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BA 4032-Entrepreneurship Development
3 Credits-45 Periods
UNIT-1 Entrepreneurial Competence
 Entrepreneurship Concept
 Entrepreneurship as a Career
 Entrepreneurial Personality
 Characteristics of Successful Entrepreneurs
 Knowledge and Skills of an Entrepreneur.
Hallmark Business School-Trichy 2
UNIT-2 Entrepreneurial Environment
 Business Environment
 Role of Family and Society
 Entrepreneurship Development Training
◼ Other Support Organizational Services
 Central and State Government Industrial
Policies and Regulations.
Hallmark Business School-Trichy 3
UNIT-3 Business Plan Preparation
 Sources of Product for Business
 Prefeasibility Study
 Criteria for Selection of Product
 Ownership
 Capital Budgeting
 Project Profile Preparation
 Matching Entrepreneur with the Project
 Feasibility Report Preparation and Evaluation
Criteria.
Hallmark Business School-Trichy 4
UNIT-4 Launching of Small Business
 Finance and Human Resource Mobilization
 Operations Planning
 Market and Channel Selection
 Growth Strategies
 Product Launching
 Incubation, Venture capital, Start-ups.
Hallmark Business School-Trichy 5
UNIT-5 Management of Small Business
 Monitoring and Evaluation of Business
 Business Sickness
◼ Prevention and Rehabilitation of Business Units
 Effective Management of Small Business
 Case Studies.
Hallmark Business School-Trichy 6
BA 4032 – Course Objectives
 To equip and develop the learners’
entrepreneurial skills and qualities essential
to undertake business
 To impart the learners entrepreneurial
competencies needed for managing
business efficiently and effectively.
Hallmark Business School-Trichy 7
BA 4032 – Course Outcomes
 After the completion of the course, the
students:
1. Will gain entrepreneurial competence to run the
business efficiently.
2. Are able to undertake businesses in the entrepreneurial
environment
3. Are capable of preparing business plans and undertake
feasible projects.
4. Are efficient in launching and develop their business
ventures successfully
5. Shall monitor the business effectively towards growth
and development.
Hallmark Business School-Trichy 8
Unit 1
Entrepreneurial Competence
EBETi – Faculty of Management 10
Resources
Knowledge
Skill
Ability
Capability
Competence
Distinctive
Competence
Competitive
Advantage
SCA
How to Develop
Sustainable Competency
1.1 Entrepreneurship Concept
Hallmark Business School-Trichy 11
Concept of Entrepreneurship
 The concept of entrepreneurship is elusive
 Psychologist / Behavioral Scientist see it as:
◼ “the need for achievement, perceived locus of
control, and risk-taking propensity
Hallmark Business School-Trichy 12
David C McClelland
Achievement Orientation
An Indispensable Need
NAch
14
Achievement Oriented Competencies
 Initiative
 Sees and Acts on Opportunities
 Persistence
 Information Seeking
 Concern for High Quality of Work
 Commitment to Work Contract
 Efficiency Orientation
15
Achievement Oriented Competencies …
 Systematic Planning
 Problem Solving
 Self-Confidence
 Assertiveness
 Persuasion
 Use of Influence Strategies
Locus of Control
Hallmark Business School-Trichy 16
Locus of Control…
Hallmark Business School-Trichy 17
Concept of Entrepreneurship…
 The Economist looks at it as:
◼ “bringing together the factors of production
(land, labor, capital, and entrepreneur) and
bearing the risk of uncertainty”
Hallmark Business School-Trichy 18
Organizing
Hallmark Business School-Trichy 19
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Entrepreneurial Risks
Hallmark Business School-Trichy 21
Concept of Entrepreneurship…
 While the sociologist views it as:
◼ the ability to recognize and act upon market
opportunities in order to provide social
services.
◼ Are Business Opportunities ‘Discovered’ or
‘Created’?
Hallmark Business School-Trichy 22
Concept of Entrepreneurship…
 According to Joseph A Schumpeter:
◼ “Entrepreneurship is based on purposeful and
systematic innovation.
◼ It includes not only the independent
businessman but also the company directors
and managers who actually carry out
innovative functions.”
Hallmark Business School-Trichy 23
GRG School of Management Studies 24
Innovation Process
Concept of Entrepreneurship…
 ‘The willingness and ability of an individual to
seek out investment opportunities in an
environment and be able to establish and run an
enterprise successfully’
 ‘The process of creating something different with
value by devoting the necessary time and effort,
assuming the accompanying financial,
psychological and social risk, and receiving the
resulting rewards of monetary and personal
satisfaction’
Hallmark Business School-Trichy 25
Concept of Entrepreneurship…
 ‘An attempt to create value through recognition of
business opportunities, communicative, and
management skills to mobilize human, financial
and material resources necessary to bring a project
to function’
 ‘The process of identifying, developing and
bringing a vision to life. The vision may be an
innovative idea, an opportunity, or simply a better
way to do something. The end result of this
process is the creation of a new venture, formed
under conditions of risk and considerable
uncertainty’ Hallmark Business School-Trichy 26
Concept of Entrepreneurship…
 Basic Elements of Concept of Entrepreneurship
are:
 Innovation
 Risk-Bearing
 Discovery/Creativity
 Vision
 Organization
Hallmark Business School-Trichy 27
Concept of Entrepreneurship…
Hallmark Business School-Trichy 28
Concept of Entrepreneurship…
Hallmark Business School-Trichy 29
Concept of Entrepreneurship…
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1.2 Entrepreneurship as a Career
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Career Options
Hallmark Business School-Trichy 32
The Difference
Salaried Employment
 Self-saturation
 Limited Scope
 Routine or Status Quo
 Fixed Earnings, Given
 Satisfaction through
compliance of rules
 Status is ‘Employee’
Self-Employment
 Self-actualization
 Unlimited Scope
 Imaginative, creative, innovative
 Generate Flexible Earnings
 Satisfaction by transforming
creativity in to reality
 Status is ‘Employer’
Hallmark Business School-Trichy 33
Charms of being an Entrepreneur
 Opportunity to create one’s own destiny
 Opportunity to make a difference
 Opportunity to reach one’s full potential
 Opportunity to reap impressive profits
 Opportunity to contribute to the society
 Opportunity to do what one enjoys
Hallmark Business School-Trichy 34
1.3 Entrepreneurial Personality
Hallmark Business School-Trichy 35
Personality Types of Entrepreneurs
 The Improver
◼ Using the company as a means to improve the world
◼ Companies working on a noble cause will be rewarded
 The Advisor
◼ High level of assistance and advice to customers
 The Superstar
◼ The business is centered around the charisma and high
energy of the entrepreneur
Hallmark Business School-Trichy 36
Personality Types of Entrepreneurs
 The Artist
◼ Reserved but highly creative. Business built around the
entrepreneur’s unique talents & capabilities
 The Visionary
◼ High degree of curiosity to understand the world around
and set-up plans to avoid landmines
 The Analyst
◼ Focus on fixing problems in a systematic way. Often the
basis for science, engineering or computer firms.
Hallmark Business School-Trichy 37
Personality Types of Entrepreneurs
 The Fireball
◼ Full of life, energy and optimism. Customers feel the
company has a ‘Just do it’ attitude in a playful manner.
 The Hero
◼ Incredible ability to lead the world and business through
any challenge to create great companies.
 The Healer
◼ Provide nurturing and harmony to business with an
uncanny ability to survive and persist with an inner
calm.
Hallmark Business School-Trichy 38
1.4 Characteristics of Successful
Entrepreneurs
Hallmark Business School-Trichy 39
Characteristics
 Hard Work
 Desire for High Achievement
 Self-imposed standard of excellence
 Highly Optimistic
 Independence
 Foresight
 Good Organizer
 Innovative
 Perseverance
 Team Spirit
Hallmark Business School-Trichy 40
1.5 Knowledge and Skills of an
Entrepreneur
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Hallmark Business School-Trichy 42
Competency = Competence + Commitment
Competence Characteristics
 Technical Knowledge
 Functional Information
 Business Knowledge
 Communication Skills
 Interpersonal Skills
 Leadership Skills
 Team Building Skills
 Decision Making Skills
 Time Management Skills
Commitment Characteristics
 Self Confidence
 Self Motivation
 Honesty and Integrity
 Determination
 Positive Attitude
 Winning Attitude
 Learn from Mistakes
 Perseverance
 Enterprising
 Result Oriented
Hallmark Business School-Trichy 43
UNIT-1 Entrepreneurial Competence
 Entrepreneurship Concept
 Entrepreneurship as a Career
 Entrepreneurial Personality
 Characteristics of Successful Entrepreneurs
 Knowledge and Skills of an Entrepreneur.
Hallmark Business School-Trichy 44
Unit 1-Entrepreneurial Competence
Completed!
Unit 2
Entrepreneurial Environment
UNIT-2 Entrepreneurial Environment
 Business Environment
 Role of Family and Society
 Entrepreneurship Development Training
◼ Other Support Organizational Services
 Central and State Government Industrial
Policies and Regulations.
Hallmark Business School-Trichy 2
2.1 Business Environment
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Internal Environment
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External Environment - Micro
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External Environment - Macro
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External Environment – Macro…
 Political
◼ Political Atmosphere, Quality of Leadership
 Economic
◼ Economic Policies, Labour, Trade, Tariffs,
Incentives, Subsidies
 Social
◼ Consumer, Labour, Attitudes, Opinions,
Motives
Hallmark Business School-Trichy 9
External Environment – Macro…
 Technological
◼ Competition and Risk, Efficiency, Productivity,
Profitability
 Environmental
◼ Pollution, carbon emission, biodegradability
 Legal
◼ Rules, Regulations, Taxation, IPR, RTI, CSR
 Cultural
◼ Structure, Aspirations And Values
Hallmark Business School-Trichy 10
2.2 Role of Family and Society
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Family Support to Entrepreneurs
Source: The Bank of America Small Business Owner Report
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Society Support to Entrepreneurship
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Entrepreneurial Ecosystem
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Types of Support
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Family / Societal
Support
Operational
Support
Financial
Support
Emotional
Support
Typical Roles Played
 Take on roles as advisers, employees,
partners, investors, etc. for free or at
subsidized cost
 Providing business financial support as a
gift
 Providing interest free loan to fund their
business
 Provide personal financial support
Hallmark Business School-Trichy 16
Typical Roles Played…
 Be a customer and buy goods and services
from the entrepreneur
 Refer the entrepreneurs product / service to
others and thus play the role of a ‘brand
ambassador’
 Volunteer operational help
 Provide emotional support
Hallmark Business School-Trichy 17
2.3 Entrepreneurship Development
Training
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Role and Relevance of EDP
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Objectives of EDP
 Develop and strengthen the entrepreneurial
quality, i.e., motivation and need for
achievement
 Analyze the environment relating to small
business
 Select the product
 Formulate project proposal
Hallmark Business School-Trichy 21
Objectives of EDP… …
 Understand the procedure involved in
setting up a small enterprise
 Know the sources of information and
support available for starting a small
business
 Acquire the necessary managerial skills to
run a small business
Hallmark Business School-Trichy 22
Entrepreneurship Development Process
Hallmark Business School-Trichy 23
Confidence
Building Through
Entrepreneurial
Lab
Idea Lab,
Industry
Interface
Opportunity
Identification and
Selection
Business Plan,
DPR Preparation
Mentoring &
Guidance
Funding
Enterprise
Launching
Business
Management
Sustenance &
Growth
1.1 Pre-training Phase
1.3 Post-training Phase
1.2 Training Phase
Phases in
Conducting EDP
Selection of Entrepreneurs
1.1
–
Pre-training
Arrangement of Infrastrucute
Tie-up with guest faculty for training
Arrangement for Inauguration and Promotion
Review of Pre-training work
How to set up a small business
Business Plan Preparation
Review of past trining approach
Review of Training Process
1.2
-
Training
1.3
–
Post-training
Phases in
Conducting EDP
Pre-potential survey of opportunities in the region
Achievement Motivation Training
Opportunity Guidance
Selection Procedure for
EDP Trainees
Analysis of
Application Form
Psychological
Tests
Group Planning
Exercise
Personal
Interview
Training
Experience
Education
Achievement Motivation
Risk Propensity
Personal Efficacy
Leadership Quality
Planning Ability
Organizing Ability
Team Spirit
Commitment to Task
Decision Making
Social Participation
Knowledge
Project Involvement
Problems of EDPs
 Trainer’s motivations in hand-holding trainees to
start their own enterprise is low
 ED organizations lack in commitment and
sincerity in conducting the EDPs
 Non-conducive environment and constraints make
the trainer-motivator’s role ineffective
 Banks, FIs and other organizations involved are
unwilling to take risk in supporting entrepreneurial
ventures.
Hallmark Business School-Trichy 27
Support Organizational Services
 NSIC-National Small Industries Corporation
 SIDO-Small Industries Development Organization
 SSIB-Small Scale Industries Board
 SSIDC-State Small Industries Development Corporations
 SISI-Small Industries Service Institute
 DIC-District Industries Centre
 Special Institutions
 Industrial Estates
 TCO-Technical Consultancy Organization
Hallmark Business School-Trichy 28
Hallmark Business School-Trichy 29
Organization Services
NSIC
▪ Machinery on hire purchase scheme
▪ Equipment leasing
▪ Credit support
▪ Marketing support for export and within India
▪ Preference in government purchase programs
▪ Technology support and upgradation
▪ Distribute basic raw material
▪ Training on various industrial trades
▪ Undertake construction of industrial estates
SIDO
❖ Coordinate policies and programs of governments
❖ Industrial development
❖ Extension services such as technical, consultancy & training
SSIB • Development of SSI in the country
SSIDC
➢ Procure and distribute scarce raw material
➢ Supply machinery on hire purchase
➢ Marketing assistance
➢ Construct industrial estates and allied infrastructure
➢ Management assistance
Hallmark Business School-Trichy 30
Organization Services
SISI
✓ Provide consultancy and training
✓ Interface between state and central governments
✓ Provide technical, consultancy, training and workshops support
✓ Carry out industrial potential surveys
✓ Conduct EDPs
✓ Initiate promotional programs
DIC
 District level single window agency for promotional and
development of SSI
 Conduct industrial potential & techno-economic surveys
 Implement schemes of state and central governments
 Guide entrepreneurs on all aspects of their project
 Project appraisal
 Marketing assistance
Hallmark Business School-Trichy 31
Organization Services
Special
Institutions
 Central Institute of Tool Design, Hyderabad
 Central Tool Room Training Centers
 Central Institute of Hand Tools, Jalandhar
 Institute for Design of Electrical Measuring Instruments, Mumbai
 National Institute of Entrepreneurship and Small Business
Development, Noida
 National Institute of Small Industries Extension Training,
Hyderabad
 Electronics Training and Services Institute, Nainital
 Central Machine Tools Limited, Bangalore
 Central Institute of Plastics Engineering and Tools, Chennai
 National Institute of Foundry and Forging Technology, Ranchi
Industrial
Estates
 Provide infrastructure and accommodation facilities
 Encourage development of SSI
 Decentralize industries to the rural and backward area
 Encourage ancillaries around major industries
 Develop entrepreneurship by creating a favorable climate
Hallmark Business School-Trichy 32
Organization Services
TCO
 Prepare project profiles and feasibility studies
 Undertake industrial potential surveys
 Provide technical and management assistance
 Project supervision
 Export consultancy
 Conduct EDPs
 Merchant Banking Services
2.4 Central and State Government
Industrial Policies and Regulations
Hallmark Business School-Trichy 33
SSI Development Objectives
 Generation of immediate employment with
low investment
 Promotion of more equitable distribution of
national income
 Effective mobilization of untapped capital
and human skills
 Dispersal of manufacturing activities
Hallmark Business School-Trichy 34
Industrial Policy Resolution (IPR)
 First framed in the year 1948
 Subsequently revised and improved in:
 In August 1991, the GoI, for the first time, framed
“Policy measures for Promoting and Strengthening and
Supplementing Small, Tiny and Village Enterprises”
 In 2006, the GoI set up a separate Ministry of
Micro Small and Medium Enterprises (MSME)
and enacted “MSME Development Act”
Hallmark Business School-Trichy 35
▪1956 ▪1977 ▪1980 ▪1990 ▪1991 ▪2006
MSME Definition (Sept. 2006)
 In calculating the investment in plant and machinery, the cost of pollution control,
research and development, industrial safety devices, etc may be excluded.
Hallmark Business School-Trichy 36
Manufacturing
Enterprises
Criterion – Investment in Plant & Machinery
Micro Enterprises Investment up to Rs. 25 Lakhs
Small Enterprises Investment above Rs. 25 Lakhs and up to Rs. 5 Crores
Medium Enterprises Investment above Rs. 5 Crores and up to Rs. 10 Crores
Service
Enterprises
Criterion – Investment in Equipment
Micro Enterprises Investment up to Rs. 10 Lakhs
Small Enterprises Investment above Rs.10 Lakhs and up to Rs. 2 Crores
Medium Enterprises Investment above Rs. 2 Crores and up to Rs. 5 Crores
MSME Definition (July 2020)
* Investment means investment in P&M or Equipment
 In calculating the investment in plant and machinery, the cost of pollution control,
research and development, industrial safety devices, etc may be excluded.
 https://msme.gov.in/know-about-msme
Hallmark Business School-Trichy 37
Mfg. & Service
Enterprises
Criterion
Micro Enterprises
Investment* does not exceed Rs. 1 Crore and turnover does not
exceed Rs. 5 Crores
Small Enterprises
Investment* does not exceed Rs. 10 Crores and turnover does
not exceed Rs. 50 Crores
Medium Enterprises
Investment* does not exceed Rs. 50 Crores and turnover does
not exceed Rs. 250 Crores
Salient Features of MSME Act, 2006
 Recognition of the concept of ‘Enterprise’
comprising both manufacturing and service
sectors
 Integrating the 3 tiers of these enterprises,
viz., Micro, Small and Medium
 Statutory consultative mechanism at the
national level comprising stakeholders from
all 3 tiers
Hallmark Business School-Trichy 38
Salient Features of MSME Act, 2006 … …
 Establishing funds for promotion, development
and enhancing competitiveness of these
enterprises
 Progressive credit policies and practices
 Preference in government procurements
 Mitigating the problems of delayed payments
 Simplification of the process of closure of business
Hallmark Business School-Trichy 39
Hallmark Business School-Trichy 40
Package for Micro & Small Enterprises
 Promotional Package
 Fiscal Support
 Support for Cluster Based Development
 Technology and Quality Upgradation Support
 Marketing Support
 Support for Entrepreneurial and Managerial Development
 Empowerment of Women Owned Enterprises
 Strengthening of PMRY Scheme
 Strengthening of Data Base for MSME Sector
Hallmark Business School-Trichy 41
Tax Benefits
 Tax Holiday
 Depreciation
 Rehabilitation Allowance
 Investment Allowance
 Expenditure on Scientific Research
 Amortization of Preliminary Expenses
 Tax Concession for Rural Areas
Hallmark Business School-Trichy 42
Tax Benefits … …
 Tax Concession to SSIs in Backward Areas
 Expenditure on Acquisition of Patents and
Copyrights
 Profits from Business of Publication of
Books
Hallmark Business School-Trichy 43
Incentives and Concessions for SSI
 Exemption of excise duty limit raised from Rs. 50
lakhs to Rs. 100 lakhs
 The composite loan limit raised from Rs. 10 lakhs
to Rs. 25 lakhs
 Small scale service and business enterprise up to
Rs. 10 lakhs will qualify for priority lending
 In the National Equity Fund Scheme, the project
cost limit is raised from Rs. 25 lakhs to Rs. 50 lakhs
Hallmark Business School-Trichy 44
Incentives and Concessions for SSI
 Eligibility limit for coverage under Credit
Guarantee Scheme is raised from Rs. 10 lakhs to
Rs. 25 lakhs
 Capital subsidy is provided at 12% for investment
in technology in selected sectors
 Setting up of incubation centers in sunrise
industries such as IT, biotechnology, electronics,
non-conventional energy sources will be supported
 Family income level under PMRY has been raised
from Rs. 24,000 to Rs. 40,000 per annum
Hallmark Business School-Trichy 45
Some Useful Links
http://www.dcmsme.gov.in/schemes/listof358itemsreserved.pdf
https://my.msme.gov.in/MyMsme/Reg/Home.aspx
http://laghuudyog.gov.in/publications/reserveditems/Reserved_item_lis
t_114_items.pdf
Hallmark Business School-Trichy 46
UNIT-2 Entrepreneurial Environment
 Business Environment
 Role of Family and Society
 Entrepreneurship Development Training
◼ Other Support Organizational Services
 Central and State Government Industrial
Policies and Regulations.
