Identifying Business Opportunities

Identification of Business Opportunities
Unnati P. Thakkar 1

Business Idea and Business
Opportunity
• A business idea, is a concept that can be used for a
commercial purpose, typically involves the introduction of
new products and services into new markets.
• A Business opportunity is a situation in which a person can
exploit a new business idea that has the potential to
generate profit.

What Is an Entrepreneurial Opportunity ?
• They create or add significant value to the customer.
• They solve a significant problem by removing pain points or
meeting a significant want or need for which someone is willing
to pay a premium.
• They have a robust market, margin, and money making
characteristics that will allow the entrepreneur to estimate and
communicate sustainable value to potential stakeholders
• They are a good fit with the founder(s) and management
teams at the time and market place along with an attractive risk-
reward balance.

Sources of Business Idea
• A resolved problem faced by an actual or potential
entrepreneur.
• An unmet customer need discovered by an actual or
potential entrepreneur at a place of employment.
• Changes in the business environment

Characteristics of Business Opportunity
• Urgency of the market need
• Adequate market size – Demographic, Geographical, Lifestyle
Factor.
• Sound business model – Purpose, Strategic infrastructure,
Organisation Structure, Marketing Program, operation policy
and procedure.
• Potential brand value - to maintain a competitive advantage in
the market.
• An able management team - to make it worthwhile and the team
should be looking forward to being involved with it for a long

Type of Innovation
• Digital Camera, Mini mills, Personal
Computers, Peer to peer Business model
(AirBnB, Zoppa), Electric Car
3D Printing Technology, Additive
Manufacturing
Gillete Razors

• Disruptive Innovation
• Produced by entrepreneur, rather than existing market leader.
• Personal Computer – Minicomputer
• Cellular Phone – Fixed line
• Wikipedia – Encyclopaedia
• Frugal Innovation
• Removing nonessential feature from a durable goods
• Jugaad “Hindi Words”
• Finding low cost solution using local resources
• Long lasting tradition in India
• Mansukhbhai Prajapati (soil into gold)

How to Generate Business Ideas
1. Define a problem.
2. Brainstorm on possible solutions.
3. Focus entirely on what you want.
4. Have a genuine interest in what
you are trying to solve.
5. Look at parallel problems and
solutions.
6. Look at each task as a challenge.
7. Turn the challenge/problem into a
catchy (likable) expression.
8. Daydream—let your creative
subconscious work for you.
9. Alter your routine regularly.
10. Carry a note pad.
Unnati P. Thakkar 18

When Is an Idea an Opportunity?
• Attractiveness
• Timeliness
• Durability
• The quality of being anchored in a product or service that
creates or adds value for its buyer or end user

Methods for Generating New
Business Ideas

Brainstorming
• 8–12 people and should be performed in a relaxed environment.
• Encouraged to share every idea that enters their mind with the assurance that
there is no right or wrong answer.
• Setting the time limit (such as, say, 30 minutes) for the session.
• The facilitator clearly sets down the rules, discouraging criticism of any kind and
encouraging a freewheeling approach, the voicing of as many ideas as possible,
and a collective and constructive effort towards the improvement of ideas.
• The facilitator writes each idea down for everyone to see.
• Once time is up, the best ideas are selected, based on a few criteria decided upon
in advance (such as, say, cost-effectiveness).
• The selection must be made on the basis of a consensus from everyone in the
group.
• A score (say, zero to ten points) is given to each idea depending on how well it
meets the criteria.

Survey Method
• The survey method involves gathering information from a representative sample
population, that is, a fraction of the whole population under study that presents
an accurate proportional representation of that population.
• Surveys generate new products, services, and business ideas because they ask
specific questions and get specific answers.
• For example, Hindustan Unilever Limited undertook a market survey to explore
the possibility of penetrating rural markets in India, and this helped the market
research team to identify the idea of introducing shampoo sachets, which
became an instant hit with people who would not buy an entire bottle of
shampoo.
• Surveys may be of different types, such as general and specific surveys, regular
and ad hoc surveys, preliminary and final surveys, and census and sample
surveys.

Reverse Brainstorming - with the exception that criticism is allowed.
• The focus is on the negative aspects of every idea that has been generated
through brainstorming.
• Also called the “sifting” process, this process most often involves the
identification of everything that is wrong with an idea, followed by a discussion
of ways to overcome these problems.
Gordon method - Collective discussion addresses every aspect of the planned
product in an uninhibited solution-oriented way.
For example, to devise a new pen-holder, the group discusses the “holding” theme
and examines all possible meanings of this word and all possible examples of
“holding” (such as items, nature, etc.).
The group will later sit and study each idea to see if any of them may be useful for the
planning of a new pen-holder. This discussion encourages a fresh, creative, and
unusual approach to developing a new product.

Entrepreneurial Opportunity

– External Change
Regulatory and political change –
• The use of helmets was made compulsory by the government, helmets
were reintroduced into the market with new features and the demand
for helmets improved substantially.
• Political support for the country’s infrastructural development, such as in
the case of the construction of the golden quadrilateral, led to many
business opportunities in the construction sector.
• To help companies comply with the ISO 9000 quality management
system, the ISO 14000 environmental management system and the
sarbanes–oxley act of 2002.

