Course: ACTSEC02 Semester IV

Paper: Entrepreneurship (Unit

IV)

UNIT IV: BUSINESS IDEAS AND BUSINESS PLAN

1. What are the various sources of business ideas and what are the methods of generating business
ideas?

Introduction1
The promotion of a new enterprise, in fact, is similar to the birth of a child with one difference,
that is the gestation period for a business unit varies according to the nature of work undertaken by it.
The entrepreneur is both the mother and midwife in this operation and as such he has to bear the birth
bangs and the initial botheration of bringing up the infant.

Business Idea
The first and foremost step in starting a business is to find out a suitable business idea and give a
practical shape to the idea. The entrepreneur should be convinced that the idea is in fact a sound one
and likely to give reasonable return on his investment. The search for an appropriate business idea is a
complicated exercise because the entrepreneur comes across innumerable business opportunities. To
choose a business idea, skill, foresight and ingenuity are required on the part of the entrepreneur. He
should keep in view his competencies, capabilities and resources while identifying the business idea.

Sources of Business Idea

An entrepreneur can identify a project idea himself out of his experience in his previous trade, job
or profession. The project idea can also be identified with the help of friends or relatives of the
entrepreneurs who are engaged in the same trade or industry or business.
Besides, there are numerous sources from which an entrepreneur can get business idea.
1) Observation: Human mind has infinite capacity to observe and deduct. Observation is one of the
most important sources of project idea. The observant mind continuously comes across situations
which can be utilized to develop investment opportunities. For instance, the non availability of a
particular article may lead to development of an industrial unit.
2) Market Characteristics: The demand and supply conditions of various products will give an idea
about the unfulfilled demand for certain products. For example, people especially youngsters
prefer fast food or ready to eat food. The demand for fast food is expected to increase manifold in
coming years. Indian companies and business organizations spend crores of rupees on giving gift
to their employees, shareholders and business associates on many occasions. As per rough
estimates, corporate in India spend Rs. 1,000 crore every year on corporate gifting and the culture
is on the rise. So also, the demand for greeting card is expected to rise in future.

1
E. Gordon and K. Natarajan, Entrepreneurship Development(Mumbai: Himalaya Publishing House, 2009), 89-91.
.

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Course: ACTSEC02 Semester IV
Paper: Entrepreneurship (Unit
IV)

3) Conversion of Waste into Wealth: A study of the end products and by-products can throw light
on new project ideas. For example, rice bran which was considered as waste and sold at minimum
price is used to produce rice bran oil. Such business ideas help improving the wealth of the
society.
4) Adoption of Technology: Commercial exploitation of indigenous or imported technologies is
another source of business idea. In this era of severe competition, the entrepreneur has to be on
the lookout for high technology oriented product/process. The new product/process developed by
national level research institutions like NRDC, CT-TRI, CIECRI etc. provide good business
ideas. The entrepreneur can go for commercial exploitation of these product process which have
been proved successful at the laboratory level.
5) Socio-economic Changes: The change in the socio-economic status of people provide scope for
business opportunities. By careful observation, a business idea can be identified easily. For
example, there is a preference of people towards foreign brand shirts, beauty parlours, cellphones,
etc.
6) Trade Fairs: Industrial and Trade Fairs are organized by central and state Governments and also
by Trade Associations at the state, national and international levels. A dynamic entrepreneur can
get lot of business ideas visiting these fairs.
7) Trade and Professional Journals: Trade and professional magazines provide a very fertile
source of project idea. The statistics of information given in these magazines and reports and
records of professional bodies often reveal business opportunities. Bulletins of Research Institutes
are also a source of information for new project ideas. These bulletins generally give the broad
outlines of the new processes or products developed by the institutes.
8) Publications of Government Departments: The Techno-economic survey, conducted by the
SIDO, SISI and SIDCO also provide the project idea.

Methods of Generating Business Ideas2

Various ideas listed by an entrepreneur should be screened for final selection. Screening may be
done on the following grounds:
1) Compatibility with the interest and technical knowledge of the promoter: According to Murphy, a
real opportunity has three characteristics: (i) it fits the personality of the entrepreneur, it squares
with his abilities, training and proficiency, (ii) it is accessible to him, and (iii) it offers him the
prospects of rapid growth and high return on invested capital.
2) Consistency with Government policies/priorities: An opportunity should be in agreement with the
laid down policies and priorities of the State/Central Governments.
3) Availability of Inputs: (a) Are the capital requirements within manageable limits? (b) Can the
required technical knowledge be obtained early? (c) Are the raw materials required available
2
N K Jain and R L Varshney, Entrepreneurship Development – An Indian Perspective(Noida: Mayoor
Paperbacks, 1993), 129-30.