Hallmark Business School-Trichy 47
Unit 2-Entrepreneurial Environment
Completed!
Unit 3
Business Plan Preparation
UNIT-3 Business Plan Preparation
 Sources of Product for Business
 Prefeasibility Study
 Criteria for Selection of Product
 Ownership
 Capital Budgeting
 Project Profile Preparation
 Matching Entrepreneur with the Project
 Feasibility Report Preparation and Evaluation
Criteria.
Hallmark Business School-Trichy 2
3.1 Sources of Product for Business
Hallmark Business School-Trichy 3
What is a Business Idea?
 An entrepreneurial idea should be:
◼ Practically Possible
◼ Technically Feasible
◼ Economically Viable
◼ Financially Profitable
◼ Socially Acceptable and
◼ Environment Friendly
 Importantly, the idea shall have utility to
prospective customers.
Hallmark Business School-Trichy 4
Sources of Business Ideas
 Customers
◼ Survey among existing and prospective
customers
 Existing Businesses
◼ Study their product features and capacity
utilization
 Distribution Channels
◼ Channel members can suggest improvements
or completely new products
Hallmark Business School-Trichy 5
Hallmark Business School-Trichy 6
Sources of Business Ideas… …
 Government
◼ Patents filed
◼ Government regulations, Industrial policy,
incentives, etc.
◼ Govt organizations bring out publications
 FIs and Development Agencies
◼ Provide ready projects and details on that
 Research & Development
◼ Entrepreneur’s own R&D, formal or garage
type
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Sources of Business Ideas… …
 Trade Fairs & Exhibitions
◼ Showcase new technologies, innovations, new
m/c, processes
 Focus Groups
◼ A moderator leads a group of people through
an open, in-depth discussion to elicit ideas
 Collective Notebook Method
◼ Members record ideas three times a day
◼ End of the month, a list of the best ideas is
developed from suggestions
Hallmark Business School-Trichy 9
Sources of Business Ideas… …
 Brainstorming
◼ No criticism is allowed, no negative comments
◼ Freewheeling is encouraged
◼ Quantity of ideas is desired
◼ Combinations and improvements of ideas are
encouraged
 Heuristics Ideation Technique (HIT)
◼ Short-cut to processing voluminous of data
◼ Ex: Trial and error, a rule of thumb or an
educated guess.
Hallmark Business School-Trichy 10
Sources of Business Ideas… …
 Checklist Method
◼ Put to other uses? New ways to use as is?
Other uses if modified?
◼ Adapt? What else is like this? What other ideas
does this ‘ suggest? Does the past offer
parallel?
◼ Modify? New twist? Change meaning, sour,
motion, odor, form, shape? Other changes?
◼ Magnify? What to add? More time? Greater
frequency? Stronger? Larger? Thicker? Extra
value? Plus ingredient? Duplicate? Multiply?
Exaggerate?
Hallmark Business School-Trichy 11
Sources of Business Ideas… …
◼ Minify? What substitute? Smaller? Condensed?
Miniature? Lower? Shorter? Lighter? Omit?
Streamline? Split up? Understated?
◼ Substitute? What else instead? Another
ingredient? Other material? Another process?
Other power? Other places? Other approaches?
◼ Rearrange? Interchange components? Other
Pattern? Other layouts? Other sequences?
Transpose cause and effect? Change schedule?
Hallmark Business School-Trichy 12
Sources of Business Ideas… …
◼ Reverse? Transpose positive and negative?
How about opposites? Turn it backward? Turn
it upside-down? Reverse roles? Change shoes?
Turntables? Turn other cheeks?
◼ Combine? How about a bend, an alloy, an
assortment, an ensemble? Combine units?
Combine purposes? Combine /appeals?
Combine ideas?
Hallmark Business School-Trichy 13
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Sources of Business Ideas… …
 Dream Approach
◼ Think big on the new idea
◼ Don’t impose any constraint
◼ Then bring it to workable form
 Market Gap Analysis
 Life-style Analysis Method
◼ It involves measuring consumers’ major:
▪ Activities (work, hobbies, shopping, sports, social
events)
▪ Interests (food, fashion, family, recreation) and
▪ Opinions (about themselves, social issues, business,
products). Hallmark Business School-Trichy 15
3.2 Prefeasibility Study
Hallmark Business School-Trichy 16
What is a Pre-feasibility Study (PFS)?
 A PFS is a rough screening of the business ideas
generated in the previous stage
 Aim is to identify the most promising idea(s) and
discard the unattractive options
 This reduces the number of options thus saving
time and money
 Often, the pre-feasibility study returns only one
most promising option.
 PFS is conducted for the purpose of determining
whether the idea is worth pursuing.
Hallmark Business School-Trichy 17
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Objectives of PFS
 The objectives of a PFS are to determine
whether:
◼ All possible project alternatives have been
examined
◼ The project concept justifies a further detailed
analysis
◼ The project idea is attractive enough for
investment
Hallmark Business School-Trichy 19
Nature of a PFS
 A pre-feasibility study should be viewed as an
intermediate stage between a project
opportunity study and a detailed feasibility
study
 The structure of a pre-feasibility study should
be the same as that of feasibility study
 The difference is in the degree of detail of the
information obtained and the intensity with
which project alternatives are discussed
Hallmark Business School-Trichy 20
Business Idea Progression
Hallmark Business School-Trichy 21
Pre-feasibility Analysis Process
Hallmark Business School-Trichy 22
Benefits of a PFS
 Improves project team focus
 Provides valuable information for the “go/no
go” decision
 Narrows the business alternatives
 At times, helps to discover new opportunities
 Identifies the valid reason(s) to undertake the
project
Hallmark Business School-Trichy 23
Benefits of a PFS… …
 Outline various business scenarios and the
strengths and weaknesses of each
 Determines whether a full-blown feasibility
study is warranted
 Enhances the success rate through
evaluating multiple parameters
 Aids decision-making on the project
 Identifies reasons to not proceed
Hallmark Business School-Trichy 24
PFS is the Foundation for FS
Hallmark Business School-Trichy 25
PFS Focus
 Technical Feasibility
 Market Feasibility
 Organizational Feasibility
 Financial Feasibility
Hallmark Business School-Trichy 26
Reasons Given for not Doing a PFS/FS
 We know it’s feasible… an existing business
is already doing it
 Why do another feasibility study when one
was done just a few years ago?
 The market analysis has already been done
by the business that is going to sell us the
equipment
 … … …
Hallmark Business School-Trichy 27
Reasons to Conduct a PFS/FS
 Gives focus to the project and outline
alternatives
 Enhances the probability of success
 Provides quality information for decision
making
 Provides documentation that the business
venture was thoroughly investigated
 Helps in securing funding from FIs, Banks
or equity investors.
Hallmark Business School-Trichy 28
FS Vs Business Plan
 Timing
◼ FS is conducted before the ‘go/no-go’ decision
◼ BP is prepared after the ‘go/no-go’ decision
 Function
◼ FS provides Investigative function
◼ BP provides Planning function
 No. of Projects
◼ FS is done on several projects to select one
◼ BP is done on the one project selected
Hallmark Business School-Trichy 29
Hallmark Business School-Trichy 30
3.3 Criteria for Selection of Product
Hallmark Business School-Trichy 31
Factors to be Considered
 Does it fulfill a felt ‘Need’ or a ‘Want’?
 Does it give an edge over other products in
the market?
◼ Product Differentiation (better)
◼ Speed (faster)
◼ Cost Leadership(cheaper)
 Product Acceptance (research and testing)
 Future of the Product (obsolescence)
Hallmark Business School-Trichy 32
Factors to be Considered … …
 Demand-supply gap (price sensitivity)
 Project Feasibility
 Value Proposition
 Government Policies and Support
Hallmark Business School-Trichy 33
Selection Criteria
 Technical Criteria
 Market Criteria
 Organizational Criteria
 Financial Criteria
Hallmark Business School-Trichy 34
Technical Criteria
 Determine facility needs: m/c, equipment,
h/w, s/w, auxiliary equipment…
 Suitability of production technology
 Availability and suitability of:
◼ Project site
◼ Raw material
◼ Other inputs such as power, gas, furnace oil…
◼ Labour
 Identify points of vulnerability
Hallmark Business School-Trichy 35
Market Criteria
 Determine:
◼ Market demand and the price at which
demanded
◼ Industry structure
◼ Industry Competition
◼ Market potential
◼ Access to market outlets
◼ Market share & Sales projection
Hallmark Business School-Trichy 36
Organizational Criteria
 Determine:
◼ Human resource required and their skills
◼ Organizational structure
◼ Background of Promoters
◼ Competency of Management
◼ Legal form of the organization
Hallmark Business School-Trichy 37
Financial Criteria
 Profit and loss projection:
◼ A 12 month P&L projection
◼ A 5 year P&L projection
 Cash-flow projection
 Projected balance sheet
 Breakeven calculation
 List of assumptions made in the P&L
Hallmark Business School-Trichy 38
Hallmark Business School-Trichy 39
3.4 Ownership
Hallmark Business School-Trichy 40
Hallmark Business School-Trichy 41
Basis for Selection of Ownership Form
 Number of promoters
 Nature of business
 Capital considerations
 Tax structure
 Promoter liability
 Compliance burden
Hallmark Business School-Trichy 42
Basis for Selection of Ownership Form …
 Cost and ease of setting up the organization
 Management ability
 Business continuity
 Degree of control
 Exit strategy
Hallmark Business School-Trichy 43
Factors Influencing Choice of Form
Hallmark Business School-Trichy 44
Tax Implications
 Proprietorship – Taxed as individual, based
on the total income of the proprietor
 Partnership, OPC and LLP – Profits are
taxed at 30%
 Private Limited – 25.168% for existing and
17.16% for new, both without tax exemption;
from 26% to 34.94% with tax exemption
 Surcharge and Cess extra
Hallmark Business School-Trichy 45
Hallmark Business School-Trichy 46
Sole Proprietorship-Features
 One-man Ownership
 Full Control, no interference
 Unlimited Liability
 Sole risk bearer and profit recipient
 Free from Government Regulations
 No separate entity; proprietor & firm are
identical
Hallmark Business School-Trichy 47
Sole Proprietorship-Pros & Cons
Advantages
 Ease of Formation
 Direct Incentive
 Complete Degree of Control
 Quick in Decision Making
 Flexibility in Operation
 Confidentiality
 Catering for Individual Tastes
 Credit Standing
 Low Government Regulation
Disadvantages
 Limited Resources
 Limited Managerial
Ability
 Lack of business
Continuity
 Unlimited Liability
Hallmark Business School-Trichy 48
Hallmark Business School-Trichy 49
Features of Partnership Form
 Contractual Relationship
 Plurality of Persons – min 2, max 20 (50 from
2014)
 Lack of business continuity
 Sharing of Profits
 Mutual Agency – both ‘agent’ & ‘principal’
Hallmark Business School-Trichy 50
Partnership-Pros & Cons
Advantages
 Ease of Formation
 Benefits of Larger Resources
 Benefits of Combined
Ability
 Balanced Decision Making
 Sharing of Risk
 Confidentiality
Disadvantages
 Unlimited Liability
 Limited Resources
 Possibility of Conflict
 Lack of Continuity
 Lack of Public Confidence
 Heavy Burden through
Implied Authority
Hallmark Business School-Trichy 51
Types of Partners
 Active Partner
 Sleeping or Dormant Partner
 Secret Partner
 Nominal Partner
 Partner by Estoppel
 Partner by holding out
Hallmark Business School-Trichy 52
Implications of Partner Type
Hallmark Business School-Trichy 53
Hallmark Business School-Trichy 54
OPC –Features
 A separate legal entity registered under the
Companies Act, 2013
 Director and Nominee Director have limited
liability
 Only 2 people viz. Director and Nominee
Director
 Ownership can be transferred
Hallmark Business School-Trichy 55
OPC –Features … …
 Existence not dependent on the Director or
Nominee Director
 Could be dissolved only voluntarily or by
Regulatory Authorities
 No requirements to conduct annual
statutory meetings
 Must file annual accounts with the Registrar
of Companies
Hallmark Business School-Trichy 56
Hallmark Business School-Trichy 57
LLP – Features
 LLP will be registered with the Ministry of
Corporate Affairs under the LLP Act, 2008
 A separate legal entity
 Limited Liability
 Minimum 2 persons required to start
 Can have unlimited number of partners
 Foreign investment allowed with prior
approval of RBI and FIPB
Hallmark Business School-Trichy 58
LLP – Features … …
 Ownership can be transferred
 Existence of a LLP is not dependent on the
Partners
 Could be dissolved only voluntarily or by an
order of the Company Law Board
 No requirements to conduct annual
statutory meetings
 Must file annual accounts & solvency
Hallmark Business School-Trichy 59
Features of Limited Company
 Artificial Person
◼ Created by law
◼ Exists independent of its members
◼ Can own property, incur debts, borrow money,
enter into contracts, sue and be sued
 Separate Legal Entity
◼ Acquires an identity distinct from its members
◼ Its assets and liabilities are separate from
those of its owners
◼ Law does not recognize the business and
owners to be one and the same
Hallmark Business School-Trichy 60
Features of Limited Company …
 Formation
◼ Time consuming
◼ Expensive and complicated process
◼ Involves the preparation of several documents and
◼ Compliance with several legal requirements
 Perpetual Succession
◼ Members may come and members may go, but the
company continues to exist
 Control
◼ With Directors who are accountable to shareholders; but
shareholders don’t have right in day-to-day operations of
the company
Hallmark Business School-Trichy 61
Features of Limited Company …
 Liability
◼ Limited to the extent of the members’ capital
◼ It is the company and not the members that owes debts
◼ Members must contribute to the loss only to the extent of
the unpaid amount of share held by them
 Common Seal
◼ The company being an artificial person cannot sign
◼ Therefore, every company is required to have its own seal
which acts as official signature
 Risk Bearing
◼ The risk of losses in a company is borne by all the
shareholders
Hallmark Business School-Trichy 62
Limited Company –Pros & Cons
Merits
 Limited Liability
 Transfer of Ownership
 Perpetual Existence
 Scope for Expansion
 Professional Management
Demerits
 Complexity in Formation
 Lack of Secrecy
 Impersonal Work
Environment
 Numerous Regulations
 Slow Decision Making
 Oligarchic Management
 Conflict of Interest
Hallmark Business School-Trichy 63
Difference Between a Public & Private
Company
Hallmark Business School-Trichy 64
Cooperative Society
 Cooperative means working together and with
others for a common purpose
 Is a voluntary association of persons
 Motive is welfare of the members
 Ten adult persons required to form a society
 Capital raised from its members through issue of
shares
 Registration under the Cooperative Societies Act
1912 is compulsory
 The society acquires a distinct legal identity after
its registration
Hallmark Business School-Trichy 65
Features of Cooperative Society
 Voluntary Membership
 Legal Status
 Limited Liability
 Control by members elected through a
democratic voting process
 Service Motive; surplus distributed as
dividend to members
Hallmark Business School-Trichy 66
Cooperative Society-Pros & Cons
Merits
 Equality in Voting
Status
 Limited Liability
 Stable Existence
 Economy in Operations
 Support from Govt.
 Ease of Formation
Demerits
 Limited Resource
 Inefficiency in Mgmt.
 Lack of Secrecy
 Govt. Controls
 Difference of Opinion
Hallmark Business School-Trichy 67
Types of Cooperative Societies
 Consumers’ Cooperative Societies
 Producers’ Cooperative Societies
 Marketing Cooperative Societies
 Farmers’ Cooperative Societies
 Credit Cooperative Societies
 Cooperative Housing Societies
Hallmark Business School-Trichy 68
3.5 Capital Budgeting
Hallmark Business School-Trichy 69
What is Capital Budgeting?
 Capital budgeting is the process of evaluating
investments to get best returns
 It is the process of deciding whether or not to
invest in a particular project
 The rate of return from the project should be more
than the cost of financing that project
 The expected cash inflows from the project are
discounted at a rate equal to the cost of capital
Hallmark Business School-Trichy 70
Hallmark Business School-Trichy 71
Traditional Methods
(Non-discounting Methods)
❖ These methods are based on the useful life of
the project and its expected returns
❖ These methods depend upon accounting
information
❖ These methods will not take into account the
concept of ‘time value of money’
Hallmark Business School-Trichy 72
Payback Period
 Determines the length of time in which an
investment pays back its original cost
 Lower the payback period, better is the
investment/project
 Focus is on cost recovery or liquidity
 Net returns before depreciation, but after
taxes is taken for cashflows
 𝑷𝒂𝒚𝒃𝒂𝒄𝒌 𝑷𝒆𝒓𝒊𝒐𝒅 =
𝑪𝒂𝒔𝒉 𝑶𝒖𝒕𝒍𝒂𝒚 𝑶𝑹 𝑶𝒓𝒊𝒈𝒊𝒏𝒂𝒍 𝑪𝒐𝒔𝒕 𝒐𝒇 𝑷𝒓𝒐𝒋𝒆𝒄𝒕
𝑨𝒏𝒏𝒖𝒂𝒍 𝑪𝒂𝒔𝒉 𝑰𝒏𝒇𝒍𝒐𝒘
Hallmark Business School-Trichy 73
Payback Period - Limitations
 It ignores all cash flow after the initial cash
outflow has been recovered
 It ignores the time value of money
 It does not take into account the risk of the
cash flows
 Not consistent with the firm’s objective of
maximizing the market value of shares
Hallmark Business School-Trichy 74
Accounting Rate of Return (ARR)
 ARR is:
◼ the average net income an asset is expected to
generate divided by
◼ its average capital cost
𝐴𝑅𝑅 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑛𝑛𝑎𝑙 𝐼𝑛𝑐𝑜𝑚𝑒
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑛𝑛𝑢𝑎𝑙 𝐼𝑛𝑐𝑜𝑚𝑒 =
𝑇𝑜𝑡𝑎𝑙 𝑖𝑛𝑐𝑜𝑚𝑒 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥𝑒𝑠
𝑁𝑜. 𝑜𝑓 𝑦𝑒𝑎𝑟𝑠
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 =
𝑇𝑜𝑡𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
2
Hallmark Business School-Trichy 75
Accounting Rate of Return …
 All projects with ARR higher than the
minimum rate are selected and
 Projects with ARR lower than the expected
minimum rate are rejected
 This method can also help the management
to rank the proposal on the basis of ARR
Hallmark Business School-Trichy 76
ARR – Limitations
 Ignores time value of money
 Doesn’t consider the length of life of the
projects
 Not consistent with the firm’s objective of
maximizing the market value of shares
Hallmark Business School-Trichy 77
Modern Methods
(Discounted Cashflow Methods)
❖ Calculates the cash inflow and outflow through
the life of an asset
❖ These are then discounted through a
discounting factor
❖ The discounted cash inflows and outflows are
then compared
❖ Takes into account the interest factor and the
return after the payback period
Hallmark Business School-Trichy 78
Net Present Value (NPV)
 NPV is the present value of future returns,
discounted at the required rate of return, minus the
present value of the cost of the investment
 Here, the cash inflow that is expected at different
periods of time is discounted at a particular rate
 The original investment is subtracted from the
present value of the cash inflow. The balance is
NPV
 If NPV is positive(+) then the project is accepted
or otherwise rejected.