Entrepreneurial Opportunity – External Change
Social and demographic change
• Changes in Family and Work Patterns, the ageing of the population,
increasing diversity at the workplace, increasing focus on health and
fitness, the increase in the number of cell phone and Internet users, and
new forms of entertainment, lead to the creation of business
opportunities because they alter people’s preferences or demand for
products and services, and consequently make it possible to generate
new ideas to meet new demands.
• For example, the ageing of the Indian population over the last 25 years
generated business opportunities for entrepreneurs to make products
and services for the elderly.

Entrepreneurial Opportunity – External Change
• Economic Change
• Changes Economic forces affect business opportunities by determining who
has money to spend.
• An increase in the number of women in the workforce over the last few
decades and their related increase in disposable income is largely
responsible for the number of boutique clothing stores targeting
professional women that have opened in the past few years.

How to Identify a Business
Opportunity?
Observing trends
• Follow are economic, social, technological, and political trends.
• For example, the development of the internet and the miniaturization of
electronics goods led to the development of e-commerce and laptop computers,
respectively.
Solving a problem
to recognize and solve a pressing problem that customers are facing today.
For example, one of the most pressing problems facing countries round the globe is
finding alternatives for fossil fuels. As a result, a number of entrepreneurial firms
have been (and are still being) launched to take on this challenge.

How to Identify a Business
Opportunity?
• Finding gaps in the market place
identifying business opportunities is to find a gap between what is needed
by the customer and what is actually provided to the customer.
For example, over three decades ago, the lack of toy stores focusing on a
child’s intellectual development resulted in the development of Discovery
Toys, a California-based company specializing in educational toys.

Ideas Labs and Business Model
Canvas

Idea Labs
• Ideas lab’s mission is to capitalize on this and help bring good to life.
• Idea labs is a startup studio
• Design Thinking – is a problem solving process that combines lateral and
analytical thinking.

Design thinking process - Five Stages

Business Opportunities in India
• Seventh Largest Country in the world by area
• Second – Largest by Population

Models for Opportunity
Evaluation

Case Study
•Tilak Mehta
•Sanjeev Bikhchandani

Opportunity Identification by Sanjeev Bikhchandani
• Sanjeev Bikhchandani, the founder of Info Edge (India) Ltd and the CEO of
Naukri, is one of India’s most successful Internet entrepreneurs. He has
been serving as a director on the board of directors of Info Edge since 2010.
Indo Edge was the first Indian Internet company to list on Indian stock
exchanges and is a premier online classifieds company dealing with
recruitment, matrimony, real estate, education, and related services.
Naukri, the brand name of the leading job Web site, www.naukri.com, is the
flagship business of Info Edge. The company employs over 2,100 people and
had a market capitalization of over ₹300,000 lakh in 2012. The vision of the
company is to create worldclass platforms that transform lives.
• The Info Edge recruitment division comprises the classifieds
portals; www.naukri.com; www.naukrigulf.com; www.quadranglesearch.co
m; www.brijj.com; and www.firstnaukri.com. The matrimonial division
includes www.jeevansathi.com and 14 offline Jeevansathi match points. The
realestate division
comprises www.99acres.com and www.allcheckdeals.com. The education
division comprises the online education classifieds
portal, www.shiksha.com. The company invests in earlystage companies to
tap into the growing Indian Internet market.

Background:
• Sanjeev’s family does not have a background in business. His father was a
doctor in the government service and his mother was a homemaker. His
brother is a management graduate from the Indian Institute of
Management Ahmedabad (IIMA) and a Ph.D. from Stanford University,
California. After completing his bachelor’s degree in economics from St.
Stephens, Delhi, Sanjeev joined Lintas and worked as an executive trainee
for three years. He then wrote the Common Admission Test (CAT) and
joined IIMA in 1989. The courses he took at IIMA sparked his interest in
entrepreneurship. After completing his post-graduate programme in
management at IIMA, he joined GlaxoSmithKline (then Hindustan Milkfood
Manufacturers) as a marketing executive. He also worked in a senior
management position at CMYK Printech Private Limited.
• Though Sanjeev did not have a business background, he had a strong urge
to be an entrepreneur. He wanted the independence that he could only get
by being part of a business. Sanjeev wanted to be his own boss—doing his
own things and fixing his own priorities.

Business Idea to Business Opportunity:
• During his tenure at GlaxoSmithKline, Sanjeev noticed that his colleagues
read the Business India back to front instead of front to back. At that
time, Business India carried the maximum recruitment advertisements for
managers. The magazine usually carried over 40 pages of advertisments.
Sanjeev realised that people were always looking for better job
opportunities. A number of recruiters would keep calling employees at
GlaxoSmithKline from time to time to convince them to change jobs. These
jobs were never advertised in newspapers and magazines. Sanjeev felt that
if the huge fragmented database of jobs with recruiters and HR managers
were aggregated and kept current, it could prove to be a very valuable
resource.
• Sanjeev struggled hard for almost a decade to convert his idea into a
business opportunity. He faced lots of hurdles during his entrepreneurial
journey—from being unable to pay his employees for almost six years and
to taking a second job to support his family. He also struggled to obtain
funding for his business. However, he did not give up in spite of these
hurdles.

