to visualize the end result, but also every step that it is
required to get there.
Proper Listening and Communicating Well
Entrepreneurs need to be good at listening and communicating. If they lack this quality then this
may result in miscommunication and wastage of time. Apart from this, extra work is required to
correct the miscommunication.
Time is something that all entrepreneurs would like more of. How often we wished there were
more hours in a day? Wasting priceless time repeating and redoing tasks due to poor
communication should be avoided.
Understanding the Importance of Time
It’s not possible to give everyone the time they want, as it would leave the entrepreneur with
little to no time to complete the things that is to be done.
If a sales representative has a question, they should discuss it with the sales manager. If a
customer has a question they should be speaking with the company’s customer care
representative.
While people might demand time, it doesn’t mean that it is a must to grant them the time. Time
is valuable, so it shouldn’t be wasted on disruptions that can be handled by other members of the
organization.
Seeking Help When Needed
We often let our adamant nature to prevent us from asking for help. There were times when we
were stumped and someone came along with the answer and we thought, “Why in the world
didn’t I think of that?”
Sometimes clear mind and a different viewpoint can quickly solve a problem or provide a
solution to a question. One should not be afraid to ask for help when needed, as it can also help
to strengthen the communication within the organization.
Giving Back
It is important to understand how blessed entrepreneurs are to do what they love to do. When we
are appreciative of what we have achieved, we should just take a step back to see what we can do
to give back, it gives a feeling like no other.
Nobody said being an entrepreneur is an easy task, and while these qualities will not transform
into automatic success, they sure can help in the journey to success.

MIND VS MONEY IN COMMENCING NEW VENTURES

Entrepreneurial environment is full of challenges and the entire team is bound to face them. Now
the question is, what is more important, mind or money, as both are vital elements for an
entrepreneur.
For established entrepreneurs, mind is more important than money as they have already invested
as well as earned, and now they are in a stage of expansion. New entrepreneurs prefer money
more over mind as they want to settle.
Money transforms ideas into reality. As we know ideas comes from the mind; without mind
money may not be properly distributed and utilized. Money affects the economic activities
whereas mind affects the activities of the firm.
Mind is the route of creative idea, idea leads to innovation. An idea shows the mission and vision
whereas money shows the way to achieve that mission and vision.

ENTREPRENEURIAL SUCCESS AND FAILURES

Determinants of Entrepreneurial Success or Failure
Being a successful entrepreneur means more than just starting a new business every other day. It
means the right attitude towards the trade and the determination, along with the barriers to be
faced to achieve success.
To an entrepreneur, failure is a positive experience which is considered as a challenge or
opportunity for growth in the form of a prerequisite to success, a profound teacher, a future
value-adder, a provider of new direction, an enhanced motivator, a path to achievement and even
as a relieving liberator.
Failure and success of an enterprise is dependent on two factors:

Internal factors
 External factors

Internal Factors for Success

Factors that affect the organization internally and contribute to the success of the firm are known
as internal factors of success. These factors include;
An efficient management,
Good quality product,
Quality goods & services,
Good reputation,
Low cost production,
Effective marketing,
Proper financing,
Dedicated manpower,
Proper technology, and
Proper time management
External Factors for Success
Factors that affect the organization externally and contribute to the success of the firm are known
as external factors of success. These factors include
The availability of appropriate raw material,
Quality manpower,
High demand in the market,
Government policy,
Low competition, and
New market
Internal Factors for Failure
Factors that affect the organization internally and contribute to the failure of the firm are known
as internal factors of failure. These factors include
An ineffective management,
Old technology,
Poor financing,
Ineffective marketing strategies,
Low quality of raw materials,
Low human relations, and
Poor leadership
External Factors for Failure
Factors that affect the organization externally and are responsible for failure of the firm are
known as external factors of failure. These factors include
The shortage of raw material,
Shortage of power,
Shortage of manpower,
Poor finance, change in technology,
High competition,
Negative government policies, and
Increase in supply and
Availability of better substitute

ENVIRONMENTAL DYNAMICS & CHANGE

An enterprise exists within an environment. It is affected by various environmental factors.
Good and favorable environment helps the company to survive and grow. This type of
environment is dynamic in nature. It changes because of different factors and conditions. This
further creates new challenges.
An organization should always be ready for everything and anything that the future holds. These
changes may be desirable or undesirable. Some changes are made by the entrepreneur for self-
benefit however these changes are not constant in nature.
Entrepreneurial Environment
In upcoming economies across the world, interest in entrepreneurship is presently more than ever
due to burgeoning youth population and a desire to move up the value chain.
The major components are identified in this environment that community leaders need to
address:
Culture:
Acknowledgement of the importance of entrepreneurs to the local as well as national economy,
appreciation of the values that entrepreneurs earn, welcoming entrepreneurs who often tend to
beat off a different drummer, accepting failure as a part of the process and willingness to
motivate and unconditional support to entrepreneurs when some of their ventures do not pan out.
Infrastructure:
Moving beyond the traditional notion of layout to involve traditional and non-traditional
leadership strategies. For example, educational institutions like community schools, colleges and
regional universities, cultural and recreational resources, quality schools, and social enterprises
that are different and stress on creativity.
Entrepreneurial support elements:
Precise programs and initiatives created to facilitate a range of support to entrepreneurs of all
types when and how they require it. This involves providing services like the
Chamber and Small Business Development Centers,
Help centers,
Counseling office,
Networking organizations and opportunities,
Financing programs,
Business incubation services,
Mentoring and coaching, and
Youth entrepreneurship education in and outside the schools

STEP BY STEP APPROACH TO ENTREPRENEURIAL START UP

Entrepreneurial Process
Entrepreneurial process can be defined as the steps taken in order to establish a new enterprise. It
is a step-by-step method, one has to follow to set up an enterprise.
There are mainly five steps one needs to follow. These steps are:

Preliminary steps
Decision-making steps
Planning steps
Implementation steps
Managerial steps

Preliminary Steps
Preliminary steps are the initial steps one has to follow for establishing a firm. At this stage, the
to-be entrepreneur should be able to make a decision that is going to affect the company.
We can say that an entrepreneur is born at this stage. An entrepreneur searches for business
opportunity and collects information/data from all sources available.

Decision-making Steps
Decision-making steps can be defined as those steps or say the lessons learnt by an entrepreneur
to make decisions efficiently.
In this step, the entrepreneur is seen consulting with DIC (District Industrial Centre) and MSME
(Medium Small & Micro Enterprise). Some of the decisions to be taken are:

 Decision of acquiring fund from banks or financial institutions.

 Acquisition of permission, recognition, application.
 Making of PPR (Preliminary Project Report).
 Decision regarding land, building, plant, machinery, labor, raw material, fuel, energy, water
supply, filtration, etc.
In order to make effective decisions that is adaptable and comfortable for the company, the
clients and all those who are directly or indirectly linked to the decision-making step play a very
vital role.

Planning Steps
Planning is an assumption or prediction of business requirements and outcome in the future. It
provides a space to review the best strategy to run the business by cutting expenses and
maximizing profit.
Some of the planning steps include:
 Planning for infrastructure like plant and building.
 Getting permission and recognition from the government or any other reputed authority.
 Applying for environmental clearance.
 Purchasing of land and licensing of mines, if necessary.
 Applying for electric connection and water supply.
 Planning the final feasibility, technical feasibility, and operational feasibility.
 Study of PPR and preparation of Detailed Project Report (DPR).
 Getting loan and/or capital investment.
 Acquisition of machineries and planning for installation.
Now, let us move forward to see how this planning step is further transformed to implementation
steps.

Implementation Steps
Implementation is the execution of plan; it is the action taken to implement the plan so that
something actual happens.
Given below are some steps that will help us get a clear picture of how actions in planning steps
are groomed into implementation steps:
 Acquisition of land, setting up building, and purchasing raw materials.
 Installation of plant and machineries, and arranging human resource.
 Receiving permission and reorganization letter, and receiving capital investment.
 Starting operation and production.
 Arranging fuel, electricity, and water supply.
 Making infrastructural development, i.e. road, hospital, school, residence, etc.
Implementation is the most important and difficult step, during implementation the actuals come
to figure and something of real value is generated.

Managerial Steps
We have seen about the roles and duties of an entrepreneur. Managerial duties are also very
important for an entrepreneur as well as the organization. Some of the managerial duties to be
taken care of are:
 Preparing market policy and strategy.
 Managing promotion of product or services.
 Formulating pricing policy.
 Managing wholesalers and retailers.
 Deciding the profit margin.
 Managing marketing strategy, managing advertisement of product or service, managing
distribution system for efficient distribution.
 Warehouse management.
Each step has its own importance and its own role in the development as well as deterioration of
a company.

DECISION FOR ENTREPRENEURIAL START UP

Being an entrepreneur is not an easy task. It is a very big decision and one has to make efforts,
has to be patient, and should work hard. Before starting an enterprise, some factors should be
considered and reviewed in order to increase the probability of profitability.
The meaning of small business, however, changes in different countries according to their
respective laws. The criteria depends on the number of employees, turnover, asset of the
company etc.
Before starting an enterprise, some factors which should be taken care of are:

 Identification of business opportunity.

 Preparation of project.
 Selecting a business opportunity.
 Accessing the viability (technical, operational, financial marketing) of the project.
 Deciding the location for production, offices etc.
 Deciding the size of the project.
 Deciding the source of finance.
 Deciding about marketing.
 Deciding the launching of the project.
 Deciding the plan, program & policy, strategy of the project.

Starting a business includes planning, making crucial financial decisions, and accomplishing a
series of legal activities.
Taking care of the following six steps will ensure a successful start.
1. Go beyond the Business Plan
Careful planning of business before launching it is not restricted to preparing a business plan.
Preparing a business plan is an important exercise. Bachenheimer recommends the following
three planning methods for a business plan:
The Apprentice Model: Earning from direct work experience in the industry.
The Hired-Gun Approach: Partnering or sharing with experts who are more knowledgeable
and have more experience.
The Ultra-Lean School of Hard Knocks Tactic: Finding out a way to frequently test and refine
the model at a very reasonable cost.