Hallmark Business School-Trichy 79
Net Present Value (NPV) … …
𝑵𝑷𝑽 =
𝑨𝟏
(𝟏+𝒌)𝟏 +
𝑨𝟐
(𝟏+𝒌)𝟐 +
𝑨𝟑
(𝟏+𝒌)𝟑 + … … +
𝑨𝒏
(𝟏+𝒌)𝒏 -C
= ෍
𝒕=𝟏
𝑛
𝑨𝒕
(𝟏 + 𝒌)𝒕
− 𝐂
 Where
◼ A1, A2…. represent cash inflows
◼ k is the firm’s cost of capital
◼ C is the cost of the investment proposal and
◼ n is the expected life of the proposal
Hallmark Business School-Trichy 80
NPV Method - Merits
 It recognizes the time value of money
 It is based on the entire cash flows
generated during the useful life of the asset
 It is consistent with the objective of
maximization of wealth of the owners
 The ranking of projects is independent of
the discount rate used for determining the
present value
Hallmark Business School-Trichy 81
NPV Method - Demerits
 NPV is an absolute monetary measure of the
project returns
 Where two or more competing projects with
different capital investments are to be
evaluated, NPV may not be the right choice
Hallmark Business School-Trichy 82
Internal Rate of Return (IRR)
 IRR is defined as the discount rate at which the
present value of the stream of future benefits from
a project is equal to the initial project outlay
 Alternatively, at IRR, the discounted cash ‘inflow’
is equal to the initial cash ‘outflow’
 This method considers time value of money
 If IRR is more than the ‘hurdle rate’, then the
project is accepted. Otherwise the project is
rejected
Hallmark Business School-Trichy 83
IRR Formula
𝑪 =
𝑨𝟏
(𝟏 + 𝒓)𝟏
+
𝑨𝟐
(𝟏 + 𝒓)𝟐
+
𝑨𝟑
(𝟏 + 𝒓)𝟑
+ ⋯ +
𝑨𝒏
(𝟏 + 𝒓)𝒏
𝑪 = ෍
𝒕=𝟏
𝑛
𝑨𝒕
(𝟏 + 𝒓)𝒕
 Where
◼ A1, A2…. represent cash inflows
◼ r is the IRR to be calculated based on trial-and-error
◼ C is the initial project outlay and
◼ n is the expected life of the project
Hallmark Business School-Trichy 84
IRR - Merits
 It considers the time value of money
 It takes into account the cash flows over the
entire useful life of the asset
 It helps to compare two are more projects
and rank them on the basis of timing and
magnitude of their returns
 It conforms to the company’s objective of
maximizing shareholders’ wealth
Hallmark Business School-Trichy 85
Profitability Index (PI)
 It is the ratio of the present value of future
cash benefits at the required rate of return to
the initial cash outflow on the project
 It may be gross or net PI. Net PI is simply
gross PI minus one
 The formula to calculate profitability index
(PI) or benefit to cost (BC) ratio is as
follows:
Hallmark Business School-Trichy 86
Profitability Index (PI) … …
 PI or Benefit to Cost Ratio
=
Present Value of Future Cash Inflows
Initial Cash Outlay
 If the gross PI is more than one, the proposal is accepted
else rejected
 If there are more than one investment proposal with gross
PI>1, then the one with the highest PI is be selected
 This method is more useful incase of projects with different
cash outlays and hence is superior to the NPV method.
Hallmark Business School-Trichy 87
PI - Merits
 It requires less computational work than
IRR method
 It helps to accept / reject investment
proposal on the basis of value of the index
 It is useful to rank the proposals on the basis
of the highest/lowest value of the index
 It takes into consideration the entire stream
of cash flows generated during the useful life
of the asset
Hallmark Business School-Trichy 88
UNIT-3 Business Plan Preparation
 Sources of Product for Business
 Prefeasibility Study
 Criteria for Selection of Product
 Ownership
 Capital Budgeting
 Project Profile Preparation
 Matching Entrepreneur with the Project
 Feasibility Report Preparation and Evaluation
Criteria.
Hallmark Business School-Trichy 89
3.6 Project Profile Preparation
Hallmark Business School-Trichy 90
What is a Project Profile?
 It gives a bird’s-eye view of the proposed
project
 Useful for:
◼ Obtaining Provisional Registration Certificate
from DIC
◼ Applying for shed or land with SSIDC
◼ Applying for getting clearances from
Government departments
◼ Develop inputs for preparing project report
Hallmark Business School-Trichy 91
Project Profile Content
 Introduction
 Promoters background
 Management expertise
 Product description
 Market demand and strategy
 Plant and machinery required
 Details of infrastructure required
Hallmark Business School-Trichy 92
Project Profile Content … …
 Manufacturing process
 Raw materials required
 Human resource requirement
 Cost of the project and means of financing
 Cost of production & Profitability
 Break-even point
 Bottle-necks / Challenges / Risk factors
Hallmark Business School-Trichy 93
The
Entrepreneurial
Process
Hallmark Business School-Trichy 94
3.7 Matching Entrepreneur with the
Project
Hallmark Business School-Trichy 95
Need for Matching
 Entrepreneur’s:
◼ Personal choice and Preferences
◼ Aptitude and Interest
◼ Likes and Dislikes
◼ Values and Beliefs
◼ Cultural upbringing …
affect the choice of business idea
 This is in addition to the feasibility/viability
aspects of the project discussed earlier
 Entrepreneur’s character and the project’s
nature should align well.
Hallmark Business School-Trichy 96
Aspects Necessitating Matching
1. Characteristics of the Product or Service
2. Ownership Form
3. Location of Project
4. Capital Structure
5. Technical Know-how
6. Market Served
7. Barriers to Success…
Hallmark Business School-Trichy 97
1. Characteristics of the Product or Service
 Fishing Trawler
 ETP / STP
 A Slaughter House
 Scrap / Waste Material Aggregator
 Running an Asylum
 …
Hallmark Business School-Trichy 98
2. Ownership Form
 No. of promoters Vs Capital requirement
 Limited Liability Vs Compliance burden
 Control Vs Business Continuity
 Ease of formation Vs Managerial bandwidth
 … … …
 Ex: Tata Sons, PwC, Amazon…
Hallmark Business School-Trichy 99
3. Location of Project
 Proximity generally preferred for startup
venture
 Government incentives
 Availability of RM, HR, local demand, etc.
 Locational Competitive Advantage (NLC)
 Mines, Hydel, Tea Factories, Hill Resorts …
Hallmark Business School-Trichy 100
4. Capital Structure
 Own Equity
 Private Equity
 Public Equity
 Debt
 Subsidy
 Incentives
 Crowd-funding …
Hallmark Business School-Trichy 101
5. Technical Know-how
 Promoter’s technical skills
 Cost of technical know-how
 Product Vs Process (mfg.) technology
 Inseparability
◼ Music Album Production
◼ Dance Academy.
Hallmark Business School-Trichy 102
6. Market Served
 Government Contracts - B2G
◼ Ex: Supplies to noon-meal scheme
 Ancillary/Subcontract - B2B
◼ Ex: Auto Ancillaries, electronic sub-assemblies
 Direct-to-customer - B2C
 Government Scheme Implementation – G2C
◼ EDPs, DDU-GKY, Education, LPG, Petrol…
 Customer-to-Customer – C2C
◼ eBay, AirBnB, Olx, Car24, MagicBricks, etc.
Hallmark Business School-Trichy 103
7. Barriers to Success
 License
◼ Mining, explosives, Desalination …
 Certification / Accreditation
◼ Education, NABL, FSSAI …
 Unionism
 Technology Obsolescence
 Cartels
 Government Regulations (CRZ) …
Hallmark Business School-Trichy 104
Matching Factors
 The entrepreneur needs to match the
following factors with his profile, before
deciding on the business opportunity:
◼ Suitability of technology/process know-how
◼ Acceptability of the degree of risk involved
◼ Backup during Gestation period
◼ Extent of competition’s aggression
◼ Manageability of capital investment
◼ Capability to meet Government regulations
◼ … … …
Hallmark Business School-Trichy 105
3.8 Feasibility Report Preparation
Hallmark Business School-Trichy 106
Content of Feasibility Report
1. Description of the Product or Service
2. Market Feasibility (Strategy)
3. Technical Considerations
4. Financial Projections or Economic Feasibility
5. Organization Structure and Managerial
Feasibility
6. Evaluation Criteria
7. Study Conclusions.
Hallmark Business School-Trichy 107
1. Description of the Product or Service
 Identification and Exploration of Business
Scenarios
◼ Business Models – Who is our customer, what is
his need, how do we generate profits
◼ Select the best scenario
 Define Project and Alternative Scenario
◼ Product/Service, Business Model, Location,
Inputs, Mfg. Process, Gestation …
 Relationship to the Surrounding Geographic
Area
◼ Economic, Environmental and Ecological impact
Hallmark Business School-Trichy 108
2. Market Feasibility (Strategy)
 Industry or Marketplace Description
◼ Size, scope, direction, stable/changing, life-
cycle, segments…
 Industry Competitiveness
◼ Major competitors, concentration, entry
barriers, bargaining power, price
 Specific Market Potential
◼ Emerging, niche, commoditized/branded,
segment / differentiation specific, share
 Access to Market Outlets
 Sales Projection.
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3. Technical Considerations
 Facility Needs
◼ M/c, Equipment, Dies & Moulds, Jigs &
Fixtures, Utilities, Infrastructural, MFA, Land &
Building
 Suitability of Production Technology
 Availability and Suitability of Site
◼ Roads, Telecom, Electricity, Water…
 Raw Materials
◼ Quality, Quantity, Cost, Access…
 Other Inputs
◼ Labour, Skill Level, Wage Rate…
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4. Financial Projections or Economic Feasibility
 Estimate the Total Capital Requirements
 Estimate Equity and Credit Needs
 Expected Costs and Returns
◼ Profitability ratios, GPM, NPM, EBIDTA,
Breakeven, Sensitivity
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5. Organization Structure and Managerial Feasibility
 Business Structure
◼ Legal form, Hierarchy, JV, Alliances…
 Business Founders and Management.
◼ Vision, Mission, Objectives
◼ Credit standing, Bona fide
◼ Qualification, Experience, Expertise.
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6. Evaluation Criteria
 Technical, Market, Organizational…
 Financial:
◼ Debt-Equity Ratio
◼ Debt Service Coverage Ratio
◼ Breakeven Point
◼ Sensitivity Analysis
◼ Return on Investment
◼ Earnings Per Share (EPS)
◼ Net Present Value (NPV)
◼ Internal Rate of Return (IRR).
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7. Study Conclusions
 This final step is the “go/no go” decision
 Course of Action:
◼ Choosing the most viable business scenario or model and
then developing that scenario’s business plan
◼ Identifying additional scenarios for further study
◼ Deciding that a viable business opportunity is not available
and moving to end the business investigation process
◼ Following another course of action.
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UNIT-3 Business Plan Preparation
 Sources of Product for Business
 Prefeasibility Study
 Criteria for Selection of Product
 Ownership
 Capital Budgeting
 Project Profile Preparation
 Matching Entrepreneur with the Project
 Feasibility Report Preparation and Evaluation
Criteria.
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Unit 3-Business Plan Preparation
Completed!
Unit 4
Launching of Small Business
UNIT-4 Launching of Small Business
 Finance and Human Resource Mobilization
 Operations Planning
 Market and Channel Selection
 Growth Strategies
 Product Launching
 Incubation, Venture capital, Start-ups.
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4.1 Finance and Human Resource Mobilization
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Finance Mobilization
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Sources of Finance
Internal
Owner’s Capital
Family & Friends
Personal Loan
Retained Earnings
External
Term Loan
WC Loan
Hire Purchase /
Leasing
Seed Capital
Subsidy
Capital Structure
 The composition of equity and debt in the capital
of an enterprise is called ‘Capital Structure’
 It is the ratio between debt and equity (DER)
 Capital structure refers to only long-term sources
of funds
 Financial structure refers to how the firm’s assets
are financed by raising funds from both long-term
and short-term sources.
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Long-term Loans (LTL)
 LTL are taken for a duration of 5 to 15 years
 LTL are used for capital assets such as:
◼ Land (including site development)
◼ Building and civil works
◼ Plant and machinery
◼ Installation expenses and
◼ Miscellaneous fixed assets
 Sources of raising LTL are:
◼ Financial Institutions, Commercial Banks
◼ Debentures
◼ Public Deposits
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Short-term Loans (STL)
 STL are obtained for a period up to one year
 Required for day-to-day business operations
 i.e. meeting the working capital
requirements of the business
 Sources of short-term funds are:
◼ Loans from Commercial Banks
◼ Trade Credit
◼ Bill Discounting & Factoring
◼ Bank Overdraft & Cash Credit
◼ Advances from Customers.
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Hire Purchase
 In hire purchase, the purchaser agrees to
pay the price in certain number of
instalments
 The hire vendor retains the ownership of the
goods until last instalment is paid and…
 … then transfers the ownership to the
purchaser
 The instalments paid consists of principal
and interest payments
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Leasing
 A contract where the owner of the asset
(called ‘Lessor’)…
 grants to another party (called lessee)…
 the exclusive right to use the asset for an
agreed period of time…
 for the payment of rent.
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Hire Purchase Vs Leasing
 HP instalments – Principal + Interest
 Leasing – Only Rent for use of asset
 HP – Option to buy the asset
 Leasing – No such option is provided
 HP – Only interest component is revenue exp.
 Leasing – The entire rent paid is revenue exp.
 HP – Ownership passes on to hirer on last payment
 Leasing – Ownership does not pass on after the last
instalment.
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Factoring
 Factoring is an arrangement under which the
‘Factor’ undertakes the task of collecting the book
debts of its clients in return for a service charge
 Factoring involves sale of receivables to
specialized firm called Factors
 Factors advance cash against receivables to clients
 Factors collect receivables on behalf of clients
 Factor also provides protection to clients from bad
debts.
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Human Resource
Mobilization
Meaning of HR Mobilization
 Human resource mobilization means:
◼ the recruitment and bringing together of
human resources
◼ for a collective action designed to enhance the
firm’s performance.
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Meaning of HR Mobilization …
 It is the process by which an entrepreneur
ensures that he has the:
◼ right number of people
◼ right kind of people (with appropriate skills)
◼ at the right place and
◼ the right time to do work
and are economically the most suitable.
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HR Sourcing Process
1. Identifying Job Requirements
▪ Job Analysis, Job Description and Job
Specification
2. Recruitment
3. Selection
4. Training & Development
5. Determining Remuneration
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1. Identifying Job Requirements
 Job Analysis
◼ Skill, qualification, duties & responsibilities, job
title, department, relationship with other jobs,
types of material and equipment used, mental
and manual dexterity, working condition
 Job Description
◼ Deals with what, why, when and how tasks are
to be performed
◼ A written statement of work conditions, time
involvement and job responsibilities
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1. Identifying Job Requirements…
 Job Specification
◼ Salient features of the person to be recruited
in the specific job like their knowledge, skills,
experience, qualities of leadership, decision
making abilities, etc.
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2. Recruitment
 Internal Sources
◼ Promoting existing employee
 External Sources
◼ Employees Referrals
◼ Recommendations
◼ Unsolicited Applications
◼ Advertisements
◼ Gate hiring
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3. Selection
 Involves matching job requirements with the
profile of the candidate
 Selection process involves:
◼ Preliminary Interview
◼ Application Screening
◼ Psychological Test (aptitude, performance)
◼ References
◼ Personal Interview
◼ Placement and
◼ Orientation.
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4. Training & Development
 Objectives of Training are to:
◼ Improve job performance
◼ Prepare employees to discharge new
responsibilities
◼ Impart skills on how to operate machinery or
equipment
◼ Reduce wastage and avoid accidents
◼ Develop a second line for succession
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4. Training & Development …
 Methods of Training:
◼ On-the-job training
• Demonstration
• Performance
• Inspection
◼ Apprenticeship Training
◼ Job Rotation
◼ Outside Training
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4.2 Operations Planning
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UNIT-4 Launching of Small Business
 Finance and Human Resource Mobilization
 Operations Planning
 Market and Channel Selection
 Growth Strategies
 Product Launching
 Incubation, Venture capital, Start-ups.
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Meaning of ‘Operations’
 The term production management is more
used for a system where tangible goods are
produced
 Operations management is used to refer to
both service organizations and
manufacturing enterprises
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Some Types of Process
 A PROCESS is any activity or group of activities that take one or more
inputs, transforms them, adds value to them, and provides an output for
a customer
Factory
Airline
School
Hospital
Physical or chemical change of
raw materials into products
Movement of Passengers &
luggage
Education of students
Healing of sick and wounded
patients
Plant & Machinery
Aircrafts, Airports
Class Rooms
Operation Theatre,
Lab, MEE, Patient
Rooms
Business Process Facility
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Value Addition- What it Means?
Value added
Inputs
Land
Labor
Capital
Transformation/
Conversion
Process
Outputs
Goods
Services
Control
Feedback
Feedback
Feedback
The difference between the cost of inputs
and the value or price of outputs
27
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Operations Planning
1. Demand Forecasting
2. Capacity Planning
3. Facility Location
4. Facility Layout
5. Material Requirements Planning
6. Manufacturing Resource Planning
7. Enterprise Resource Planning
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1. Demand Forecasting
 Systematic methods to know the future by
scientific analysis based on facts and
possible consequences is called forecasting
 Demand/Sales forecasting is the basis of
planning various activities such as:
◼ Production, Pricing, Personnel, etc.
 Forecasting Methods
◼ Survey of Buyers’ intentions, Sales force
opinion, Executive judgment, Expert opinion,
Market test and Trend projection.
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2. Capacity Planning (CP)
 Objective of CP is to match the level of
operations to the level of demand
 CP should consider future growth and
expansion plans, market trends, sales
forecasting, etc.
 Capacity is usually expressed as volume of
output per period of time
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3. Facility Location
 Determining where the plant should be
located for maximum operating economy
and effectiveness
 To adopt a systematic step-by-step method
◼ Country, region, locality and the exact site
 Location choices is influenced by:
◼ Availability of RM, Labour, Power, Transport
◼ Nearness to Market
◼ Suitability of Climate
◼ Government Policy
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4. Facility Layout
 Layout of facility refers to:
◼ the configuration of departments, WorkCentres
and equipment and machinery
◼ with focus on the flow of materials or work
◼ through the production system
 Types of Layout
◼ Process or Functional Layout
◼ Product or Flow-line Layout
◼ Project or Fixed-position Layout
◼ Mixed or Combined Layout
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Example 1: Process Layout (Function)
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Example 2: Process Layout (Function)
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Example 1: Product Layout (Flow-line)
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Example 2: Product Layout (Flow-line)
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Example: Mixed or Combined Layout
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Example 1: Project Layout (Fixed-position)
Ship Building
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Example 2: Project Layout (Fixed-position)
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5. Material Requirements Planning
 MRP is a technique of determining the
Quantity and Timing of RM needed to meet
the production schedule
 Objectives of MRP are:
◼ Inventory reduction
◼ Reduction in the mfg. and delivery lead times
◼ Realistic delivery commitments
◼ Increased efficiency
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6. Manufacturing Resource Planning (MRP)
 MRP breaks down the Business Plan into
specific tasks that people agree to execute
and are held accountable for
 It involves all departments viz.:
◼ Materials
◼ Engineering
◼ Sales & marketing
◼ Purchasing and
◼ Manufacturing
 MRP lays the basic foundation for shop-
floor control.