Business Model:
• Sanjeev figured out that that the recruitment advertisements featured in
the print media were simply the tip of the iceberg. The presence of
thousands of recruiters, each with four or five clients and armed with 10 to
15 jobs, emphasized the massive fragmented database of jobs in the
market. Conversations with headhunters also led to the realisation that
there were a lot of unadvertised jobs in the marketplace.
• The business model of www.naukri.com is almost a cross between a
brokerage model and advertising model. It is a medium where corporate
employers and potential employees come together. Sanjeev had a clear
revenue model from the beginning. There was a direct inflow of revenue for
the services rendered by the customers. Only a few services were offered
free of cost to job seekers and job providers.

Entrepreneurial Journey:
• Sanjeev quit his job at GlaxoSmithKline and started Info Edge Ltd in 1990.
At the beginning, Info Edge was not an online recruitment service but was
in the business of generating and selling databases, reports, and feasibility
studies. Info Edge operated from the servants’ quarters above the garage at
Sanjeev’s home. The company carried out entry-level salary surveys and a
few sundry consulting assignments for the first seven years.
• In October 1996, Sanjeev attended the annual Information Technology Asia
exhibition in Delhi and came across a stall with “www” written on it. On
further enquiries, he learnt that “www” stood for the World Wide Web and
it could be used to share information on the Internet. Sanjeev figured out
that he could upload a database of job vacancies on a Web site using the
Internet. At that time, India had a total 14,000 Internet users and all the
servers were based in the United States. Sanjeev’s brother, a professor at
the UCLA business school, hired a server in the United States in 1997 and
received a 5 per cent stake in the company

• The naukri portal was set up and started operating in March 1997 as a
division of Info Edge Private Limited. Anil Lall, Sanjeev’s friend and an expert
programmer, wrote the initial software code and enabled it to go
commercial in October 1997. Anil Lall is now a member of the board of
directors of Info Edge. The other co-founder of naukri.com was Saroja, a
1990 alumnus of IIMA. She looked after operations till 2003 and left to
become an independent management consultant.
• Info Edge got funding from ICICI Ventures in April 2000. In the quarter
ending December 2010, Info Edge raked in ₹7,500 lakh in net sales with a
net profit of ₹2,100 lakh. The flagship business naukri.com contributed
handsomely to this revenue. The company had the first-mover advantage, a
clear value proposition, constant innovation, a great team, and a buoyant
market. It is a forum where employers, placement agencies, and job seekers
can exchange information, quickly, effectively, and inexpensively.

• Accolades and Awards: Sanjeev Bikhchandani is a pioneering entrepreneur
in the Indian Internet services space. Sanjeev, along with his partner, Hitesh
Oberoi, won the “Ernst and Young—Entrepreneur of the Year” Award in
2008 for business transformation. He also won the Dataquest Pathbreaker
Award and the Teacher’s Achievement Award for business in 2008. Sanjeev
is a frequent and popular speaker on entrepreneurship at conferences and
business schools.
• Sanjeev’s Advice to Young Entrepreneurs: Sanjeev believes that an
entrepreneur should understand the risks in the creation of a new venture
and focus on reducing it. An entrepreneur should not start a business only
for making money. The chances of failure are pretty high and hard times
might test an entrepreneur’s resolve. However, if an entrepreneur strives
towards a goal other than money, the chances of success are high.

Business Plan

(d) Business Plan Preparation
 Written documents (20 to 40 Pages)
 An organized and effective response to a situation which may arise in
future.
 Not only for start up firm but also growing firm
 To establish realistic goals or targets to achieve and to determine the
current position.
 To help make crucial start-up decisions; to reassure lenders, investors or
backers; to measure operational progress; to test planning assumptions;
to adjust forecasts; and to set the standard for good operational
management.

The reasons for preparing a business plan are
• Entrepreneurs reap benefits from the planning activity itself.
• A business plan is used to get finance from banks or to get equity
funding from angel investors or venture capitalists.
• It can also be used to attract business partners and key employees or to
make business alliances.
• If the business plan is prepared within a large organization, then it
enables the board of directors to make capital investment decisions.
• The act of writing the plan will force the entrepreneur and his team to
think through all the key elements of the business.
• The plan provides a basis for measuring actual performance against
expected performance.
• The plan acts as a vehicle for communicating to others what the
business is trying to accomplish.

Cover Page and Table of Contents
• Cover Page
• Name of the business or project.
• The company’s name, logo, address, telephone and fax numbers,
Web site address, e-mail address.
• The name and designation of the contact person.
• The table of contents
• is usually on the second page of the business plan and gives at a
glance the topics covered in the business plan. The table of contents
should be written for easy navigation to the rest of the plan by
numbering each topic.

Executive Summary
• It is a snapshot of the entire business plan and usually written last. The executive
summary is a concise presentation of the main points of the business plan and gives
a brief overview of the business venture.
• The executive summary is a formal statement and should include the following
information:
• A brief description of the industry and market environment in which the
business opportunity will develop and flourish.
• The uniqueness of the business opportunity and the key strategies for success.
• Profiles of the company’s management team.
• Financial requirements and budget allocation.
• The anticipated risk and reward of the business.

