Entrepreneurship developmen 21_sep_2010

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Entrepreneurship developmen 21_sep_2010

  1. 1. EntrepreneurshipDevelopmentDr M S Mamik
  2. 2. Overview Entrepreneurship Development Perspective Creating Entrepreneurial Venture Project Management Entrepreneurship Development and Government Why do Entrepreneur’s fail- Four Entrepreneurship pitfalls Women Entrepreneurs
  3. 3. Entrepreneurship DevelopmentPerspective Concept of Entrepreneurship Development Evolution of the concept of Entrepruneur. Entrepreneur vs Intrapreneur, Entrepreneurship, Entrepreneur Vs Manager Attributes and Charactership of a successful entrepreneur Role of Entrepreneur in Indian economy and developing economies with special reference to Self Employment Development. Entrepreneurial culture.
  4. 4. Definition(Robert Ronstand) Dynamic process of creating incremental wealth by individuals who assume the major risk in terms of equity, time and /or career commitment or provide value for some product or service, which may or may not be new or unique but value must be infused by the entrepreneur by receiving and locating the necessary skill and resources
  5. 5. EntrepreneurshipDevelopmentDr M S Mamik
  6. 6. Overview Entrepreneurship Development Perspective Creating Entrepreneurial Venture Project Management Entrepreneurship Development and Government Why do Entrepreneur’s fail- Four Entrepreneurship pitfalls Women Entrepreneurs
  7. 7. Entrepreneurship DevelopmentPerspective Concept of Entrepreneurship Development Evolution of the concept of Entrepruneur. Entrepreneur vs Intrapreneur, Entrepreneurship, Entrepreneur Vs Manager Attributes and Charactership of a successful entrepreneur Role of Entrepreneur in Indian economy and developing economies with special reference to Self Employment Development. Entrepreneurial culture.
  8. 8. Definition(Robert Ronstand) Dynamic process of creating incremental wealth by individuals who assume the major risk in terms of equity, time and /or career commitment or provide value for some product or service, which may or may not be new or unique but value must be infused by the entrepreneur by receiving and locating the necessary skill and resources
  9. 9. EntrepreneurshipDevelopmentDr M S Mamik
  10. 10. Venture Capital Early stage funding is avoided by most funds apart form ICICI Ventures, SIDBI. Funding growth or mezzanine funding till pre IPO stage Size of Investment – Upto $10 mn Value Addition –Hands on (Draper) or hands off approach (Chase). Seed and start up funding sees closer interaction and advice on strategy Concessions on Capital gains tax and dividends for technology and only for HNIs. Can invest upto 40% of paid up capital of invested co and 80 % inequity shares of unlisted cos.
  11. 11. Tax Concessions -SSI Tax Holiday –on profits upto 6% of invested capital for five years from start (unit not formed by splitting another exiting unit and employ 10 or more workers with power and 20 without power. Depreciation – on block of assets at prescribed rate on actual cost of plant and machinery upto a max of Rs 20 lakhs.If working in double or triple shift “Extra Shift Allowance” is available Rehabilitation Allowance in case of natural calamiies Expenditure on Scientific Research –revenue or capital expenditure or amount paid to a university or institution for research
  12. 12. Tax Concessions Amortisation of preliminary expenses - write off of expense for feasibility report, engineering expenses, legal charges in ten annual instalment Deduction on Profits upto 20% if in Backward Areas or Rural Areas for 10 years Expenditure on Acquisition of Patents and Copyrights is deductible form income
  13. 13. Tax ConcessionsBusiness of Publication of Books – 20% of profits deductible form gross total income
  14. 14. Types of Lease Agreements Capital lease – for life of an asset Operating lease – open end leasing arrangement but shorter than life of equipment and can be terminated at option of lessee with prior notice. Caters for technology obsolescence Sale and Lease back –firm sells to other party and gets cash and then pay rental for use Leveraged lease – when three parties involved lessor ,lessee and lender. Lessor provides an equity investment say 25% and lenders provide the other 75%
  15. 15. Advantages of Leasing Alternate use of funds Beneficial for small firms Free from restrictive clauses of debt financing. Tax shielding- part of the tax benefit is passed on the lessee India’s requirement for leasing for next ten years estimated at $18.9 bn.
  16. 16. Hire Purchase Agreement in which an owner called hire vendor gives delivery of goods to the buyer called hire purchaser who pays the price in certain number of instalments. Hire vendor retains ownership till last instalment is paid The amount of instalments paid till the last instalment is treated as hire charges. Right to terminate agreement at any
  17. 17. Support System- Incentives Fiscal Reservation Preference Infrastructure Entrepreneurship Development Collaborative programmes NGOs Quality Certification Technology Development Trust Fund Credit Policies
  18. 18. Market Research Understanding of size, groups ,buying behaviour , decision making of potential and existing customers and the marketplace to allow effective targeting of customers effectively,compete successfully and locate newer opportunities and gaps Measures customer loyalty, satisfaction levels
  19. 19. Credit Policies Lending to SSIs considered a Priority sector Concessional/Fixed rates for working capital loans upto Rs 2 lakhs Liberal treatment for working capital loans by banks Working capital limits minimum 20% of annual projected turnover upto Rs 100 lakhs 100 Special SSI branches set up in identified districts Powers delegated to sanction loans to managers for SSI at regional and branch
  20. 20. Credit Policies Sample surveys to check credit satisfaction, composite loans (term plus working capital), meetings with entrepreneurs at zonal and regional levels Sensitising managers to needs of the SSI sector Procedural formalities simplified National Equity Fund Scheme to fund upto 25% of project cost as soft loan upto Rs 2.5 lakhs for a project cost of Rs 10 lakhs
  21. 21. Support Organisations SIDO – Also known as Development Commissioner (SSI) under Dept of Small Scale, Agro and Rural Industries in Ministry of Industries. NIESBUD (National Institute of Institute for Entrepreneurship and Small Business development ) – Apex Body for coordinating and overseeing enrepreneurship development. EDI –Entrepreneurship Development Institute TCOs (Technical Consulting Organisations) STATE LEVEL ORGANISATIONS KVIC SIDBI NSTEBD –National Science and Technology Entrepreneur ship Development Bment Board
  22. 22. SIDO Small Industries Service Institutes/Branch Institutes (Economic consultancy, Trade and market information, project profiles, State/District Potential survey, study in modernisation of plant , training and workshop facilities Regional Testing Centers – testing and training facilities Tool Rooms/Tool Design Institutes Process –Cum Product Development centres – R& D facilities in specified clusters
  23. 23. State level Institutions Commissioners and Directors of Industries District Industries Centres State Industrial Development Corporation State Small Scale Industries Development/Export Corporations
  24. 24. Incentives (Haryana) Sales Tax Concessions – Upto 125% of investment for small and 100% for medium Exemption for Payment of Electricity Duty – Exempt for 5 years Incentives to Tiny units in Rural Areas – Exemption from electricity duty, price preference of 10%, marketing assistance. Small and Medium Enterprises Renewal Fund.- for technology upgrade, quality consciousness, brand promotion, improved management practices, capacity building Incentives to Sick units – No penal interest in case of default
  25. 25. Incentives Tax reforms and Fiscal Discipline – Self assessment, abolition of forms, computerisation. Rebate in cost of Land – Upto 20% if started in 3 years from date of possession. Exemption for payment of electricity duty – all new units other than negative list for 5 years Customised Package for prestigious project – projects above Rs 30 crs Incentives for IT Industry – preferential allotment of land in industrial estates
  26. 26. Incentives (Haryana) Continous Uninterrupted Power Supply - endeavour for IT industry and exempt them for power cuts Facilities on Generator sets –captive power plants of IT industry will be exempt from electricity duty without any time limit. Change of Land Use – no charges for change of land use levied for IT /industry/parks for three years.Licence for setting up STPs given liberally and on easy payment terms. Floor Area Regulations – Relaxation upto 100% in areas notified by state govt for IT units and in all IT parks
  27. 27. Incentives for Industry Registration and Stamp Duty Applicable – Rebate on registration and transfer of property and exemption on stamp duty on a tapering scale given for sale /lease of built up space to the IT industry establishing facilities in private STPs/ IT parks. Applicable Rate of Sale Tax - IT software industry exempt from payment of sale tax. The applicable rate of sales tax on computers and computer peripherals shall be reduced to 0.25% Exemption from Pollution Control – IT software industry shall be exempted from the purview of the Haryana Pollution Control Act except in respect of power generation sets of more than 10KVA capacity.