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7. Enterprise Resource Planning
 ERP is a BPM software package developed for
optimum use of resources in a planned manner
 ERP integrates the entire enterprise starting from
the supplier to the customer
 This will enable the enterprise to increase
productivity by reducing costs
 Once the ERP is implemented, a single solution
addresses the information needs of the whole
organization.
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4.3 Market and Channel Selection
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What is a Market?
 A market is the set of actual and potential
buyers of a product or service
 These buyers share a particular need or want
that can be satisfied through exchange
relationships
 Originally a market was a physical place where
buyers and sellers gathered
 Today it can be over phone, the Internet, email,
etc.
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What is Marketing?
 Marketing means managing markets to
bring about profitable customer
relationships
 Activities such as:
◼ Consumer Research
◼ Product Development
◼ Communication
◼ Distribution
◼ Pricing and
◼ Service
are core marketing activities.
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Modern Marketing System
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Each party in the
system adds ‘value’ Arrows represent relationships
vital for adding ‘value’
Concept of ‘Sales’ Vs ‘Marketing’
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Marketing Management
 What customers will we serve? -target market and
 How can we serve these customers best? -value
proposition
 The market will be divided into segments of
customers (market segmentation) and…
… segments to be focused will be selected (target
marketing)
 Simply put, marketing management is customer
management and demand management.
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Value Proposition
 They answer the customer’s question:
◼ Why should I buy your brand rather than a
competitor’s?
 A brand’s value proposition is the set of
benefits or values it promises to deliver to
consumers to satisfy their needs
 Value proposition is derived from how the
brand is going to differentiate and position
itself in the marketplace
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Possible Value Propositions
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Differentiation
 It is the process of distinguishing a product
or service from others
 To make it more attractive to a particular
target market
 To create a competitive advantage
 It is not just standing out from the
competition, but also standing above too
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Marketing-mix
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Positioning
 The way a product is defined by consumers
on important attributes
 The place it occupies in consumers’ minds
relative to competing products
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Positioning Map : Large SUVs
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Segment & Segmentation
 A market segment consists of a group of
consumers who respond in a similar way to a
given set of marketing efforts
 Market segmentation refers to dividing a
market into distinct groups of buyers who
have:
◼ different needs, characteristics, or behaviors
◼ and who might require separate marketing
strategies or mixes
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Marketing Strategy
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Marketing Channels
 A set of interdependent organizations that
help make a product or service available for
end-user.
 Also known as Distribution Channels
 Channel Functions:
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▪ Information ▪ Negotiation
▪ Promotion ▪ Physical distribution
▪ Contact ▪ Financing
▪ Matching ▪ Risk taking
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The Digital Channels Revolution
 Online retail store or e-commerce has been
growing at double digit rate
 Customers expect seamless channel integration so
they can:
◼ Enjoy helpful customer support in a store, online,
or on the phone
◼ Check online for product availability at local stores
before making a trip
◼ Order a product online and pick it up at a
convenient retail location
◼ Return a product purchased online to a nearby
store of the retailer…
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Flows in Marketing Channel
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Channel Selection Decisions
 To select a marketing channel system,
marketers analyze:
◼ customer needs and wants
◼ establish channel objectives and constraints and
◼ Identify / evaluate major channel alternatives
 Location and Geographic concentration of
customers affect channel selection
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Evaluating Channel Alternatives
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Breakeven Cost
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Channel Selection
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Channel Selection …
 Marketing Factors
◼ Customer preferences
◼ Channel intermediaries acceptance
◼ Channel margins
◼ Blitzkrieg
 Manufacturer Factors
◼ Financial strength
◼ Core competence
◼ Lack of managerial bandwidth
◼ Fear of losing control over pricing, promotion..
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Channel Selection …
 Product Factors
◼ Large and Bulky products – Direct Selling
◼ Perishables – Direct selling
 Competitive Factors
◼ Competitors clout
 Channel Integration
◼ Minimal in independent distributorship
◼ Maximum in wholly-owned distributorship
◼ In-between in franchise operation
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4.4 Growth Strategies
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Why Grow?
 Why business enterprises need to grow?
 To gain strength and stamina
 To enable the firm to face competition,
challenges, recession, etc.
 Need to adopt appropriate technology
 To handle complexity and rigmarole
 Entrepreneur’s craving for social recognition
 Growth is vital for ‘Survival’
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What is Growth?
 How does growth manifest?
 Increase in:
◼ Sales turnover
◼ Volume of output (Economies of Scale)
◼ Product / Service range (Economies of Scope)
◼ Geographical presence
◼ No. of Customers served
◼ … …
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Economies of Scale
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Economies of Scope
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Growth Strategies:
Where to Look for
Growth Opportunities ?
Based on Knowledge of Product and / or Market
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1. Penetration Strategies
 Focus on existing product in its existing
market
 A strategy to grow by encouraging existing
customers to buy more of the firm’s current
products
 Ex: Offering discounts for buying more…
(quantity discounts) to grab market share
from competitors
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2. Market Development Strategies
 Involve selling existing products to new
groups of customers
 New Groups of Customers can be
categorized in terms of:
◼ Geographics
◼ Demographics and / or
◼ New use of the product
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3. Product Development Strategies
 Involve developing and selling new products
to people who are already purchasing the
firm’s existing products
 Leverage existing:
◼ Customer knowledge
◼ Distribution system
◼ Reputation
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4. Diversification Strategies
 Involve selling a new product to a new
Market
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Vertical Integration
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4.5 Product Launching
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Launch Process
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4.6 Incubation, Venture capital, Start-ups
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What is Incubation?
 Business incubation is a unique and highly
flexible combination of:
◼ business development processes
◼ infrastructure and
◼ people
designed to nurture new and small
businesses by helping them to…
… survive and grow through the difficult
and vulnerable early stages of development.
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Incubation Services
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Venture Capital
 Venture capital (VC) is financial capital provided
to early-stage, high-growth, startup companies
 The venture capital firm earns money by owning
equity in those companies
 Firms having innovative technology or business
model are preferred
 VCs can provide large sums of money, business
advice and contacts for the startup firms to become
successful
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Venture Capital …
 VCs require the following features in the startups:
◼ Rapid, steady sales growth
◼ A proprietary new technology or dominant position in an
emerging market
◼ A sound management team
◼ The potential for being acquired by a larger company or
getting listed in the stock exchange
 Venture Capital Types:
◼ Seed financing, start-up financing, second-stage
financing, bridge financing, and leveraged buyout.
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Venture Capital …
 Types of Venture Capital Firms:
◼ Private Venture Capital Partnerships
◼ Industrial Venture Capital Pools
◼ Investment Banking Firms
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Startups
 A startup is a young company:
◼ that is beginning to develop and grow
◼ is in the first stages of operation, and
◼ is usually financed by an individual or small
group of individuals
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Startup Ecosystem
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Effective Operational Management of Startups
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Startup Funding Process
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UNIT-4 Launching of Small Business
 Finance and Human Resource Mobilization
 Operations Planning
 Market and Channel Selection
 Growth Strategies
 Product Launching
 Incubation, Venture capital, Start-ups.
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Unit 4- Launching of Small Business
Completed!
Unit 5
Management of Small Business
UNIT-5 Management of Small Business
 Monitoring and Evaluation of Business
 Business Sickness
◼ Prevention and Rehabilitation of Business Units
 Effective Management of Small Business
 Case Studies.
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5.1 Monitoring and Evaluation of Business
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Monitoring Vs Evaluation
 Monitoring is the continuous and systematic
assessment of activities to determine whether they
are proceeding as planned
 Evaluation involves periodic and time-bound
assessment of activities towards achievement of
results, milestones and outcomes
 Both M & E are focusing on:
◼ What is being done?
◼ How it is being done?
◼ Whether the plans are working? and
◼ When circumstances has changed?
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What is Monitoring?
 Monitoring is designed to provide constant
feedback on:
◼ the progress of a project / process
◼ the problems it is facing and
◼ the efficiency with which it is being
implemented
 It enables you to determine:
◼ whether the resources available are sufficient
and are being well used
◼ whether the capacity you have is sufficient and
◼ whether you are doing what you planned to do.
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What is Evaluation?
 Evaluation relies on data generated through
monitoring of activities, as well as
information obtained from other sources
 Evaluation:
◼ tracks the actual performance against what
was targeted
◼ by collecting and analyzing data on the
indicators
◼ according to pre-determined standards.
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Objectives of M & E
 M&E focus on the following common
objectives w.r.t the process / project:
◼ Relevance
◼ Efficiency
◼ Effectiveness
◼ Impact
◼ Sustainability
◼ Causality
◼ Alternative strategy.
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Balanced Scorecard (BSC)
 BSC links long-term strategy with goals and
actions
 BSC allows to evaluate the firm from 4
perspectives:
◼ Financial Performance
◼ Customer Knowledge
◼ Internal Business Processes and
◼ Learning & Growth
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Balanced Scorecard (BSC)…
 A properly constructed BSC is ‘Balanced’
between:
◼ Short and long-term measures
◼ Financial and non-financial measures
◼ Internal and external performance perspectives
 BSC was developed by Robert S Kaplan and
David P Norton.
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Balanced
Scorecard
5.2 Business Sickness
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What is Industrial Sickness?
 Sickness is easy to understand, but difficult
to define
 It is a relative term
 Sick industry is one which is not healthy
 A healthy unit is one which earns reasonable
profit, i.e. RoCE…
 … and which builds up reserves.
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Definition of Industrial Sickness
 According to the RBI (1989):
◼ Incurred cash losses for one year and is likely
to incur cash losses for the current and next
years
◼ And has imbalances in its financial structure
 Financial Structure:
◼ Current ratio of less than 1:1 and worsening
DER i.e. the ratio of total outside liabilities to
the net worth and
◼ Cumulative losses exceed capital and reserves.
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Definition of Industrial Sickness …
 Thus, RBI’s emphasis is on Profitability,
Liquidity and Solvency
 According to the Sick Industrial Companies
(Special Provisions) Act of GoI (SICA) 1985:
◼ An industrial company (>7 years of age)
◼ which at the end of any FY has accumulated
losses => its net worth and
◼ has also suffered cash losses in the FY
immediately preceding such FY
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Definition of Industrial Sickness …
 According to SBI’s Report on Small Scale
Industry Advances (1975) a sick unit is:
◼ “One which fails to generate internal surplus
on a continuing basis and
◼ Depends on its survival upon frequent infusion
of external funds”
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Weak Industrial Unit
 According to SBI’s Report (1975):
 A Weak Unit:
◼ is one that has at the end of any AY accumulated
losses =>50% of its net worth in the
immediately preceding 5 AYs
◼ A current ratio of less than 1:1 and
◼ Suffers a cash loss in the immediately preceding
AY
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Current RBI Guidelines
 A small enterprise is considered to be sick if:
◼ Principal or interest in respect of any of its
borrowal accounts has remained overdue for a
period exceeding one year
OR
◼ There is erosion in the net worth due to
accumulated cash losses to the extent of 50%
of its net worth during the previous AY
AND
◼ The unit has been in commercial production for
atleast two years
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Incipient Sickness of MSME
 As per RBI, an MSME is in incipient sickness /
potential sickness, if any of the following events
are triggered:
◼ There is delay in commencement of commercial
production by more than 6 months
◼ The company incurs losses for two years or cash loss for
one year
◼ The capacity utilization is less than 50% of the projected
level in terms of quantity or the sales are less than 50%
of the projected level in terms of value
Hallmark Business School-Trichy 18
Rule of Thumb for Sickness
Hallmark Business School-Trichy 19
Healthy
Unit
• 1. Cash: Positive
• 2. Net Working Capital: Positive
• 3. Net Worth: Positive
Tending
Towards
Sickness
• 1. Cash: Negative
• 2. Net Working Capital: Positive
• 3. Net Worth: Positive
Incipient
Sickness
• Two or more Negatives
Sickness
• All are Negative
Signals of Sickness
 Decline in capacity utilization
 Shortage of liquid funds
 Excessive inventories
 Irregularity in bank accounts
 Frequent breakdowns in plants
 Decline in quality of products
 Delay or default in payment of dues
 Frequent turnover over of personnel
Hallmark Business School-Trichy 20
Causes of Industrial Sickness
Hallmark Business School-Trichy 21
Causes of
Sickness
External
Causes
Internal
Causes
External Causes of Sickness
 Changes in the industrial policies
 Scarcity of inputs like RM, Power, HR
 Lack of demand for the product
 Recessionary trends
 Technological obsolescence
 Industrial strikes, unrest
 Shortage of financial resources
 Natural calamities
Hallmark Business School-Trichy 22
Internal Causes of Sickness
 Working capital shortage
 Lack of demand / Marketing problems
 Non-availability of RM
 Technical/Operational problems
 Labour problems
 Power shortage
 Management problems
Hallmark Business School-Trichy 23
Consequences of Sickness
 Financial losses to Banks and FIs
 Loss of employment
 Emergence of industrial unrest
 Wastage of scarce resources
 Loss of revenue to Government
 Adverse effect on prospective investors
Hallmark Business School-Trichy 24
Business Sickness
Hallmark Business School-Trichy 25
Prevention and Rehabilitation
of Business Units
Hallmark Business School-Trichy 26
Prevention of Sickness
Prevention of Sickness
 Proper project planning
 Appropriate location of project
 Ensuring availability of RM, labor &
technical staff
 Arranging finance at reasonable rates
 Systematic Market Analysis
Hallmark Business School-Trichy 27
Prevention of Sickness …
 Scientific demand forecasting
 Study of opportunities & threats
 Assessing Consumer tastes & preferences
 Selecting the right marketing channel
 Competent management
 Good performance reporting System
Hallmark Business School-Trichy 28
Government Remedial Measures
 Proper monitoring and control of operations
 Setting up common facilities and infrastructure
 Support for technology upgradation
 Identification of sickness at the incipient stage
 Evolving yardsticks to detect sickness at an
early stage
 Providing training
 Rehabilitation funding
 Liquidation
Hallmark Business School-Trichy 29
Hallmark Business School-Trichy 30
Rehabilitation of Sick Units
Industrial Reconstruction Corporation of India
(IRCI - 1971)
 The GoI set up IRCI in 1971 to:
◼ reconstruct and restructure the financial base as
well as the management of the assisted units
◼ Providing financial assistance and technical/
managerial guidance.
 The control measures adopted by IRCI
include:
◼ Transfer of major shares in the name of IRCI
◼ Appointment of IRCI nominees in the Board,
personnel in key managerial post
◼ Frequent plant and factory inspections
Hallmark Business School-Trichy 31
Industrial Reconstruction Bank of India
(IRBI - 1985)
 IRCI was reconstituted as IRBI in 1985
under the IRBI Act, 1984
◼ With the primary purpose of rehabilitating and
reconstructing ailing industrial concerns
◼ Act as the principal credit and reconstruction
agency for industrial revival
◼ Take over the management, lease out or sell the
sick undertaking as a running concern or
◼ Prepare schemes of merger or amalgamation and
submit them for Central Government’s approval
Hallmark Business School-Trichy 32
SICA - 1985
 In 1985, the Sick Industrial Companies
(Special Provisions) Act was passed
◼ In SICA, the Government removed sick
industrial companies from the purview of the
MRTP Act, for purposes of modernization,
expansion, amalgamation or merger
◼ Where the net worth has been substantially
eroded, FIs have been directed to stop
assistance to the units concerned
◼ The Act also provides for the setting up of a
board of experts for industrial and financial
reconstruction.
Hallmark Business School-Trichy 33
BIFR - 1987
 The Board for Industrial and Financial
Reconstruction
 This is the most significant step by GoI to
curb industrial sickness
◼ The sick firm should report to BIFR within 60
days of finalization of audited accounts
◼ Banks/FIs who have lent and RBI, Central/
State governments can also report to BIFR
◼ BIFR will enquire, verify with stakeholders and
declare sickness within 60 days
Hallmark Business School-Trichy 34
BIFR – Rehabilitation Process
 Establish ‘potential viability’
 That is, after availing relief over 5 years, the
firm should be able to start repaying from 6th
year onwards
 Units becoming sick due to:
◼ Willful mismanagement
◼ Willful default
◼ Diversion of funds
◼ Disputes among partners / promoters
will not be considered for rehabilitation
Hallmark Business School-Trichy 35
BIFR – Relief and Concessions
 Waiver of penal interest
 Interest free funding of overdue interest
 Reduction in term loan interest rates upto 2%
 Working Capital Term Loan for overdrawn
principal at up to 3% lower rate of interest
 Funding of cash losses at reduced rates
 Additional working capital at minimum
lending rate
Hallmark Business School-Trichy 36
BIFR – Relief and Concessions…
 Contingency loan assistance for meeting
escalation in rehabilitation plan cost
 Funds for startup expenses and margin
money for working capital
 Promoters’ contribution at 20% of long-term
rehabilitation package to be brought in.
Hallmark Business School-Trichy 37
Fresh RBI Guidelines
 Consortium banks must participate in the
rehabilitation package also
 If workers plan to takeover the sick unit by
forming a cooperative it should be actively
supported
 Banks can sell their ‘sticky’ debts or NPAs
to other banks at a discount
Hallmark Business School-Trichy 38
Fresh RBI Guidelines …
 Scheme for the grant of excise loan:
◼ Sick units are eligible for excise loan
◼ not exceeding 50% of the excise duty actually
paid for 5 years
◼ subject to the ceiling of 33% of the total cost
of the rehabilitation
Hallmark Business School-Trichy 39
5.3 Effective Management of Small
Business
Hallmark Business School-Trichy 40
Effective Management of SME
Hallmark Business School-Trichy 41
Managing an Entrepreneurial Business
 Create a business plan
 Separate personal and business finances
 Determine funding requirements correctly
 Hire the right people
 Train the employees
 Invest in marketing
 Learn to delegate
 Communicate Effectively
 Cope with Dynamic Environment
Hallmark Business School-Trichy 42
Responsibilities of Small Business Owner
 Design and implement the company’s budget
 Set sales goals and ensure that the team is on track
to achieving them
 Handle production, marketing and administrative
functions
 Recruit, hire and train new employees
 Manage inventory and make purchase decisions
 Ensure the day-to-day operations are running
smoothly
 Ensure financial goals of the business are being
achieved.
Hallmark Business School-Trichy 43
UNIT-5 Management of Small Business
 Monitoring and Evaluation of Business
 Business Sickness
◼ Prevention and Rehabilitation of Business Units
 Effective Management of Small Business
 Case Studies.
Hallmark Business School-Trichy 44
Unit 5- Management of Small Business
&
BA4032 – Entrepreneurship Development
Course
Completed!
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Success in your Exams!