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Course: ACTSEC02 Semester IV
Paper: Entrepreneurship (Unit
IV)

domestically at reasonable cost? Can inputs be made easily? (d) What is the situation of labour
supply?
4) Market Adequacy (Present and Potential): For this, following factors are to be examined: (a)
Total present domestic market, (b) The existing competitors and their market shares, (c)
Availability of export market, (d) Quality-price profile of the product vis-à-vis competitive
products, (e) Sales and distribution system, (f) Projected increase in consumption, (g) Barriers to
entry of new units, (h) Economic, social and demographic trends favourable to increased
consumption.
Fortunately in India, barring recessionary conditions, the demand for most of the products has
been growing and from the point of view of entrepreneurs the Indian Economy is not a share-shift
economy like western developed countries.
5) Cost Reasonableness: In this respect, following points may have to be surveyed: (a) Cost of
material inputs, (b) Labour costs, (c) Factory overheads, (d) General administration expenses, (e)
Selling and distribution expenses, (f) Service costs, (g) Economies of scale.
6) Risk level within acceptable limits (with reference to each individual particular case of an
entrepreneur): The assessment of risk is a difficult task because of: (a) Vulnerability and business
cycles, (b) Technological changes, (c) Competition from substitutes, (d) Competition for inputs,
and (e) Government controls on production, distribution and price which are likely to change with
a change in government.

2. What is a project? Explain its classification and approaches.

Introduction
The project is an important groundwork of an enterprise and is also very crucial to the
entrepreneur. The entrepreneur cannot succeed in his venture without a project. By and large, project
denotes programme of action. The dictionary meaning of project is speculative imagination, a scheme
of something to be done, a proposal for an undertaking etc.
Project is defined as a time-tested, goal-directed, major undertaking, requiring the commitment of
varied skills and resources. A project is also described as a combination of human and non-human
resources pulled together in a temporary organization to achieve a specified purpose. A project has a
single objective and when this objective is reached, the project is completed. Therefore, a project has
a finite and well-defined life-span. Further, management must have a clear idea as to what these
objectives are so that there can be no doubt as to when the project is completed..

Definition
According to Gordon, “Project is defined as the whole complex of activities involved in using
resources to gain benefits.”
According to Little and Mirless, “Project is defined as scheme or a part of schemes for investing
resources which can be reasonably analysed and evaluated as an independent unit.”

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Course: ACTSEC02 Semester IV
Paper: Entrepreneurship (Unit
IV)

Features
1. Project has a mission or set of objectives.
2. Project is one single entity.
3. Project calls for team-work.
4. Project has a life cycle.
5. Project is always unique – no two projects are similar.
6. Project is always customer specific.
7. Project is a complex set of things.
8. Project is exposed to risk and uncertainty.
9. Project has to terminate at some time or the other.
10. Project has a learning component.
11. Project process is flexible.
12. Project is interrelated.

Project Approach
1. Sub-Sector or Product Approach
The effort is restricted to a sub-sector of production or one product which covers a broad
geographical area. For example, such approaches are found in projects involving tea, coffee etc.
2. Functional Approach
The effort here is restricted to certain development functions – marketing research or agricultural
extension projects. The emphasis is on the services and not on the output or a specific product.
3. Regional Approach
The effort is limited to a geographically bounded area, within which the tasks are usually broadly
conceived. E.g. IRDS.

Project Classification
1. Quantifiable and Non-Quantifiable
Quantifiable projects are those in which quantitative assessment of benefits can be made. Non-
quantifiable projects are those where such an assessment is not possible. Projects concerned with
industrial development, power generation, mineral development fall in the first category and
projects involving health, education and defense fall in the second category.
2. Sectoral Projects
The project under this classification falls into any one of the following sectors:
a) Agriculture and allied sector
b) Irrigation and power sector
c) Industry and mining sector
d) Transport and communication sector
e) Social service sector

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Course: ACTSEC02 Semester IV
Paper: Entrepreneurship (Unit
IV)

f) Miscellaneous
3. Techno Economic Project
There are 3 main groups:
a) Factor intensity-oriented classification
On the basis of this classification, projects may be classified as capital intensive projects or
labour intensive depending upon whether large scale investment in plant and machinery or
human resources is involved.
b) Causation-oriented Classification
Here, projects are classified as demand based or raw materials based projects – depending on
the non-availability of certain goods or services and consequent demand for such goods or
services or the availability of certain raw materials, skills or other inputs as the dominant reason
for starting the project.
c) Magnitude-oriented classification
In this size of investment forms the basis of classification. Projects may be classified as large
scale, medium scale or small scale projects depending upon the total project investment.
4. Financial Institutions
All India and state financial institutions classify the projects according to their age and experience
and the purpose for which the projects are being taken up. They are as follows:
a) New projects
b) Expansion projects
c) Modernization projects
d) Diversification projects
5. Services projects
The services-oriented projects are classified as:
a) Welfare projects
b) Research and development projects
c) Educational projects