While documenting a business plan is precisely helpful, the real value is not in having the
finished good in hand, but instead in the process of researching and thinking in a systematic
approach. It assists in thinking things through in depth, to study and research if the facts provided
are completely accurate. Starting a new business without the commitment of thorough
preparation, can be a very expensive lesson in the value of planning.
2. Test your Idea
It is recorded that approximately sixty percent of new businesses fail within the first three years,
as mostly the young entrepreneurs rush into business without carefully checking out their idea
and all other aspects to conclude if it will work.
3. Know the Market
It is crucial to understand the critical metrics of the market, even if it is as simple as sales per
square foot and inventory turnover, or an esoteric measure in a highly specialized upmarket.
Questioning others, conducting research or gaining experience by assisting others to learn the
inside of the market, engaging with the main suppliers, distributors, competitors and customers is
a must.
4. Understand your Future Customer
In most business plans, a description of potential customers and how they make purchasing
decisions, receives much less attention than operational details such as financing, sourcing and
technology. In the end, customers determine the success or failure of an enterprise.
It is important to understand the customers’ demands, what affects their purchase decisions, what
can be done to differentiate the offering from that of competitors and how to convince them that
the value offer is genuine. Acknowledging and understanding the needs of the future customers
is a crucial and important step in launching a business.
 5. Establish Cash Resources
Necessary measures and steps are to be taken to frequently capitalize the business and secure
ready sources of capital for growth. While some startups rely on owners' capital, others look for
investors.
To determine the total amount of cash required, develop a cash-flow statement that evaluates
complete expenses and income of the company. Accurate stages of expenses are marked by
researching costs of actual business. Minimizing long-term commitments, like long-term leases
help in limiting the need of cash unless it is important. A noticeable amount of ambiguity can be
seen within initial years, to avoid this one needs to be conservative in making commitments for
utilizing resources that might not be required yet.
6. Choose the right Business Structure
Starting from the initial stages, it is very important to identify the appropriate corporate layout
required for the business. This should include tax and legal implementation. The chosen layout
assures the success of decisions to be made in future, like raising capital or exiting from
business.
To identify which layout is best for the business, consider the following four points:
Liability limitations: For C Corps, S Corps, and LLCs, the entrepreneur’s personal liability is
typically restricted to the amount invested and borrowed. There is unlimited liability for partners
of the entrepreneurship.
Startup losses: A S Corp or a LLC is referred as pass-through layout due to the tax liabilities
and advantages of pass-through to the entrepreneurs' personal tax return. Generally, one can
write off initial costs like losses earned in personal tax return. In a C Corp, initial costs produce
tax losses that can be utilized only at the business level and there is no future benefit if a new
company has future tax profits.
Double taxation: Basically, double taxation of total income is neglected for pass-through items,
but not for C Corporations.
Capital-raising plans: If an entrepreneur plans to take the entire entrepreneurship as public or
fundraise through private equity, these plans may demand that the company is not a pass-through
structure.
Module II: Setting up of a small Business Enterprise.
Identifying the Business opportunity - Business opportunities in various sectors, formalities for
setting up small enterprises in manufacturing and services, Environmental pollution and allied
regulatory and non-regulatory clearances for new venture promotion in SME sector.
Writing a Business plan, components of a B-Plan, determining Bankability of the project.

The definition for industrial undertakings has changed over time. Prior to the year 2006 the term
SSI was
being, and after enactment of MSMED Act 2006, in Oct 2006, the term MSME ( Micro, Small
and
Medium Enterprises) is being use.
Initially SSI were classified into two categories- those using power with less than 50 employees
and those
not using power with the employee strength being more than 50 but less than 100. However the
capital
resources invested on plant and machinery buildings have been the primary criteria to
differentiate the small
scale industries from the large and medium scale industries. An industrial unit can be categorized
as a smallscale
unit if it fulfills the capital investment limit fixed by the Government of India for the small scale
sector.
The definition of SSI which was effective since December 21, 1999, for any industrial unit to be
regarded
as Small Scale Industrial unit the following condition is to be satisfied:
Investment in fixed assets like plants and equipments either held on ownership terms on lease
or on
hire purchase should not be more than Rs 10 million (one crore). Such plant and machinery may
be
owned or obtained on lease. While calculating the investment in plant and machinery items like
land,
building and some equipments required for quality control, pollution control etc, are excluded.
However the unit in no way can be owned or controlled or ancillary of any other industrial unit.
In case of Tiny units the cost limitation is upto Rs 5 lakhs
In case of Ancillary units the cost limitations is Rs 75 lakhs.
The SSI units cost investment limitations have been revised gradually in tune with the changing
trends of
money value and the growth of small sector. The following table shows the evolution of
definition of SSI in
India:
After the year 2006, the term SSI was replaced with MSME meaning Micro, Small and Medium
Enterprises.
Recognizing the contribution and potential of the sector, the definitions and coverage of the
Small Enterprises
sector was broadened significantly under the Micro, Small and Medium Enterprises
Development (MSMED)
Act, 2006 which recognised the concept of “enterprise” to include both manufacturing and
services sector.
As per the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, the
enterprises will
be classified as Micro, Small and Medium Enterprises and will be defined on the basis of their
investment in
plant and machinery (for manufacturing enterprise) and on equipment for enterprises rendering
services.
The defined limit on investment for enterprises to be classified as micro, small and medium
enterprises is as
follows:
Table 5.2 : Classification of Micro, Small and Medium Enterprises
Classification Manufacturing Enterprises* Service Enterprises**
Micro Rs. 2.5 million / Rs. 25 lakh Rs. 1 million / Rs. 10 lakh
Small
Rs.50 million / Rs. 5 crore Rs. 20 million / Rs 2 crore
Medium
Rs 100 million / Rs 10 crore Rs. 50 million / Rs 5 crore
Further, the term Village industries has been redefined in amended KVIC Act 1956, as ‘any
industry
located in a rural area which produces any goods or renders any service with or without the use
of power
and in which the fixed capital investment per head of artisan or worker does not exceed Rs. 1
lakh ( Rs 1.5
lakh in case of village industry located in a hilly area.)
MSMED Act, 2006:
A single comprehensive act for development and regulation of small enterprises had been a long
outstanding
demand of the Sector so as to free it from a plethora of laws and regulations and visit of
inspectors, which
it had to face with limited awareness and resources. The need has been emphasized from time to
time by
stake holders at different fora. In addition, recommendations to provide for a proper legal
framework for
small sector to relieve it of the requirements to comply with multiple rules and regulations were
made by the
Committees such as the Abid Hussain Committee (1997) and Study Group under Dr. S.P. Gupta
(2000).
While the small scale industries continued to be important for the economy, in the recent years
the small
scale services have also emerged as a significant sector contributing substantially to the economy
and
employing millions of workers. Therefore, it became necessary, as is the practice worldwide, to
address the
concerns of both the small scale industries and services together and recognize them as small
enterprises. In
a fast growing economy like ours, the natural mobility of small enterprises to medium ones has
to be facilitated
through appropriate policy interventions and legal framework. With these objectives in view, the
Government
came with an exclusive legislation for micro, small and medium enterprises known as the Micro,
Small and
Medium Enterprises Development Act, 2006.
This act was notified in 2006 and it to addresses policy issues affecting MSMEs as well as the
coverage and
investment ceiling of the sector. The salient features of the Act include: classification of
enterprises, setting up
of a National Board for MSMEs, advisory committees to support MSMEs, measures for
promotion,
development and enhancement of MSMEs, etc. On 9 May 2007, subsequent to an amendment of
the
Government of India (Allocation of Business) Rules, 1961, the Ministry of Small Scale
Industries (SSI) and
the Ministry of Agro and Rural Industries were merged to form the Ministry of Micro, Small and
Medium
Enterprises (MSME). This Ministry is now responsible for promoting, facilitating, monitoring
and assisting
MSMEs in India.
5.3 Objectives of Small Scale Business
The emphasis on small scale industries has always been an integral part of the Indian industrial
strategy. The
socio-economic policies adopted by India since the Industries (Development and Regulation)
Act, 1951
have laid stress on small scale industries as a means to improve the country’s economic
conditions. After
independence it was envisaged that small scale industries would play an important role as
producer of
consumer goods and absorber of surplus labour thereby addressing to the problems of poverty
and
unemployment. The SSI sector has been considered as a powerful instrument for realizing
objectives like
‘Accelerated Industrial Growth’ and ‘creating additional Productive Employment Potential’, in
rural and
backward areas.
The following are some of the important objectives fulfilled by small- scale industries in
India.
1. Employment Generation: Increasing population needs massive employment opportunities.
This
problem is solved to larger extent by small scale industries because small- scale industries are
labour intensive in character. They generate huge number of employment opportunities. It is a
powerful
tool of job creation.
The SSI sector in India creates largest employment opportunities, next only to agriculture. The
generation of employment by the small scale sector is more than five times to that of the large-
scale
sector. It has been estimated that 100,000 rupees of investment in fixed assets in the small scale
sector generates employment for four persons.
2. Mobilisation of Resources and Entrepreneurial Skill: The Government of India is striving
to
improve the economic and social conditions of rural population and non-farm sector through a
host
66
of measures including creation of productive employment opportunities based on optimal use of
local raw materials and skills. Small scale industries can mobilise a good amount of savings and
entrepreneurial skill from rural and semi-urban areas. A huge amount of latent resources are also
being mobilised by the small scale sector for the development of the economy.
3. Regional Dispersal of Industries: There has been massive concentration of industries in a
few
large cities of some states of India. People migrate from rural and semi urban areas to these
highly
developed centres in search of employment. This results in many unwanted consequences like
over-crowding, pollution, creation of slums, etc. This problem of Indian economy is better
solved
by small- scale industries which utilise local resources and brings about dispersion of industries
in
the various parts of the country thus promoting balanced regional development.
4. Supports the Growth of Large Industries: The small scale industries play an important role
in
assisting bigger industries and projects so that the planned activity of development work is
timely
attended. They support the growth of large industries by providing, components, accessories and
semi finished goods required by them.
Identification of Business Opportunity: Idea Generation and Opportunity
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Identification of Business Opportunity: Idea Generation and Opportunity!
In general sense, the term opportunity implies a good chance or a favourable situation to do
something offered by circumstances. In the same vein, business opportunity means a good or
favourable change available to run a specific business in a given environment at a given point of
time.
The term ‘opportunity’ also covers a product or project. Hence, the identification of an
opportunity or a product or project is identical and, therefore, all these three terms are used as
synonyms. The Government of India’s “Look East Policy” through North East is an example of
‘opportunity’ to do business in items like tea, handicrafts, herbals, turmeric, etc.
Opportunity identification and selection are like comer stones of business enterprise. Better the
former, better is the latter. In a sense, identification and selection of a suitable business
opportunity serves as the trite saying ‘well begun is half done.’ But, it is like better said than
done. Why? Because if we ask any intending entrepreneur what project or product he/she will
select and start as an enterprise, the obvious answer he/she would give is one that having a good
market and is profitable. But the question is how without knowing the product could one know
its market?
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Whose market will one find out without actually having the product? Whose profitability will
one find out without actually selling the product? There are other problems, besides. While
trying to identify the suitable product or project, the intending entrepreneur passes through
certain processes.
The processes at times create a situation, or say, dilemma resembling ‘Hen or Egg’ controversy.
That is, at one point, the intending entrepreneur may find one product or project as an
opportunity and may enchant and like it, but at the other moment may dislike and turn down it
and may think for and find other product or project as an opportunity for him/her. This process of
dilemma goes on for some intending entrepreneurs rendering them into the problem of what
product or project to start. Then, how to overcome this problem of product identification and
selection?
One way to overcome this dilemmatic situation is to know how the existing entrepreneurs
identified the opportunity and set up their enterprises. An investigation into the historical
experiences of Indian small enterprises in this regard reveals some interesting factors.
To mention the important ones, the entrepreneurs selected their products or projects based
on:
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a. Their own or partners’ past experience in that business line;
b. The Government’s promotional schemes and facilities offered to run some specific business
enterprises;
c. The high profitability of products;
d. Which indicate increasing demand for them in the market?
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e. The availability of inputs like raw materials, labour, etc. at cheaper rates;
f. The expansion or diversification plans of their own or any other ongoing business known to
them;
g. The products reserved for small-scale units or certain locations.
Now, having gained some idea on how the existing entrepreneurs selected products/projects, the
intending entrepreneur can find a way out of the tangle of which opportunity/product/project to
select to finally pursue as one’s business enterprise.
ADVERTISEMENTS:
One of the ways employed by most of the intending entrepreneurs to select a suitable
product/project is to firstly generate ideas about a few products/ projects. Accordingly, what
follows next is a discussion idea generation about products.
Idea Generation:
Sources of Ideas:
In a sense, opportunity identification and selection are akin to, what is termed in marketing
terminology, ‘new product development.’ Thus, product or opportunity identification and
selection process starts with the generation of ideas, or say, ideas about some opportunities or
products are generated in the first instance.
The ideas about opportunities or products that the entrepreneur can consider for selecting the
most promising one to be pursued by him/her as an enterprise, can be generated or discovered
from various sources- both internal and external.
These may include:
(i) Knowledge of potential customer needs,
(ii) Watching emerging trends in demands for certain products,
(iii) Scope for producing substitute product,
(iv) Going through certain professional magazines catering to specific interests like electronics,
computers, etc.,
(v) Success stories of known entrepreneurs or friends or relatives,
(vi) Making visits to trade fairs and exhibitions displaying new products and services,
(vii) Meeting with the Government agencies,
(viii) Ideas given by the knowledgeable persons,
(ix) Knowledge about the Government policy, concessions and incentives, list of items reserved
for exclusive manufacture in small-scale sector,
(x) A new product introduced by the competitor, and
(xi) One’s market insights through observation.
In nutshell, a prospective entrepreneur can get ideas for establishing his/ her enterprise from
various sources. These may include consumers, existing products and services presently on offer,
distribution channels, the government officials, and research and development.