  28. 28. SIDBI Refinancing of loans and advances extended by primary lending instituions Discounting and resdiscounting of bills Extending financial support to SSIDC and NSIC (Natl Small Ind.Corp) Technological upgradation and modernisation services to the industries Promotes employment oriented industries especially in the semiurban
  29. 29. Procedure for Borrowing fromVarious FI Letter of Intent or provisional registration certificate Permission from govt. agencies Affidavit Prescribed loan application form Statement of industries financial standing Tax clearance certificate Partnership Deed Memorandum and Art.of Association in case of Co Registration Certificate Form A and C issued by registrar of firms Three years audited balance sheet and P& L ac Special qualification and experience certificate Power sanction letter from SEBs
  30. 30. Procedure for Borrowingloans Copy of letter addressed to bank Allotment letter of land Agreement on Industrial sheds NOC form Local authorities Sketch of site offered as securities Approved plans by concerned authorities Qoutations and catalogues from suppliers of machinery Copies of import lcence Assurance letter of marketing agreement A copy of feasibility report covering market study report Photographs of promoters Projected financial statements
  31. 31. Govt. Support Office of Development Commisioner( Micro, Small and Medium Enterprises) MSME takes care of entrepreneur ship and small industries as generally enterprises start small. Small Industries Development Organisation SIDO – nodal development agency for small enterprises estd. 1954
  32. 32. Role of SMEs MSME sector contibutes 45% of he total manufacturing output 33% of the total exports Employs 60 mn persons in Over 28 mn units across the country
  33. 33. SIDO Assists Ministry of Small Industries in evolving policies and programmes and coordinates policies and programmes of State govts. Provides a comprehensive range of extension services through its Field offices and allied institutions and monitors or implements large number fo Govt.sponsored programmes Following glabalisation and requirment of competitiveness,it provides support in the field of credit, marketing,technology and infrastructure to SMEs
  34. 34. How 30 Small Industries Service Institutes in state capital and other cities 28 Branch SISIs in other industrial cities 4 Regional Testing Centers in metros 7 Field testing Units 21 Autonomous bodies – 11 Tool Rooms and Tool Design Institutes 4 Production Cum Process development centers located in UP towns
  35. 35. SIDO 2 Footwear Training Institutes in Agra and Chennai I Electronice Service and Training Institute in RamNagar ! Institiute of Design and Electrical measuring Instruments in Mumbai 2 National Level Training Institutes in and 1 dep Level trg institute in ND,Hyd and Guwahati Production center in Tiruvalla
  36. 36. Enterprises Classification Manufacturing or Service Investment based classification Manufacturing/Service Micro – investment upto Rs 25 Lakhs/10 lakhs Small – From Rs 25 lakhs to Rs 5 crs/ Rs 10 lakhs to Rs 2 crs Medium – from Rs 5crs to Rs10 crs/ Rs 2 to 5crs
  37. 37. Other Classification Ancilliary – 50% output to another unit and investment upto Rs 1crs Tiny enterprises –upto Rs 25 Lakhs Women Entrepreneurs – share of women owners at least 51% Small Scale Service and Business (Industry Related ) Enterprises (SSSBEs)- investment upto Rs 10 lakhs in fixed assets minus land and building
  38. 38. Facilities Small Industry Cluster Development Programme Credit Linked capital Subsidy Scheme for Technology Upgradation -15 % cost capital subsidy Credit Guarantee Scheme- Collateral free loans upto Rs 25 lakhs for individual SSI’s. ISO 9000 Certification Reimbursement Scheme- lower of
  39. 39. Financial Support Commercial banks FIs IDBI IFCI ICICI IRBI LIC UTI SFC SIDC SIDBI EXIM BANK
  40. 40. Institutional Support Need National Small Industries Corporation (NSIC) Small Industries Development Organisation (SIDO) Small Scale Industries Board(SSIB) Small Scale Industries Development Corporations (SSIDC) Small Industries Service Institutes(SISI) District Industries Centers (DICs) Industrial Estates SEZs
  41. 41. Specialised Institutions Central Institute of Tool Design, Hyderabad Central Institute of Hand Tool,Jalandhar Central Tool Room Training Centers- Bangalore, Calcutta ,Ludhiana and New Delhi National Institute of Entrepreneurship and Small Business development (NISEBUD), New Delhi National Institute of Small Industries Extension Training,Hyderabad
  42. 42. Sources of Finance Self Family and friends Suppliers and trade credit Commercial banks Govt.loans programs R&D Limited partnerships –contract limited Venture Capital Private equity placements Public equity offerings Other govt. programs
  43. 43. Requirements of Finance Start up expenses Operational Expenses Personnel Expenses Contingency expenses
  44. 44. Venture Capital $ $ Venture InvestmentEntrepreneurs Capitalists bankers IPO Ideas $ $ $ $ $ Corporation Private Public markets & Government Investors & corporations
  45. 45. Venture Capital Money provided by professionals who invest alongside the management in young ,rapidly growing companies that have the potential to develop into significant economic contributors. Professionally managed pool of equity capital formed from the resources of wealthy limited partners- pension funds, endowment funds, institutions including foreign investors Investment made in exchange for a percentage of the gain realised on the
  46. 46. Promoters of Venture Funds ICICI – TDICI renamed as ICICI Venture Funds Management Co or ICICI Venture IFCI – IFCI Venture Capital Funds Limited(IVCF) IL & FS – Pathfinder GIC- Gujarat Venture Capital Finance (GVCFL) with all India coverage APIDC- APIDC Venture Capital Ltd with coverage as Andhra Pradesh Canara Bank – Canfina VCF with focus on southern states
  47. 47. Angel Investors Angel investors are affluent high net worth individuals who provide capital for business start ups usually in exchange for convertible debt or ownership equity Now angel investors organising themselves into angel networks or angel groups to share research and pool their investment capital. Actual entity providing funds could be a trust or a business investment fund.
  48. 48. Angel Investors Fills the gap between friends and family financing who provide seed funding and venture capital. Most investment of the size of upto $500,000 and in Healthcare services, medical devices and equipment, software, and biotechnology Bear very high risk and require very high return on investment –potential to return at least 10 or more times the capital invested in five years through a defined exit strategy such as an IPO or an acquisition In such cases cheaper source of financing are not available
  49. 49. Venture Capitalists Requirementsfrom Business Plan Finance new and rapidly growing co’s. Purchase equity securities Assist in the development of new products and services Add value to the company through active participation Take higher risks with the expectation of higher rewards.
  50. 50. Attributes sought by VCs Business Plan – complete, fluid and market driven Competition Analysis – Doing things competitor is not doing, and understanding that what you are doing is needed Industry Knowledge- to finding a gap in the market, knowledge is required through experience and extensive industry research. Team – Team assembled would be crucial to its success. Team consist of industry experts, technologists and domain specialist
  51. 51. Analysis of VentureInvestments VC/PE funds invested about $1.1 bn in 66 Indian cos and exited about 30 cos during 2004 Investments in BPOs declined sharply compared to 2003 ICICI Ventures emerged as the most active VC Cos based in South India cornered 50% of the investments Six venture backed cos pulled off successful IPOs during the year Contract electronics manufacturers emerged as a major investor in and acquirer of Indian technology cos.
  52. 52. Exit Route for VentureCapital IPOs – go public through stock exchange Trade Sale –sells to a strategic buyer who has a similar business Promoter Buy back – buys back at a predetermined price Company Buy back – cos buys back the VC stake Management Buy back – operating mgt buys promoters equity
  53. 53. Comparison of Domestic andOffshore Funds Base Guidelines –SEBI with registration Corpus Size- Small/large Invested Cos- SME/ Large Investment Size – Rs 0.5 to 2.5 crs/ Avg Rs 8 crs Structure- Regd. As trust under India Trust Act 1882.
  54. 54. Venture Funds in India Financial Institutions Led by ICICI Ventures, ILFS Private venture funds like Indus Regional funds like Warburg Pincus, JF Electra (operating out of Hong Kong) Regional Funds dedicated to India like Draper, Walden etc Offshore Funds like Baring, HSBC Corporate ventures like Intel Sivan Securities
  55. 55. Venture Capital Early stage funding is avoided by most funds apart from ICICI Ventures or SIDBI. Funding growth or mezzanine funding till pre IPO stage Size of Investment – Upto $10 mn Value Addition –Hands on (Draper) or hands off approach (Chase). Seed and start up funding sees closer interaction and advice on strategy Concessions on Capital gains tax and dividends for technology and only for HNIs. Can invest upto 40% of paid up capital of invested co and 80 % in equity shares of unlisted cos.