• Business Concept
• The history of the business, the basic nature, and the purpose of the
business.
• It gives the usage, description, and specifications of the products and
services to be offered.
• If the product/service prototype is ready, high-quality photographs are
included.
• Business Strategy
• SWOT analysis of the firm and analysis of the business environment.
• Strategy is the game plan of the business.
• It is about differentiation and competitive advantage.
• This section should give the mission, vision, future plan, and exit strategy of
the business.

• Management Summary
• What is the profile of the founders, the team’s management philosophy, and
their reputation in the business community?
• Who are the current owners, and what percentages do they control?
• How is ownership evidenced—for example, in terms of common and
preferred stock?
• Have any options, warrants, or convertible bonds that could expand
ownership been issued?
• Which owners are involved in the day-to-day working of the business?
• Marketing Plan
• The market’s size and growth, defining the target market, and articulating
the value proposition.
• Operations Plan
• It gives an overview of the flow of the daily activities of the business
operation and the strategies to support them.
• Describes the physical necessities of the business’s operation, such as the
business’s physical location, raw materials, technology, human resource,
facilities, and equipment.

• Financial Plan
• the financial plan section of the business plan consists of an analysis of
financial statements such as the income statement, the cash flow
projection, projected balance sheet, break-even charts, cost of the project,
sources, and uses of funds.
• Appendix
• It contains the market survey report, financial projections, product and
technological specifications, process flow charts, photographs of the existing
or proposed firm, lists of plants and machinery, organizational charts, and
résumés of each member of the management team.

Presenting A Business Plan

Elevator Pitch
• It's a short description of an idea, product, or company. It's meant to be
shorter than an elevator ride, meaning, 30 seconds or less. The concept also
applies to pitching yourself, as an individual, to introduce yourself and or
land a job- but we'll be focusing on the company/startup version of this. So-
an elevator pitch should be enough to explain your startup idea and leave
the investor curious for more.

Elevator Pitch Should Contain
• An attention-grabbing first line- Start your pitch with a statement or
question that makes your listener want to hear more.
• A description of your product or service and its market- Briefly describe
what you sell and who will buy it-not the technology it's based on. Explain
how your product or service will solve a problem, meet a need, or exploit
an opportunity.
• A description of the people behind the business- Tell a little about your
background and your team's strengths.

Elevator Pitch Should Contain
• The benefits of investing in your business- Why would the investor want to
take a risk with you? What are the benefits? Communicate how you and
your business stand out over the competition.
• A call to action- Finish your pitch with a request. Do you want to set up a
meeting? Have the investor look over your Business Plan? Have the listener
recommend you to an angel investor or venture capitalist?
• You- Show the uniqueness of your concept and your passion through the
enthusiastic delivery of your elevator pitch.

Examples
• Airbnb Elevator Pitch
• Most tourists booking online care about price- and hotels are one of the
highest costs for when traveling.
• On the other hand, platforms like Couch surfing have proven that over half
a million people are willing to lend their couches or spare bedrooms.
• We have created a platform that connects travelers with locals, letting them
rent our rooms, or even entire places. Travelers save money, and locals can
monetize their empty rooms- we just take a 10% commission.
• How does that sound?

• A few pointers here:
- Notice how I started mentioning tourists, not just any traveler. Airbnb
doesn't necessarily target business.
- It's easy to agree that people looking to travel care about price, so there's no
market research or validation needed to come up with that statement,
- On the other hand, it might be arguable that people will be willing to rent
out their homes to strangers. I used the Couchsurfing validation to avoid that
statement being questioned.

• WeWork Elevator Pitch
• There are 40MM independent workers in the US: consultants, freelancers,
and small business owners. Solving office space is tough and expensive,
especially in cities like New York. We created the concept of space as a
service. We have 20 locations in the city- where people can rent a desk or an
office without any of the complications of a traditional lease, effectively
saving at least 25% of the cost. They get access to a shared front desk,
mailroom, and a community of like-minded people.

• Slack Elevator Pitch
• There is no publicly available pitch deck for Slack, but let's assume
the company is just starting up:
• The average office worker receives 304 emails per week. They also
attend an average of 62 monthly meetings, half of which they
consider 'wasted time'. Slack was made to make work more efficient.
It organizes conversations by channels and drastically reduces the
need for emails or meetings. It's integrated with 100s of productivity
tools like Google Docs, Calendars, Email, Dropbox, Zoom... so you can
receive automatic notifications and take action without leaving the
interface.

Oral and Visual Presentation

WHY DO SOME BUSINESS PLANS
FAIL?

• Failure to address the customer’s problems and needs
• Unrealistic goals set by the promoters
• Lack of commitment to the business by the promoters
• Lack of experience of the promoters
• Lack of professionalism

Procedure For Setting Up An
Enterprise

Selection of a Project
Product or
Service
Selection
Location
Selection
Project
Feasibility
Business Plan
Preparation of
Project Profile

Expedience of the Promoter
Product or Service Selection
Availability of the Raw Material
Investment Capacity
Availability of the Technology
Availability of Infrastructure Facility
Product or Service Selection

(b) Location Selection
The location of the project—where to set, the unit.
 Proximity to market;
 Availability of raw materials;
 Availability of transportation and communication facilities;
 Availability of incentives/concessions;
 Government policy;
 Availability of suitable infrastructure facilities; and
 Convenience for the promoter.