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BA4032-Entrepreneurship-Development-PPT.pdf

  • 2. UNIT-1 Entrepreneurial Competence  Entrepreneurship Concept  Entrepreneurship as a Career  Entrepreneurial Personality  Characteristics of Successful Entrepreneurs  Knowledge and Skills of an Entrepreneur. Hallmark Business School-Trichy 2
  • 3. UNIT-2 Entrepreneurial Environment  Business Environment  Role of Family and Society  Entrepreneurship Development Training ◼ Other Support Organizational Services  Central and State Government Industrial Policies and Regulations. Hallmark Business School-Trichy 3
  • 4. UNIT-3 Business Plan Preparation  Sources of Product for Business  Prefeasibility Study  Criteria for Selection of Product  Ownership  Capital Budgeting  Project Profile Preparation  Matching Entrepreneur with the Project  Feasibility Report Preparation and Evaluation Criteria. Hallmark Business School-Trichy 4
  • 5. UNIT-4 Launching of Small Business  Finance and Human Resource Mobilization  Operations Planning  Market and Channel Selection  Growth Strategies  Product Launching  Incubation, Venture capital, Start-ups. Hallmark Business School-Trichy 5
  • 6. UNIT-5 Management of Small Business  Monitoring and Evaluation of Business  Business Sickness ◼ Prevention and Rehabilitation of Business Units  Effective Management of Small Business  Case Studies. Hallmark Business School-Trichy 6
  • 7. BA 4032 – Course Objectives  To equip and develop the learners’ entrepreneurial skills and qualities essential to undertake business  To impart the learners entrepreneurial competencies needed for managing business efficiently and effectively. Hallmark Business School-Trichy 7
  • 8. BA 4032 – Course Outcomes  After the completion of the course, the students: 1. Will gain entrepreneurial competence to run the business efficiently. 2. Are able to undertake businesses in the entrepreneurial environment 3. Are capable of preparing business plans and undertake feasible projects. 4. Are efficient in launching and develop their business ventures successfully 5. Shall monitor the business effectively towards growth and development. Hallmark Business School-Trichy 8
  • 10. EBETi – Faculty of Management 10 Resources Knowledge Skill Ability Capability Competence Distinctive Competence Competitive Advantage SCA How to Develop Sustainable Competency
  • 11. 1.1 Entrepreneurship Concept Hallmark Business School-Trichy 11
  • 12. Concept of Entrepreneurship  The concept of entrepreneurship is elusive  Psychologist / Behavioral Scientist see it as: ◼ “the need for achievement, perceived locus of control, and risk-taking propensity Hallmark Business School-Trichy 12
  • 13. David C McClelland Achievement Orientation An Indispensable Need NAch
  • 14. 14 Achievement Oriented Competencies  Initiative  Sees and Acts on Opportunities  Persistence  Information Seeking  Concern for High Quality of Work  Commitment to Work Contract  Efficiency Orientation
  • 15. 15 Achievement Oriented Competencies …  Systematic Planning  Problem Solving  Self-Confidence  Assertiveness  Persuasion  Use of Influence Strategies
  • 16. Locus of Control Hallmark Business School-Trichy 16
  • 17. Locus of Control… Hallmark Business School-Trichy 17
  • 18. Concept of Entrepreneurship…  The Economist looks at it as: ◼ “bringing together the factors of production (land, labor, capital, and entrepreneur) and bearing the risk of uncertainty” Hallmark Business School-Trichy 18
  • 22. Concept of Entrepreneurship…  While the sociologist views it as: ◼ the ability to recognize and act upon market opportunities in order to provide social services. ◼ Are Business Opportunities ‘Discovered’ or ‘Created’? Hallmark Business School-Trichy 22
  • 23. Concept of Entrepreneurship…  According to Joseph A Schumpeter: ◼ “Entrepreneurship is based on purposeful and systematic innovation. ◼ It includes not only the independent businessman but also the company directors and managers who actually carry out innovative functions.” Hallmark Business School-Trichy 23
  • 24. GRG School of Management Studies 24 Innovation Process
  • 25. Concept of Entrepreneurship…  ‘The willingness and ability of an individual to seek out investment opportunities in an environment and be able to establish and run an enterprise successfully’  ‘The process of creating something different with value by devoting the necessary time and effort, assuming the accompanying financial, psychological and social risk, and receiving the resulting rewards of monetary and personal satisfaction’ Hallmark Business School-Trichy 25
  • 26. Concept of Entrepreneurship…  ‘An attempt to create value through recognition of business opportunities, communicative, and management skills to mobilize human, financial and material resources necessary to bring a project to function’  ‘The process of identifying, developing and bringing a vision to life. The vision may be an innovative idea, an opportunity, or simply a better way to do something. The end result of this process is the creation of a new venture, formed under conditions of risk and considerable uncertainty’ Hallmark Business School-Trichy 26
  • 27. Concept of Entrepreneurship…  Basic Elements of Concept of Entrepreneurship are:  Innovation  Risk-Bearing  Discovery/Creativity  Vision  Organization Hallmark Business School-Trichy 27
  • 28. Concept of Entrepreneurship… Hallmark Business School-Trichy 28
  • 29. Concept of Entrepreneurship… Hallmark Business School-Trichy 29
  • 30. Concept of Entrepreneurship… Hallmark Business School-Trichy 30
  • 31. 1.2 Entrepreneurship as a Career Hallmark Business School-Trichy 31
  • 33. The Difference Salaried Employment  Self-saturation  Limited Scope  Routine or Status Quo  Fixed Earnings, Given  Satisfaction through compliance of rules  Status is ‘Employee’ Self-Employment  Self-actualization  Unlimited Scope  Imaginative, creative, innovative  Generate Flexible Earnings  Satisfaction by transforming creativity in to reality  Status is ‘Employer’ Hallmark Business School-Trichy 33
  • 34. Charms of being an Entrepreneur  Opportunity to create one’s own destiny  Opportunity to make a difference  Opportunity to reach one’s full potential  Opportunity to reap impressive profits  Opportunity to contribute to the society  Opportunity to do what one enjoys Hallmark Business School-Trichy 34
  • 35. 1.3 Entrepreneurial Personality Hallmark Business School-Trichy 35
  • 36. Personality Types of Entrepreneurs  The Improver ◼ Using the company as a means to improve the world ◼ Companies working on a noble cause will be rewarded  The Advisor ◼ High level of assistance and advice to customers  The Superstar ◼ The business is centered around the charisma and high energy of the entrepreneur Hallmark Business School-Trichy 36
  • 37. Personality Types of Entrepreneurs  The Artist ◼ Reserved but highly creative. Business built around the entrepreneur’s unique talents & capabilities  The Visionary ◼ High degree of curiosity to understand the world around and set-up plans to avoid landmines  The Analyst ◼ Focus on fixing problems in a systematic way. Often the basis for science, engineering or computer firms. Hallmark Business School-Trichy 37
  • 38. Personality Types of Entrepreneurs  The Fireball ◼ Full of life, energy and optimism. Customers feel the company has a ‘Just do it’ attitude in a playful manner.  The Hero ◼ Incredible ability to lead the world and business through any challenge to create great companies.  The Healer ◼ Provide nurturing and harmony to business with an uncanny ability to survive and persist with an inner calm. Hallmark Business School-Trichy 38
  • 39. 1.4 Characteristics of Successful Entrepreneurs Hallmark Business School-Trichy 39
  • 40. Characteristics  Hard Work  Desire for High Achievement  Self-imposed standard of excellence  Highly Optimistic  Independence  Foresight  Good Organizer  Innovative  Perseverance  Team Spirit Hallmark Business School-Trichy 40
  • 41. 1.5 Knowledge and Skills of an Entrepreneur Hallmark Business School-Trichy 41
  • 43. Competency = Competence + Commitment Competence Characteristics  Technical Knowledge  Functional Information  Business Knowledge  Communication Skills  Interpersonal Skills  Leadership Skills  Team Building Skills  Decision Making Skills  Time Management Skills Commitment Characteristics  Self Confidence  Self Motivation  Honesty and Integrity  Determination  Positive Attitude  Winning Attitude  Learn from Mistakes  Perseverance  Enterprising  Result Oriented Hallmark Business School-Trichy 43
  • 44. UNIT-1 Entrepreneurial Competence  Entrepreneurship Concept  Entrepreneurship as a Career  Entrepreneurial Personality  Characteristics of Successful Entrepreneurs  Knowledge and Skills of an Entrepreneur. Hallmark Business School-Trichy 44
  • 47. UNIT-2 Entrepreneurial Environment  Business Environment  Role of Family and Society  Entrepreneurship Development Training ◼ Other Support Organizational Services  Central and State Government Industrial Policies and Regulations. Hallmark Business School-Trichy 2
  • 48. 2.1 Business Environment Hallmark Business School-Trichy 3
  • 52. External Environment - Micro Hallmark Business School-Trichy 7
  • 53. External Environment - Macro Hallmark Business School-Trichy 8
  • 54. External Environment – Macro…  Political ◼ Political Atmosphere, Quality of Leadership  Economic ◼ Economic Policies, Labour, Trade, Tariffs, Incentives, Subsidies  Social ◼ Consumer, Labour, Attitudes, Opinions, Motives Hallmark Business School-Trichy 9
  • 55. External Environment – Macro…  Technological ◼ Competition and Risk, Efficiency, Productivity, Profitability  Environmental ◼ Pollution, carbon emission, biodegradability  Legal ◼ Rules, Regulations, Taxation, IPR, RTI, CSR  Cultural ◼ Structure, Aspirations And Values Hallmark Business School-Trichy 10
  • 56. 2.2 Role of Family and Society Hallmark Business School-Trichy 11
  • 57. Family Support to Entrepreneurs Source: The Bank of America Small Business Owner Report Hallmark Business School-Trichy 12
  • 58. Society Support to Entrepreneurship Hallmark Business School-Trichy 13
  • 60. Types of Support Hallmark Business School-Trichy 15 Family / Societal Support Operational Support Financial Support Emotional Support
  • 61. Typical Roles Played  Take on roles as advisers, employees, partners, investors, etc. for free or at subsidized cost  Providing business financial support as a gift  Providing interest free loan to fund their business  Provide personal financial support Hallmark Business School-Trichy 16
  • 62. Typical Roles Played…  Be a customer and buy goods and services from the entrepreneur  Refer the entrepreneurs product / service to others and thus play the role of a ‘brand ambassador’  Volunteer operational help  Provide emotional support Hallmark Business School-Trichy 17
  • 65. Role and Relevance of EDP Hallmark Business School-Trichy 20
  • 66. Objectives of EDP  Develop and strengthen the entrepreneurial quality, i.e., motivation and need for achievement  Analyze the environment relating to small business  Select the product  Formulate project proposal Hallmark Business School-Trichy 21
  • 67. Objectives of EDP… …  Understand the procedure involved in setting up a small enterprise  Know the sources of information and support available for starting a small business  Acquire the necessary managerial skills to run a small business Hallmark Business School-Trichy 22
  • 68. Entrepreneurship Development Process Hallmark Business School-Trichy 23 Confidence Building Through Entrepreneurial Lab Idea Lab, Industry Interface Opportunity Identification and Selection Business Plan, DPR Preparation Mentoring & Guidance Funding Enterprise Launching Business Management Sustenance & Growth
  • 69. 1.1 Pre-training Phase 1.3 Post-training Phase 1.2 Training Phase Phases in Conducting EDP
  • 70. Selection of Entrepreneurs 1.1 – Pre-training Arrangement of Infrastrucute Tie-up with guest faculty for training Arrangement for Inauguration and Promotion Review of Pre-training work How to set up a small business Business Plan Preparation Review of past trining approach Review of Training Process 1.2 - Training 1.3 – Post-training Phases in Conducting EDP Pre-potential survey of opportunities in the region Achievement Motivation Training Opportunity Guidance
  • 71. Selection Procedure for EDP Trainees Analysis of Application Form Psychological Tests Group Planning Exercise Personal Interview Training Experience Education Achievement Motivation Risk Propensity Personal Efficacy Leadership Quality Planning Ability Organizing Ability Team Spirit Commitment to Task Decision Making Social Participation Knowledge Project Involvement
  • 72. Problems of EDPs  Trainer’s motivations in hand-holding trainees to start their own enterprise is low  ED organizations lack in commitment and sincerity in conducting the EDPs  Non-conducive environment and constraints make the trainer-motivator’s role ineffective  Banks, FIs and other organizations involved are unwilling to take risk in supporting entrepreneurial ventures. Hallmark Business School-Trichy 27
  • 73. Support Organizational Services  NSIC-National Small Industries Corporation  SIDO-Small Industries Development Organization  SSIB-Small Scale Industries Board  SSIDC-State Small Industries Development Corporations  SISI-Small Industries Service Institute  DIC-District Industries Centre  Special Institutions  Industrial Estates  TCO-Technical Consultancy Organization Hallmark Business School-Trichy 28
  • 74. Hallmark Business School-Trichy 29 Organization Services NSIC ▪ Machinery on hire purchase scheme ▪ Equipment leasing ▪ Credit support ▪ Marketing support for export and within India ▪ Preference in government purchase programs ▪ Technology support and upgradation ▪ Distribute basic raw material ▪ Training on various industrial trades ▪ Undertake construction of industrial estates SIDO ❖ Coordinate policies and programs of governments ❖ Industrial development ❖ Extension services such as technical, consultancy & training SSIB • Development of SSI in the country SSIDC ➢ Procure and distribute scarce raw material ➢ Supply machinery on hire purchase ➢ Marketing assistance ➢ Construct industrial estates and allied infrastructure ➢ Management assistance
  • 75. Hallmark Business School-Trichy 30 Organization Services SISI ✓ Provide consultancy and training ✓ Interface between state and central governments ✓ Provide technical, consultancy, training and workshops support ✓ Carry out industrial potential surveys ✓ Conduct EDPs ✓ Initiate promotional programs DIC  District level single window agency for promotional and development of SSI  Conduct industrial potential & techno-economic surveys  Implement schemes of state and central governments  Guide entrepreneurs on all aspects of their project  Project appraisal  Marketing assistance
  • 76. Hallmark Business School-Trichy 31 Organization Services Special Institutions  Central Institute of Tool Design, Hyderabad  Central Tool Room Training Centers  Central Institute of Hand Tools, Jalandhar  Institute for Design of Electrical Measuring Instruments, Mumbai  National Institute of Entrepreneurship and Small Business Development, Noida  National Institute of Small Industries Extension Training, Hyderabad  Electronics Training and Services Institute, Nainital  Central Machine Tools Limited, Bangalore  Central Institute of Plastics Engineering and Tools, Chennai  National Institute of Foundry and Forging Technology, Ranchi Industrial Estates  Provide infrastructure and accommodation facilities  Encourage development of SSI  Decentralize industries to the rural and backward area  Encourage ancillaries around major industries  Develop entrepreneurship by creating a favorable climate
  • 77. Hallmark Business School-Trichy 32 Organization Services TCO  Prepare project profiles and feasibility studies  Undertake industrial potential surveys  Provide technical and management assistance  Project supervision  Export consultancy  Conduct EDPs  Merchant Banking Services
  • 78. 2.4 Central and State Government Industrial Policies and Regulations Hallmark Business School-Trichy 33
  • 79. SSI Development Objectives  Generation of immediate employment with low investment  Promotion of more equitable distribution of national income  Effective mobilization of untapped capital and human skills  Dispersal of manufacturing activities Hallmark Business School-Trichy 34
  • 80. Industrial Policy Resolution (IPR)  First framed in the year 1948  Subsequently revised and improved in:  In August 1991, the GoI, for the first time, framed “Policy measures for Promoting and Strengthening and Supplementing Small, Tiny and Village Enterprises”  In 2006, the GoI set up a separate Ministry of Micro Small and Medium Enterprises (MSME) and enacted “MSME Development Act” Hallmark Business School-Trichy 35 ▪1956 ▪1977 ▪1980 ▪1990 ▪1991 ▪2006
  • 81. MSME Definition (Sept. 2006)  In calculating the investment in plant and machinery, the cost of pollution control, research and development, industrial safety devices, etc may be excluded. Hallmark Business School-Trichy 36 Manufacturing Enterprises Criterion – Investment in Plant & Machinery Micro Enterprises Investment up to Rs. 25 Lakhs Small Enterprises Investment above Rs. 25 Lakhs and up to Rs. 5 Crores Medium Enterprises Investment above Rs. 5 Crores and up to Rs. 10 Crores Service Enterprises Criterion – Investment in Equipment Micro Enterprises Investment up to Rs. 10 Lakhs Small Enterprises Investment above Rs.10 Lakhs and up to Rs. 2 Crores Medium Enterprises Investment above Rs. 2 Crores and up to Rs. 5 Crores
  • 82. MSME Definition (July 2020) * Investment means investment in P&M or Equipment  In calculating the investment in plant and machinery, the cost of pollution control, research and development, industrial safety devices, etc may be excluded.  https://msme.gov.in/know-about-msme Hallmark Business School-Trichy 37 Mfg. & Service Enterprises Criterion Micro Enterprises Investment* does not exceed Rs. 1 Crore and turnover does not exceed Rs. 5 Crores Small Enterprises Investment* does not exceed Rs. 10 Crores and turnover does not exceed Rs. 50 Crores Medium Enterprises Investment* does not exceed Rs. 50 Crores and turnover does not exceed Rs. 250 Crores
  • 83. Salient Features of MSME Act, 2006  Recognition of the concept of ‘Enterprise’ comprising both manufacturing and service sectors  Integrating the 3 tiers of these enterprises, viz., Micro, Small and Medium  Statutory consultative mechanism at the national level comprising stakeholders from all 3 tiers Hallmark Business School-Trichy 38
  • 84. Salient Features of MSME Act, 2006 … …  Establishing funds for promotion, development and enhancing competitiveness of these enterprises  Progressive credit policies and practices  Preference in government procurements  Mitigating the problems of delayed payments  Simplification of the process of closure of business Hallmark Business School-Trichy 39
  • 86. Package for Micro & Small Enterprises  Promotional Package  Fiscal Support  Support for Cluster Based Development  Technology and Quality Upgradation Support  Marketing Support  Support for Entrepreneurial and Managerial Development  Empowerment of Women Owned Enterprises  Strengthening of PMRY Scheme  Strengthening of Data Base for MSME Sector Hallmark Business School-Trichy 41
  • 87. Tax Benefits  Tax Holiday  Depreciation  Rehabilitation Allowance  Investment Allowance  Expenditure on Scientific Research  Amortization of Preliminary Expenses  Tax Concession for Rural Areas Hallmark Business School-Trichy 42
  • 88. Tax Benefits … …  Tax Concession to SSIs in Backward Areas  Expenditure on Acquisition of Patents and Copyrights  Profits from Business of Publication of Books Hallmark Business School-Trichy 43
  • 89. Incentives and Concessions for SSI  Exemption of excise duty limit raised from Rs. 50 lakhs to Rs. 100 lakhs  The composite loan limit raised from Rs. 10 lakhs to Rs. 25 lakhs  Small scale service and business enterprise up to Rs. 10 lakhs will qualify for priority lending  In the National Equity Fund Scheme, the project cost limit is raised from Rs. 25 lakhs to Rs. 50 lakhs Hallmark Business School-Trichy 44
  • 90. Incentives and Concessions for SSI  Eligibility limit for coverage under Credit Guarantee Scheme is raised from Rs. 10 lakhs to Rs. 25 lakhs  Capital subsidy is provided at 12% for investment in technology in selected sectors  Setting up of incubation centers in sunrise industries such as IT, biotechnology, electronics, non-conventional energy sources will be supported  Family income level under PMRY has been raised from Rs. 24,000 to Rs. 40,000 per annum Hallmark Business School-Trichy 45
  • 92. UNIT-2 Entrepreneurial Environment  Business Environment  Role of Family and Society  Entrepreneurship Development Training ◼ Other Support Organizational Services  Central and State Government Industrial Policies and Regulations. Hallmark Business School-Trichy 47
  • 94. Unit 3 Business Plan Preparation
  • 95. UNIT-3 Business Plan Preparation  Sources of Product for Business  Prefeasibility Study  Criteria for Selection of Product  Ownership  Capital Budgeting  Project Profile Preparation  Matching Entrepreneur with the Project  Feasibility Report Preparation and Evaluation Criteria. Hallmark Business School-Trichy 2
  • 96. 3.1 Sources of Product for Business Hallmark Business School-Trichy 3
  • 97. What is a Business Idea?  An entrepreneurial idea should be: ◼ Practically Possible ◼ Technically Feasible ◼ Economically Viable ◼ Financially Profitable ◼ Socially Acceptable and ◼ Environment Friendly  Importantly, the idea shall have utility to prospective customers. Hallmark Business School-Trichy 4
  • 98. Sources of Business Ideas  Customers ◼ Survey among existing and prospective customers  Existing Businesses ◼ Study their product features and capacity utilization  Distribution Channels ◼ Channel members can suggest improvements or completely new products Hallmark Business School-Trichy 5
  • 100. Sources of Business Ideas… …  Government ◼ Patents filed ◼ Government regulations, Industrial policy, incentives, etc. ◼ Govt organizations bring out publications  FIs and Development Agencies ◼ Provide ready projects and details on that  Research & Development ◼ Entrepreneur’s own R&D, formal or garage type Hallmark Business School-Trichy 7