  56. 56. Entrepreneurship Incremental Wealth Creation NEW or OLD Product/Service VALUE CREATIONRISK EFFORT SKILLS VALUE RESOURCES ADDED
  57. 57. Entrepreneurship PRODUCT RISK SERVCE FIN NEW TIME REWARD VALUE + EFORT MONEYPROCESS PSY SATISFACTION INDEP OLD MONEY SOCIAL
  58. 58. EVOLUTION Occupation toPerson MIDDLE AGES -Trading 17thCent –Projects Cleric 18th Cent –Contractor Fixed price 19th Cent- Capital provider 20th Cent –Manger 21st -Innovator
  59. 59. Why Entrepreneur?
  60. 60. Why Entrepreneur? Leave present career or lifestyle Desire to do something External and internal factors helping to make it possible
  61. 61. ENTREPRENEURSHIP DECISION PROCESS STEPS PUSHING PULLING (UNFULFILLED NEED)LEAVE PRESENT CAREER DESIRE EXTERNAL TO DO &INTERNAL FACTOR OR LIFESTYLE - SOMETHING MAKING POSSIBLE DISSATISFACTION CULTURE/SUB SOURCE OF GOVT SUPPORT WORK ENVRT FAMILY GOOD IDEA DISRUPTION TEACHERS EDUCATION LAYOFF PEERS SKILLS RELOCATION OF BACKGROUND RESOURCES PARTNER KNOWLEDGE ROLE MODELS
  62. 62. WHY STUDY PRODCT EVOLUTION – KNOWLEDGE TO SOCIAL NEEDS HELPS ENTREPRENEUR MEET SOC NEEDS ECONOMIC CONTRIBUTION NATIONAL INCOME GROWTH EMPLOYMENT
  63. 63. Why StudyEntrepreneurship?(2) GOVT AS INNOVATOR- ORDINARY, TECHNOLOGICAL ,BREAKTHROUGH BRIDGE INNOVATION AND MARKET PLACE R&D TRANSFER TO PRODUCT AND SKILLS BRING EXTRAORDINARY SKILLS TO DEVELOP INNOVATION
  64. 64. Role of Entrepreneurship inEconomic Development Increase output and income through change in structure of business and society, increase in wealth and better distribution. Innovation is the key in developing new products and markets and stimulating investment interest in new ventures Increased investment expands capacity (supply) and results in new spending utilising new capacity (demand).
  65. 65. Economic Development Product Evolution Process – developing and commercialisation of an innovation Iterative Synthesis – the intersection of knowledge and social nbeed that starts the product development process Ordinary innovations – new products with l;ittle technological change Breakthrough Innovations – New products with major/some technological change
  66. 66. TYPE OF FIRMS (BASEDON DECISIONS STEPS) LIFESTYLE –SUPPORT OWNERS AND NOT GROW FOUNDATION –FROM R&D AND DO NOT GO PUBLIC HIGH POTENTIAL – GREATER INVESTOR INTEREST
  67. 67. Types of Start Ups Lifestyle Firm- A small venture that usually supports the owners and does not grow. Privately held, , modest growth and objectives, limited money for R& D. Foundation Co – A type of co formed from research and development that usually does not go public. Lays foundation for a new business area can grow from 40 to 400 in 5-10 years and revenues from $10 mn to $ 20 million per year in revenues, rarely goes public and draws interest of private investors only and not start up venture capitalists.
  68. 68. Type of Firms High potential venture- greatest investment and publicity, may start as foundation but growth more rapid. Can be upto 500 employees in 5 years with revenues growing upto $30 –60 mn. Gazelles – very high growth ventures
  69. 69. Requirement ofentrepreneur CREATION OF VALUE INITIATIVE RISK REWARD
  70. 70. INNOVATION GOVT AS INNOVATOR-TECH TRANSFER INTRAPRENEURSHP ENTREPRENEURSHIP
  71. 71. OBJECTIVES OF STUDY ROLE OF SMALL FIRMS STRENGTH WEAKNESS OF DIFF ENTREPRISES ENT PROCESS ASSESS OWN ENT. SKILLS METHODS OF IDENTIFYING AND EVALUATING BIZ OPPORTUNITIES ABILITY TO FORM ORGANISATION AND WORK IN TEAMS
  72. 72. Objectives of Study MAKING A BUSINESS PLAN ENTRY STRATEGIES, SUCCESS AND FAILURE IDENTIFYING AND OBTAINING RESOURCES PLANNING – MARKETING,FINANCIAL,OPERATIONS, ORGANISATION,VENTURE LAUNCHING ROLE IN EXISTING ORGANISATIONS
  73. 73. SKILLS REQUIREMENTFOR ENTREPRENEUR TECHNICAL BUSINESS MANAGEMENT PERSONAL & ENTEPRENEURUIAL
  74. 74. TECHNICAL TECHNICAL BUSINESS MANAGEMENT TECHNOLOGY
  75. 75. ORGANISATIONAL ANDCOMMUNICATION SKILLS WRITING ORAL MONITORING ENVRT INTERPERSONAL LISTENING ORGANISING ABILITY NETWORK BUILDING MANAGEMENT STYLE COACHING TEAM PLAYER
  76. 76. BUSINESS MANAGEMENTSKILLS PLANNING AND GOAL SETTING DECISION MAKING HUMAN RELATION MARKETING FINANCE ACCOUNTING MANAGEMENT CONTROL NEGOTIATION VENTURE LAUNCH MANAGING GROWTH
  77. 77. PERSONALENTREPRENEURIALATTRIBUTES INNER CONTROL/DISCIPLINE RISK TAKER INNOVATIVE CHANGE ORIENTED PERSISTENT VSIONARY LEADER ABILITY TO MANAGE CHANGE ETHICAL AND SOCIALLY RESPONSIBLE
  78. 78. Entrepreneurial process Identification and evaluation of the opportunity Development of the business plan Determination of the required resources – needed, existing, gaps, access Management of the resulting enterprise – style, key variables for success, potential problems, controls, growth strategy
  79. 79. Concept of EntrepreneurshipDevelopment “The combination of entrepreneurship education in schools and colleges, the hassle free growth of venture capital and evolution of good market will give momemtum for the National growth” - Dr APJ Abdul Kalam
  80. 80. Entrepreneurship Job seeking ------> Job giving
  81. 81. India-Entrepreneurial Activity Software Automobile IT Enabled services
  82. 82. Importance ofEntrepreneurship Job creation and economic development. Strategic adjustment and realignments. De regulation and privatisation of public utilities and state owned enterprises.
  83. 83. Results High growth start ups Bread and butter earners
  84. 84. Concepts Who is an entrepreneur Nature and development of entrepreneurship
  85. 85. Who is an Entrepreneur ?
  86. 86. Can You Recall ? Dhirubhai Ambani Narayayan Murthy Yash Raj Chopra
  87. 87. Profiles Oprah Winfrey- Nature of Entrepreneurship Ewing Marion Kauffman – Intrapreneurship (Pharma) Robert Mondavi – Wine making in California Malachi Mixon III – Intl Opportunities Frederick W Smith – FEDEX Creativity & Biz Idea Daniel Schriber -Legal issues Belinda Guadarrama –GC Micro Corp, Biz woman Michael S Dell -Marketing Plan
  88. 88. Evolution of the concept ofEntrepreneur Individual who takes risk and starts something new – french for between taker and go between Early Period -Marco Polo- go between or trader – trade to Far East -borrowed money @22.5% from money lender (modern venture capitalist-passive risk bearer) and merchant adventurer took active role bearing all physical and emotional risks. Profits divided 75% to money lender and 25% to adventurer trader
  89. 89. Concept – Three Definitions Business Managerial Personal
  90. 90. Middle Ages  Middle Ages- person actor and manager for production- projects mostly buildings using resources provided by govt. .Usually cleric incharge of great architectural works public buildings such as castles and fortifications, cathedrals.
  91. 91. 17th Century Re emergence of connection of risk with entrepreneurship Contractual agreement with govt. To perform a service or to supply stipulated products- fixed price contracts with resulting profit or loss (risk) John Law , A frenchman allowed to set up a bank and then a trading co. This led to Law’s down fall when he attempted to push the company’s stock price higher than the value of assets
  92. 92. Asymmetry in Price –Basis ofRisk Richard Cantillon – in 17 th century understood Law’s mistake and is the author of the term entrepreneur. Viewed entrepreneur as risk taker observing that merchants craftsmen and sole proprietors buy at a certain price and sell at an uncertain price thereby operating at a risk.
  93. 93. 18th Century 18 th century person with capital ( present venture capitalist) was differentiated from the one who needed capital (entrepreneur). Reason was industrialisation and inventions running during this time were reactions to the changing world as was the case with Thomas Edison. Inventors with new technologies unable to finance their inventions themselves.