Business opportunities in various sectors

Business Opportunities available for Small Entrepreneurs in India
Twenty Business Opportunities available for Small Entrepreneurs in India!
While thinking about business opportunities, I am reminded of the statement of Douglas
MacArthur given as opening quotation: “There is no security on this earth – only opportunity.”
Regarding the availability of (business) opportunities, the views of Thomas J. Watson also seem
quite worth citing: “Opportunity never knocks on the door. You have to knock on opportunity’s
door and they are all around.”
The fact remains that there are opportunities available everywhere in and around us. What is
actually required is to have the lenses to see and recognize the same. There exist innumerable
business opportunities in the environment for unleashing by the entrepreneurs.
The various business opportunities, for example, available in the environment include but
are not confined to the following only:
1. Tourism:
By now, tourism has emerged as number one largest smokeless and fast growing industry in the
world due to its ample promises and prospects. Presently, it accounts for 8% of the world trade
and around 20 % of service sector in the world.
Evidences indicate that many countries have progressed from backward to developing to
developed, mainly due to tourism development. For example, tourism industry contributes to
more than 70% of the national income of some of the countries like Malaysia and Singapore.
However, its share to the national income of India is still dismally low at 2.5%.
Though India shelters around 15 % of the world population with its 2.5% of the world territory,
it accounts for only 0.40 % in the world tourism market. However, the prognostic picture of the
Indian tourism is not because of lack of tourism potential, but because of unleashing of the ample
tourism potential she is endowed with.
In fact, India too is a treasure trove for tourism development. She possesses long, unspoiled
beaches of golden sands and swaying coconut trees; from winding trails that take you gently up
the snowy slopes of a great mountain range like the Himalayas unfurling images of quaint,
timeless communities; from sprawling forts and breathtaking palaces that hide in their bosoms so
many tales of intrigue and ambitions, love and betrayal; from wildlife sanctuaries and sea worlds,
Disney lands and shopping festivals.
There hardly appears to be a thing that is not worthy of some showering of tourist’s attention and
attraction. Recognizing the India’s vast tourism potential, the World Travel and Tourism Council
(WTTC) has predicted: “India has potential to become number one tourist destination in the
world with the demand growing at 10.1% per annum.”
2. Automobile:
India has made much headway in automobile industry and by now has emerges as a hot spot for
automobiles and auto-components. A cost- effective hub for auto components sourcing for global
auto makers, the automobile sector is by all indications a potential sector for entrepreneurs in
India.
This is confirmed by a record increase registered by automobile industry in India. The
automobile industry recorded a 26 per cent growth in domestic sales in the year 2009-10. It is
India’s strong sales that have made her the second fastest growing automobile market after China
in the world.
India being one of the world’s largest manufacturers of small cars with a strong engineering base
and expertise, there are still many segments untapped and un-served those entrepreneurs can
focus on in India’s automobile and auto components sector in future.
3. Textiles:
India is famous for its textiles since long time. What is worth mentioning that the style of apparel
is unique from region to state, thus, offering a diversified market for apparel / textile products in
the country? In view of this, India holds good potential to grow as a preferred location for
manufacturing textiles taking into account the huge demand for garments.
Places like Tripura and Ludhiana are, for example, now export hubs for textiles in the country. A
better understanding of the textiles markets and the varied customer needs can greatly help
unleash the potential this sector holds in our country.
4. Social Ventures:
Like many other developmental activities, entrepreneurship development is also context-specific.
The recent social issues providing a different entrepreneurial context has given emergence to yet
another breed of entrepreneurship called’ social entrepreneurship. With a view to ameliorate the
social fabric of the society, increasing number of entrepreneurs has started their social ventures.
SEWA and Lizzat Pappad, for example, are such two social ventures hardly get missed while
mentioning about social entrepreneurship. Muhammad Yunus’s ‘Gramin Bank’ in Bangladesh is
the worldwide known social venture of the recent times.
There is myriad of social issues or problems in the countryside in India, thus, offering
opportunity to young entrepreneurs to plunge into this sector. However, plunging into social
ventures is as much useful is so much challenging also.
5. IT & ITES:
India is known for its largest pool of world class software engineer’s world over. IT sector has
contributed substantially to the Indian economy. With one of the largest pool of software
engineers, Indian entrepreneurs can set higher targets in hardware and software development.
With more overseas companies outsourcing contracts to India, business to business solutions and
services emerge as potential activities for the knowledge-based entrepreneurs in future.
Entrepreneurs can cash in on the rise in demand for IT services with innovative and cost
effective solutions.
6. Engineering Goods:
India continues to be one of the fastest growing exporters of engineering goods, growing at a rate
of 30.1 per cent. The government has set a target of $110 billion by 2014 for total engineering
exports. Entrepreneurs must capitalise on the booming demand for products from the engineering
industry.
7. Franchising:
As a boon of New Economic Policy 1991 of the Government of India, India is now well
connected with the world economies. Hence, franchising with leading brands to spread across the
country could also offer ample opportunities for young entrepreneurs especially in services
sector like education and health. With many small towns developing at a fast pace in India, there
is vast scope for spreading franchising business in the countryside in future.
8. Education and Training:
Knowledge being power, on the one hand, and Government’s increasing emphasis on spreading
education, on the other, there is a good demand for education and online tutorial services in the
country. With good facilities at competitive rates, India can attract more students from abroad in
coming years signs of which have already started. Need-based educational programmes with
innovative teaching methods can help in a big way make education develop and flourish as an
industry in the country.
9. Food Processing:
Broadly, food processing industries include cannery, meat packing plant, slaughterhouse, sugar
industry, vegetable packing plants, industrial rendering, etc. India’s mainstay is agriculture.
Entrepreneurs can explore many options in the food-grain cultivation and marketing segments.
Inefficient management, lack of infrastructure, proper storage facilities leads to huge losses of
food grains and fresh produce in India.
Unfortunately, very small portion of our food production is processed for manufacturing
purposes as is evident from the following figures:

Likewise, the level of processing in perishable foods like fruits and vegetables (2.2%), milk and
milk products (35%), meat (21%), poultry (6%) and marine products (8%) is also at a quite low
level of total production. Thus, it is evident from above figures that there remains a lot of scope
for agri-business or agri- preneurship development in the country. As such, entrepreneurs can
add value to these produce with proper management and marketing initiatives. The processed
food market opens a great potential for entrepreneurs be it fast food, packaged food or organic
food.
That there will be more and more demand for readymade or processed food in coming days is
already indicated by the meteoritic growth of Mumbai’s Dabbawala. Thus, food processing
industry offers yet more opportunities for entrepreneurship development to establish and run
food-based industries.
10. Corporate Demands:
There will be a good demand for formal attire with more companies opening their offices in
India. People who can meet this demand in a cost-effective way can make a good business. With
corporate gifting getting very popular, this is also a unique business to explore in growing urban
culture in India.
11. Ayurveda and Traditional Medicine:
India is well known for its herbal and Ayurvedic products. With increasing awareness about the
ill-effects of allopathic medicines, there will be a huge demand for cosmetics, natural medicines
and remedies in coming time.
12. Organic Farming:
Organic farming has been in practice in India for long time. That the importance of organic
farming will assume increasing importance in the country is evident by the fact that increasing
number of consumers especially foreigners have been preferring to only organic products.
Therefore, the prospective entrepreneurs can focus on business opportunities in this promising
sector of the country. Yes, many small-time farmers have already adopted organic farming but
the huge demand is still unmet which offers good opportunities for those agri-preneurs who can
promote organic farming on a large-scale in the country.
13. Media:
The media industry has also huge opportunities to offer to young entrepreneurs. With the huge
growth of this segment, any business in this field will help entrepreneurs reap huge benefits.
Television, advertising, print and digital media have seen a boom in business in the recent times
and is likely to grow more in coming times.
According to a report prepared by the Federation of Indian Chamber of Commerce and Industry
(FICCI), digitisation, regionalisation, competition, innovation, process, marketing and
distribution will drive the growth of India’s media and entertainment sector furthermore in
coming times.
14. Packaging:
With China invading the markets with cheap plastic goods and packaging materials, there is a
good opportunity to develop good packaging materials to meet domestic and foreign demand.
There is a huge demand from various sectors like agriculture, automotive, consumer goods,
healthcare infrastructure and packaging sectors for plastics.
15. Floriculture:
India’s floriculture segment is small and unorganized. There is a lot to be done in this lucrative
sector. The global trade in floriculture products is worth $9.4 billion. With a 8 per cent growth, it
is expected to grow to $16 billion by 2010. India’s share in world trade is just 0.18 per cent. This
is a huge market to be tapped considering the rising demand for fresh flowers. More awareness
and better farming and infrastructure can boost exports of flowers in coming times.
16. Toys:
Another evergreen industry is toy manufacturing. India has potential to manufacture cost-
effective and safe toys for the world. With Chinese toys being pulled up for toxins, the market
for safe and good quality, toys beckons Indian entrepreneurs.
17. Healthcare Sector:
India’s healthcare sector dismal till the other day has now good prospects to develop in future.
The private sector, that is, individual entrepreneurs can play a vital role in developing this sector.
With medical tourism also gaining momentum, the sector can attract foreigners who are looking
for cost- effective treatment in countries like India.
18. Biotechnology:
After the software sector, biotechnology opens a huge potential for entrepreneurs in India.
Global evidences confirm that agricultural biotechnology has a major impact on agricultural
productivity. That is why increasing emphasis has been given to research and development in the
agro-biotech sector with an aim to produce crops with high level of tolerance against cold, heat
and salinity.
A number of improved food products have also been developed. It is expected that with increase
in investment in research and development in India, agro-bio technology will further develop
and, in turn, Indian agriculture will develop. The future entrepreneurs can, therefore, look at a
plethora of options available with the application of biotechnology in agriculture, horticulture,
sericulture, poultry, dairy and production of fruits and vegetables.
19. Energy Solutions:
In a power starved nation like ours, the need to develop cost-effective and power-saving devices
is gaining ever increasing significance. There is a huge demand for low-cost sustainable energy
saving devices as well. The government has already unveiled the National Solar Mission which
has set a target of 20,000 MW of solar generating capacity by the end of the 13th Five Year Plan.
Prime Minister Manmohan Singh had urged the industry to see the huge business opportunity
and set up ‘Solar Valleys’ on the lines of the Silicon Valleys. These solar valleys can become
hubs for solar science, solar engineering and solar research, fabrication and manufacturing. So
there is a big opportunity for entrepreneurs in this sector as well in our country.
20. Recycling Business:
E-waste will rise to alarming proportions in the developing world within a decade, with
computer waste in India alone to grow by 500 per cent from 2007 levels by 2020, according to a
UN study. Therefore, this sector also opens new vistas of viable business opportunity for
entrepreneurs in terms of e-waste management and disposal activities in large size.
Recently, a national level conference on entrepreneurship called Entrepreneur India 2011 was
held on July 15th and 16th at Hotel Claridges, New Delhi. The conference was built across the
seven I’s of entrepreneurship:
(i) Inspire,
(ii) Ideate,
(iii) Individual,
(iv) Incubate,
(v) Innovate,
(vi) Invest, and
(vii) Internationalize to discuss and deliberate on Innovation and Entrepreneurship for unleashing
business opportunities available in the country.
21. Green business
22. Event management
23. Agro based (Food, fruit, vegetables processing, refrigeration, and transportation)
24. Mineral water
25. Courier services
26. Insurance sector
27. Telecom
28. Plastic
29. Tourism