Project feasibility study: a schematic diagram
• Market analysis
• Potential Market and Market Share
• Technical analysis
• Finding the technical viability of the project and making sensible choice
• Financial analysis
• Calculating the risk and return of the project
• Economic analysis
• Finding benefits and cost in terms of shadow price and other impact
• Ecological analysis
• Assessing the environment damage caused by the project

Market Analysis
• Primary Objectives
• What would be the aggregate demand of the proposed product/service in future?
• What would be the market share of the project under appraisal?
Forecasting Method required Data:
•Consumption trends in the past and
the 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 and marketing
policies in use
•Administrative, technical, and legal
constraints

Technical analysis
• Technical analysis seeks to determine whether the prerequisites for the
successful commissioning of the project have been considered and
reasonably good choices have been made with respect to location, size,
process, and so on.
•Have the preliminary tests and studies been done or provided for?
•Has the availability of raw materials, power, and other inputs been established?
•Is the selected scale of operation is optimal?
•Is the production process chosen suitable?
•Are the equipment and machines chosen appropriate?
•Have the auxiliary equipment and supplementary engineering works been provided
for?
•Has provision been made for the treatment of effluents?
•Is the proposed layout of the site, buildings, and plant sound?

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
debt and whether the proposed project will satisfy the return expectations
of those who provide the capital.
Investment outlay and cost of
project
Means of financing
Projected profitability
Break-even point
Cash flows of the project
Investment worthiness judged in
terms of various criteria of merit
Projected financial position
Level of risk

Economic analysis
• To as social cost-benefit analysis, is concerned with judging a project
from the larger, social point of view.
• Social cost-benefit analysis are as follows.
 What are the direct economic benefits and costs of the project measured in
terms of shadow (efficiency) prices and not in terms of market prices?
 What would be the impact of the project on the distribution of income in
the society?
 What would be the impact of the project on the level of savings and
investment in the society?
 What would be the contribution of the project towards the fulfillment of
certain criteria like self-sufficiency, employment and social order?

Ecological analysis
• Ecological analysis should be done, particularly for major projects
which have significant ecological implications like power plants
and irrigation schemes, and for environment-polluting industries
(like bulk drugs, chemicals, and leather processing.).

Business Plan Preparation
• It is a blueprint of the project
• Roadmap of the project
• Where the company need to go
• Formulates responses to contingencies

Preparation of Project Profile
• Snapshot of the project
• Development of a detailed project report
• Introduction to the Project
• Business Opportunity
• Details of Promoter
• Cost of the Project and means of finance
• Risk and Return

2. Decide on the Constitution

• In India setting up a private limited company is the most popular choice
among entrepreneurs.
• To start an industry, the promoter(s) have to decide on the constitution of
the unit. There are four major alternatives.
1. Sole proprietorship
2. Partnership
3. Corporation/Limited company
4. Cooperative
5. Franchising

(a) Sole Proprietorship
• A single individual is the owner of such a unit.
• Registration of Sole Proprietor Firm
• Open separate bank accounts for the business. Do not pay for business
expenses from personal accounts. Also, withdraw money for your personal
expenses regularly from the business accounts.
• Get your accountant to give you some indication of permitted business
expenses.
• Take out full insurance cover against possible loss or damage to any
equipment, if you have invested in any.
• Take out personal injury/illness insurance.

Advantages
 Easy to set up.
 You are the boss.
 Your keep the profits.
 You can offset some business
expenses against earnings for tax
purposes.
 No public disclosure of your affairs.
 Profit or loss in one trade can be set
off against profit and loss in any
other business you run.
Disadvantages
• You are totally responsible for any
debts your business incurs.
• It can be lonely.
• You have to be very flexible.

(b) Partnerships
• A partnership firm is an association of two or more persons, subject to a
maximum of 20 persons. Partnership firms are governed by the Indian
Partnership Act, 1932, and rules framed thereunder by the State
Government. It is advisable to have a Partnership Deed Agreement.

Registration Formalities
• An application in the prescribed form
• Attached the authenticated copy of the partnership deed (on stamp paper of
appropriate value) and the prescribed fee.
• The Registrar of Firms will record any entry of the statement after scrutiny of
the application and issue a certificate. This may take about 15 days.
• The main provisions of the Partnership Act are as follows.
• All partners contribute capital equally.
• All partners share profits and losses equally.
• No partner shall have interest paid on his or her capital.
• No partner shall be paid a salary.
• All partners have an equal say in the management of the business.

Advantages of Partnership
• A means of starting up with increased capital (presuming both you
and partners put money in).
• You might not feel confident to start a business entirely on your own
and would prefer to share the responsibilities with someone else.
• You have complementary skills—one of you may have specialist skills
and the other management flair, or one the money, the other the
ideas.

Partnership Agreements
• Profit sharing:
• Withdrawing money:
• Time off:
• Duration of partnership:
• Admitting or expelling a partner:
• Dissolving or rescinding the partnership:
• Getting capital out:
• Notice of withdrawal from a partnership:
• Conflicting interests:

(c) Corporation/Limited company
• A company may be either private limited or public limited.
• A private limited company can be formed with a minimum of 2 persons and
a maximum of 50 persons.
• A public limited company can be formed with a minimum of seven persons
and the maximum of persons is unlimited.
• The companies are governed by the Companies Act, 1956.