3. What are the different considerations while designing a project?

A project comprises a series of activities for achieving predetermined objective or a set of
objectives. Keeping this in mind, the objectives/s of the project should be defined as precisely as
possible the objectives may be social, economic or a combination of both and they can be defined
under the following categories:
i) General objectives,
ii) Operational objectives
A general objective merely states in broad terms the achievements expected whereas an
operational objective specifically mentions results expected from the implementation of the project or
scheme. The definition of objective in clear terms helps in qualifying physical, financial, human and
other resources requirements.

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Course: ACTSEC02 Semester IV
Paper: Entrepreneurship (Unit
IV)

Following this, the next strategy is the location and size of the project. The location of the project
is influenced by the availability or existence of various resources and the infrastructural facilities.
Examination of availability of these resources/facilities at one or more sites should lead to a decision
on the selection of the location of the project and thus facilitate exploitation of the available
resources/facilities to the advantage of the investor or the community at large or both.

Consideration for designing a project

1. Feasibility Analysis
This is the very first step in project designing. At this stage, the project idea is examined from the
point of view of whether to go in for a detailed investment proposal or not. As project idea is
examined in the context of internal and external constraints three alternatives could be
considered. First, the project idea seems to be feasible; second, the project idea is not a feasible
one and third, unable to arrive at a conclusion for want of adequate data. If it is feasible, we
proceed to the second step, if not feasible, we abandon the idea and if sufficient data are not
available, we make more efforts to collect the required data and design development.
2. Techno-Economic Analysis
In this step, estimation of project demand potential and choice of optimal technology is made. As
the project may produce goods or services, it is imperative to know the market for such goods or
services produced. Market analysis is also in-built in this step. The choice of technology itself
will be based on the demand potential and aid in project design. Techno-economic analysis gives
the project a unique individuality and sets the stage for detailed design development.
3. Project Design and Network Analysis
This important step defines individual activities which constitute the project and their inter-
relationship with each other. The sequence of events of the project is presented. A detailed work
plan of the project is prepared with time allocation for each activity and presented in a network
drawing. Project design is the heart of the project entity. This paves the way for detailed
identification and qualification of the project inputs, an essential step in the development of the
financial and cost-benefit profile of the project.
4. Input Analysis
The step assesses the input requirements during the construction of the project and also during the
operation of the project. In the earlier step, a project was divided into several activities. Now it is
better to see to the inputs required for each activity and sum it up to get at the total input
requirements on qualitative and quantitative terms. Inputs include materials, human resources.
Input analysis also considers the recurring as well as non-recurring resource requirements of the
project and evaluate the feasibility of the project from the point of view of the availability of
these resources. This will aid in assessing the project cost itself which in turn is necessary for
financial analysis or cost-benefit analysis.
5. Financial Analysis

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Course: ACTSEC02 Semester IV
Paper: Entrepreneurship (Unit
IV)

This stage mainly involves estimating the project costs, estimating its operating costs and fund
requirements. Financial analysis also helps in comparing various project proposals on a common
scale, thereby aiding the decision-maker. Some of the analytical tools used in financial analysis
are discounted cash flow, cost-volume—profit relationship and ratio analysis. It is very essential
to take caution in preparing financial estimates. The objective of this strategy caution is to
develop the project taking into consideration resources and also to identify these characteristics.
Investment decisions whether made for the provision of goods or services involve commitment of
resources in future. Since investment proposition has a very long time horizon, it is absolutely
necessary to exercise due care and foresight in developing project financial forecasts.
6. Cost-Benefit Analysis
The overall worth of a project is the main consideration here. While financial analysis will go to
justify a project from the profitability point of view, cost-benefit analysis will consider the project
from the national viability point of view. Here again, the project design forms the basis of
evaluation. When we talk of cost-benefit analysis, we not only take into account the apparent
direct costs and direct benefits of the project but also the costs which all entities connected with
the project have to bear and the benefits which will be enjoyed by all such entities. This strategy
is now taken to be the internationally recognized system of project formulation.
7. Pre-investment Analysis
The project proposal gets a formal and final shape at this stage. All the results obtained in the
above steps are consolidated and various conclusions arrived at to present a clear picture. At this
stage, the project is presented in such a way that the project-sponsoring body, the project-
implementing body and the external consulting agencies are able to decide whether to accept the
proposal or not. The sum total of the pre-investment appraisal is to present the project idea in a
form in which the project-sponsoring body, the project-implementing body can take an
investment decision regarding the project.