Formalities for setting up small enterprises in manufacturing and services

Flow Chart for setting up a SSI

1. Selection of a project
2. Deciding on the Constitution
3. Obtain SSI Registration
4. Obtain Clearance from Department as applicable
5. Arrange for land/shed
6. Arrange for Plant & Machinery
7. Arrange for Infrastructure
8. Prepare Project report
9. Apply & Obtain Finance
10. Proceed to implement & Obtain Final Clearances

STEP 1: PRODUCT/SERVICE SELECTION

a) Product or service selection
b)Location Selection
c) Project Feasibility Study
d) Business Plan Preparation
e) Preparation of a project profile

a. Product/Service selection
Project Identification is concerned with collection, compilation and analysis of economic data for
the eventual purpose of locating possible opportunities for investment & with the development of
such opportunities. Sources for generating novel project ideas are personal observations of the
surrounding environment, trade fairs/exhibitions, technical & professional literature published in
trade periodicals and magazines Development plans/schemes of Government may pinpoint
toward a unique investment opportunity, bulletins of research Institutes such as Ernst & Young,
McKinsey, KPMG, AC Nielsen can provide valuable insights on current state of various sectors,
demand-supply gap and investment opportunity, if any. Contacting organisations such as District
Industry Centres, Centres for Entrepreneurship Development, Small Industry Services Institute,
EDI, NIESBUD, KVIC, SIDBI, National Industrial Development Corporation etc. and gathering
information in the form of project profiles, feasibilities studies, industry studies, area
development studies etc. can be source of new idea.
Criteria for Selecting a Particular Product
Market Potential Degree of Competition Investment Size Location Availability of Raw Material,
Technology & Equipment Availability of Infrastructural facilities such as land/shed, power,
water, transport etc. Resource & Experience of the entrepreneur Government Policies &
Procedures Packaging, Branding, Warranties & After Sales Service
b. Location selection
1. General Considerations:
Location(city/town/village), proximity to nearest railway stations/sea port/air port/, availability
of essential raw material sources, skilled labour, law & order situation in the area, level of
industrial development in the area, etc.
2. Industrial Infrastructure Position:
Land (availability & price), water & power supply, effluent treatment & disposal/drainage
arrangement, postal, telegram & telecommunication facilities, banking facilities, warehousing
facility, professional resource person such as legal advisor. Chartered accountants,
management/industrial consultants etc.
3. Financial Incentives Available:
Investment subsidy (Central/State Government), income tax concession, sales tax
exemption/interest free sales tax loan, Octroi exemption, electricity duty exemption, local tax
exemption etc. 4. Social Infrastructure Position: Housing (availability, quality, price, public
housing facilities), education (primary, secondary and university education facility) and
health(dispensary, hospitals & specialities) 5. Site-Specific Consideration: access to national
highway or other roads provided by the state, soil type, direction of town growth with reference
to the site, overhead telephone or power lines or underground water/drainage/gas line passing
through the site, vantage or otherwise, frontage approach etc.
c. Project feasibility study
1.MARKET ANALYSIS
2. TECHNICAL ANALYSIS
3. FINANCIAL ANALYSIS
4. ECONOMIC ANALYSIS
5. ECOLOGICAL ANALYSIS
1MARKET ANALYSIS
Consumption trend in the past and present consumption level Past and present supply position
Production possibilities and constraints Imports and exports Structure of competition Cost
structure Elasticity of demand Consumer behaviour, intentions, motivations, attitudes,
preferences and requirements. Distribution channels & marketing policies
2. TECHNICAL ANALYSIS
Technical analysis has the availability of raw materials, power ad other inputs been established?
Is the selected scale of operation optimal? Is the production process chosen suitable? Are the
equipment & machine chosen appropriate? Has provision been made for treatment of effluents?
Is the proposed layout of the site, building and plant sound ? Have work schedules been drawn
up realistically? Is the technology proposed to be employed appropriate from the social point of
view?
3. FINANCIAL ANALYSIS
Financial Analysis seeks to ascertain whether the proposed project will be financially viable in
the sense of being able to meet the burden of servicing the debt and whether the proposed project
will yield a satisfactory rate of return. Few aspects require to be looked into such as:
Investment outlay Means of financing Projected profitability
Break-even point
Cash flows of the project
Projected financial position
Level of risk Calculation of key ratios such as ROI, Liquidity & Solvency Ratios
4. ECONOMIC ANALYSIS
The questions sought to be answered in social cost-benefit analysis are as follows: What are the
direct economic benefits and costs of the project measure in terms of shadow prices and not
market prices? What would be the impact of the project on distribution of the income? What
would be the impact of the project on the level of savings and investment? What would be the
contribution of the project towards the fulfillment of certain criteria such as self- sufficiency,
employment and social order?
5. ECOLOGICAL ANALYSIS
Ecological analysis Ecological analysis should be done particularly for major projects which
have significant ecological implications such as power plants, irrigation schemes. Manufacturing
of bulk drugs, chemicals, leather processing etc. The key question raised in ecological analysis is
as follows: What is the likely damage caused by the project to the environment? What is the cost
of the restoration measure required to ensure that the damage to the environment is contained
within acceptable limits? Is the project causing water/air pollution or discharge of harmful
chemicals?
d. Business plan preparation
WHAT IS INCLUDED IN A BUSINESS PLAN
e. Project profile A project profile gives a bird-view of the proposed project. This may be used to
obtain the Provisional Registration Certificate (PRC) from the District Industries Centre or
applying for land/shed to Industrial Area Development Board, State Small Industries
Development Corporation (SSIDC) etc. Important informational heads to be covered in a project
profile are promoter’s background, product description, market & marketing, plant & machinery,
process details, cost of the project & profitability, means of finance etc.

STEP 2. Decide on the constitution

Sole proprietorship Partnership Corporation/limited company Cooperative Franchising
Sole Proprietorship: A sole proprietorship is owned by only one person. This is the most
common form of business ownership.
Partnership: A business owned by two or more people. The partners share ownership and
control of the business.
Company: A company is a business which is considered a separate entity from owner; even
having the legal rights of a person.
Franchising: Franchising is a business arrangement in which the owner of a trade mark, trade
name, or copy right has licensed others to use it in selling goods or services. It can be sole
proprietorship, partnershipor company form.

STEP 3. Obtaining registration:

Registration Small-scale and ancillary units should seek registration with the Director of
Industries of the concerned State Government. Entrepreneur starting a small scale industry have
to initially obtain a Provisional Registration Certificate .Once the unit goes into production, the
PRC has to be converted into a Permanent Registration Certificate. The initial validity of the
PRC is 2 years and it can be renewed subsequently, if needed. PRC is normally valid for 5 years
and permanent registration is given in perpetuity.
Benefits of registration
The registration scheme has no statutory basis. Units would normally get registered to avail some
benefits, incentives or support given either by the Central or State Govt. The regime of
incentives offered by the Centre generally contains the following: - Credit prescription (Priority
sector lending), differential rates of interest etc. - Excise Exemption Scheme - Exemption
under Direct Tax Laws. - Statutory support such as reservation and the Interest on Delayed
Payments Act. States/UTs have their own package of facilities and incentives for small scale.
They relate to development of industrial estates, tax subsidies, power tariff subsidies, capital
investment subsidies and other support
Provisional registration certificate (prc)
This is given for the pre-operative period and enables the units to obtain the term loans and
working capital from financial institutions/banks under priority sector lending. Obtain facilities
for accommodation, land, other approvals etc. Obtain various necessary NOCs and clearances
from regulatory bodies such as Pollution Control Board, Labour Regulations etc.
REGISTRATION Formalities for prc
Prescribed court fees stamp Copy of the project profile Partnership deed/MOA/AOA Affidavit as
per the format on appropriate stamp paper
The memorandum of association and articles of association are the two charter documents, for
setting up of the company and its operations thereon. ‘Memorandum of Association‘
abbreviated as MOA, is the root document of the company, which contains all the basic details
about the company. On the other hand, ‘Articles of Association‘ shortly known as AOA, is a
document containing all the rules and regulations designed by the company.
PERMANENT REGISTRATION CERTIFICATE (PMT)
A PMT enables the unit to get the following benefits: income-tax and sales-tax exemption
Incentives and concessions in power tariffs To apply for scarce raw materials and for imported
raw materials. Price and purchase preference for goods produced To obtain central excise duty
concessions
Procedure for permanent registration certificate
Once the production commences, the organisation can proceed to apply for Permanent
Registration Certificate (PRC).It is a life time registration given after physical inspection of the
enterprise and scrutiny of certain documents. Some of the formalities required to be completed
for seeking permanent registration are :-Clearance from the municipal corporation State pollution
control board clearance Sanction from the electricity board Ownership/tenancy rights of the
premises where unit is located Copy of partnership deed/Memorandum orarticles of association
in case of a private limited company Sale bill of product manufacture Sale bill of each end
product Purchase bill of each raw material Purchase bill of machinery installed An affidavit
giving status of the unit, machinery installed, power requirement, etc

STEP 4. Clearance from specific departments

Specific Clearances usually depending on the type of units: Agricultural land conversion Urban
land ceiling clearance Building plan approval Factories Act/trade licence Pollution control board
clearances Sales tax/central excise registration Drugs & cosmetics licence Food adulteration act
licence

STEP 5. ARRANGEMENT OF LAND/SHED

For any industrial project, a suitable industrial site or a ready industrial shed is required. The
promoters of the unit could consider taking an industrial shed and constructing the shed as per
the requirement. Using a ready industrial shed could be considered on lease/rental basis. In order
to apply for industrial shed, few application formalities have to be complied including copy of
Provisional Registration Certificate, detailed project report, certified copies of educational
qualifications, applicable earnest money deposit.

STEP 6. ARRANGEMENT OF PLANT & MACHINERY

The entrepreneur can select and purchase the requisite plant & machinery from recognised and
approved manufacturers. Banks and SFCs maintain a list of approved machinery supplies Direct
purchase The plant & machinery can be taken on hire purchase from NSIC. As per the
agreement, once the leased instalment is paid, the assets will become the property of the
industrial unit. An application in the prescribed format has to be submitted to the Director of
Industries of the State under whose jurisdiction the applicant operates. Hire Purchase
ARRANGEMENT OF RAW MATERIAL
Raw Material procurement and planning are critical to success, of a start-up unit. The raw
materials required may be:- Domestically available (within the country). Imported from abroad:-
For importing the raw materials the Government rules and regulations have to be followed. The
imports are regulated by the Foreign Trade (Development and Regulation) Act, The Act provides
for the appointment by the Central Government, of a Director General of Foreign Trade for the
purpose of the Act. The DGFT shall advise Central Government in formulating export and
import policy and implementing the policy. Whatever be the source of raw materials it must be
bought from reputed dealers and agencies only. Before ordering, compare the prices and get
quotation from at least 3-4 places and also check whether price is inclusive or exclusive of
transportation costs. While receiving the delivery, check the quality and quantity of the materials
Process selection Before selecting any process technology, following considerations are to be
taken care of: The level of skilled workers or complex machines required by the process. The
quantity of water and / or power required. If any process or product patent is needed in order to
utilize the selected process technology. Any special Pollution or Environmental regulation is to
be followed. The appropriateness of the technology to the Indian environment and conditions.