  • 102. Sources of Business Ideas… …  Trade Fairs & Exhibitions ◼ Showcase new technologies, innovations, new m/c, processes  Focus Groups ◼ A moderator leads a group of people through an open, in-depth discussion to elicit ideas  Collective Notebook Method ◼ Members record ideas three times a day ◼ End of the month, a list of the best ideas is developed from suggestions Hallmark Business School-Trichy 9
  • 103. Sources of Business Ideas… …  Brainstorming ◼ No criticism is allowed, no negative comments ◼ Freewheeling is encouraged ◼ Quantity of ideas is desired ◼ Combinations and improvements of ideas are encouraged  Heuristics Ideation Technique (HIT) ◼ Short-cut to processing voluminous of data ◼ Ex: Trial and error, a rule of thumb or an educated guess. Hallmark Business School-Trichy 10
  • 104. Sources of Business Ideas… …  Checklist Method ◼ Put to other uses? New ways to use as is? Other uses if modified? ◼ Adapt? What else is like this? What other ideas does this ‘ suggest? Does the past offer parallel? ◼ Modify? New twist? Change meaning, sour, motion, odor, form, shape? Other changes? ◼ Magnify? What to add? More time? Greater frequency? Stronger? Larger? Thicker? Extra value? Plus ingredient? Duplicate? Multiply? Exaggerate? Hallmark Business School-Trichy 11
  • 105. Sources of Business Ideas… … ◼ Minify? What substitute? Smaller? Condensed? Miniature? Lower? Shorter? Lighter? Omit? Streamline? Split up? Understated? ◼ Substitute? What else instead? Another ingredient? Other material? Another process? Other power? Other places? Other approaches? ◼ Rearrange? Interchange components? Other Pattern? Other layouts? Other sequences? Transpose cause and effect? Change schedule? Hallmark Business School-Trichy 12
  • 106. Sources of Business Ideas… … ◼ Reverse? Transpose positive and negative? How about opposites? Turn it backward? Turn it upside-down? Reverse roles? Change shoes? Turntables? Turn other cheeks? ◼ Combine? How about a bend, an alloy, an assortment, an ensemble? Combine units? Combine purposes? Combine /appeals? Combine ideas? Hallmark Business School-Trichy 13
  • 108. Sources of Business Ideas… …  Dream Approach ◼ Think big on the new idea ◼ Don’t impose any constraint ◼ Then bring it to workable form  Market Gap Analysis  Life-style Analysis Method ◼ It involves measuring consumers’ major: ▪ Activities (work, hobbies, shopping, sports, social events) ▪ Interests (food, fashion, family, recreation) and ▪ Opinions (about themselves, social issues, business, products). Hallmark Business School-Trichy 15
  • 109. 3.2 Prefeasibility Study Hallmark Business School-Trichy 16
  • 110. What is a Pre-feasibility Study (PFS)?  A PFS is a rough screening of the business ideas generated in the previous stage  Aim is to identify the most promising idea(s) and discard the unattractive options  This reduces the number of options thus saving time and money  Often, the pre-feasibility study returns only one most promising option.  PFS is conducted for the purpose of determining whether the idea is worth pursuing. Hallmark Business School-Trichy 17
  • 112. Objectives of PFS  The objectives of a PFS are to determine whether: ◼ All possible project alternatives have been examined ◼ The project concept justifies a further detailed analysis ◼ The project idea is attractive enough for investment Hallmark Business School-Trichy 19
  • 113. Nature of a PFS  A pre-feasibility study should be viewed as an intermediate stage between a project opportunity study and a detailed feasibility study  The structure of a pre-feasibility study should be the same as that of feasibility study  The difference is in the degree of detail of the information obtained and the intensity with which project alternatives are discussed Hallmark Business School-Trichy 20
  • 114. Business Idea Progression Hallmark Business School-Trichy 21
  • 115. Pre-feasibility Analysis Process Hallmark Business School-Trichy 22
  • 116. Benefits of a PFS  Improves project team focus  Provides valuable information for the “go/no go” decision  Narrows the business alternatives  At times, helps to discover new opportunities  Identifies the valid reason(s) to undertake the project Hallmark Business School-Trichy 23
  • 117. Benefits of a PFS… …  Outline various business scenarios and the strengths and weaknesses of each  Determines whether a full-blown feasibility study is warranted  Enhances the success rate through evaluating multiple parameters  Aids decision-making on the project  Identifies reasons to not proceed Hallmark Business School-Trichy 24
  • 118. PFS is the Foundation for FS Hallmark Business School-Trichy 25
  • 119. PFS Focus  Technical Feasibility  Market Feasibility  Organizational Feasibility  Financial Feasibility Hallmark Business School-Trichy 26
  • 120. Reasons Given for not Doing a PFS/FS  We know it’s feasible… an existing business is already doing it  Why do another feasibility study when one was done just a few years ago?  The market analysis has already been done by the business that is going to sell us the equipment  … … … Hallmark Business School-Trichy 27
  • 121. Reasons to Conduct a PFS/FS  Gives focus to the project and outline alternatives  Enhances the probability of success  Provides quality information for decision making  Provides documentation that the business venture was thoroughly investigated  Helps in securing funding from FIs, Banks or equity investors. Hallmark Business School-Trichy 28
  • 122. FS Vs Business Plan  Timing ◼ FS is conducted before the ‘go/no-go’ decision ◼ BP is prepared after the ‘go/no-go’ decision  Function ◼ FS provides Investigative function ◼ BP provides Planning function  No. of Projects ◼ FS is done on several projects to select one ◼ BP is done on the one project selected Hallmark Business School-Trichy 29
  • 124. 3.3 Criteria for Selection of Product Hallmark Business School-Trichy 31
  • 125. Factors to be Considered  Does it fulfill a felt ‘Need’ or a ‘Want’?  Does it give an edge over other products in the market? ◼ Product Differentiation (better) ◼ Speed (faster) ◼ Cost Leadership(cheaper)  Product Acceptance (research and testing)  Future of the Product (obsolescence) Hallmark Business School-Trichy 32
  • 126. Factors to be Considered … …  Demand-supply gap (price sensitivity)  Project Feasibility  Value Proposition  Government Policies and Support Hallmark Business School-Trichy 33
  • 127. Selection Criteria  Technical Criteria  Market Criteria  Organizational Criteria  Financial Criteria Hallmark Business School-Trichy 34
  • 128. Technical Criteria  Determine facility needs: m/c, equipment, h/w, s/w, auxiliary equipment…  Suitability of production technology  Availability and suitability of: ◼ Project site ◼ Raw material ◼ Other inputs such as power, gas, furnace oil… ◼ Labour  Identify points of vulnerability Hallmark Business School-Trichy 35
  • 129. Market Criteria  Determine: ◼ Market demand and the price at which demanded ◼ Industry structure ◼ Industry Competition ◼ Market potential ◼ Access to market outlets ◼ Market share & Sales projection Hallmark Business School-Trichy 36
  • 130. Organizational Criteria  Determine: ◼ Human resource required and their skills ◼ Organizational structure ◼ Background of Promoters ◼ Competency of Management ◼ Legal form of the organization Hallmark Business School-Trichy 37
  • 131. Financial Criteria  Profit and loss projection: ◼ A 12 month P&L projection ◼ A 5 year P&L projection  Cash-flow projection  Projected balance sheet  Breakeven calculation  List of assumptions made in the P&L Hallmark Business School-Trichy 38
  • 133. 3.4 Ownership Hallmark Business School-Trichy 40
  • 135. Basis for Selection of Ownership Form  Number of promoters  Nature of business  Capital considerations  Tax structure  Promoter liability  Compliance burden Hallmark Business School-Trichy 42
  • 136. Basis for Selection of Ownership Form …  Cost and ease of setting up the organization  Management ability  Business continuity  Degree of control  Exit strategy Hallmark Business School-Trichy 43
  • 137. Factors Influencing Choice of Form Hallmark Business School-Trichy 44
  • 138. Tax Implications  Proprietorship – Taxed as individual, based on the total income of the proprietor  Partnership, OPC and LLP – Profits are taxed at 30%  Private Limited – 25.168% for existing and 17.16% for new, both without tax exemption; from 26% to 34.94% with tax exemption  Surcharge and Cess extra Hallmark Business School-Trichy 45
  • 140. Sole Proprietorship-Features  One-man Ownership  Full Control, no interference  Unlimited Liability  Sole risk bearer and profit recipient  Free from Government Regulations  No separate entity; proprietor & firm are identical Hallmark Business School-Trichy 47
  • 141. Sole Proprietorship-Pros & Cons Advantages  Ease of Formation  Direct Incentive  Complete Degree of Control  Quick in Decision Making  Flexibility in Operation  Confidentiality  Catering for Individual Tastes  Credit Standing  Low Government Regulation Disadvantages  Limited Resources  Limited Managerial Ability  Lack of business Continuity  Unlimited Liability Hallmark Business School-Trichy 48
  • 143. Features of Partnership Form  Contractual Relationship  Plurality of Persons – min 2, max 20 (50 from 2014)  Lack of business continuity  Sharing of Profits  Mutual Agency – both ‘agent’ & ‘principal’ Hallmark Business School-Trichy 50
  • 144. Partnership-Pros & Cons Advantages  Ease of Formation  Benefits of Larger Resources  Benefits of Combined Ability  Balanced Decision Making  Sharing of Risk  Confidentiality Disadvantages  Unlimited Liability  Limited Resources  Possibility of Conflict  Lack of Continuity  Lack of Public Confidence  Heavy Burden through Implied Authority Hallmark Business School-Trichy 51
  • 145. Types of Partners  Active Partner  Sleeping or Dormant Partner  Secret Partner  Nominal Partner  Partner by Estoppel  Partner by holding out Hallmark Business School-Trichy 52
  • 146. Implications of Partner Type Hallmark Business School-Trichy 53
  • 148. OPC –Features  A separate legal entity registered under the Companies Act, 2013  Director and Nominee Director have limited liability  Only 2 people viz. Director and Nominee Director  Ownership can be transferred Hallmark Business School-Trichy 55
  • 149. OPC –Features … …  Existence not dependent on the Director or Nominee Director  Could be dissolved only voluntarily or by Regulatory Authorities  No requirements to conduct annual statutory meetings  Must file annual accounts with the Registrar of Companies Hallmark Business School-Trichy 56
  • 151. LLP – Features  LLP will be registered with the Ministry of Corporate Affairs under the LLP Act, 2008  A separate legal entity  Limited Liability  Minimum 2 persons required to start  Can have unlimited number of partners  Foreign investment allowed with prior approval of RBI and FIPB Hallmark Business School-Trichy 58
  • 152. LLP – Features … …  Ownership can be transferred  Existence of a LLP is not dependent on the Partners  Could be dissolved only voluntarily or by an order of the Company Law Board  No requirements to conduct annual statutory meetings  Must file annual accounts & solvency Hallmark Business School-Trichy 59
  • 153. Features of Limited Company  Artificial Person ◼ Created by law ◼ Exists independent of its members ◼ Can own property, incur debts, borrow money, enter into contracts, sue and be sued  Separate Legal Entity ◼ Acquires an identity distinct from its members ◼ Its assets and liabilities are separate from those of its owners ◼ Law does not recognize the business and owners to be one and the same Hallmark Business School-Trichy 60
  • 154. Features of Limited Company …  Formation ◼ Time consuming ◼ Expensive and complicated process ◼ Involves the preparation of several documents and ◼ Compliance with several legal requirements  Perpetual Succession ◼ Members may come and members may go, but the company continues to exist  Control ◼ With Directors who are accountable to shareholders; but shareholders don’t have right in day-to-day operations of the company Hallmark Business School-Trichy 61
  • 155. Features of Limited Company …  Liability ◼ Limited to the extent of the members’ capital ◼ It is the company and not the members that owes debts ◼ Members must contribute to the loss only to the extent of the unpaid amount of share held by them  Common Seal ◼ The company being an artificial person cannot sign ◼ Therefore, every company is required to have its own seal which acts as official signature  Risk Bearing ◼ The risk of losses in a company is borne by all the shareholders Hallmark Business School-Trichy 62
  • 156. Limited Company –Pros & Cons Merits  Limited Liability  Transfer of Ownership  Perpetual Existence  Scope for Expansion  Professional Management Demerits  Complexity in Formation  Lack of Secrecy  Impersonal Work Environment  Numerous Regulations  Slow Decision Making  Oligarchic Management  Conflict of Interest Hallmark Business School-Trichy 63
  • 157. Difference Between a Public & Private Company Hallmark Business School-Trichy 64
  • 158. Cooperative Society  Cooperative means working together and with others for a common purpose  Is a voluntary association of persons  Motive is welfare of the members  Ten adult persons required to form a society  Capital raised from its members through issue of shares  Registration under the Cooperative Societies Act 1912 is compulsory  The society acquires a distinct legal identity after its registration Hallmark Business School-Trichy 65
  • 159. Features of Cooperative Society  Voluntary Membership  Legal Status  Limited Liability  Control by members elected through a democratic voting process  Service Motive; surplus distributed as dividend to members Hallmark Business School-Trichy 66
  • 160. Cooperative Society-Pros & Cons Merits  Equality in Voting Status  Limited Liability  Stable Existence  Economy in Operations  Support from Govt.  Ease of Formation Demerits  Limited Resource  Inefficiency in Mgmt.  Lack of Secrecy  Govt. Controls  Difference of Opinion Hallmark Business School-Trichy 67
  • 161. Types of Cooperative Societies  Consumers’ Cooperative Societies  Producers’ Cooperative Societies  Marketing Cooperative Societies  Farmers’ Cooperative Societies  Credit Cooperative Societies  Cooperative Housing Societies Hallmark Business School-Trichy 68
  • 162. 3.5 Capital Budgeting Hallmark Business School-Trichy 69
  • 163. What is Capital Budgeting?  Capital budgeting is the process of evaluating investments to get best returns  It is the process of deciding whether or not to invest in a particular project  The rate of return from the project should be more than the cost of financing that project  The expected cash inflows from the project are discounted at a rate equal to the cost of capital Hallmark Business School-Trichy 70
  • 165. Traditional Methods (Non-discounting Methods) ❖ These methods are based on the useful life of the project and its expected returns ❖ These methods depend upon accounting information ❖ These methods will not take into account the concept of ‘time value of money’ Hallmark Business School-Trichy 72
  • 166. Payback Period  Determines the length of time in which an investment pays back its original cost  Lower the payback period, better is the investment/project  Focus is on cost recovery or liquidity  Net returns before depreciation, but after taxes is taken for cashflows  𝑷𝒂𝒚𝒃𝒂𝒄𝒌 𝑷𝒆𝒓𝒊𝒐𝒅 = 𝑪𝒂𝒔𝒉 𝑶𝒖𝒕𝒍𝒂𝒚 𝑶𝑹 𝑶𝒓𝒊𝒈𝒊𝒏𝒂𝒍 𝑪𝒐𝒔𝒕 𝒐𝒇 𝑷𝒓𝒐𝒋𝒆𝒄𝒕 𝑨𝒏𝒏𝒖𝒂𝒍 𝑪𝒂𝒔𝒉 𝑰𝒏𝒇𝒍𝒐𝒘 Hallmark Business School-Trichy 73
  • 167. Payback Period - Limitations  It ignores all cash flow after the initial cash outflow has been recovered  It ignores the time value of money  It does not take into account the risk of the cash flows  Not consistent with the firm’s objective of maximizing the market value of shares Hallmark Business School-Trichy 74
  • 168. Accounting Rate of Return (ARR)  ARR is: ◼ the average net income an asset is expected to generate divided by ◼ its average capital cost 𝐴𝑅𝑅 = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑛𝑛𝑎𝑙 𝐼𝑛𝑐𝑜𝑚𝑒 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑛𝑛𝑢𝑎𝑙 𝐼𝑛𝑐𝑜𝑚𝑒 = 𝑇𝑜𝑡𝑎𝑙 𝑖𝑛𝑐𝑜𝑚𝑒 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥𝑒𝑠 𝑁𝑜. 𝑜𝑓 𝑦𝑒𝑎𝑟𝑠 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 = 𝑇𝑜𝑡𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 2 Hallmark Business School-Trichy 75
  • 169. Accounting Rate of Return …  All projects with ARR higher than the minimum rate are selected and  Projects with ARR lower than the expected minimum rate are rejected  This method can also help the management to rank the proposal on the basis of ARR Hallmark Business School-Trichy 76
  • 170. ARR – Limitations  Ignores time value of money  Doesn’t consider the length of life of the projects  Not consistent with the firm’s objective of maximizing the market value of shares Hallmark Business School-Trichy 77
  • 171. Modern Methods (Discounted Cashflow Methods) ❖ Calculates the cash inflow and outflow through the life of an asset ❖ These are then discounted through a discounting factor ❖ The discounted cash inflows and outflows are then compared ❖ Takes into account the interest factor and the return after the payback period Hallmark Business School-Trichy 78
  • 172. Net Present Value (NPV)  NPV is the present value of future returns, discounted at the required rate of return, minus the present value of the cost of the investment  Here, the cash inflow that is expected at different periods of time is discounted at a particular rate  The original investment is subtracted from the present value of the cash inflow. The balance is NPV  If NPV is positive(+) then the project is accepted or otherwise rejected. Hallmark Business School-Trichy 79
  • 173. Net Present Value (NPV) … … 𝑵𝑷𝑽 = 𝑨𝟏 (𝟏+𝒌)𝟏 + 𝑨𝟐 (𝟏+𝒌)𝟐 + 𝑨𝟑 (𝟏+𝒌)𝟑 + … … + 𝑨𝒏 (𝟏+𝒌)𝒏 -C = ෍ 𝒕=𝟏 𝑛 𝑨𝒕 (𝟏 + 𝒌)𝒕 − 𝐂  Where ◼ A1, A2…. represent cash inflows ◼ k is the firm’s cost of capital ◼ C is the cost of the investment proposal and ◼ n is the expected life of the proposal Hallmark Business School-Trichy 80
  • 174. NPV Method - Merits  It recognizes the time value of money  It is based on the entire cash flows generated during the useful life of the asset  It is consistent with the objective of maximization of wealth of the owners  The ranking of projects is independent of the discount rate used for determining the present value Hallmark Business School-Trichy 81
  • 175. NPV Method - Demerits  NPV is an absolute monetary measure of the project returns  Where two or more competing projects with different capital investments are to be evaluated, NPV may not be the right choice Hallmark Business School-Trichy 82
  • 176. Internal Rate of Return (IRR)  IRR is defined as the discount rate at which the present value of the stream of future benefits from a project is equal to the initial project outlay  Alternatively, at IRR, the discounted cash ‘inflow’ is equal to the initial cash ‘outflow’  This method considers time value of money  If IRR is more than the ‘hurdle rate’, then the project is accepted. Otherwise the project is rejected Hallmark Business School-Trichy 83
  • 177. IRR Formula 𝑪 = 𝑨𝟏 (𝟏 + 𝒓)𝟏 + 𝑨𝟐 (𝟏 + 𝒓)𝟐 + 𝑨𝟑 (𝟏 + 𝒓)𝟑 + ⋯ + 𝑨𝒏 (𝟏 + 𝒓)𝒏 𝑪 = ෍ 𝒕=𝟏 𝑛 𝑨𝒕 (𝟏 + 𝒓)𝒕  Where ◼ A1, A2…. represent cash inflows ◼ r is the IRR to be calculated based on trial-and-error ◼ C is the initial project outlay and ◼ n is the expected life of the project Hallmark Business School-Trichy 84
  • 178. IRR - Merits  It considers the time value of money  It takes into account the cash flows over the entire useful life of the asset  It helps to compare two are more projects and rank them on the basis of timing and magnitude of their returns  It conforms to the company’s objective of maximizing shareholders’ wealth Hallmark Business School-Trichy 85
  • 179. Profitability Index (PI)  It is the ratio of the present value of future cash benefits at the required rate of return to the initial cash outflow on the project  It may be gross or net PI. Net PI is simply gross PI minus one  The formula to calculate profitability index (PI) or benefit to cost (BC) ratio is as follows: Hallmark Business School-Trichy 86
  • 180. Profitability Index (PI) … …  PI or Benefit to Cost Ratio = Present Value of Future Cash Inflows Initial Cash Outlay  If the gross PI is more than one, the proposal is accepted else rejected  If there are more than one investment proposal with gross PI>1, then the one with the highest PI is be selected  This method is more useful incase of projects with different cash outlays and hence is superior to the NPV method. Hallmark Business School-Trichy 87
  • 181. PI - Merits  It requires less computational work than IRR method  It helps to accept / reject investment proposal on the basis of value of the index  It is useful to rank the proposals on the basis of the highest/lowest value of the index  It takes into consideration the entire stream of cash flows generated during the useful life of the asset Hallmark Business School-Trichy 88
  • 182. UNIT-3 Business Plan Preparation  Sources of Product for Business  Prefeasibility Study  Criteria for Selection of Product  Ownership  Capital Budgeting  Project Profile Preparation  Matching Entrepreneur with the Project  Feasibility Report Preparation and Evaluation Criteria. Hallmark Business School-Trichy 89
  • 183. 3.6 Project Profile Preparation Hallmark Business School-Trichy 90
  • 184. What is a Project Profile?  It gives a bird’s-eye view of the proposed project  Useful for: ◼ Obtaining Provisional Registration Certificate from DIC ◼ Applying for shed or land with SSIDC ◼ Applying for getting clearances from Government departments ◼ Develop inputs for preparing project report Hallmark Business School-Trichy 91
  • 185. Project Profile Content  Introduction  Promoters background  Management expertise  Product description  Market demand and strategy  Plant and machinery required  Details of infrastructure required Hallmark Business School-Trichy 92
  • 186. Project Profile Content … …  Manufacturing process  Raw materials required  Human resource requirement  Cost of the project and means of financing  Cost of production & Profitability  Break-even point  Bottle-necks / Challenges / Risk factors Hallmark Business School-Trichy 93
  • 188. 3.7 Matching Entrepreneur with the Project Hallmark Business School-Trichy 95