  94. 94. 19th and 20th Century Innovation and newness now integral Entrepreneurs not frequently distinguished from managers – economic perspective Entrepreneur organises and operates an enterprise for personal gain contributing initiative , own skill and ingenuity assumes the chance of loss and gain consequent to unforeseen and uncontrollable circumstances Carnegie – not invent but adapted new technology- made the American steel industry
  95. 95. Contribution to Concept Adam Smith – Capitalist and manager et foresight to recognise potential demand and transform into supply Carl Menger – economic changes come from individual’s awareness of changes in circumstances and he creates the transformation of resources into goods and services that fulfill human needs Joseph Schumpeter- reform or revolutionise the pattern of production, exploit innovation or untried technology .
  96. 96. Peter Drucker Getting and using resources Allocating to progressive opportunities instead of allocation to solve problems or administrative efficiency in management Entrepreneur always searching for cange ,responds and exploits the opportunity Innovation instrument of entrepreneurship and he finds resources whose usefulness not thought of before and creates value form it Manager can also be entrepreneur if he acts as in above
  97. 97. Other Views on Entrepreneurship Frank Knight- profit is reward and the cost of uncertainty. Kirzner- Alertness for new possible goals with new possible resources. Action should be active, creative and human rather than passive, automatic and mechanical. Mark Casson – specialist on decision making on coordination of scarce resources. Stevenson and Sahlman- relentless pursuit of opportunity from identification to harvestinng fruits of labour without regard to resources currently controlled
  98. 98. Views on Entrepreneurship Gartner – Eight themes- entrepreneur, Innovation, organisation creation, creating value, profit/non profit, growth, uniqueness, owner –manager and expectation of return. Essence of entrepreurship in relentless pursuit of discontinous opportunity involving creation of an organisation with the expectation of value creation to participants Byrave and Hofer – focus of field of entrepreneurship changes from the characteristics of the entrepreneur to the characteristics of the enterpreneurial process. “ All functions, activities and actions associated with the perceiving of the opportunities and the creation of organisations to pursue them.
  99. 99. Entrepreneurship in India Rig veda- metal handicrafts entrepreneurship as old as civilisation Trading –Gupta and Chola dynasties Craftsmen –performed duty towards society. Economic and social system –stratification based on economic activity and profession- villages and towns had different exclusive structures. Most enterprises of craftsmen around river banks in Karkhanas for transport and town cluster- Banaras(silk, metal wares), Kashmir (shawls)Allahabad,Gaya ,Puri etc for Royal patronage
  100. 100. Entrepreneurship DevelopmentIn India East India Company and fall of handicraft s Swadeshi Movement –ship building,gun and textiles , steel. 43 % of textiles mills set up by Parsis Increase in trade Managing agency system Partition – demography(82% popualtion vs 77% area,90% industry with 93% workers), minerals -97% of value ,manpower and managerail skills – great loss, transport 83% of routes, major ports lost. Iindustrial Policy resolution of 1948
  101. 101. “If you want to blossomlike a rose in thegarden,you have tolearn the art ofadjusting with thethorns”
  102. 102. ENTREPRENEURIAL PROCESS OpportunityIdentification Business Resources Management Evaluation Plan Requirement Of Enterprise
  103. 103. TIMMONS MODEL OF ENTREPRENEURIAL PROCESS Communication Opportunity Resources Business Plan Unlimited NIL To Ltd Growth To Unlimted Potential access to Competitors capital Markets Biz plans And resources Fits and Gaps Exogenous ForcesAmbiguity Leadership Creativity Team Zero to One of the best Capital Market context Uncertainty Founder
  104. 104. Entrepreneur Need for Achievement-Strong desire to win Perseverance-An approach to never say die Moderate Risk takers-Entrepreneurs prefers a middle of the road strategy on tricky issues Ability to find and explore opportunity. Analytical Ability- dispassionate approach to problems Using feedback- how faring on goals Facing uncertainty- Not deterred by unfamiliar situations.
  105. 105. Entrepreneur Independence-Dislike working for others Flexibility Planner – think ahead and plan for future Interpersonal skills Motivator – influence others Stress Taker - work long hours and multi task Positive self concept Orientation for Future- think ahead
  106. 106. Behavioural Aspects Initiative taking Organising of social and economic mechanisms to turn resources plus situations into results Acceptance of risk of failure
  107. 107. Role Demands andRequirements Accomodation to the Venture Total Immersion and Commitment Creativity and Innovation Knowledge of the Business People and Team building Economic Values Integrity and reliability
  108. 108. Functions of Entrepreneur  Idea generation  Determination of Risk bearing business objectives Organisation Product analysis and Innovation market research Form of ownership Promotion formalities Fund raising Procurement of machinary Recruitment Business operations
  109. 109. Entrepreneurship Opportunity sensing Idea generation Innovation Add initial capital – angel and venture capital funding.
  110. 110. Need of Society Entrepreneurial ActivityCapability of Entrepreneurs Resources available in The EnvironmentDynamics of Project identification
  111. 111. Bridging the scienceMarketplace gap Government as Innovator Intraprenuership Entrepreneurship
  112. 112. Government as Innovator Government active as in commercialising technology through technology transfer Inventions require modification to be useful. Govt. lacks business skills especially marketing and distribution Bureaucracy and red tape inhibit timely business formation
  113. 113. Opportunity Identificationand assessment Opportunity assessment Creation and length of opportunity Real and perceived value of opportunity Risk and return of opportunity Opportunity vs personal skills and goals Competitive environment
  114. 114. Opportunity Assessment What market need does it fulfill What personal observations have you experienced or recorded for market need What social conditions underlie this market need What market research data can be mustered to describe the market need
  115. 115. Opportunity Assessment What patents might be available to fulfill market need What competition exists in the market and its behaviour What does the international market and competition look like Where is the money to be made in this activity
  116. 116. Entrepreneurial decisionmaking Strategic orientation Commitment to opportunity Commitment to resources Control of resources Management structure
  117. 117. XEROX Creative employees should Stay or Leave the organisation?
  118. 118. Intrapreneurship Intrapreneurship is entrepreneurship within the existing business structure Existing business have financial resources business skills frequently the marketing and distribution system
  119. 119. Intrapreneurship(2) Creativity inhibited by bureaucratic structure, short term profit vision, organisation hierarchy prevents development of new products and services. Corporations realising these inhibiting factors and need for creativity attempt to establish the intrapreneurial spirit in their organisations.
  120. 120. OCTAPAC Culture Openess Confrontation Trust Autonomy Proactiveness Authenticity Collaboration
  121. 121. Building Culture and ClimateTop mgt. SupportDeveloping OCTAPAC cultureFlat Orgn. StructureFlexible Job descriptionDevelopment of Active Creative cellDevelopment of Venture Capital Fund Building Competence Building And Nurturing Basic Biz Mgt Training Intrapreneurs Development of Leadership Networking Building Self directed , self sustaining work teams Relationship management Reward Management Building and Nurturing Grievance Management Intrapreneurs
  122. 122. Creative Enterprises Open channels of communication Problem solving teams Decentralised structure – promote risk taking Culture and freedom to discuss ideas and long term plans of the enterprise Allocating resources for creative pusuits and rewarding such efforts
  123. 123. Entreprenuer vsIntrapreneur Entrepreneur – Individividuals who establish a new organisation without the benefit of corporate sponsorship Intrapreneurs – new venture creators working inside big companies(corporate entrepreneurs)
  124. 124. Entrepreneur Creating something of value- to entrepreneur, and for the audience addressed Devotion of necessary time and effort Assumption of the necesssary risk – financial psychological and social Rewards- independence, satisfaction High failure due to poor sales, intense competition, lack of capital, lack of managerial ability
  125. 125. Entrepreneur vsIntraprenuer Independent in his  Dependent on the operations entrepreneur Raises funds /management himself for the  Funds are provided enterprise but not raised by Bears the risk him involved in the  Does not fully bear business the risk involved Operates within the  Operates within the overall industry and organisation that environment he belongs to.