Advantages of the Limited Company
• Members' (the directors and shareholders) financial liability is limited to the
amount of money they have paid for shares.
• The management structure is clearly defined, which makes it easy to
appoint, retire, or remove directors.
• If extra capital is needed, it can be raised by selling more shares privately.
• It is simple to admit more members.
• The death, bankruptcy or withdrawal of capital by one member does not
affect the company's ability to trade.
• Disposal of the whole or part of the business is easily arranged.

Disadvantages
• Requirement to register the company with the registrar of companies and
provide annual returns and audited accounts. All details of the company are
available for public inspection, so there can be no secrecy. There are
penalties for failing to file returns.
• Can be more expensive to set up.
• May need professional help to set up.
• As a director you are treated as an employee and must pay tax.
• Banks, finance house, landlords and suppliers who require personal
guarantees from the directors before they will do business are increasingly
undermining the advantages of limited liability status.

Requirements for a private limited company
1. A registered business name
2. A registered office
3. Shareholders
4. Share capital
5. Memorandum of Association
6. Articles of Association
7. Certificate of Incorporation
8. Auditors
9. Accounts
10. Registers
11. Company seal

(e) Franchising
• The term “franchising”, which is borrowed from French, originally meant being
free from slavery.
• The franchiser lays down a blueprint on how the business should be operated:
the content and nature of goods and services being offered, the price and
quality of these goods, and even the location, size and layout of any premises to
be used.
• The franchiser also provides the franchisee with training and other back-up
support, such as accounting systems, advertising programmes, and personnel
recruitment and selection advice. In essence, franchising thrives because it
merges the incentive of owning a business with the management skills of a big
business. And personal ownership is one of the best incentives yet created to
spur hard work.

Major Factors Influencing Franchising
• A leveling off of sales growth among franchise outlets in the traditional
fields such as fast food, hotels, bakeries, greeting cards, and gift shops.
• Continuing rapid growth and expansion of service type businesses, for
example, childcare, business aids, and services.
• Conversion of independent businesses to franchises – like shirt bands.
• Globalisation of franchising-franchise companies in USA will continue to
expand overseas, for example, McDonald's, Pizza Hut, and Kentucky Fried
Chicken in India.
• An increasingly mature and diversified franchise company.

The Franchiser
Advantages
• Not Direct Investment
• franchisers to acquire leases on
behalf of franchisees or, at any
rate, to stand as guarantors.
• liquidity of the franchiser - in
contrast to expansion by opening
branches, is enormous.
• Franchiser receives an income from
the franchise - without direct
financial involvement.,
• Economies of scale - centralised
purchasing and, where feasible,
some degree of centralised
administrative facilities.
Disadvantages
Failure of an individual franchise effect
The franchiser may terminate the
agreement or at any rate not renew it,
but he cannot throw the franchisee out
as if he were an employee.
Damaging to the franchiser and the
franchisee as a whole.

The Franchisee
Advantages
• Avoided in the start-up period.
• Recognized name of which the
public is already aware
• Publicity – direct and indirect
• Period of training on production
and management aspects.
• Set of standard management,
• Centralized bulk purchase
negotiated through the franchiser.
• Help with site selection,
negotiating with planning officers
and developers.
• Protected or privileged rights to
the franchise within a given area.
• Obtaining loan facilities from the
bank.
Disadvantages
• Royalty paid to the franchiser.
• Turnover does not necessarily
imply a highly profitable
operation.
• Territory agreements may be
difficult to enforce in practice.
• As well as paying a royalty to the
franchiser
• Failure of a franchiser may leave
the franchisee with a business
which is not viable in isolation.

3. Obtain Registration

• Sole Proprietary - No Legal Formality
• MSME – Choose to register with the District Industries Centre
• Obtaining Facilities and Incentives
• Partnership – Indian Partnership Act, 1932
• Follow terms and conditions of partnership are contained in the partnership deed
• Company – Register under Registrar of Companies
• Cooperative Society -

Registration Formalities
1. Prescribed court fee stamp
2. Copy of the project profile
3. Partnership deed/Memorandum and Articles of Association, as the case
may be
4. Affidavit, as per format on appropriate stamp paper
• The initial validity of the PRC (Provision Registration Certificate) is for two
years and it can be renewed subsequently, if needed.

• The benefits of getting Provisional Registration Certificate is given
below.
• 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.
• To obtain facilities for accommodation, land, other approvals
etc.
• To obtain various necessary No Objection Certificates and
clearances from regulatory bodies such as Pollution Control
Board, Labour Regulations and so on.

Permanent Registration Certificate (PMT)
• How it will help SSI
• To apply for scarce raw materials and for imported raw materials.
• To get working capital from banks/financial institutions.
• To obtain Central excise duty concessions.
• To apply for registration under the Government Stores Purchase
Programme/Ancillary Development Programme/Export Promotion
Programme and to get purchase and price preferences.
• To apply for incentives including sales tax exemption, wherever applicable.