STEP 7. ARRANGEMENT FOR INFRASTRUCTURE

The main infrastructural facilities required for a SSI unit are land/shed, power connection, water
supply and telephone facility. Single Window Agencies are set up at district level for the benefit
of small-scale industries. SWA provides various services including allotment of land/industrial
sheds/power connection, sanction of term loans and working capital, disbursement of various
incentives and concessions etc. The entrepreneur can avail of several concessions and incentives
of State Government available for SSI such as subsidised water/power tariff, transport subsidy,
incentive for pollution control etc.
Getting utility connections (water & power)
WATER SUPPLY: Find out the water requirement of the industry. Check out what is the best
possible source of the required water supply i.e. river, canal, tube well and how far is it from
your land. Check the quality of water (PH, hardness) and does it meet you specific requirements.
Rate/ water charges applicable as well as the common storage facility. Find out who is the
operating authority (Public Works Department, Estate-Corporation, Municipality) of the area.
Water connection is obtained by applying in advance in formal forms
Getting utility connections (water & power)
POWER SUPPLY: Find out the power supply requirement of the industry. Locate the nearest
substation from where you will get power supply. Also find out the power tariff rate and the
duration for which required supply will be available. A formal application needs to be made in a
specific form to the concerned State Electricity Boards. An electrical inspector is deputed for
evaluation of application to factory site, after which the load is sanctioned. In areas of power
shortage, it is advisable to augment the power supply with a captive generating set. After
obtaining the power feasibility and sanction certificate, the power supply may be given to the
industry.

STEP 8. PREPARE PROJECT REPORT

General Points to be kept in mind while preparing a Project Report: Expected use of the project
report Elaborate details but retaining the confidential data Proper validation of the data and
information based on reliable sources Effective presentation by use of charts, graphs and
pictorial forms Cost minimisation and timelines Proper estimation of the requirement of number
of copies.
CONTENTS OF A PROJECT REPORT
1.EXECUTIVE SUMMARY: introduction, financial performance, balance sheet analysis,
project profitability & analysis, SWOT analysis
2. COMPANY DETAILS: history, manufacturing facilities, promoters, shareholding pattern,
board of directors, key executives, major products/consumers, details of divisions and group
units
3. OPERATIONAL DETAILS: capacity & utilization, profit & loss account, term loans &
advances, marketing & distribution network, marketing strategy, export sales
4. PROJECT DETAILS: Proposed project, orders & enquiries, location, manufacturing process,
technical feasibility/know-how, manpower, power/water supply, auxiliary services
5. PROJECT COST: land, building, plant & machinery, preoperative expenses, margin money
for hire purchase & working capital.
6. MEANS OF FINANCE
7. PROJECT STATUS: implementation schedule, PERT & CPM analysis, current status of work
flow
8. PROFITABILITY & RISK ANALSYIS: Financial of the project, analysis of break-even
point, ROI, payback period and internal rate of return.
9. COMPANY vis-à-vis RELATED INDUSTRY: General analysis, competing industries,
knowledge about existing monopolies and existing cartels.
10. EMPLOYMENT GENERATION
11. CONCLUSION
12. ANNEXURE: Promoter’s bio-data Organisation chart Details of group units Statutory
sanctions/approvals Arrangement of land & building Details of orders & enquiries Process chart
Financial for project and company and its analysis Any other relevant details

STEP 9. APPLY & OBTAIN FINANCE

The entrepreneur has few key decisions to be made: Sources of finance: share capital, internal
accruals, deposits – own/public, debentures, short-term borrowings, long term loans, bridge loans
and working capital loans. Small scale units can obtain finance for their projects under two
categories: Term Loan Working Capital Loan 3. Financial assistance in India for SSI units is
available from a variety of institutions including Small Industries Development Bank of India,
SFC, NSIC, SIDC,DIC.Export Import Bank of India and Export Credit and Guarantee
Corporation are central agencies which provide credit for export/import and EXIM guarantees.

STEP 10.IMPLEMENT THE PROJECT & OBTAIN FINAL CLEARANCE

Construct shed Order for machinery Recruit personnel Arrange for raw materials Marketing
Erection & commissioning Obtain Final Clearance

Regulatory and non regulatory clearance s for new venture promotion in SME sector:

In the Constitution of India it is clearly stated that it is the duty of the state to ‘protect and
improve the environment and to safeguard the forests and wildlife of the country’. It imposes a
duty on every citizen ‘to protect and improve the natural environment including forests, lakes,
rivers, and wildlife’. Reference to the environment has also been made in the Directive Principles
of State Policy as well as the Fundamental Rights. The Department of Environment was
established in India in 1980 to ensure a healthy environment for the country. This later became
the Ministry of Environment and Forests in 1985.
The constitutional provisions are backed by a number of laws – acts, rules, and notifications. The
EPA (Environment Protection Act), 1986 came into force soon after the Bhopal Gas Tragedy and
is considered an umbrella legislation as it fills many gaps in the existing laws. Thereafter a large
number of laws came into existence as the problems began arising, for example, Handling and
Management of Hazardous Waste Rules in 1989.
Following is a list of the environmental legislations that have come into effect:
General Forest and wildlife Water Air
General
1986 - The Environment (Protection) Act authorizes the central government to protect and
improve environmental quality, control and reduce pollution from all sources, and prohibit or
restrict the setting and /or operation of any industrial facility on environmental grounds.
1986 - The Environment (Protection) Rules lay down procedures for setting standards of
emission or discharge of environmental pollutants.
1989 - The objective of Hazardous Waste (Management and Handling) Rules is to control
the generation, collection, treatment, import, storage, and handling of hazardous waste.
1989 - The Manufacture, Storage, and Import of Hazardous Rules define the terms used in
this context, and sets up an authority to inspect, once a year, the industrial activity connected
with hazardous chemicals and isolated storage facilities.
1989 - The Manufacture, Use, Import, Export, and Storage of hazardous Micro-organisms/
Genetically Engineered Organisms or Cells Rules were introduced with a view to protect the
environment, nature, and health, in connection with the application of gene technology and
microorganisms.
1991 - The Public Liability Insurance Act and Rules and Amendment, 1992 was drawn up to
provide for public liability insurance for the purpose of providing immediate relief to the persons
affected by accident while handling any hazardous substance.
1995 - The National Environmental Tribunal Act has been created to award compensation for
damages to persons, property, and the environment arising from any activity involving hazardous
substances.
1997 - The National Environment Appellate Authority Act has been created to hear appeals
with respect to restrictions of areas in which classes of industries etc. are carried out or
prescribed subject to certain safeguards under the EPA.
1998 - The Biomedical waste (Management and Handling) Rules is a legal binding on the
health care institutions to streamline the process of proper handling of hospital waste such as
segregation, disposal, collection, and treatment.
1999 - The Environment (Siting for Industrial Projects) Rules, 1999 lay down detailed
provisions relating to areas to be avoided for siting of industries, precautionary measures to be
taken for site selecting as also the aspects of environmental protection which should have been
incorporated during the implementation of the industrial development projects.
2000 - The Municipal Solid Wastes (Management and Handling) Rules, 2000 apply to every
municipal authority responsible for the collection, segregation, storage, transportation,
processing, and disposal of municipal solid wastes.
2000 - The Ozone Depleting Substances (Regulation and Control) Rules have been laid down
for the regulation of production and consumption of ozone depleting substances. 2001 - The
Batteries (Management and Handling) Rules, 2001 rules shall apply to every manufacturer,
importer, re-conditioner, assembler, dealer, auctioneer, consumer, and bulk consumer involved in
the manufacture, processing, sale, purchase, and use of batteries or components so as to regulate
and ensure the environmentally safe disposal of used batteries.
2002 - The Noise Pollution (Regulation and Control) (Amendment) Rules lay down such
terms and conditions as are necessary to reduce noise pollution, permit use of loud speakers or
public address systems during night hours (between 10:00 p.m. to 12:00 midnight) on or during
any cultural or religious festive occasion
2002 - The Biological Diversity Act is an act to provide for the conservation of biological
diversity, sustainable use of its components, and fair and equitable sharing of the benefits arising
out of the use of biological resources and knowledge associated with it
Forest and wildlife
1927 - The Indian Forest Act and Amendment, 1984, is one of the many surviving colonial
statutes. It was enacted to ‘consolidate the law related to forest, the transit of forest produce, and
the duty leviable on timber and other forest produce’.
1972 - The Wildlife Protection Act, Rules 1973 and Amendment 1991 provides for the
protection of birds and animals and for all matters that are connected to it whether it be their
habitat or the waterhole or the forests that sustain them.
1980 - The Forest (Conservation) Act and Rules, 1981, provides for the protection of and the
conservation of the forests.
Water
1882 - The Easement Act allows private rights to use a resource that is, groundwater, by
viewing it as an attachment to the land. It also states that all surface water belongs to the state
and is a state property.
1897 - The Indian Fisheries Act establishes two sets of penal offences whereby the government
can sue any person who uses dynamite or other explosive substance in any way (whether coastal
or inland) with intent to catch or destroy any fish or poisonous fish in order to kill.
1956 - The River Boards Act enables the states to enroll the central government in setting up an
Advisory River Board to resolve issues in inter-state cooperation.
1970 - The Merchant Shipping Act aims to deal with waste arising from ships along the coastal
areas within a specified radius.
1974 - The Water (Prevention and Control of Pollution) Act establishes an institutional
structure for preventing and abating water pollution. It establishes standards for water quality and
effluent. Polluting industries must seek permission to discharge waste into effluent bodies. The
CPCB (Central Pollution Control Board) was constituted under this act.
1977 - The Water (Prevention and Control of Pollution) Cess Act provides for the levy and
collection of cess or fees on water consuming industries and local authorities.
1978 - The Water (Prevention and Control of Pollution) Cess Rules contains the standard
definitions and indicate the kind of and location of meters that every consumer of water is
required to affix.
1991 - The Coastal Regulation Zone Notification puts regulations on various activities,
including construction, are regulated. It gives some protection to the backwaters and estuaries.
Air
1948 – The Factories Act and Amendment in 1987 was the first to express concern for the
working environment of the workers. The amendment of 1987 has sharpened its environmental
focus and expanded its application to hazardous processes.
1981 - The Air (Prevention and Control of Pollution) Act provides for the control and
abatement of air pollution. It entrusts the power of enforcing this act to the CPCB .
1982 - The Air (Prevention and Control of Pollution) Rules defines the procedures of the
meetings of the Boards and the powers entrusted to them.
1982 - The Atomic Energy Act deals with the radioactive waste.
1987 - The Air (Prevention and Control of Pollution) Amendment Act empowers the central
and state pollution control boards to meet with grave emergencies of air pollution.
1988 - The Motor Vehicles Act states that all hazardous waste is to be properly packaged,
labelled, and transported.