  126. 126. Entrepreneurship -Difficulties Difficult to create new ventures by individuals Lack of managerial skills, marketing capability or financial resources. Inventions are unrealistic, requiring modifications to be marketable Difficulty in interfacing with necessary entities such as banks, suppliers, customers, venture capitalists distributors and advertising agencies. Still best bet and effective in bringing new products to the market place. However entrepreneurship effects economy of the area and build jobs but has to follow tough labour laws
  127. 127. Types of Entrepreneurs Innovating – new goods, methods, new market, re organises enterprise – requires certain level of development Imitative – readiness to adopt successful innovations by using techniques and technology innovated by others. Suitable in underdeveloped regions. Fabian – greatly cautious and skeptic in experimenting change in organisation and will imitate only if failure to do so would result in a loss of the relative position in the enterprise. Drone – refuse to adopt opportunities to make changes in production formulae even at cost of severely reduced returns
  128. 128. High Inventor EntrepreneurCreativity andInnovator Promoter Manager AdministratorLow General management skills, business know how and networks High Low
  129. 129. High Innovation High InnovationInnovation High Risk High Risk(CreatingA Unique &DifferentiatedProduct/Service Low Innovation Low Innovation Low Risk High Risk Low Risk High Probability of Major Loss Entrepreneurial Strategy
  130. 130.  Motive –Start an enterprise  Renders services in Status – owner enterprise set up by others Risk bearing – assumes all  Manager is an employee risks  Does not bear any risk Rewards- all the profit but except his own uncertain performance Innovation – decides what  Gets salary which is certain and how to produce by  Executes plan given by innovation owner Qualifications-achiever,  Possess distinct originality, risk bearing qualification of ability management theory and practice Entrepreneur vs Manager
  131. 131. Idea Just whatever comes to mind when one thinks Representation of an image Innate ideas – those that are general and abstract and already exist Adventitious ideas – images or concepts that are accompanied by judgement that are caused by some object outside the mind
  132. 132. Innovation Is a change in the thought process for doing something or the useful applications of new inventions. Can be incremental, emergent or revolutionary Can be in thinking, products, processes or organisations
  133. 133. Creativity Ability to generate innovative ideas and manifest them from thought to reality
  134. 134. Invention Is a new composition, device or process May be derived from existing model or idea or be independently conceived. Invention is a creative process
  135. 135. Entrepreneurship -Facets Innovation (act of introducing something new) Newness Ability to create Conceptualise Ability to understand all the forces at work in the environment Product distribution system, financing method, reorganising
  136. 136. Entrepreneur Economist – combines 4MsI to increase value and introduces change ,innovation/new order Psychologist – sees person driven by forces – need to attain or achieve, experiment, accomplish or to escape authority of others, act alone, inventors, Business man –may see him as challengers,competitor or ally, supplier ,customer, wealth creator
  137. 137. Innovation New Quality of product New product New source of material New market New organisation structure Combination of means of production
  138. 138. Business Idea Opportunity in the market Needs or wants for product or service Utilise existing skills Use locally available raw materials Make products that have demand but not freely available Enable use of any technical know how or specific tools or machines entrepreneur is aware of Solve a current problem existing in the market.
  139. 139. Creative Process Intrinsic Skills Creative Diverse CriticalMotivation Task Thinking Alternatives Evaluation Domain
  140. 140. Components of Creativeprocess Intrinsic motivation – processing diverse information, seeing non obvious sides of an issue and exploring alternate solution paths. Skills in task domain – knowledge of he problem and technical skills or area expertise. Skills in creative thinking – random association between ideas, see divergent views of a single idea, access one’s subconscious, visualise potential solutions. Generate a number of diverse alternatives Hold back critical evaluation till full range of possibilities.
  141. 141. Core Elements of Innovation Creativity and innovation Ability to apply that creativity Belief in the ability to change the status quo Focus on creating value Risk taking
  142. 142. Creativity Ability to bring something new into existence Useful to society Ability not activity
  143. 143. Innovation Process of doing new things Different from creativity as that is the ability to conceive and innovation is the ability to do things to convert/transform the ideas into useful products or services
  144. 144. CREATIVITY PROCESS STAGES Task IdeaPresentation Preparation Incubation Generation Idea Outcome Validation Assessment
  145. 145. Creative Process Task presentation – specific problem or area of study Preparation – search for solutions Incubation – subconscious assimilation of information or mulling over a problem Idea generation – multiple ideas and solutions giving different approaches to the problem using experience, insight and fears Idea validation – ideas generated verified for being translatable into realistic and useful applications Outcome assessment – achievement of goal or solution to problem
  146. 146. Creativity Stages Task presentation Preparation Stage Incubation stage Idea generation stage Idea validation stage Outcome assessment Process complete or go back to task presentation
  147. 147. Sources of Innovative and CreativeIdeas Present and potential customers Existing companies Raw material providers Distributors and retailers Research and development Existing employees
  148. 148. Sources of Business Ideas Discussion Observation Literature Visiting Exhibitions, Fairs, Trade shows Research Institutes Brainstorming
  149. 149. Opportunity Technological discoveries Demographic changes Lifestyle and taste changes Economic dislocations Calamities Govt. initiatives and rule changes Franchises
  150. 150. New Ideas- Sources andMethods  Brainstorming  Group discussion Consumers /Customers  Data collection Existing Companies  Invitation for ideas form advertisements ,mails, Research and Internet development  Value addition to current Employees products/services Dealers/Retailers  Market research  Contests  Commercialising inventions
  151. 151. Entrepreneurship Creation Of value by people working together to implement an idea through the application of drive and A WILLINGNESS TO TAKE RISK An INDIVIDUAL WHO BEARS THE RISK OF OPERATING A BUSINESS IN THE FACE OF UNCERTAINTY ABOUT FUTURE CONDITIONS ( Encl Britannica)
  152. 152. Creating EntrepreneurialVenture Business Planning Process Environmental Analysis –Search and Scanning Identifying Problems and Opportunities Defining Business Ideas Basic Government Procedures to be complied with
  153. 153. Franchising An entrepreneurial alliance between an franchisor (an innovator who has created at least one successful store and wants to grow) and a franchisee (a partner who manages a new store of the same type in a new location). Food retailing, service business, sports and recreation.
  154. 154. Entrepreneurship Process Identify and Opportunity – right time , first mover, sense opportunity Establish Vision – dream for the future Persuade others –form the foundation team, business plan Gather Resources – Financial, operating, Human, Information and intangibles (image procedures, transport, management). Create new venture product or market Change adapt with time
  155. 155. Feasibility Study Is the evaluation of the proposal designed to determine the difficulty in carrying out a designated task. Is the evaluation or analysis of the potential impact of a proposed project. Will the idea work and should you proceed with it ?
  156. 156. Feasibility Study Before writing business plan need to identify how ,where and to whom you intend to sell a service or product assess competition figure out how much money is needed to start a business and keep it running until established Determine if and how it can succeed and serves to develop a business plan
  157. 157. Feasibility Study Is conducted during the deliberation phase of the project development cycle prior to obtaining project financing business process It is an analytical tool that includes several scenarios for the decision maker of the group to utilise in determining if they should continue the project If the would be entrepreneur decides to proceed further then he /she makes a business plan Normally done independently by people outside the project group Feasibility study is only at the developmental stage of the project
  158. 158. Feasibility Study –WhyImportant Lists requirement of essentials to do to make business work Identify logistical and other business related problems and solutions Develop marketing strategies to convince bankers and investors to ensure their consideration Serves a foundation for business plan
  159. 159. Feasibility Analysis Done to check the feasibility of the project itself in the particular environment on great detail. More descriptive than environmental appraisal. Market Analysis –estimate demand of proposed product/service and target market share. Technical/Operational Analysis – operational ability of the project and cost and availability of the technology-material and plant parameters.
  160. 160. Feasibility Study Contains comprehensive ,detailed information about your business structure, your products and services, the market, logistics of how you would deliver a product or service, resources needed to make the business run efficiently as well as other information about the business
  161. 161. Business plan Sets out objectives, estimates and financial forecasts Helps establish where you are, where you are going and how you intend to get there. Demonstrates determination to start a successful business Only half the new businesses survive more than five years – the better the planning is, the more likely you are to succeed. Should be updated on an annual basis at least- ongoing process – monitor and update.
  162. 162. Business plan Basic structure should follow a format to facilitate an efficient way of meeting evidence requirements like National Vocational Qualification (NVQ) Level 3 Business Planning Qualification.
  163. 163. Summary of units and Elements ofOwner Manager NVQ Standards Assess the potential of the proposed business – Describe, review market,evaluate Assess your own skills and capabilities for running the business- identify Investigate requirements of any legislation to be complied with Assess finance requirements Develop marketing and sales strategy Quality standards Customer service policy Dedicated premises Physical resources Additional personnel in first year Comprehensive business plan Leading the team of individuals Manage information for action
  164. 164. Business Plan Is a roadmap for starting and running a business. Is a blue print of the step by step procedure to be followed to convert a business idea into a successful business venture. Identifies an innovative idea, researches the external environment for SWOT, assess the feasibility of the idea and then allocates resources in the best possible manner to make the plan successful.