  • 189. Need for Matching  Entrepreneur’s: ◼ Personal choice and Preferences ◼ Aptitude and Interest ◼ Likes and Dislikes ◼ Values and Beliefs ◼ Cultural upbringing … affect the choice of business idea  This is in addition to the feasibility/viability aspects of the project discussed earlier  Entrepreneur’s character and the project’s nature should align well. Hallmark Business School-Trichy 96
  • 190. Aspects Necessitating Matching 1. Characteristics of the Product or Service 2. Ownership Form 3. Location of Project 4. Capital Structure 5. Technical Know-how 6. Market Served 7. Barriers to Success… Hallmark Business School-Trichy 97
  • 191. 1. Characteristics of the Product or Service  Fishing Trawler  ETP / STP  A Slaughter House  Scrap / Waste Material Aggregator  Running an Asylum  … Hallmark Business School-Trichy 98
  • 192. 2. Ownership Form  No. of promoters Vs Capital requirement  Limited Liability Vs Compliance burden  Control Vs Business Continuity  Ease of formation Vs Managerial bandwidth  … … …  Ex: Tata Sons, PwC, Amazon… Hallmark Business School-Trichy 99
  • 193. 3. Location of Project  Proximity generally preferred for startup venture  Government incentives  Availability of RM, HR, local demand, etc.  Locational Competitive Advantage (NLC)  Mines, Hydel, Tea Factories, Hill Resorts … Hallmark Business School-Trichy 100
  • 194. 4. Capital Structure  Own Equity  Private Equity  Public Equity  Debt  Subsidy  Incentives  Crowd-funding … Hallmark Business School-Trichy 101
  • 195. 5. Technical Know-how  Promoter’s technical skills  Cost of technical know-how  Product Vs Process (mfg.) technology  Inseparability ◼ Music Album Production ◼ Dance Academy. Hallmark Business School-Trichy 102
  • 196. 6. Market Served  Government Contracts - B2G ◼ Ex: Supplies to noon-meal scheme  Ancillary/Subcontract - B2B ◼ Ex: Auto Ancillaries, electronic sub-assemblies  Direct-to-customer - B2C  Government Scheme Implementation – G2C ◼ EDPs, DDU-GKY, Education, LPG, Petrol…  Customer-to-Customer – C2C ◼ eBay, AirBnB, Olx, Car24, MagicBricks, etc. Hallmark Business School-Trichy 103
  • 197. 7. Barriers to Success  License ◼ Mining, explosives, Desalination …  Certification / Accreditation ◼ Education, NABL, FSSAI …  Unionism  Technology Obsolescence  Cartels  Government Regulations (CRZ) … Hallmark Business School-Trichy 104
  • 198. Matching Factors  The entrepreneur needs to match the following factors with his profile, before deciding on the business opportunity: ◼ Suitability of technology/process know-how ◼ Acceptability of the degree of risk involved ◼ Backup during Gestation period ◼ Extent of competition’s aggression ◼ Manageability of capital investment ◼ Capability to meet Government regulations ◼ … … … Hallmark Business School-Trichy 105
  • 199. 3.8 Feasibility Report Preparation Hallmark Business School-Trichy 106
  • 200. Content of Feasibility Report 1. Description of the Product or Service 2. Market Feasibility (Strategy) 3. Technical Considerations 4. Financial Projections or Economic Feasibility 5. Organization Structure and Managerial Feasibility 6. Evaluation Criteria 7. Study Conclusions. Hallmark Business School-Trichy 107
  • 201. 1. Description of the Product or Service  Identification and Exploration of Business Scenarios ◼ Business Models – Who is our customer, what is his need, how do we generate profits ◼ Select the best scenario  Define Project and Alternative Scenario ◼ Product/Service, Business Model, Location, Inputs, Mfg. Process, Gestation …  Relationship to the Surrounding Geographic Area ◼ Economic, Environmental and Ecological impact Hallmark Business School-Trichy 108
  • 202. 2. Market Feasibility (Strategy)  Industry or Marketplace Description ◼ Size, scope, direction, stable/changing, life- cycle, segments…  Industry Competitiveness ◼ Major competitors, concentration, entry barriers, bargaining power, price  Specific Market Potential ◼ Emerging, niche, commoditized/branded, segment / differentiation specific, share  Access to Market Outlets  Sales Projection. Hallmark Business School-Trichy 109
  • 203. 3. Technical Considerations  Facility Needs ◼ M/c, Equipment, Dies & Moulds, Jigs & Fixtures, Utilities, Infrastructural, MFA, Land & Building  Suitability of Production Technology  Availability and Suitability of Site ◼ Roads, Telecom, Electricity, Water…  Raw Materials ◼ Quality, Quantity, Cost, Access…  Other Inputs ◼ Labour, Skill Level, Wage Rate… Hallmark Business School-Trichy 110
  • 204. 4. Financial Projections or Economic Feasibility  Estimate the Total Capital Requirements  Estimate Equity and Credit Needs  Expected Costs and Returns ◼ Profitability ratios, GPM, NPM, EBIDTA, Breakeven, Sensitivity Hallmark Business School-Trichy 111
  • 205. 5. Organization Structure and Managerial Feasibility  Business Structure ◼ Legal form, Hierarchy, JV, Alliances…  Business Founders and Management. ◼ Vision, Mission, Objectives ◼ Credit standing, Bona fide ◼ Qualification, Experience, Expertise. Hallmark Business School-Trichy 112
  • 206. 6. Evaluation Criteria  Technical, Market, Organizational…  Financial: ◼ Debt-Equity Ratio ◼ Debt Service Coverage Ratio ◼ Breakeven Point ◼ Sensitivity Analysis ◼ Return on Investment ◼ Earnings Per Share (EPS) ◼ Net Present Value (NPV) ◼ Internal Rate of Return (IRR). Hallmark Business School-Trichy 113
  • 207. 7. Study Conclusions  This final step is the “go/no go” decision  Course of Action: ◼ Choosing the most viable business scenario or model and then developing that scenario’s business plan ◼ Identifying additional scenarios for further study ◼ Deciding that a viable business opportunity is not available and moving to end the business investigation process ◼ Following another course of action. Hallmark Business School-Trichy 114
  • 208. UNIT-3 Business Plan Preparation  Sources of Product for Business  Prefeasibility Study  Criteria for Selection of Product  Ownership  Capital Budgeting  Project Profile Preparation  Matching Entrepreneur with the Project  Feasibility Report Preparation and Evaluation Criteria. Hallmark Business School-Trichy 115
  • 209. Unit 3-Business Plan Preparation Completed!
  • 210. Unit 4 Launching of Small Business
  • 211. UNIT-4 Launching of Small Business  Finance and Human Resource Mobilization  Operations Planning  Market and Channel Selection  Growth Strategies  Product Launching  Incubation, Venture capital, Start-ups. Hallmark Business School-Trichy 2
  • 212. 4.1 Finance and Human Resource Mobilization Hallmark Business School-Trichy 3
  • 213. Hallmark Business School-Trichy 4 Finance Mobilization
  • 214. Hallmark Business School-Trichy 5 Sources of Finance Internal Owner’s Capital Family & Friends Personal Loan Retained Earnings External Term Loan WC Loan Hire Purchase / Leasing Seed Capital Subsidy
  • 215. Capital Structure  The composition of equity and debt in the capital of an enterprise is called ‘Capital Structure’  It is the ratio between debt and equity (DER)  Capital structure refers to only long-term sources of funds  Financial structure refers to how the firm’s assets are financed by raising funds from both long-term and short-term sources. Hallmark Business School-Trichy 6
  • 216. Long-term Loans (LTL)  LTL are taken for a duration of 5 to 15 years  LTL are used for capital assets such as: ◼ Land (including site development) ◼ Building and civil works ◼ Plant and machinery ◼ Installation expenses and ◼ Miscellaneous fixed assets  Sources of raising LTL are: ◼ Financial Institutions, Commercial Banks ◼ Debentures ◼ Public Deposits Hallmark Business School-Trichy 7
  • 217. Short-term Loans (STL)  STL are obtained for a period up to one year  Required for day-to-day business operations  i.e. meeting the working capital requirements of the business  Sources of short-term funds are: ◼ Loans from Commercial Banks ◼ Trade Credit ◼ Bill Discounting & Factoring ◼ Bank Overdraft & Cash Credit ◼ Advances from Customers. Hallmark Business School-Trichy 8
  • 218. Hire Purchase  In hire purchase, the purchaser agrees to pay the price in certain number of instalments  The hire vendor retains the ownership of the goods until last instalment is paid and…  … then transfers the ownership to the purchaser  The instalments paid consists of principal and interest payments Hallmark Business School-Trichy 9
  • 219. Leasing  A contract where the owner of the asset (called ‘Lessor’)…  grants to another party (called lessee)…  the exclusive right to use the asset for an agreed period of time…  for the payment of rent. Hallmark Business School-Trichy 10
  • 220. Hire Purchase Vs Leasing  HP instalments – Principal + Interest  Leasing – Only Rent for use of asset  HP – Option to buy the asset  Leasing – No such option is provided  HP – Only interest component is revenue exp.  Leasing – The entire rent paid is revenue exp.  HP – Ownership passes on to hirer on last payment  Leasing – Ownership does not pass on after the last instalment. Hallmark Business School-Trichy 11
  • 221. Factoring  Factoring is an arrangement under which the ‘Factor’ undertakes the task of collecting the book debts of its clients in return for a service charge  Factoring involves sale of receivables to specialized firm called Factors  Factors advance cash against receivables to clients  Factors collect receivables on behalf of clients  Factor also provides protection to clients from bad debts. Hallmark Business School-Trichy 12
  • 222. Hallmark Business School-Trichy 13 Human Resource Mobilization
  • 223. Meaning of HR Mobilization  Human resource mobilization means: ◼ the recruitment and bringing together of human resources ◼ for a collective action designed to enhance the firm’s performance. Hallmark Business School-Trichy 14
  • 224. Meaning of HR Mobilization …  It is the process by which an entrepreneur ensures that he has the: ◼ right number of people ◼ right kind of people (with appropriate skills) ◼ at the right place and ◼ the right time to do work and are economically the most suitable. Hallmark Business School-Trichy 15
  • 225. HR Sourcing Process 1. Identifying Job Requirements ▪ Job Analysis, Job Description and Job Specification 2. Recruitment 3. Selection 4. Training & Development 5. Determining Remuneration Hallmark Business School-Trichy 16
  • 226. 1. Identifying Job Requirements  Job Analysis ◼ Skill, qualification, duties & responsibilities, job title, department, relationship with other jobs, types of material and equipment used, mental and manual dexterity, working condition  Job Description ◼ Deals with what, why, when and how tasks are to be performed ◼ A written statement of work conditions, time involvement and job responsibilities Hallmark Business School-Trichy 17
  • 227. 1. Identifying Job Requirements…  Job Specification ◼ Salient features of the person to be recruited in the specific job like their knowledge, skills, experience, qualities of leadership, decision making abilities, etc. Hallmark Business School-Trichy 18
  • 228. 2. Recruitment  Internal Sources ◼ Promoting existing employee  External Sources ◼ Employees Referrals ◼ Recommendations ◼ Unsolicited Applications ◼ Advertisements ◼ Gate hiring Hallmark Business School-Trichy 19
  • 229. 3. Selection  Involves matching job requirements with the profile of the candidate  Selection process involves: ◼ Preliminary Interview ◼ Application Screening ◼ Psychological Test (aptitude, performance) ◼ References ◼ Personal Interview ◼ Placement and ◼ Orientation. Hallmark Business School-Trichy 20
  • 230. 4. Training & Development  Objectives of Training are to: ◼ Improve job performance ◼ Prepare employees to discharge new responsibilities ◼ Impart skills on how to operate machinery or equipment ◼ Reduce wastage and avoid accidents ◼ Develop a second line for succession Hallmark Business School-Trichy 21
  • 231. 4. Training & Development …  Methods of Training: ◼ On-the-job training • Demonstration • Performance • Inspection ◼ Apprenticeship Training ◼ Job Rotation ◼ Outside Training Hallmark Business School-Trichy 22
  • 232. 4.2 Operations Planning Hallmark Business School-Trichy 23
  • 233. UNIT-4 Launching of Small Business  Finance and Human Resource Mobilization  Operations Planning  Market and Channel Selection  Growth Strategies  Product Launching  Incubation, Venture capital, Start-ups. Hallmark Business School-Trichy 24
  • 234. Meaning of ‘Operations’  The term production management is more used for a system where tangible goods are produced  Operations management is used to refer to both service organizations and manufacturing enterprises Hallmark Business School-Trichy 25
  • 235. Some Types of Process  A PROCESS is any activity or group of activities that take one or more inputs, transforms them, adds value to them, and provides an output for a customer Factory Airline School Hospital Physical or chemical change of raw materials into products Movement of Passengers & luggage Education of students Healing of sick and wounded patients Plant & Machinery Aircrafts, Airports Class Rooms Operation Theatre, Lab, MEE, Patient Rooms Business Process Facility Hallmark Business School-Trichy 26
  • 236. Value Addition- What it Means? Value added Inputs Land Labor Capital Transformation/ Conversion Process Outputs Goods Services Control Feedback Feedback Feedback The difference between the cost of inputs and the value or price of outputs 27 Hallmark Business School-Trichy
  • 237. Operations Planning 1. Demand Forecasting 2. Capacity Planning 3. Facility Location 4. Facility Layout 5. Material Requirements Planning 6. Manufacturing Resource Planning 7. Enterprise Resource Planning Hallmark Business School-Trichy 28
  • 238. 1. Demand Forecasting  Systematic methods to know the future by scientific analysis based on facts and possible consequences is called forecasting  Demand/Sales forecasting is the basis of planning various activities such as: ◼ Production, Pricing, Personnel, etc.  Forecasting Methods ◼ Survey of Buyers’ intentions, Sales force opinion, Executive judgment, Expert opinion, Market test and Trend projection. Hallmark Business School-Trichy 29
  • 239. 2. Capacity Planning (CP)  Objective of CP is to match the level of operations to the level of demand  CP should consider future growth and expansion plans, market trends, sales forecasting, etc.  Capacity is usually expressed as volume of output per period of time Hallmark Business School-Trichy 30
  • 240. 3. Facility Location  Determining where the plant should be located for maximum operating economy and effectiveness  To adopt a systematic step-by-step method ◼ Country, region, locality and the exact site  Location choices is influenced by: ◼ Availability of RM, Labour, Power, Transport ◼ Nearness to Market ◼ Suitability of Climate ◼ Government Policy Hallmark Business School-Trichy 31
  • 241. 4. Facility Layout  Layout of facility refers to: ◼ the configuration of departments, WorkCentres and equipment and machinery ◼ with focus on the flow of materials or work ◼ through the production system  Types of Layout ◼ Process or Functional Layout ◼ Product or Flow-line Layout ◼ Project or Fixed-position Layout ◼ Mixed or Combined Layout Hallmark Business School-Trichy 32
  • 242. Example 1: Process Layout (Function) Hallmark Business School-Trichy 33
  • 243. Example 2: Process Layout (Function) Hallmark Business School-Trichy 34
  • 244. Example 1: Product Layout (Flow-line) Hallmark Business School-Trichy 35
  • 245. Example 2: Product Layout (Flow-line) Hallmark Business School-Trichy 36
  • 246. Example: Mixed or Combined Layout Hallmark Business School-Trichy 37
  • 247. Example 1: Project Layout (Fixed-position) Ship Building Hallmark Business School-Trichy 38
  • 248. Example 2: Project Layout (Fixed-position) Hallmark Business School-Trichy 39
  • 249. 5. Material Requirements Planning  MRP is a technique of determining the Quantity and Timing of RM needed to meet the production schedule  Objectives of MRP are: ◼ Inventory reduction ◼ Reduction in the mfg. and delivery lead times ◼ Realistic delivery commitments ◼ Increased efficiency Hallmark Business School-Trichy 40
  • 250. 6. Manufacturing Resource Planning (MRP)  MRP breaks down the Business Plan into specific tasks that people agree to execute and are held accountable for  It involves all departments viz.: ◼ Materials ◼ Engineering ◼ Sales & marketing ◼ Purchasing and ◼ Manufacturing  MRP lays the basic foundation for shop- floor control. Hallmark Business School-Trichy 41
  • 251. 7. Enterprise Resource Planning  ERP is a BPM software package developed for optimum use of resources in a planned manner  ERP integrates the entire enterprise starting from the supplier to the customer  This will enable the enterprise to increase productivity by reducing costs  Once the ERP is implemented, a single solution addresses the information needs of the whole organization. Hallmark Business School-Trichy 42
  • 252. 4.3 Market and Channel Selection Hallmark Business School-Trichy 43
  • 253. What is a Market?  A market is the set of actual and potential buyers of a product or service  These buyers share a particular need or want that can be satisfied through exchange relationships  Originally a market was a physical place where buyers and sellers gathered  Today it can be over phone, the Internet, email, etc. Hallmark Business School-Trichy 44
  • 254. What is Marketing?  Marketing means managing markets to bring about profitable customer relationships  Activities such as: ◼ Consumer Research ◼ Product Development ◼ Communication ◼ Distribution ◼ Pricing and ◼ Service are core marketing activities. Hallmark Business School-Trichy 45
  • 255. Modern Marketing System Hallmark Business School-Trichy 46 Each party in the system adds ‘value’ Arrows represent relationships vital for adding ‘value’
  • 256. Concept of ‘Sales’ Vs ‘Marketing’ Hallmark Business School-Trichy 47
  • 257. Marketing Management  What customers will we serve? -target market and  How can we serve these customers best? -value proposition  The market will be divided into segments of customers (market segmentation) and… … segments to be focused will be selected (target marketing)  Simply put, marketing management is customer management and demand management. Hallmark Business School-Trichy 48
  • 258. Value Proposition  They answer the customer’s question: ◼ Why should I buy your brand rather than a competitor’s?  A brand’s value proposition is the set of benefits or values it promises to deliver to consumers to satisfy their needs  Value proposition is derived from how the brand is going to differentiate and position itself in the marketplace Hallmark Business School-Trichy 49
  • 259. Possible Value Propositions Hallmark Business School-Trichy 50
  • 260. Differentiation  It is the process of distinguishing a product or service from others  To make it more attractive to a particular target market  To create a competitive advantage  It is not just standing out from the competition, but also standing above too Hallmark Business School-Trichy 51
  • 262. Positioning  The way a product is defined by consumers on important attributes  The place it occupies in consumers’ minds relative to competing products Hallmark Business School-Trichy 53
  • 263. Positioning Map : Large SUVs Hallmark Business School-Trichy 54
  • 264. Segment & Segmentation  A market segment consists of a group of consumers who respond in a similar way to a given set of marketing efforts  Market segmentation refers to dividing a market into distinct groups of buyers who have: ◼ different needs, characteristics, or behaviors ◼ and who might require separate marketing strategies or mixes Hallmark Business School-Trichy 55
  • 266. Marketing Channels  A set of interdependent organizations that help make a product or service available for end-user.  Also known as Distribution Channels  Channel Functions: Hallmark Business School-Trichy 57 ▪ Information ▪ Negotiation ▪ Promotion ▪ Physical distribution ▪ Contact ▪ Financing ▪ Matching ▪ Risk taking
  • 268. The Digital Channels Revolution  Online retail store or e-commerce has been growing at double digit rate  Customers expect seamless channel integration so they can: ◼ Enjoy helpful customer support in a store, online, or on the phone ◼ Check online for product availability at local stores before making a trip ◼ Order a product online and pick it up at a convenient retail location ◼ Return a product purchased online to a nearby store of the retailer… Hallmark Business School-Trichy 59
  • 269. Flows in Marketing Channel Hallmark Business School-Trichy 60
  • 270. Channel Selection Decisions  To select a marketing channel system, marketers analyze: ◼ customer needs and wants ◼ establish channel objectives and constraints and ◼ Identify / evaluate major channel alternatives  Location and Geographic concentration of customers affect channel selection Hallmark Business School-Trichy 61
  • 271. Evaluating Channel Alternatives Hallmark Business School-Trichy 62
  • 272. Breakeven Cost Hallmark Business School-Trichy 63
  • 274. Channel Selection …  Marketing Factors ◼ Customer preferences ◼ Channel intermediaries acceptance ◼ Channel margins ◼ Blitzkrieg  Manufacturer Factors ◼ Financial strength ◼ Core competence ◼ Lack of managerial bandwidth ◼ Fear of losing control over pricing, promotion.. Hallmark Business School-Trichy 65
  • 275. Channel Selection …  Product Factors ◼ Large and Bulky products – Direct Selling ◼ Perishables – Direct selling  Competitive Factors ◼ Competitors clout  Channel Integration ◼ Minimal in independent distributorship ◼ Maximum in wholly-owned distributorship ◼ In-between in franchise operation Hallmark Business School-Trichy 66
  • 277. 4.4 Growth Strategies Hallmark Business School-Trichy 68
  • 278. Why Grow?  Why business enterprises need to grow?  To gain strength and stamina  To enable the firm to face competition, challenges, recession, etc.  Need to adopt appropriate technology  To handle complexity and rigmarole  Entrepreneur’s craving for social recognition  Growth is vital for ‘Survival’ Hallmark Business School-Trichy 69
  • 279. What is Growth?  How does growth manifest?  Increase in: ◼ Sales turnover ◼ Volume of output (Economies of Scale) ◼ Product / Service range (Economies of Scope) ◼ Geographical presence ◼ No. of Customers served ◼ … … Hallmark Business School-Trichy 70
  • 280. Economies of Scale Hallmark Business School-Trichy 71
  • 281. Economies of Scope Hallmark Business School-Trichy 72
  • 282. Hallmark Business School-Trichy 73 Growth Strategies: Where to Look for Growth Opportunities ?