Business Plan
General Guidelines for writing plan
As much as your plan represents your dream and is very important to you, it may not be as high
on the agendas of the people who read it. When you sit down to write your plan, think of who
will be reading it and put yourself into their shoes as much as possible. In most cases, the people
who will read your plan are going to be potential investors, bankers, and/or potential partners.
Your readers have likely seen dozens, and perhaps even hundreds, of plans. These people do not
often have a great deal of time, so prepare your plan accordingly. In general you should:

Write the plan yourself. Get help if you need it, but do not let your accountant, bookkeeper, or
other professional write your plan for you. You may let them help you with the financial plan,
for example, but you need to know your plan inside and out-and the best way to ensure that is to
write it yourself.

Back up every claim you make with supporting evidence. Include surveys and detailed market
research as an addendum or appendix to your plan.
 Write clearly and to the point, keeping your prose to a minimum.

Avoid hyperbole: don't overstate your case. Similarly, avoid unnecessary adjectives such as
"fantastic," "amazing," "astounding," "irresistible," and so on. Let the reader form his or her own
opinion.

Ensure that your writing is error-free and edited for proper form and syntax.

Choose a simple, common font such as Times New Roman, and stick with it throughout the
document.

Use professionally produced drawings, photographs, and graphs. Unless you are a
professional, your own attempts at art will look amateurish. The same is true for videos, if you're
using them, or a computer-based demo.

Bind the pages simply. Cerlox or its equivalent is likely sufficient.

Make sure you include your contact information right on the cover. This is one of the most
common mistakes entrepreneurs make
Section of the plan
The first two sections should appear at the beginning of your plan. It is not as critical that the
others follow in the order given, but this sequence will likely work well.
Executive Summary
This is by far the most important part of your plan. It should be no more than two pages in
length, or less. State the idea, the opportunity, how much money you need, where you hope to
get it, how it will be spent, and how you will pay it back. Readers who are interested may then
go on to read the rest of your plan. Be warned, if your executive summary is more than three
pages long, it will likely not be read.
Your Planned Venture
Describe your idea as clearly as possible, with diagrams, photographs or any other medium
necessary to communicate it to the reader. Back up the idea with a description of the target
market, tell why the opportunity exists, and why your idea will capture that market.
Market Research
Explain how you determined the product or service was appropriate to the market. Include
explanations of the "four P's" (price, product, promotion, placement).
Background and History
Tell who you are, what experience and skills you bring to this venture, and whether or not you've
run your own businesses in the past. Describe and explain their successes or failures. Include
your own, short, biography here. Management Team Provide the names, and short bios, of the
people you will use to fill the key positions in the business.
Start-up Plan
Tell when and where you plan to start the business and why you chose this time frame and
location. Operational Plan
Describe, in detail, how your business will operate. Include diagrams of production or service
areas if appropriate.
Marketing Plan
Describe, in detail, how you will attract customers or clients and how you will deliver your
product or service to them.
Financial Plan
Provide a detailed financial plan, including a cash-flow projection, that accounts for the money
you will need (borrow) and the repayment plan and return on investment to investors.
Appendix
Include your own and your team's detailed biographies here as well as additional market research
and any other information that is too detailed to be included in the body of the plan.
Most entrepreneurs have to come up with their own start-up money – either from their own
savings or from relatives who know and trust them. But there are other sources of capital out
there that you might tap into. Nothing is easy or straightforward about raising start-up capital for
your venture. Here are some typical potential sources of start-up money.

Writing up a Business plan

Now that you understand why you need a business plan and you've spent some time doing
your homework gathering the information you need to create one, it's time to roll up your
sleeves and get everything down on paper. The following pages will describe in detail the
seven essential sections of a business plan: what you should include, what you shouldn't
include, how to work the numbers and additional resources you can turn to for help. With
that in mind, jump right in.
Within the overall outline of the business plan, the executive summary will follow the title page.
The summary should tell the reader what you want. This is very important. All too often, what
the business owner desires is buried on page eight. Clearly state what you're asking for in the
summary.
Business Description
The business description usually begins with a short description of the industry. When
describing the industry, discuss the present outlook as well as future possibilities. You
should also provide information on all the various markets within the industry, including
any new products or developments that will benefit or adversely affect your business.
Market Strategies
Market strategies are the result of a meticulous market analysis. A market analysis forces the
entrepreneur to become familiar with all aspects of the market so that the target market can be
defined and the company can be positioned in order to garner its share of sales.
Competitive Analysis
The purpose of the competitive analysis is to determine the strengths and weaknesses of the
competitors within your market, strategies that will provide you with a distinct advantage, the
barriers that can be developed in order to prevent competition from entering your market, and
any weaknesses that can be exploited within the product development cycle.
Design & Development Plan
The purpose of the design and development plan section is to provide investors with a
description of the product's design, chart its development within the context of production,
marketing and the company itself, and create a development budget that will enable the company
to reach its goals. Operations & Management Plan
The operations and management plan is designed to describe just how the business functions on
a continuing basis. The operations plan will highlight the logistics of the organization such as the
various responsibilities of the management team, the tasks assigned to each division within the
company, and capital and expense requirements related to the operations of the business.
Financial Factors
Financial data is always at the back of the business plan, but that doesn't mean it's any less
important than up-front material such as the business concept and the management team.

Determining Bankability of the project

Bankability of a Project
Peter Seeger once said, “Education is when you read the fine print, but experience is what you
get if you don’t. Africa is now receiving some attention from the rest of the world as a genuine
destination for impactful investment. While there are significant structure imbalances across the
continent, there are noticeable improvements in governance, delivery of social and basic
services, change in attitudes towards transformational education, and a token investment in
infrastructure. Gone are the days when inflated statistics on Africa were driving the narratives on
economic growth.
The African Outlook 2013 Report paints an optimistic picture of the continent’s growth potential
– the economy is projected to grow by 4.8% in 2013 and accelerate further to 5.3% in 2014. Net
capital inflows to Africa are projected to reach $77.5-billion in 2015 from $48.3-billion in 2012,
and household spending will be supported by rising income, increased remittance flows, and
stable macroeconomics environment. Amidst these positives is the African entrepreneurial
renaissance that has taken shape; the birth of a vibrant private sector that is changing the
landscape of political governance, and redefining the pathway to accelerating economic growth
and impactful development. In order to sustain such a unique and encouraging trend, African
entrepreneurs must understand what it takes to positively exploit these trends.
An emerging economy depends on many factors for impactful growth. Factors such as
entrepreneurship and innovation are central to the development process in an emerging economy.
Innovation and entrepreneurship are also cardinal to promoting growth, increasing productivity,
and creating jobs.
Bankable projects attract financiers and investors
For entrepreneurs to be taken seriously by investors, banks, financing agencies, and their own
governments, they will have to present convincing “Business Cases” by way of a “Bankable
Project”; inform by a feasibility study, and or a business plan. Most times, project owners focus
only on the technical aspects of the project in the early stages of the business development,
without proper packaging of the deal or business proposal. When one scans the various platforms
dedicated to the promotion of African businesses, you will observe an encouraging, but
worrisome trend; businesses that are trying to raise start-up or growth capital without appropriate
documentation to support the business case. Many of these pitches lack the requisite documents
that are required for an investor to make a determination on whether the business is a viable and
suitable investment option that deserves their attention and resources.
A bankable business case will consider scale, market, profitability, liquidity, quality of
management, customers, technology, and value added preposition. If a business idea is a
“Greenfield”, new, then in most instances, there is a need for a feasibility study. A feasibility
study is intended to provide an overview of the primary issues related to a business case. The
idea is to identify any “make or break” scenario that could prevent the prospective business from
being successful. In short, the feasibility study is meant to determine whether the proposed
business makes sense. With a completed feasibility study, the basis for the preparation of an
informed business plan is established. A typical feasibility study will look at possible
opportunities, and obstacles relating to the following issues:
Market – what is the market, does the company sit on top of a big trend in its prospective
market, or is the market large enough to sustain the entry of a new player, how big is the industry
or idea? A thorough market research analysis should reveal baseline demand, demographic
characteristics of the customers, baseline supply, competitors’ strength and weaknesses, and an
analysis on the proposed location.
Organisation/technical – issues relating to the right organisational structure must be assessed
and articulated, who are those responsible for governance and oversight-the right mixed of a
board of directors, what qualifications are needed for operating the business, and an analysis of
the changing trend of staffing and retention. On technology, the need to determine the type of
technology that is core to the survival of the business, how mature is the information technology
landscape of the location and how will it impact the business IT strategy, is it cost effective to
integrate social media now, or later, and will it affect the start-up time to market.
Financial - understanding the financial needs of an existing business or start-up is of paramount
importance to successful fundraising. The need to determine and distinguish start-up cost from
operating cost must be made at the initial stage of the business. Revenue projection must be
realistic and in tune with the current state of the operating environment, sources of financing
should be identify and analyse for suitability, and availability, and lastly profitability forecast
and analysis should be informed with basic breakeven analysis.
What next after the feasibility study?
Based on a positive result of the feasibility study; if there are indications of the sound business
proposal, the next course of action is to develop a “Business Plan”. If the business is an existing
business, a feasibility study might not be needed. A business plan is the bridge of communication
between interested investors and the promoter or owner of a business. The business plan in
summary provides a roadmap on where the company is heading, how it intends to arrive, and
how it will appear upon arrival. Furthermore, a business plan is a tool utilise by business owners
to set goals and objectives for the business performance, provide a foundation for evaluation, and
use to communicate the proposed company message to staff, directors, lenders, and potential
investors. The following are the basic tenets of a sound business plan:
An executive summary – gives the reader or potential investors useful understanding of your
business model or idea in summary. It could enhance or limit your chances to getting funded
Purpose – the purpose of the plan if simple and to the point will attract investors, and summarize
the operational intent to managing the business. Market analysis - this is usually gleaned from
the feasibility study if one was prepared prior to the preparation of the business plan. It tries to
capture and analyse the characteristics of the target market; demographic and geographic, and
test the products and or services to be offered in satisfying market needs.
Company - an overview of the proposed company; governance, management qualification and
experience, the needs management intends to satisfy, and the strategy to be deployed in offering
those services or products.
Marketing and sales strategy - what is the proposed company marketing & sales strategy, what
key indicators for success, who are your competitors, and how competitive is the environment.
Product or services – what are the ongoing efforts in terms of products or service offering ,
ongoing efforts regarding product development and time to market, are there key milestones to
be met?
Financial data – A look at funding requirements and the use of generated funds, historical
financial summary, and forecasted summary of the proposed company financial statement.
The tips provided above are also applicable to government-owned companies. In government,
feasibility studies are more applicable to infrastructure projects, and the provision of services.
For many government-oriented projects, project financing through “Public Private-Partnership”
arrangements (BOT, BOM, BOOT, Concession, etc.) are desirable. In many parts of Africa,
there are also challenges when it comes to financing infrastructure projects; such as roads, ports,
provision of utility (water, power, telecommunication, etc.). In most instances, project financing
might not require sovereign guarantees. This topic will be explored in another article (The
Intricacies of Project Financing in Africa). For now the point to be made is the idea of presenting
bankable projects.
The caveat
What it is true that some business owners or promoters have the technical expertise to prepare
their own business plan, it is not advisable to do so. Most investors and or lenders will prefer an
independent preparer; someone who is in the business of developing feasibility studies, and
business plans. The idea is to limit the infusion of bias in assumptions used to prepare the
business plan. There are misconceptions regarding the cost of feasibility studies, and the length
of time to completion. For others, the cost is not affordable, no matter how low it might be.

Components of a B-Plan
Components of Business plan
A business plan provides direction, keeping you on track and is usually a requirement when you
seek finance. Depending on your business type, your plan could include the following sections:

Title page - This describes what the plan is for and includes general information on your
business. Find out more on what to include in the title page of your business plan.