  165. 165. Business Plan Efficient method of focusing ideas in terms of defining objectives and assessing abilities to organise and run the business. Establishes parameters and specific targets which provide a yardstick to measure progress and profitability Prerequisite to both planning and starting as well as running a business Good business plan necessary for raising finance.
  166. 166. Preliminary Investigation Review available business plans Draw key business assumptions (e.g inflation exchange rates, market growth, competition, taxes) Scan external and internal environment Seek professional advice from some one already in business
  167. 167. Objectives of Business Plan Direction to vision of entrepreneur Objectively evaluate prospects of business. Monitor progress of implementation. Persuade others to join business Seek loans form fin. institutions. Visualise the concept in terms of market availability, organisational and financial feasibility Guide in actual implementation Identify strengths and weaknesses in the plan Check on management information about competitors and the market Identify resources required to implement the plan Document ownership arrangement ,future prospects and projected growth of the venture
  168. 168. Business Planning Process Preliminary Investigation Idea generation Product Development and selection Environmental Scanning Feasibility Analysis Project report preparation Evaluation, Control and Review
  169. 169. Business Idea Nature and purpose of business, new business or purchase of existing, franchise. Legal format –Sole trader/proprieter, partnership, private co, public co, cooperative Way it will operate i.e trading status Legislation that will effect the business. Intended market and range of products or services, customer needs External influences- PESTLE analysis (political, economic, social, technological, le gislative, environmental
  170. 170. Environmental Scanning Socio –cultural  Raw material Technological  Production/ Economic Operations Demographic  Finance Governmental  Market  Human resources
  171. 171. Feasibility Analysis Done to check the feasibility of the project itself in the particular environment on great detail. More descriptive than environmental appraisal. Market Analysis –estimate demand of proposed product/service and target market share. Technical/Operational Analysis – operational ability of the project and cost and availability of the technology-material and plant parameters.
  172. 172. Feasibility Analysis (2) Financial feasibility -assess the financial issues of the venture e.g cost estimates of land , plant and machinery, market survey , cost of capital, registering, contingencies, profitability, break even point, projections of cash flows, balance sheet multi year projections
  173. 173. Functional Plan Gives the outline plan for all the functional areas Marketing plan-marketing mix,demand, cusomer profile, market segmentation, target market and strategies Production /Operational plan –locatio, layout,cost availability of equipment, machinery, raw materials, list of suppliers, manufacturing/running cost, quality management, production scheduling,capacity and inventory management Organisational Plan- ownership,structure, HRM practices Financial Plan – cost incurred in smooth running of other plans (above),projected cash flows, income statement, break even point,balance sheet, ratios(projected
  174. 174. Project Report Executive summary,Cover, Table of Contents, The Business- Objectives, brief history, form of ownership, name and qualification of owners, proposed headquarters and capital structure. Funding Requirement- Debt and equity Product /Service- description, comparative analysis, patents, trademarks, copyrights, licenses Plan- Marketing (Demography, Competitors SW, Market SWOT, marketing Mix), Operational Plan, Organisational plan, Financial plan (2 -5 years) Critical Risks Exit Strategy Appendix – CV of Owners, Ownership Agreement, Certificate for Pollution Control Board, MOU, Articles of Association, Other documents for feasibilty of project and its viability
  175. 175. Identifying RelevantLegislation Health and Safety related legislation Environmental and trading legislation’ Employment law Financial and company law Anti discrimination Law
  176. 176. Personal Skill and AbilitiesBusiness Needs to make itSuccessful Analyse and identify current and foreseeable skills- Technical, marketing, sales, organisational ,decision making, financial, customer service, staff management, information management and computer skills.Identify own goals and objectivesProducing a realistic personal development planMonitoring ongoing performance as owner manager
  177. 177. Intellectual Property Rights-IPR Refers to a number of distinct types of creations of the mind for which property rights are recognised. Under Intellectual property law, owners are granted certain exclusive rights to a variety of intangible assets, such as musical literary and artistic works, discoveries and inventions, and words phrases symbols and designs
  178. 178. Financial Controls Basic Accounts and Double entry book keeping Monitoring budgets and cash flow Profit margins and mark up Stock control Aged debtor accounts Credit control procedures Accounting ratio
  179. 179. Common types of IPR Patents Trademarks Copyrights Industrial design Trade secrets Geographical Indication
  180. 180. Legal issues for theEntrepreneur Distinguish Intellectual property (any patents, trademarks copyrights and trade secrets held by entrepreneur) assets of new venture including software and websites Nature of patents (contract between government and inventor giving exclusivity of invention for a period of time- after that public domain) Purpose and procedure of trademarks Purpose of copyright Identify procedures that can protect trade secrets Value of licenses in starting or expanding business Implications of new legislation that affects Board of Directors and internal audit processes Issues related to contracts insurance product safety and liability WTO Agreement on Trade Related Aspects of Intellectuual Property Rights (TRIPS) the duration of patents should be twenty years
  181. 181. Patent Is a set of exclusive rights granted by a state to an inventor or assignee for a limited period of time in exchange for a public disclosure of an invention Application to be made for a claim defining the invention as new or useful process, machine,or composition of matter and any improvement thereof , non obvious and useful or industrially applicable, Certain subjects like business methods and mental acts are excluded generally Exclusive right is the right to prevent others from making, using, selling or distributing the patented invention normally for a period of twenty years. May be given to individual or corporate identity
  182. 182. Trademark A word, identity, symbol, design or some combination of such and even could be a slogan or a particular sound that identifies the source or sponsorship of certain goods and services Can last indefinitely as long as the mark continues to perform its indicated function –initially given for 20 years with 20 years renewable terms.
  183. 183. Copyright Protects original works of authorship – does not protect the idea itself but its usage Music, literary work, pictures videos, software
  184. 184. Trade Secret Maintaining an idea or process as confidential and to sell or license it as a trade secret. Life as long as the idea or process remains a secret. Confidential information agreement
  185. 185. Geographical Indication Is a name or sign used on certain products which corresponds to a specific geographical location or origin. The use of GI acts as a certification that the product possesses certain qualities or enjoys a certain reputation , or other characteristic attributable due to its geographical origin To use GI, a product or its constituents materials emanate from a particular area or meet certain standards Protected Designation of Origin (PDO), Protected Geographical Indication(PGI) and Traditional Speciaility Guaranteed ((TSG) . Wines of France, Banarasi Silk, Hyderabad Benami.
  186. 186. Industrial Design Is an intellectual property right that protects the visual design of objects that are not purely utilitarian. An industrial design consists of the creation of a shape , configuration or composition of pattern or colour or combination in three dimensional form containing aesthetic value. An industrial design can be a two or three dimensional pattern used to produce a product, industrial, commodity or handicraft. Indian Design Act 2000 enacted to consolidate and amend protects of design under Art 25 and 26 of TRIPS agreement.
  187. 187. Protecting Trade Secrets Employee training refer sensitive questions to one person Provide escorts to office visitors Avoid discussing business in public places Keep travel plans secret Control information presented at conferences Physical protection of documents Non disclosure agreements by employees and consultants Debrief departing employees on confidential information Marking document confidential. Keep track of outgoing and incoming electronic traffic
  188. 188. Others Product Safety and Liability – consumer protection Insurance –property ,casualty, life, worker’s compensation, bonding (employee theft of funds, subcontractor failure to complete work on time)
  189. 189. Licensing Arrangement between two parties where one party has proprietary right over some information, process or technology protected by patent , trademark or copyright for use of which the licensee pays a royalty or some specified sum in return for permission to copy the patent, trademark or copyright. Licensing a trademark requires a franchising agreement.
  190. 190. Enterprises Classification(MSMED Act 2006) Manufacturing or Service Investment based classification Manufacturing/Service Micro – investment upto Rs 25 Lakhs/10 lakhs Small – From Rs 25 lakhs to Rs 5 crs/ Rs 10 lakhs to Rs 2 crs Medium – from Rs 5crs to Rs10 crs/ Rs 2 to 5crs Take advantage of Credit Linked Capital Subsidy Scheme
  191. 191. Schemes in MSME Sector National Manufacturing Competitiveness Programme 2005 Micro and Small Enterprises Cluster Development Programme – holistic development of selected MSE clusters through value chain and SCM management on cooperative basis Scheme for Capacity Building – strengthening of database and advocacy by industry/enterprse associations, as envisaged by promotional package for MSEs
  192. 192. Schemes in MSME Sector Credit Linked Capital Subsidy Scheme for Technology Upgradation Max loan –Rs 100 lakhs Credit Guarantee Scheme – Collateral free loans upto Rs 50 laks ISO 900/ISO 14001 certification Reimbursement Scheme MSME MDA- for participation in trade fairs abroad and producing publicity materials
  193. 193. Schemes for MSME Financial Assistance for using Global Standards in barcoding Purchase and Price Preference Policy- Under single point registeration Scheme ,358 items are reserved for exclusive purchase from MSME by Central Govt. No tender fee, no Ernest money or security deposit and 15% price preference for purchases from individual MSMEs
  194. 194. Schemes for MSMEs Mini Tool Rooms – Assistance upto Rs 9 crs or 90% for setting up National Awards –for exports,innovation,quality ,product development, import substitution in MSMEs
  195. 195. Basic Govt. Procedures Industrial Licensing -Industrial (Development and Regulation) 1951 Act. – Applicable to where 50 or more workers are employed with power in preceding 12 months and 100 or more workers without power(no part with power).