  • 283. Based on Knowledge of Product and / or Market Hallmark Business School-Trichy 74
  • 284. 1. Penetration Strategies  Focus on existing product in its existing market  A strategy to grow by encouraging existing customers to buy more of the firm’s current products  Ex: Offering discounts for buying more… (quantity discounts) to grab market share from competitors Hallmark Business School-Trichy 75
  • 286. 2. Market Development Strategies  Involve selling existing products to new groups of customers  New Groups of Customers can be categorized in terms of: ◼ Geographics ◼ Demographics and / or ◼ New use of the product Hallmark Business School-Trichy 77
  • 288. 3. Product Development Strategies  Involve developing and selling new products to people who are already purchasing the firm’s existing products  Leverage existing: ◼ Customer knowledge ◼ Distribution system ◼ Reputation Hallmark Business School-Trichy 79
  • 289. 4. Diversification Strategies  Involve selling a new product to a new Market Hallmark Business School-Trichy 80
  • 293. 4.5 Product Launching Hallmark Business School-Trichy 84
  • 294. Launch Process Hallmark Business School-Trichy 85
  • 295. 4.6 Incubation, Venture capital, Start-ups Hallmark Business School-Trichy 86
  • 296. What is Incubation?  Business incubation is a unique and highly flexible combination of: ◼ business development processes ◼ infrastructure and ◼ people designed to nurture new and small businesses by helping them to… … survive and grow through the difficult and vulnerable early stages of development. Hallmark Business School-Trichy 87
  • 298. Venture Capital  Venture capital (VC) is financial capital provided to early-stage, high-growth, startup companies  The venture capital firm earns money by owning equity in those companies  Firms having innovative technology or business model are preferred  VCs can provide large sums of money, business advice and contacts for the startup firms to become successful Hallmark Business School-Trichy 89
  • 299. Venture Capital …  VCs require the following features in the startups: ◼ Rapid, steady sales growth ◼ A proprietary new technology or dominant position in an emerging market ◼ A sound management team ◼ The potential for being acquired by a larger company or getting listed in the stock exchange  Venture Capital Types: ◼ Seed financing, start-up financing, second-stage financing, bridge financing, and leveraged buyout. Hallmark Business School-Trichy 90
  • 300. Venture Capital …  Types of Venture Capital Firms: ◼ Private Venture Capital Partnerships ◼ Industrial Venture Capital Pools ◼ Investment Banking Firms Hallmark Business School-Trichy 91
  • 301. Startups  A startup is a young company: ◼ that is beginning to develop and grow ◼ is in the first stages of operation, and ◼ is usually financed by an individual or small group of individuals Hallmark Business School-Trichy 92
  • 304. Effective Operational Management of Startups Hallmark Business School-Trichy 95
  • 306. Startup Funding Process Hallmark Business School-Trichy 97
  • 307. UNIT-4 Launching of Small Business  Finance and Human Resource Mobilization  Operations Planning  Market and Channel Selection  Growth Strategies  Product Launching  Incubation, Venture capital, Start-ups. Hallmark Business School-Trichy 98
  • 308. Unit 4- Launching of Small Business Completed!
  • 309. Unit 5 Management of Small Business
  • 310. UNIT-5 Management of Small Business  Monitoring and Evaluation of Business  Business Sickness ◼ Prevention and Rehabilitation of Business Units  Effective Management of Small Business  Case Studies. Hallmark Business School-Trichy 2
  • 311. 5.1 Monitoring and Evaluation of Business Hallmark Business School-Trichy 3
  • 312. Monitoring Vs Evaluation  Monitoring is the continuous and systematic assessment of activities to determine whether they are proceeding as planned  Evaluation involves periodic and time-bound assessment of activities towards achievement of results, milestones and outcomes  Both M & E are focusing on: ◼ What is being done? ◼ How it is being done? ◼ Whether the plans are working? and ◼ When circumstances has changed? Hallmark Business School-Trichy 4
  • 313. What is Monitoring?  Monitoring is designed to provide constant feedback on: ◼ the progress of a project / process ◼ the problems it is facing and ◼ the efficiency with which it is being implemented  It enables you to determine: ◼ whether the resources available are sufficient and are being well used ◼ whether the capacity you have is sufficient and ◼ whether you are doing what you planned to do. Hallmark Business School-Trichy 5
  • 314. What is Evaluation?  Evaluation relies on data generated through monitoring of activities, as well as information obtained from other sources  Evaluation: ◼ tracks the actual performance against what was targeted ◼ by collecting and analyzing data on the indicators ◼ according to pre-determined standards. Hallmark Business School-Trichy 6
  • 315. Objectives of M & E  M&E focus on the following common objectives w.r.t the process / project: ◼ Relevance ◼ Efficiency ◼ Effectiveness ◼ Impact ◼ Sustainability ◼ Causality ◼ Alternative strategy. Hallmark Business School-Trichy 7
  • 316. Balanced Scorecard (BSC)  BSC links long-term strategy with goals and actions  BSC allows to evaluate the firm from 4 perspectives: ◼ Financial Performance ◼ Customer Knowledge ◼ Internal Business Processes and ◼ Learning & Growth Hallmark Business School-Trichy 8
  • 317. Balanced Scorecard (BSC)…  A properly constructed BSC is ‘Balanced’ between: ◼ Short and long-term measures ◼ Financial and non-financial measures ◼ Internal and external performance perspectives  BSC was developed by Robert S Kaplan and David P Norton. Hallmark Business School-Trichy 9
  • 319. 5.2 Business Sickness Hallmark Business School-Trichy 11
  • 320. What is Industrial Sickness?  Sickness is easy to understand, but difficult to define  It is a relative term  Sick industry is one which is not healthy  A healthy unit is one which earns reasonable profit, i.e. RoCE…  … and which builds up reserves. Hallmark Business School-Trichy 12
  • 321. Definition of Industrial Sickness  According to the RBI (1989): ◼ Incurred cash losses for one year and is likely to incur cash losses for the current and next years ◼ And has imbalances in its financial structure  Financial Structure: ◼ Current ratio of less than 1:1 and worsening DER i.e. the ratio of total outside liabilities to the net worth and ◼ Cumulative losses exceed capital and reserves. Hallmark Business School-Trichy 13
  • 322. Definition of Industrial Sickness …  Thus, RBI’s emphasis is on Profitability, Liquidity and Solvency  According to the Sick Industrial Companies (Special Provisions) Act of GoI (SICA) 1985: ◼ An industrial company (>7 years of age) ◼ which at the end of any FY has accumulated losses => its net worth and ◼ has also suffered cash losses in the FY immediately preceding such FY Hallmark Business School-Trichy 14
  • 323. Definition of Industrial Sickness …  According to SBI’s Report on Small Scale Industry Advances (1975) a sick unit is: ◼ “One which fails to generate internal surplus on a continuing basis and ◼ Depends on its survival upon frequent infusion of external funds” Hallmark Business School-Trichy 15
  • 324. Weak Industrial Unit  According to SBI’s Report (1975):  A Weak Unit: ◼ is one that has at the end of any AY accumulated losses =>50% of its net worth in the immediately preceding 5 AYs ◼ A current ratio of less than 1:1 and ◼ Suffers a cash loss in the immediately preceding AY Hallmark Business School-Trichy 16
  • 325. Current RBI Guidelines  A small enterprise is considered to be sick if: ◼ Principal or interest in respect of any of its borrowal accounts has remained overdue for a period exceeding one year OR ◼ There is erosion in the net worth due to accumulated cash losses to the extent of 50% of its net worth during the previous AY AND ◼ The unit has been in commercial production for atleast two years Hallmark Business School-Trichy 17
  • 326. Incipient Sickness of MSME  As per RBI, an MSME is in incipient sickness / potential sickness, if any of the following events are triggered: ◼ There is delay in commencement of commercial production by more than 6 months ◼ The company incurs losses for two years or cash loss for one year ◼ The capacity utilization is less than 50% of the projected level in terms of quantity or the sales are less than 50% of the projected level in terms of value Hallmark Business School-Trichy 18
  • 327. Rule of Thumb for Sickness Hallmark Business School-Trichy 19 Healthy Unit • 1. Cash: Positive • 2. Net Working Capital: Positive • 3. Net Worth: Positive Tending Towards Sickness • 1. Cash: Negative • 2. Net Working Capital: Positive • 3. Net Worth: Positive Incipient Sickness • Two or more Negatives Sickness • All are Negative
  • 328. Signals of Sickness  Decline in capacity utilization  Shortage of liquid funds  Excessive inventories  Irregularity in bank accounts  Frequent breakdowns in plants  Decline in quality of products  Delay or default in payment of dues  Frequent turnover over of personnel Hallmark Business School-Trichy 20
  • 329. Causes of Industrial Sickness Hallmark Business School-Trichy 21 Causes of Sickness External Causes Internal Causes
  • 330. External Causes of Sickness  Changes in the industrial policies  Scarcity of inputs like RM, Power, HR  Lack of demand for the product  Recessionary trends  Technological obsolescence  Industrial strikes, unrest  Shortage of financial resources  Natural calamities Hallmark Business School-Trichy 22
  • 331. Internal Causes of Sickness  Working capital shortage  Lack of demand / Marketing problems  Non-availability of RM  Technical/Operational problems  Labour problems  Power shortage  Management problems Hallmark Business School-Trichy 23
  • 332. Consequences of Sickness  Financial losses to Banks and FIs  Loss of employment  Emergence of industrial unrest  Wastage of scarce resources  Loss of revenue to Government  Adverse effect on prospective investors Hallmark Business School-Trichy 24
  • 333. Business Sickness Hallmark Business School-Trichy 25 Prevention and Rehabilitation of Business Units
  • 334. Hallmark Business School-Trichy 26 Prevention of Sickness
  • 335. Prevention of Sickness  Proper project planning  Appropriate location of project  Ensuring availability of RM, labor & technical staff  Arranging finance at reasonable rates  Systematic Market Analysis Hallmark Business School-Trichy 27
  • 336. Prevention of Sickness …  Scientific demand forecasting  Study of opportunities & threats  Assessing Consumer tastes & preferences  Selecting the right marketing channel  Competent management  Good performance reporting System Hallmark Business School-Trichy 28
  • 337. Government Remedial Measures  Proper monitoring and control of operations  Setting up common facilities and infrastructure  Support for technology upgradation  Identification of sickness at the incipient stage  Evolving yardsticks to detect sickness at an early stage  Providing training  Rehabilitation funding  Liquidation Hallmark Business School-Trichy 29
  • 338. Hallmark Business School-Trichy 30 Rehabilitation of Sick Units
  • 339. Industrial Reconstruction Corporation of India (IRCI - 1971)  The GoI set up IRCI in 1971 to: ◼ reconstruct and restructure the financial base as well as the management of the assisted units ◼ Providing financial assistance and technical/ managerial guidance.  The control measures adopted by IRCI include: ◼ Transfer of major shares in the name of IRCI ◼ Appointment of IRCI nominees in the Board, personnel in key managerial post ◼ Frequent plant and factory inspections Hallmark Business School-Trichy 31
  • 340. Industrial Reconstruction Bank of India (IRBI - 1985)  IRCI was reconstituted as IRBI in 1985 under the IRBI Act, 1984 ◼ With the primary purpose of rehabilitating and reconstructing ailing industrial concerns ◼ Act as the principal credit and reconstruction agency for industrial revival ◼ Take over the management, lease out or sell the sick undertaking as a running concern or ◼ Prepare schemes of merger or amalgamation and submit them for Central Government’s approval Hallmark Business School-Trichy 32
  • 341. SICA - 1985  In 1985, the Sick Industrial Companies (Special Provisions) Act was passed ◼ In SICA, the Government removed sick industrial companies from the purview of the MRTP Act, for purposes of modernization, expansion, amalgamation or merger ◼ Where the net worth has been substantially eroded, FIs have been directed to stop assistance to the units concerned ◼ The Act also provides for the setting up of a board of experts for industrial and financial reconstruction. Hallmark Business School-Trichy 33
  • 342. BIFR - 1987  The Board for Industrial and Financial Reconstruction  This is the most significant step by GoI to curb industrial sickness ◼ The sick firm should report to BIFR within 60 days of finalization of audited accounts ◼ Banks/FIs who have lent and RBI, Central/ State governments can also report to BIFR ◼ BIFR will enquire, verify with stakeholders and declare sickness within 60 days Hallmark Business School-Trichy 34
  • 343. BIFR – Rehabilitation Process  Establish ‘potential viability’  That is, after availing relief over 5 years, the firm should be able to start repaying from 6th year onwards  Units becoming sick due to: ◼ Willful mismanagement ◼ Willful default ◼ Diversion of funds ◼ Disputes among partners / promoters will not be considered for rehabilitation Hallmark Business School-Trichy 35
  • 344. BIFR – Relief and Concessions  Waiver of penal interest  Interest free funding of overdue interest  Reduction in term loan interest rates upto 2%  Working Capital Term Loan for overdrawn principal at up to 3% lower rate of interest  Funding of cash losses at reduced rates  Additional working capital at minimum lending rate Hallmark Business School-Trichy 36
  • 345. BIFR – Relief and Concessions…  Contingency loan assistance for meeting escalation in rehabilitation plan cost  Funds for startup expenses and margin money for working capital  Promoters’ contribution at 20% of long-term rehabilitation package to be brought in. Hallmark Business School-Trichy 37
  • 346. Fresh RBI Guidelines  Consortium banks must participate in the rehabilitation package also  If workers plan to takeover the sick unit by forming a cooperative it should be actively supported  Banks can sell their ‘sticky’ debts or NPAs to other banks at a discount Hallmark Business School-Trichy 38
  • 347. Fresh RBI Guidelines …  Scheme for the grant of excise loan: ◼ Sick units are eligible for excise loan ◼ not exceeding 50% of the excise duty actually paid for 5 years ◼ subject to the ceiling of 33% of the total cost of the rehabilitation Hallmark Business School-Trichy 39
  • 348. 5.3 Effective Management of Small Business Hallmark Business School-Trichy 40
  • 349. Effective Management of SME Hallmark Business School-Trichy 41
  • 350. Managing an Entrepreneurial Business  Create a business plan  Separate personal and business finances  Determine funding requirements correctly  Hire the right people  Train the employees  Invest in marketing  Learn to delegate  Communicate Effectively  Cope with Dynamic Environment Hallmark Business School-Trichy 42
  • 351. Responsibilities of Small Business Owner  Design and implement the company’s budget  Set sales goals and ensure that the team is on track to achieving them  Handle production, marketing and administrative functions  Recruit, hire and train new employees  Manage inventory and make purchase decisions  Ensure the day-to-day operations are running smoothly  Ensure financial goals of the business are being achieved. Hallmark Business School-Trichy 43
  • 352. UNIT-5 Management of Small Business  Monitoring and Evaluation of Business  Business Sickness ◼ Prevention and Rehabilitation of Business Units  Effective Management of Small Business  Case Studies. Hallmark Business School-Trichy 44
  • 353. Unit 5- Management of Small Business & BA4032 – Entrepreneurship Development Course Completed! Best Wishes for Success in your Exams!