Business Summary - A one-page overview written after your business plan is finalised.

About your business - This is typically called the management plan or operations plan. It
covers details about your business including structure, registrations, location and premises, staff,
and products/services.

About your market - This is the marketing plan. It should outline your marketing analysis of
the industry you are entering, your customers and your competitors. This section should also
cover your key marketing targets and your strategies for delivering on these targets.
 About your future - This section covers your plans for the future and can include a vision
statement, business goals and key business milestones.

About your finances - The financial plan includes how you'll finance your business, costing
and financial projections. See the Finances section for detailed information on what to include on
finances.

Supporting documentation - List all of your attachments under this heading in your plan for
referral. For example: copies of emergency procedures, maps, resumes, or financial tables.

Module III: Institutional Support for SME.

Central / State level Institution promoting SME.
Financial Management in small business.
Marketing Management, problems & strategies
Problems of HRM – Relevant Labour – laws.

Institutional support for SME

In March 1995, the dti published the White Paper on National Strategy for the Development and
Promotion of Small Business in South Africa, which encourages the establishment of a support
framework, in the form of enabling legislation, institutional reform, leveraging financial and
other forms of assistance, for small business development.
Government has established several institutions mandated to deliver a wide range of key
services, including both financial and non-financial support services, to small enterprises.
Government institutions that offer support to SMMEs include the following:

Small Enterprise Development Agency (seda);

Small Enterprise Finance Agency (SEFA);

National Empowerment Fund (NEF);

Industrial Development Corporation (IDC);

National Youth Development Agency (NYDA);

Land Bank;

Mafisa; and

Provincial agencies

National and state level institution providing SME

Small Industries Development Bank Of India [SIDBI]

SIDBI has been set up by the Government of India with its headquarters in Lucknow, Uttar
Pradesh, as the principal financial institution for promotion, financing and development of
industries in the small scale sector and to coordinate functions of the institutions engaged in
similar activities.

SIDBI aim is to serve as the principal financial institutions for promotion financing and
development of industry in the small scale sector and to co-ordinate the functions of the
institutions engaged in promoting, financing or developing industry in the small scale sector.
Industrial Development Bank of India

IDBI was a wholly owned subsidiary of RBI up to February 1976. It was delinked from RBI
w.e.f. February 1976 and was made an autonomous corporation fully owned by the Government
of India. The IDBI is the apex financial institution and besides providing financial assistance on
consortium basis, the major function of coordination between the various institutions is looked
after by the bank. It also provides refinance facility to the eligible financial institutions including
term loans. The bank sanctions the financial assistance to the industrial concerns engaged in the
manufacture or processing of goods, mining, transport generation and distribution of power etc.
both in private and public sectors. There is no restriction on the quantum of assistance or the
maximum or minimum limits.

IDBI finances new projects/ expansions/ diversification/ modernizations of projects.It

provides refinance facility to the primary lending institutions i.e. SFC/SIDC/Commercial Banks
etc.

Industrial Finance Corporation of India

The Industrial Finance Corporation of India (IFCI) was established on July 1, 1948, as the first
Development Financial Institution in the country to cater to the long-term finance needs of the
industrial sector. The newly-established DFI was provided access to low-cost funds through the
central bank's Statutory Liquidity Ratio or SLR which in turn enabled it to provide loans and
advances to corporate borrowers at concessional rates.
IFCI has fulfilled its original mandate as a DFI by providing long-term financial support to all
segments of Indian Industry. It has also been chiefly instrumental in translating the Government's
development priorities into reality. Until the establishment of ICICI in 1956 and IDBI in 1964,
IFCI remained solely responsible for implementation of the government's industrial policy
initiatives. Its contribution to the modernization of Indian industry, export promotion, import
substitution, entrepreneurship development, pollution control, energy conservation and
generation of both direct and indirect employment is noteworthy. For

National Bank For Agriculture And Rural Development (NABARD)

NABARD is established as a development Bank, in terms of the Preamble of the Act, "for
providing and regulating Credit and other facilities for the promotion and development of
agriculture, small scale industries, cottage and village industries, handicrafts and other rural
crafts and other allied economic activities in rural areas with a view to promoting integrated rural
development and securing prosperity of rural areas and for matters connected therewith or
incidental thereto."

NABARD

(i) serves as an apex financing agency for the institutions providing investment and production
credit for promoting the various developmental activities in rural areas;

(ii) takes measures towards institution building for improving absorptive capacity of the credit
delivery system, including monitoring, formulation of rehabilitation schemes, restructuring of
credit institutions, training of personnel, etc. ;

(iii) co-ordinates the rural financing activities of all institutions engaged in developmental
work at the field level and maintains liaison with Government of India, State Governments,
Reserve Bank of India (RBI) and other national level institutions concerned with policy
formulation; and

(iv) undertakes monitoring and evaluation of projects refinanced by it.

ICICI Bank

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution,
and was its wholly-owned subsidiary.

ICICI Bank is India's second-largest bank.ICICI Bank offers a wide range of banking products
and financial services to corporate and retail customers through a variety of delivery channels
and through its specialised subsidiaries and affiliates in the areas of investment banking, life and
non-life insurance, venture capital, asset management and information technology.

State Bank of India

State Bank of India was constituted on 1 July 1955. More than a quarter of the resources of the
Indian banking system thus passed under the direct control of the State. Later, the State Bank of
India (Subsidiary Banks) Act was passed in 1959, enabling the State Bank of India to take over
eight former State-associated banks as its subsidiaries (later named Associates).

The Bank is actively involved since 1973 in non-profit activity called Community Services
Banking. All the branches and administrative offices throughout the country sponsor and
participate in large number of welfare activities and social causes. Business is more than banking
because we touch the lives of people anywhere in many ways.

Small scale units are exposed to numerous problems. Major problems faced by these units are
concerning raw-material, labor financial and marketing. Problem of marketing is more
complicated in case of small scale industries. These units are in no position to face the onslaught
of large scale limits w.r.t., quantity quality and cost and at the same time are not in a position to
assess the prevailing market scenario (or) changes which are taking place w.r.t. tastes, liking,
disliking, competition, technology etc. moreover these units do not possess the requisite
expertise to adjust their operations according to the changed situation.

1) Problem of standardization:

Small scale units face problems w.r.t. fixing the standards and sticking. This results in the poor
quality of their products and it adversely effects their image (or) goodwill in the market.

2) Competition from large scale units:

Small scale units are ill equipped to face competition from large scale units w.r.t. quantity,
quality and cost. In the modern competitive world there is survival of the fittest, even the
existence of small scale units is endangered.

3) Poor sale promotion:

Small scale units have limited financial resources and hence cannot afford to spend more on
sale promotion. These units are not having any standard brand name under which they can sell
their products. various channel members too exploit them because of the lack of goodwill of their
products in the market.

4) Poor bargaining power:

Small scale units because of their limited resources and lower scale of operations are in a
week position while negotiating with the suppliers of raw-material, finances (or) marketing
agencies. They are always at the receiving end and as such are not in a position to safeguard their
interests. There are many institutions that provide assistance in business plan development, and
capacity building. For us at Bentley Kantor & Company, and as part of our deal sourcing
arrangements, we have begun to underwrite the cost of feasibility studies, and business plans for
a stake in the proposed business or by part-taking in profit sharing. Besides underwriting the cost
of the feasibility studies and or business plans we take a hands-on approach to working with
prospective African Entrepreneurs; making available and utilising the full capacity and capability
of our company.
We avail to firms our superior market research capabilities, and deploy a team that synchronises
with the company management to assist in the positioning of the company. Additionally we
provide professional guidance on valuation, investor’s relation, fundraising, and representation to
lenders and or interested investors. Yes, we take all of the initial risk with the new company
based on an initial assessment of their business model and preposition.
Our mantra is to build trust and openness with our new partner, ensure seamless integration
between our people and their people, and assist them execute their business model as quickly and
efficiently as possible. For government projects, we go a step further in developing a “Concept
Note” to draw out the key selling points, and possible risks associated with successful
implementation. We provide consultation on identifying technical partners, syndicating the
funding, and where possible suggesting the appropriate PPP model that would allow the
government to maximise returns and social benefits.
Strategies for marketing in SME
1. Plan and coordinate what you do –The different strands of marketing need to work in
harmony and you’ll only manage that if you plan carefully and keep it simple. What you say on
social media will impact on your PR; your PR should support your SEO and social media can
make a huge difference to your SEO. A creative idea has to be judged by whether it delivers your
business plan and fits your brand values.
2. Know your customers – You need to have a clear idea about what they read, what websites
they visit and even the words and phrases they use to describe things. When do they buy your
product or service? What influences them to do so? All this will tell you where to focus your
efforts, whether a creative idea will work and how to make sure you’re found online.
3. Know your numbers – How much profit do you make on each sale? If you don’t know that
you won’t know how much it’s worth spending on marketing or on things like PPC (pay per
click).
4. Review your website – Your website is your shop window and where most digital marketing
will direct new customers. Get that wrong and the rest is a waste of time. Some websites are the
equivalent of having a locked shop door with the blinds down. Set up analytics (ask your web
designer if you’re not sure how to do this) and study them carefully. The analytics will tell you a
lot about how your customers use your website and why users leave without buying (or
contacting you if you’re a service supplier). People are busy, the easier you make it for your
customers the more likely they are to buy your product or service. Where is your phone number
and other contact details (they should be at the top of your home page)? Is your site optimised for
mobiles? Most searches are done on smart phones, but around half of websites are still difficult
to use in that format (it is not expensive to put right).
5. Focus – Do one or two things really well, rather than try to ensure you’re on every platform.
Different types of social media work better for different types of business. Facebook works well
if you’re a customer facing business but offers little if you’re B2B. The reverse is true of
LinkedIn. Once you’ve made your choice, keep up to date. Social media is changing very
quickly. No-one is an expert for long without continually researching what’s new.
6. Give people a reason to engage with you – “Please follow me” is the most common tactic
for getting followers on social media, but will only work with very good friends. Your customers
and potential customers will only follow you if there is something in it for them. That can be
advice, exclusive offers/competitions, useful information or the chance to feel important. Good
social media strategies will include a mix of these.
7. Learn from your most successful competitors – Work out how and why their digital
strategy is successful, follow them on social media, have a really good look at their website and
then offer something that they don’t. How long is their check out process? Is it shorter or simpler
than yours? Do they upsell? Is it annoying or helpful? Have they done anything that was really
creative? What impact did it have and why? If they’re a service, how do they illustrate that
they’re effective to potential new clients? Written case studies with customer quotes are the most
obvious method but many companies now take a more creative approach. As a creative business
Smart Cookie had to produce something with real wow factor that showed our work.
8. Mind your manners – Talking to people on social media is not that different from talking
face to face. You wouldn’t march up to a random stranger at a party and start the conversation by
trying to sell your product or service, so don’t do it on social media. Conversations should be
two-way exchanges. Talk about yourself all the time and you’ll find yourself very lonely. If
someone does post a message to you (and it’s not spam) then reply as soon as you can,
particularly if it’s a customer. Don’t be afraid of people publicly criticising you. If you’re seen to
show customer care, and publicly put right any complaints, your reputation will be enhanced, not
damaged. The reverse is true if you delete, ignore or belittle complainers. Don’t talk down to
your customers, there is a whole page on Facebook dedicated to ‘Condescending Brands’, make
sure you don’t feature there.
9. Be creative – 5 to 10% of any budget should be used to challenge the normal safe market
activities, otherwise how will you ever learn if anything else could work more effectively? Some
of the best digital marketing ideas are clever but very simple and have come from very small
companies. Like all marketing, the key is to test the idea by thinking like your customers do, put
yourself in their shoes. Why, as a potential customer, would I pay attention to this when there are
so many brands fighting for my attention?
10. Don’t be afraid of using expert help – Employing a good agency is like employing a good
accountant; it can save you far more money than it costs, particularly if you decide to enter the
world of PPC. Accept expert advice, and make use of the free help available online (on this site),
on social media and at events such the Digital Marketing Show in November.