  196. 196. Industries (Devp and Reg)Act1. Registration of Industries2. Licensing of Expansion3. Production of new articles4. License is a written permission issued by the central govt. to an industrial undertaking stating details as location, articles of manufacture, capacity etc.
  197. 197. Legislation -Factories Act1948 Factories Act (10 or more persons in manufacture with motive power or 20 without motive power, competent person - 18 years qualified and recognised Hours of work – adult male and female(48 per week and 8 per day) and wages double for overtime. Health – clean, floor clean once a week, whitewashing once in 14 months Ventilation and temperature ,water facilities, toilets and spitoon
  198. 198. Factories Act Safety provisions – safety guards where moving machinery, fencing Welfare – washing facility, place for storing dry clothes (changing rooms), first aid boxes for every 150 workers Safety condition of building and machinery Penalty for breach – imprisonment upto 3 months
  199. 199. Legislation Shop AND Establishment Act 1948 Payment of Wages Act 1936 EPF Act Workmen Compensation Act Employment of Women Legal Provisions Employment of Children Protective Legal Provisions Payment of Gratuity Act Employees State Insurance Act Payment of Bonus Act 1985 Trade Union Act 1926 Water (prevention of Pollution ) Act 1974 Environment Protection Act 1986 Industrial Disputes Act 1947 Delayed Payments Act 1993
  200. 200. Shop and Establishment Act Regulates conditions of work and employment in shops, commercial establishments, residential hotels, restaurants, eating houses, theatres, other places of public entertainment and other establishments. Provisions include regulation of establishments, employment of children, young persons and women, leave and payment of wages, health and safety.
  201. 201. Shop and Establishment Act Register for lime washing Opening and closing hours Employment Register Leave register Visit Book
  202. 202. Legislation (2) Sale of Goods Act and Consumer Protection Act Advertising Standards Information Technology Act Employment and Labour Regulations Employment Protection Act Working Hour Directives Contracts of Employment Act Employer Compulsory Insurance Regulation PF Act Minimum Wage regulations
  203. 203. Legislation (3) Finance Act Customs Excise and VAT regulation Law of Taxation Companies Act Partnership Act Business Names act Copyright Design and Patents Act Consumer Credit Act
  204. 204. Legislation (4) Insolvency Act Contract Law (Debt Recovery) Property law Disabled Person Employment Act Disability Discrimination Act Trade Union Act
  205. 205. Sources of Finance- Factorsinfluencing suitable sourcing offinance- purpose, size of borrowing required, anticipated repayment period, affordability of payment, availability of security.
  206. 206. Funding Options equity or debt unsecured loans, Overdrafts loan guarantee schemes, short/ medium/long term bank loan, share capital from private investors or ordinary/preference shares, debentures, mortgage debentures, grants, commercial mortgages
  207. 207. FINANCIAL LIFECYCLES Sales High Potential Firm 20 mn Foundation Firm Equity Risk Capital Life style firm Personal Savings 10R&D START Up RAPID 5 GROWTH EXIT (LBO,MBO) EARLY GROWTH
  208. 208. shareholders customers CENTRAL Value ISSUES INcreation ENTREPRENEURIAL employees FINANCE suppliers Slicing Risk andValue Pie return Cash –risk -timeCovering Debt :take control Risk Equity staged commitments
  209. 209. Physical Resources Identify need Transport Plant and machinery Furniture and office equipment Fixtures and fittings Resale stock Raw materials Componens ,materials and consumables Public utilities Vetting list and costing Cash flow and payment schedule Supplier relationsips
  210. 210. Customer Service What do customers expect- from the business, from staff, from the product, goods or services Customer service essential for retention, improve confidence of existing customers, enhance reputation of business and quality standards,increase job satisfaction of staff Sell solutions not systems Customer care policy- response, standards, achievement
  211. 211. Premises Requirements What type are needed – nature of business planned, customer access, appearance, easy access, regulatory approval , need for customer facilities like parking, security, affordability, space requirements, convenience, access for staff Size Options for acquiring premises- free hold or leasehold,rental agreements,insurance cover – product,public, employers professional indemnity,motor vehicel health, disability,key person
  212. 212. Sales and Marketing Market research –size, growth, projected/targeted market share, barriers, resources and time, problems anticipated, effort vs rewards assessment, competitors, other comparable products, key features looked for by customers, prevailing pricing Market segmentation Marketing Plan
  213. 213. Recruiting and EmployingStaff Need for full time or casual or temporary and affordability to pay as well as productiveness of additional workers. Pay as you earn (PAYE) system for insurance and income tax liabilities. Define the requirements, attract candidates and carry out selection process Job description, personnel specification, terms and conditions of employment, advertising the position Discipline and grievance procedures Staff Appraisal
  214. 214. Taxation Allotment of PAN,TAN( Tax Deduction Account Number) Opening of Bank Account Registration with Sales tax, VAT, Trade Tax, Excise, Service Tax, Customs No Objection from Pollution Control Dept. Linking with Tax information Network (TIN) Import Export Code (IEC) from RBI Regd. with concerned Chamber of Commerce and Industry
  215. 215. Other Govt. Dept. Clearance from Police, Fire Labour Health
  216. 216. Utility Arrangements Electricity Water Sewage Any other registration/ legality required due to specific nature of the venture
  217. 217. Financial Support Commercial banks FIs IDBI IFCI ICICI IRBI LIC UTI SFC SIDC SIDBI EXIM BANK
  218. 218. Institutional Support NEED- Network of Entrepreneurship and Economic Development (brings together underpriveleged communities with teams of social entrepreneurs in oreder to maximise HR potential and create positive change in their socio economic and political environment .Located in Lucknow National Small Industries Corporation (NSIC) facilitates growth of small entreprises
  219. 219. Institutional Support District Industries Centers (DICs) – to promote Cottage and Smal Scale Industries in the District . Fin,Assistance Scheme (PMRY, Nomal bank Finance, BSAI (Bengal State Aid to Ind. Act), Regd, Project Scheme vetting, Marketing Assisstance,Special Assisstance, Bio Gas development,Pllution Control,Training Programme,Rural Employment Generation programme, Industrial Estates SEZs
  220. 220. Plant and Machinery Domestic or import Imports regulated by Foreign Trade (Devp. And Regulation ) Act 1992 –DGFT Process provides specifications of machinery required Techno –economic survey Trade fairs Consult experts/dealers Second hand machinery NSIC provides machinery and equipment to SI offering them long term repayment period with moderate rate of interest.Also gives it on hire purchase and lease basis
  221. 221. HR Availability at different skill levels productivity and cost of labour Flexibility of labour Attitude and behaviour of labour Nature of trade unionism Right no of emplyees for the right job Manpower planning, recruitment,selection, placement
  222. 222. Institutional Support Small Industries Development Organisation (SIDO) – Nodal development agencies for SSIs (Laghu Udyog) Small Scale Industries Board (SSIB)- apex body the of Govt to render advise on all issues pertaining to the small scale sector Small Scale Industries Development Corporations (SSIDC) MSME Development Institute -Formerly Small Industries Service Institutes(SISI). There are 30 such Institutes provide assistance for the promotion of MSMS in respective states.