Permanent Registration Certificate (PMT)
• How unit to get incentives/concessions
• Income-tax exemption and sales tax exemption as per State
government policy.
• Incentives and concessions in power tariff and so on.
• Price and purchase preference for goods produced.
• Availability of raw material depending on existing policy.
• Permanent registration of tiny units should be renewed after five years.

Benefits of Registering
• Credit prescription (priority sector lending), differential rates of interest, and
so on.
• Excise exemption scheme
• Exemption under direct tax laws
• Statutory support such as reservation and Interest on Delayed Payments
Act.
• They relate to development of industrial estates, tax subsidies, power tariff
subsidies, capital investment subsidies and other support.

Objectives of the Registration Scheme
• To enumerate and maintain a roll of small industries at which the
package of incentives and support are targeted.
• To provide a certificate enabling the units to avail statutory benefits
mainly in terms of protection.
• To serve the purpose of collection of statistics.
• To create nodal centres at the Centre, State and district levels to
promote SSI.

Features of the Registration Scheme
• DIC is the primary registering centre.
• Registration is voluntary and not compulsory.
• Two types of registration are done in all States. A provisional
registration certificate is given first. After commencement of
production, a permanent registration certificate is given.
• PRC is normally valid for five years and permanent registration is
given in perpetuity.

Basis of Evaluation
• The unit has obtained all necessary clearances, whether
statutory or administrative; for example, drug license under drug
control order, NOC from Pollution Control Board, if required, and
so on.
• Unit does not violate any location restrictions in force at the time
of evaluation.
• Value of plant and machinery is within prescribed limits.
• Unit is not owned, controlled, or a subsidiary of any other
industrial undertaking as per notification.

De-registration
• It crosses the investment limits.
• It starts manufacturing a new item or items that require an industrial
licence or other kind of statutory licence.
• It does not satisfy the condition of being owned, controlled, or being a
subsidiary of any other industrial undertaking.

4. Clearances from Specific
Departments

Clearance of Specific Department
• Several clearances are required from different authorities depending on the
type of industry and the location of the unit.
•Agricultural land conversion
•Urban land ceiling clearance
•Building plan approval
•Factories Act
•Trade licence
•Pollution Control Board clearances
•Sales tax registration
•Central excise registration
•Bureau of Indian Standards (BIS)
certificate
•Fruit Products Order (FPO) licence
•Food Adulteration Act licence
•Power loom registration
•Electronics industries registration
•Drugs and cosmetics licence
•Approvals of hotels
•100 per cent export-oriented unit

5. Arrange for Land/Shed

• Industrial Land
• Once the location of the unit is decided, the land for the project could be
conveniently taken from the State Industrial Areas Development Board.
• Private land could also be purchased, but it has to be converted for
industrial purpose and other necessary legal/formalities will have to be
completed.
• Industrial shed
• For setting up an SSI unit, the promoters could consider using a ready
industrial shed. This could be on rent or on ownership basis.

Application formalities
• Application in the prescribed form is to be submitted along with the
following documents.
• Copy of Provisional Registration Certificate (PRC)
• Detailed project report
• Certified copies in support of educational qualification, experience, and
other categories as may be applicable
• Applicable earnest money deposit

6. Arrange for Plant and
Machinery

• Two type of Purchase
• Direct purchase (Purchased from recognised manufacturers/dealers)
• Hire Purchase ( scheme operated by the National Small Industries
Corporation (NSIC))

Direct Purchase
• To select and buy the required plant and machinery from recognised and
approved manufacturers or dealers.
• Banks and state financial corporations (sfc) maintain a list of approved
machinery suppliers.
• Compare the quality, performance, and service terms, price, and other
details of the alternate plant and machinery that may be available in the
market.
• Detailed quotations should be taken for preparing the project report and
also for submission to state financial corporations along with the
loan application.

NSIC Hire Purchase Scheme
• Main Objective : lease it to the promoters of the industrial unit.
• NSIC Procedures for Hire Purchase of Machinery
• The hire purchase application has to be made on the prescribed form.
• The Director of Industries of the State under whose jurisdiction the
applicant happens to be, forwards the application to the head office of the
NSIC at Delhi with his recommendation and comments.
• All applications for indigenous or imported machines are considered by
acceptance committees comprising the representatives of the Chief
Controller of Imports, Development Commissioner, Small-Scale Industries,
and other concerned departments.

• The decision of these committees is conveyed to the parties concerned with
copies to the regional offices of the NSIC and the concerned Directorate of
Industries.
• It Is open to an applicant whose case has been rejected to get his application
reviewed by a high-powered committee known proforma invoice.
• Once the entrepreneur completes all these formalities, instructions are sent
to the suppliers to dispatch the consignment (duly insured for transit risk).

• Value of Machines
• Rs 7.5 lakh or landed cost, as the case may be.
• Earnest Money
• The rate of earnest money is equal to 5 per cent or 10 per cent of the value of
machinery, depending on whether the equipment is imported or indigenous.
• Administrative Charge
• This charge is equal to 2 per cent of the sales value of machines and its recovery by
the NSIC, spread over the total instalment period.
• Period of Repayment
• is payable along with interest and administrative charge in seven years.
• The first instalment is payable after one year and six months of the delivery of the
machines.
• The second and subsequent instalments are payable every six months thereafter.
• Gestation Period
• A gestation period of only six months shall be allowed both to the new and existing
units.
• A rebate of 2 per cent per annum is allowed on the interest rates in case an
instalment is paid on or before the due date.