Problems of HRM in SME

The success of small and medium-sized enterprises is often considered an indicator of economic
health, and while companies with fewer than 250 employees may be less complicated than
multinationals, matters of scale present a different blend of challenges. Those tasked with
implementing human resources systems and policies in an SME may face challenges not seen in
larger HR departments. Dedicated Resources
Many SMEs have no budget for dedicated HR staff. Payroll and record-keeping may be
performed by a bookkeeper or accountant who incorporates those functions into other financial
duties. In such a case, managers and supervisors have a greater responsibility to define and
communicate HR policy, as well as completing evaluations and discipline procedures typical of
supervisory levels. With the job elements of the HR department shared and dispersed through the
company, maintaining strategic HR focus may be difficult.
Recruiting and Hiring
Public awareness of smaller businesses may be limited, compared with high-profile, well-
respected international companies. This may put an SME at a disadvantage when recruiting, even
if the SME has HR staff dedicated to hiring functions. Responses to job postings may not get
response at the level a "name brand" company might, simply through lack of name recognition.
Those SMEs without formal HR departments may experience inconsistency with recruiting
success, if hiring decisions are spread among managers with different values.
Training and Retention
Economy of scale is again a challenge for SMEs when new recruits are trained. When a business
looks to key staff to perform training, yet still requires productivity from the trainers, a new hire
may receive less instruction before being thrown into production, expected to learn as he works.
Creating training materials and orientation manuals may likewise strain the resources of an SME
that relies on work culture to orient its staff.
SME Perception of Human Resources
It is common to find small-business owners handling HR systems intuitively, without a
theoretical grasp of terms and concepts.SMEs tend to see HR practices in comparatively simple
ways, according to a 2004 study by Cornell University. Study participants were familiar with HR
practices but did not identify them as such and felt little understanding at how these practices
affected their employees. These instinctive attitudes may offer resistance to the introduction of
more-formal HR practices.
Causes and symptoms of industrial sickness
Relevant Labour – laws

Sickness in Small Enterprises.

Causes and symptoms of sickness – cures of sickness.
Govt. policies on revival of sickness and remedial measures.

Signals of industrial Sickness:

It has already been mentioned that industries do not fall sick overnight rather the process of
failure can take number of years. This implies that the signs of sickness may be discernable quite
early in the life of an industry. These warning signs in several functional areas are termed as
‘signals’. In fact, the timely identification of various signals makes the detection of sickness
easier. Therefore, the various signals need to be identified and monitored at an early stage of
sickness.
Literature reveals the various signals of industrial sickness has its importance are as follows -
(ii) Shortages of liquid funds to meet short-term financial obligations;
(iii) Inventories in excessive quantities;
(iv) Non-submission of data to banks and financial institutions;
(v) Irregularity in maintaining bank accounts;
(vi) Frequent breakdowns in plants and equipment’s;
(viii) Decline in the quality of product manufactured or service rendered;
(viii) Delay or default in the payment of statutory dues such as provident fund, sales tax, excise
duty, employees’ state insurance, etc
(ix) Decline in technical deficiency; and
(x) Frequent turnover of personnel in the industry.
Symptoms of Industrial Sickness:
The persistence of various signals over a long period of time becomes symptoms of sickness.
The various symptoms ultimately reflect on plant performance, capacity utilization, financial
ratios, share market price and practices in the diverse areas of finance, production, marketing and
labor relations in the industry.Some of the important symptoms which characterize industrial
sickness are listed as follows:
(i) Persisting shortage of cash;
(ii) Deteriorating financial ratios;
(iii) Widespread use of creative accounting;
(iv) Continuous tumble in the prices of the shares;
(v) Frequent request to banks and financial institutions for loans;
(vi) Delay and default in the payment of statutory dues;
(vii) Delay in the audit of annual accounts; and
(viii) Morale degradation of employees and desperation among the top and middle management
level.
However, the financial ratios, in all cases, cannot be considered as true symptoms of industrial
sickness mainly due to two reasons. First, the sickness prone units, in order to present a better
and sound image, do a lot of window dressing. Second, the financial data is available after a gap
of one year. However, an early identification of signals and symptoms of industrial sickness
makes the task of detecting sickness easier.
Government policies on revival of sickness and remedial measures
In suitable cases they will also establish Standing Committees for major industrial sectors where
sickness is widespread.
ii. The financial institutions will strengthen the monitoring system so that it is possible to take
timely corrective action to prevent incipient sickness.
They will obtain periodical returns from the assisted units and from the directors nominated by
them on the Boards of such units. These will be analyzed by the IDBI and results of the analysis
conveyed to the financial institutions concerned and the government.
iii. The financial institutions and banks will initiate necessary corrective action for sick or
incipient sick units based on a diagnostic study. In case of growing sickness, the financial
institutions will also consider assumption of management responsibility where they are confident
of restoring a unit to health. The Ministry of Finance will issue suitable guidelines for takeover
of management.
iv. Where the banks and financial institutions are unable to prevent sickness or ensure revival of
a sick unit, they will deal with their outstanding dues to the unit in accordance with the normal
banking procedures.
However, before doing so, they will report the matter to the Government who will decide
whether the unit should be nationalized or whether any other alternatives including workers’
participation in the management can revive the undertaking.
v. Where it is decided to nationalize the undertaking, its management may be taken over under
the provisions of the Industries (Development and Regulation) Act, 1951 for a period of six
months to enable the Government to take necessary steps for nationalization.
Government has taken over management of a number of sick industrial undertakings under the
provisions of Industries (Development and Regulations) Act with a view to reviving them by
providing management support and financial assistance through banks and financial institutions,
including the Industrial Reconstruction Bank of India.
Take-over of management has not proved to be a very effective instrument for revival of sick
units. The present policy does not favor management takeover, except as a stop-gap arrangement
for units to be nationalized.
The Sick Industrial Companies (Special Provisions) Act, 1985, provides for establishment of a
Board for Industrial and Financial Reconstruction (BIFR). The BIFR came into existence in
1987. It is obligatory on the part of the Board of Directors of a company to report its sickness to
BIFR.
The BIFR has been vested with powers to institute the necessary enquiries to determine whether
or not a company is sick.
If the BIFR comes to the conclusion that the company has become sick, it can either give
reasonable time to the company concerned to make its net worth positive or it can devise suitable
measures including change of management, reconstruction of share capital, sale or leasing out of
a part of the undertaking or its merger with the healthy unit.
Helping the Industrial Sick Units by Providing Concessions and Incentives! Industrial
sickness, due to the above mentioned consequences, is regarded as a social problem in India.
In order to help the sick units to regain their health and revive them, many concessions and
incentives have been given to these units, which are discussed below.
1. Banks Initiatives:
In order to rehabilitate sick industrial units the commercial banks have granted various
concessions, such as, (I) grant of additional working capital facilities to overcome the shortage of
working capital faced by such units, (ii) recovery of interest at reduced rates, (iii) Suitable
moratorium on payment of interest; and (iv) Freezing a portion of the out-standings in the
accounts, etc.
Besides these concessions, commercial banks have also initiated a number of steps on the
organizational front to understand the problem of sick industrial units and their rehabilitation.
2. Government Policy:
(i) A policy framework regarding measures to deal with the problem of industrial sickness was
laid down in the guidelines announced in October 1981 (modified in February 1982) for
guidance of administrative ministries of Central Government, State Government and financial
institutions.
(ii) Government taking over the management of a number of industrial units under the provisions
of the industries (Development and Regulation) Act, 1951, with the aim of reviving them by
providing management of support and financial support through banks and financial institutions
has not so far proved an effective measure for revival of sick units. The present policy does not
favor management take over, except as a stop-gap arrangement for units to be nationalized. iii)
Government has announced the following concessions: (i) amended the Income-Tax Act in 1977
by addition of section 72A by which tax benefit can be given to healthy units when they take
over sick units by amalgamation with a view to reviving them, and (ii) introduced a scheme on
January 1, 1982 for provision of margin money to sick units in the small scale sector a soft terms
to enable them to obtain necessary fund from banks and financial institutions to implement their
revival scheme.
(iv) For reducing sickness in small scale sector a liberalized margin money schemes (LMMS)
was introduced in June 1987. Under the scheme the State Governments are to make a matching
contribution on a 50-50 basis in providing assistance to sick small scale units in their
rehabilitation. The maximum amount to be sanctioned has been enhanced from Rs. 20,000 to Rs.
50,000 per sick unit.
(v) The Industrial Reconstruction Corporation of India (IRCI), established by the Government to
revive and rehabilitate sick units, was in 1985 converted into a statutory corporation now known
as the Industrial Reconstruction Bank of India (IRBI) with the aim of overcoming the inherent
difficulties which had been faced by the (IRCI).
(vi) In 1983 the RBI advised financing banks to evolve methods to diagnose sickness in
industrial units at the incipient stage itself.
(vii) In 1985 the Sick Industrial Companies [Special Provisions] Act (SICA) was passed.
(viii) A scheme for the grant of excise loan to sick/weak Industrial units, introduced in 1989 has
been further liberalized in 1990. Under the scheme, selected sick units will be eligible for excise
loan not exceeding 50 percent of the excise duty actually paid for 5 years. (ix) Board for
Industrial and Financial Reconstruction (BIFR) set up under SICA 1985 for determining the
preventive, ameliorative, remedial and other measures in respect of sick industrial units and for
expenditure enforcement of the measures determined.
3. Board for Industrial and Financial Reconstruction (BIFR):
(i) Industrial companies whose net worth has been eroded completely and those which have net
worth eroded by 50 percent or more are required to make a reference to the BIFR under section
15 and 23 of the Act respectively.
(ii) Public sector undertakings were also brought under the purview of BIFR through an
amendment of the SICA, 1985 in December 1991.
(iii) If sickness of a company is confirmed the BIFR will determine the course of action to be
followed with regard to the company in the following ways: (a) allowing the company on its own
time, to make its net worth positive within a reasonable period; (b) having a scheme prepared
such as for reconstruction, revival or rehabilitation of the sick company for changing or takeover
of management of sick unit for amalgamation with other unit for sale of lease of the company
etc. through the operating agency in respect of the company, and (c) deciding on the winding up
to the company.
(v) The decision of BIFR is binding on all concerned and the Act has an overriding effect over
all other laws except FERA (Foreign Exchange Regulation Act) and the Urban Land (ceiling and
regulation) Act.
(vi) The jurisdiction of civil courts is barred in respect of matters coming under the purview of
BIFR. The Act provides for an Appellate Authority. (vii) The BIFR has powers to appoint a
special director on sick company in case of mismanagement. It has also the power to debar the
company management form the organized sector for a period of 10 years.
Since its inception up to the end of March 1998, the BIFR has received 4001 references. These
references include 240 central and state public sector undertaking under the Sick Industrial
Companies (Special Provisions) Act, 1985 at the end of November 1999. However out of the
reference reviewed 2841 were registered under section 15 SICA, while 516 references were
dismissed as non-maintainable under the Act.
Among the 240 reference for the public undertaking 170 were registered in the month of
November 1999. The disposal of cases by the BIFR declined from 1881 in 1997 to 141 in 1998
and to further 159 in 1999.