  223. 223. Govt. Support Office of Development Commisioner( Micro, Small and Medium Enterprises) MSME takes care of entrepreneur ship and small industries as generally enterprises start small. Small Industries Development Organisation SIDO – nodal development agency for small enterprises estd. 1954
  224. 224. Requirements of Finance Start up expenses Operational Expenses Personnel Expenses Contingency expenses
  225. 225. Financial Needs –Start UpExpenses Land and building Machinery ,equipment and tools Furniture and office equipment Raw material and inventory Power connection and back up Advertising and promotion Requirements like legal certificates Partnership agreements
  226. 226. Considerations for Sourcesof Financing Length of time – short or long term Cost – Fixed rate, floating rate,% of profits Control- Equity, covenants (agreement or contract), voting rights
  227. 227. Sources of Finance Internal –Personal Savings, retained earnings, Working Capital, Sale of Assets External- Ownership capital –ordinary /preference shares External –non ownership capital (Debentures,other loans, Overdraft, Hire purchase,Lines of credit from creditors,grants, venture capital Factoring and Invoice Discounting Leasing
  228. 228. Sources of Finance Self Family and friends Suppliers and trade credit Commercial banks Govt.loans programs R&D Limited partnerships –contract limited Venture Capital Private equity placements Public equity offerings Other govt. programs
  229. 229. Line of credit Is a credit source extended to a govt., business or individual by a bank or other fin. institution. Can take several forms- overdraft protection, demand loan, export packing credit, term loan, discounting, purchase of commercial bills It is effectively a bank account that can be readily tapped at the borrower’s discretion. Interest is only paid on money actually withdrawn Can be secured by collateral or be unsecured A maximum loan balance a bank will permit the borrower to maintain
  230. 230. Factoring and InvoiceDiscounting Factoring is the sale of account receivables by a business to a third party called a factor on a continual basis. (Receivable is a fin. Asset associated with a debtor’s liability to pay money owed to seller) Forfaiting – is a one time transaction of sale of recievables Invoie Discounting – is borrowing where recievables are used as collateral
  231. 231. Other Classification Ancilliary – 50% output to another unit and investment upto Rs 1crs Tiny enterprises –upto Rs 25 Lakhs Women Entrepreneurs – share of women owners at least 51% Small Scale Service and Business (Industry Related ) Enterprises (SSSBEs)- investment upto Rs 10 lakhs in fixed assets minus land and building
  232. 232. Facilities Small Industry Cluster Development Programme Credit Linked capital Subsidy Scheme for Technology Upgradation -15 % cost capital subsidy Credit Guarantee Scheme- Collateral free loans upto Rs 50 lakhs for individual SSI’s. ISO 9000 Certification Reimbursement Scheme- lower of 75% or Rs 75000
  233. 233. Specialised Institutions Central Institute of Tool Design, Hyderabad Central Institute of Hand Tool,Jalandhar Central Tool Room Training Centers- Bangalore, Calcutta ,Ludhiana and New Delhi National Institute of Entrepreneurship and Small Business development (NISEBUD), New Delhi National Institute of Small Industries Extension Training,Hyderabad
  234. 234. Environmental Barriers Raw Material Labour Machinery Land and Building Other infrastructure Requirements Financial barriers
  235. 235. Project A scheme, design, a proposal of something intended or devised to achieve a specified objective within a specified time Unique, non routine and non repetitive ,one off undertaking/activity which systematically coordinates inputs in direction of intended outputs with discrete time, financial and technical performance goals. Well planned activity that includes a correct consideration of alternatives, identification of key issues, broad participation, compactness and enforceability.
  236. 236. Project Formulation Is the systematic development of a project idea for the eventual purpose of arriving at an investment decision.
  237. 237. Project Report A written document pertaining to an investment proposal containing data on the basis of which data has been appraised and found relevant to the entrepreneur.
  238. 238. Venture Capital $ $ Venture InvestmentEntrepreneurs Capitalists bankers IPO Ideas $ $ $ $ $ Corporation Private Public markets & Government Investors & corporations
  239. 239. Environmental Factor’s Support Entrepreneur Support Systems Supportive Systems Basic Attributes Non Entrepreneurial Characteristics & Environments
  240. 240. Venture Capital Money provided by professionals who invest alongside the management in young ,rapidly growing companies that have the potential to develop into significant economic contributors. Professionally managed pool of equity capital formed from the resources of wealthy limited partners- pension funds, endowment funds, institutions including foreign investors Investment made in exchange for a percentage of the gain realised on the investment and a fee.
  241. 241. Promoters of Venture Funds ICICI – TDICI renamed as ICICI Venture Funds Management Co or ICICI Venture IFCI – IFCI Venture Capital Funds Limited(IVCF) IL & FS – Pathfinder GIC- Gujarat Venture Capital Finance (GVCFL) with all India coverage APIDC- APIDC Venture Capital Ltd with coverage as Andhra Pradesh Canara Bank – Canfina VCF with focus on southern states
  242. 242. Angel Investors Angel investors are affluent high net worth individuals who provide capital for business start ups usually in exchange for convertible debt or ownership equity Now angel investors organising themselves into angel networks or angel groups to share research and pool their investment capital. Actual entity providing funds could be a trust or a business investment fund.
  243. 243. Angel Investors Fills the gap between friends and family financing who provide seed funding and venture capital. Most investment of the size of upto $500,000 and in Healthcare services, medical devices and equipment, software, and biotechnology Bear very high risk and require very high return on investment –potential to return at least 10 or more times the capital invested in five years through a defined exit strategy such as an IPO or an acquisition In such cases cheaper source of financing are not available
  244. 244. Venture Capitalists Requirementsfrom Business Plan Finance new and rapidly growing co’s. Purchase equity securities Assist in the development of new products and services Add value to the company through active participation Take higher risks with the expectation of higher rewards.
  245. 245. Attributes sought by VCs Business Plan – complete, fluid and market drives Competition Analysis – Doing things competitor is not doing, and understanding that what you are doing is needed Industry Knowledge- to finding a gap in the market, knowledge is required through experience and extensive industry research. Team – Team assembled would be crucial to its success.Team consist of industry experts, technologists and domain specialist
  246. 246. Analysis of VentureInvestments VC/PE funds invested about $1.1 bn in 66 Indian cos and exited about 30 cos during 2004 Investments in BPOs declined sharply compared to 2003 ICICI Ventures emerged as the most active VC Cos based in South India cornered 50% of the investments Six venture backed cos pulled off successful IPOs during the year Contract electronics manufacturer emerged aas a major investor in and acquirer of Indian technology cos.
  247. 247. Exit Route for VentureCapital IPOs – go public through stock exchange Trade Sale –sells to a strategic buyer who has a similar business Promoter Buy back – buys back at a predetermined price Company Buy back – cos buys back the VC stake Management Buy back – operating mgt buys promoters equity
  248. 248. Comparison of Domestic andOffshore Funds Base Guidelines –SEBI with registration Corpus Size- Small/large Invested Cos- SME/ Large Investment Size – Rs 0.5 to 2.5 crs/ Avg Rs 8 crs Structure- Regd. As trust inder India Trust Act 1882.
  249. 249. Venture Funds in India Financial Institutions Led by ICICI Ventures, ILFS Private venture funds like Indus Regional funds like Warburg Pincus,JF Electra (operating out of Hong Kong) Regional Funds dedicated to India like Draper,Walden etc Offshore Funds like Baring,HSBC Corporate ventures like Intel Sivan Securities
  250. 250. Venture Capital Early stage funding is avoided by most funds apart form ICICI Ventures, SIDBI. Funding growth or mezzanine funding till pre IPO stage Size of Investment – Upto $10 mn Value Addition –Hands on (Draper) or hands off approach (Chase). Seed and start up funding sees closer interaction and advice on strategy Concessions on Capital gains tax and dividends for technology and only for HNIs. Can invest upto 40% of paid up capital of invested co and 80 % inequity shares of unlisted cos.
  251. 251. Tax Concessions -SSI Tax Holiday –on profits upto 6% of invested capital for five years from start (unit not formed by splitting another exiting unit and employ 10 or more workers with power and 20 without power. Depreciation – on block of assets at prescribed rate on actual cost of plant and machinery upto a max of Rs 20 lakhs.If working in double or triple shift “Extra Shift Allowance” is available Rehabilitation Allowance in case of natural calamiies Expenditure on Scientific Research –revenue or capital expenditure or amount paid to a university or institution for research
  252. 252. Tax Concessions Amortisation of preliminary expenses - write off of expense for feasibility report, engineering expenses, legal charges in ten annual instalment Deduction on Profits upto 20% if in Backward Areas or Rural Areas for 10 years Expenditure on Acquisition of Patents and Copyrights is deductible form income
  253. 253. Types of Lease Agreements Capital lease – for life of an asset Operating lease – open end leasing arrangement but shorter than life of equipment and can be terminated at option of lessee with prior notice. Caters for technology obsolescence Sale and Lease back –firm sells to other party and gets cash and then pay rental for use Leveraged lease – when three parties involved lessor ,lessee and lender. Lessor provides an equity investment say 25% and lenders provide the other 75%
  254. 254. Advantages of Leasing Alternate use of funds Beneficial for small firms Free from restrictive clauses of debt financing. Tax shielding- part of the tax benefit is passed on the lessee India’s requirement for leasing for next ten years estimated at $18.9 bn.

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