7. Arrange for Infrastructure

• A SSI unit are land or shed for the project, power connection, water supply, and
telephone facility.
• Single Window Agencies (SWAs) are set up at district level for the benefit of small-
scale industries. The SWA provides clearances for various infrastructure and other
facilities for the tiny and small-scale industries.
• Grant of land in industrial areas and allotment of sheds in the industrial estates
for all tiny and small-scale units.
• Grant of power up to the limit prescribed by the State government.
• To review and recommend sanction of term loans and working capital loans by
the State Financial Corporation and commercial banks within the district for the
new and existing tiny and small-scale industries.
• Grant and disbursement of all incentives and concessions for tiny and small-
scale industries.
• To generally review the position regarding problems faced by entrepreneurs
and existing small-scale industries within the district and to do such other work
as may help promotion of the industries.

• Land and Construction of Building
• Availability of basic amenities like power, water
• Connectivity to nearest rail, road, or port
• Price of the land
• Getting the Utility Connections
• Water Supply
• Power Supply

8. Prepare Project Report

• The project report gives a detailed insight of the project and indicates the
techno-economic viability of the project.
• GENERAL POINTS
• 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 timeliness
• Proper estimation of the requirement of number of copies

Cover Following Things
• General Information
• Name of the unit
• Name of the product and services
• Constitution of the unit
• Name of the Promoter
• Education qualification
• Experience
• Details of the Project
• Product and Services
• Machinery
• Raw material
• Utility
• Manpower Requirement
• SWOT analysis

• Market Survey
• Cost of Project
• Fixed Cost
• Working Capital
• Total Investment
• Means of Finance
• Profitability
• Annexure

Characteristics for Project Report
• Standard format
• Completeness of data
• Proper definitions of assumptions
• Imparting of data/information from reliable sources
• Emphasis on the main objectives of the project
• Scientific analysis of the data
• Preservation of confidential data/information
• Effective presentation and avoiding repetition
• Cost effectiveness
• Timeliness

9. Apply and Obtain Finance

Detail of Documents
• Balance sheet and Profit and Loss statement for the previous three
consecutive years of firms held by promoters
• Income tax assessment certificate of partner/ directors, proof of possession
of land/building
• Architect’s estimate for construction cost
• Partnership deed/ memorandum and article of association of the company
• Project report
• Budgetary quotation of plant and machinery
• Bank sanction or rejection letter after complete an assessment of the
application for funding.

• There are various sources of funds. They are as follows.
• Share capital
• Internal accruals
• Deposits—own/public
• Debentures
• Short-term borrowings
• Long term loans
• Bridge loans
• Working capital loans like cash credit

Means of Finance
Own equity
Internal accruals
Inter corporate deposits/investment
State financial institutions
Other financial institutions
Banks
Other borrowings like ECB, CP, FDI,
State subsidy and seed capital
Lease finance
Small-scale units can obtain finance
for their projects under two main
categories.
Term loan
Working capital loan

10. Implement the Project and
Obtain Final Clearances

1. Construct Shed
• If the entrepreneurs have taken a readymade shed from the State Small
Industries Development Corporation or have made arrangements for rental
sheds/premises, then they need not go through this step.
• But not then ………………………
• concerned authorities like the municipal corporations or municipalities or
village panchayats.
• Order for Machinery:
• Recruit Personnel:
• Arrange for Raw Materials:
• Marketing:
• Erection and Commissioning:
• Obtain Final Clearances:

Regulatory or Taxation Clearances
• Registration under Sales Tax Act—Commercial Tax officer of the area
concerned.
• Registration under Central Excise Act—Collector of Central Excise or his
nominee.
• Payment of Income Tax—i TO of the area concerned.
• Registration of Partnership deed—Inspector General of area concerned.
• Calibration of weights and measures—Weights and Measures Inspector of
State.
• Power connection—designated officer of State Electricity Board.
• Employee strength exceeding 10 with power connection, or 20 without power –
Chief Inspector of Factories.

ENVIRONMENT POLLUTION RELATED CLEARANCES
• Pollution control:
• Industries requiring water and affecting effluent disposal:
• For units functioning outside the industrial area:
• Registration and licensing of a boiler:
• For registration as a 100 per cent export-oriented unit (EOU)

Product Specific Clearances
• Establishing a printing press—District Magistrate.
• License for cold storage construction—designated official in State.
• Pesticides – Central/State Agricultural Department—Ministry of Agriculture.
• Drugs and pharmaceuticals—drug licence from State Drug Controller.
• Safety matches/fireworks—licence under Explosives Act from Directorate of
Explosives, Nagpur.
• Household electrical appliances—licence from the Bureau of Indian
Standards.
• Wood working industry within 8 km from forest—District Forest Officer.
• Milk processing and milk products manufacturing units-approval under Milk
and milk Products Order from State Agricultural/Food Processing Industries
Department above a designated capacity.

Identifying Business Opportunities

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